Extract WE AUST Business 'Well, well, well: how Santos GLNG...

Extract WE AUST Business

'Well, well, well: how Santos GLNG slashed costs, drilling times
They say repetition is the mother of learning. And in the Queensland coalseam gasfields, where billions of dollars will be spent on thousands of wells to feed Gladstone’s LNG export plants over the next 20 years, there will be plenty of opportunity to learn.

At the Santos-led Gladstone LNG project, benefits are already being seen in the form of reduced costs and faster drilling, aided by a substantial rethink of how things are done. GLNG is leading the push to bring costs down, under a company-wide transformation drive by Santos chief Kevin Gallagher. “We’re learning about Queensland coals and how to optimise those fields and we feel we’re learning fast and we’re getting better at it,” Mr Gallagher told The Weekend Australian. “What we’re seeing is, we are able to open up new opportunities because our cost of development has come down so dramatically.”

In the past two years, well costs are down nearly three-quarters at GLNG and the time to drill a well has halved. Santos last month approved a $750 million development of the Roma East field and in the coming quarter is expected to approve its next development, Arcadia, to the north.

Based on cost reductions at the $500m Scotia project, which is expected to come in with a spend of between $350m and $400m, Arcadia is looking like it could cost about $400m. Mr Gallagher said Arcadia was expected to be bigger and cheaper than was assumed two years ago.

Arcadia is expected to provide about 80 terajoules of gas a day in its first phase and will have the option for a second stage the same size. It is not just the bottom line that will benefit from faster drilling, lower costs and the opening of new fields previously considered uneconomic. It should mean less gas is sucked up the pipeline to GLNG for export from South Australia and Victoria in the east coast’s tight gas market. This means less political pressure on Santos, which has been in the spotlight because GLNG is the only one of three Gladstone plants that was built on a model of buying gas from markets that could otherwise supply domestic users.

More development will also lead to indirect benefits of regional investment, direct payments to landholders happy to have the wells on their land and royalties for the state.

Santos Queensland onshore chief Rob Simpson said one of the keys to the lower costs was to effectively pause and get input from all parts of the development chain, including drilling, fracking, completion and infrastructure, to get ideas on how to bring down costs. “We reduced development activity to get costs under control. It was a deliberate ploy,” Mr Simpson told The Weekend Australian last week during a visit to the company’s Scotia and Roma fields west of Brisbane. “Now it’s under control, we’re ramping back up.”

Projects are now being completed and approved at about half the cost estimates they were at two years ago. Santos plans to drill 250 wells this year and said this would ramp up to between 350 and 400 wells in following years, before the pace drops off again. Roma East itself, for $750m, consists of 430 wells and associated infrastructure to produce 130 terajoules of gas a day.
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