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'Transformational' deal in WestSide story by: BARRY FITZGERALD From: The Australian March 28, 2014 12:00AM
SANTOS has moved to further de-risk gas supplies to its $US18.5 billion ($20bn) Gladstone LNG export project by signing a multi-billion dollar coal seam gas supply deal with the Meridian project near Moura, owned by ASX-listed WestSide and Japan's Mitsui.
WestSide managing director Mike Hughes said that the binding 20-year supply deal, with staged ramp up to volumes of up to 65 terajoules a day, was a "historic moment for WestSide."
"It is fair to say that this is truly transformational for the company," Mr Hughes said. Shares in WestSide, owned 17.6 per cent by coal producer New Hope and the 51 per cent managing partner of Meridian, rose 4c or 14 per cent to 32c, valuing the company at $142 million.
The stock has more than doubled this year in anticipation of a major supply agreement being struck with one the three "gas-hungry" LNG export projects being built at Gladstone at a cost $70bn. The pipeline running to the Santos project (Santos 30 per cent, Petronas 27.5 per cent, Total 27.5 per cent and Kogas 15 per cent) from its own gas sources runs past the Meridian operation on its way to Gladstone.
Initially at least, WestSide plans to ramp up production at Meridian from its current 12 terajoules a day to 40Tj/d over the next three years, leveraging off existing infrastructure to make the expansion a low-cost one. The gas price to be paid by Santos was not disclosed. But WestSide did say that at 40Tj/d by 2017, its share alone of revenues over the 20-year contract term 'could significantly exceed $1bn.
The supply deal is linked to US oil prices, meaning that the actual price received will move around in line with movements in the dollar. Analysts said that the implied gas price in the deal was $7-$8 a gigajoule. That would be in line with the rising contract prices for eastern state gas supplies as the LNG export projects begin to suck up gas.
The Santos deal effectively kills off thoughts by a private Chinese company, Landbridge, to make a $160m or 36c a share takeover bid for WestSide.
WCL Price at posting:
32.0¢ Sentiment: LT Buy Disclosure: Held
