French Oil and Gas explorer, Total Oil, reported it had agreed to the purchase of a 20 per cent stake in Gladstone LNG project. The move will see Total remit a sum consideration of $750 million for Australia’s Gladstone LNG Project from Santos and Malaysia’s Petronas.

However, the overall aim of the acquisition is to enable the firms acquire crucial funding and gas sales for the planned $15 billion project. Under the terms of the deal, Australia’s third biggest gas producer, Santos, said it will sell a 15 per cent stake to the French firm for A$650 million. On the other hand, Petronas will be selling a 5 per cent stake in the coal-seam gas fed LNG project.

However, Santos shares declined with the announcement of the deal’s terms, as a result of a slight market shock from the transaction amount. Santos shares declined by 7 per cent as the share price announced for the deal was way below what the market had expected. Some independent brokerage firms had valued Santo’s 15% stake at $750 million.

However, an estimated 19.3 million Santos shares were traded Thursday, marking a trade volume that is almost five times the three month average. Other than that, Total and Petronas as well went into an obligatory LNG purchase deal agreements pegged at A$100 billion, representing about 70 per cent of Gladstone’s  planned 7.2 million tons per annum initial output.

That subsequently gives the two firms sufficient investor and customer commitment to undertake a final investor decision. However, analysts believe that Petronas and Total have already attained such a level of commitment, as the move gets them closer to achieving it. Santos however reiterated that it still is in touch with certain Asian companies, particularly Korea Gas Corporation on LNG and project equity sales.

Speculation had emerged recently that the Korean firm was keen on acquiring about 10 per cent stake in the LNG project and acquire an additional two million tons per annum in the project. But even so, a sale of two million tons to Korea Gas Corp. would mean Santos has essentially sold the entire output of Gladstone's first two trains, said analysts.

From the deal, Santos will control 45 per cent of Gladstone, while Petronas will control 35 per cent in the project. On its part though, the Paris based Total will control 20 per cent of Gladstone.

9 Sep 2010.