PERTH (miningweekly.com) – Oil and gas major Santos has announced a positive final investment decision (FID) on the $2.6-billion Pikka Phase 1 project, in Alaska, as the company reported record first-half results.

Santos’ share of expenditure is expected to amount to $1.3-billion for its 51% interest in the project, with the Phase 1 operation to produce 80 000 bbl/d of oil gross, and first oil is targeted for 2026.

Santos MD and CEO Kevin Gallagher said Pikka Phase 1 is the right project at the right time in the right location.

“Global oil and gas markets are seeing increased volatility and countries are looking to diversify their supply sources away from Russia, which according to the International Energy Agency, currently produces 18% of the world’s gas and 12% of its oil,” Gallagher said.

“Low-carbon oil projects like Pikka Phase 1 respond to new demand for OECD supply and are critical for global and US energy security, that has been highlighted since the Russian invasion of Ukraine.”

Santos said that taking an FID on Pikka Phase 1 was consistent with the company’s goal of achieving net zero by 2040. Santos is committed to delivering a net-zero project and has entered into memorandums of understanding with Alaska Native Corporations to deliver carbon offset projects, including a strategic alliance with ASRC Energy Services, a wholly-owned subsidiary of ASRC, on leading technology development for carbon solutions in the Arctic.

“Santos has emission reduction plans to achieve Scope 1 and 2 net-zero emissions by 2040 and in line with that commitment, Pikka will be a net-zero project. The project will add further diversification to our portfolio and reduces geographic concentration risk,” said Gallagher.

“Pikka Phase 1 will execute a responsible development plan with a small surface footprint and utilise existing infrastructure, including the Kuparuk transportation pipeline and the Trans-Alaska pipeline system.

“We have a world-class team with a rich history of successfully carrying out work on the North Slope. With approximately 90% of project spend within North America, minimising supply chain risk, and civils work already completed, the project is well positioned for execution,” he added

The FID comes as Santos announced record half-year results, with underlying profits for the first half ending June up by 300%, to $1.26-billion, and statutory net profits up 230%, to $1.16-billion.

Earnings before interest, taxes, depreciation and amortisation in the first half were up 122%, to $2.7-billion, while free cash flows for the period were up 199%, to $1.7-billion.

The results reflect significantly higher oil and liquefied natural gas (LNG) prices compared to the corresponding period owing to stronger global energy demand combined with a higher interest in Papua New Guinea (PNG) LNG following the Oil Search merger.

Production volumes for the year were also up by 9% on the 2021 figures, to 51.5-million barrels of oil equivalent, while sales volumes were 4% higher at 55.7-million barrels of oil equivalent

Gallagher said Santos delivered record production, free cash flow and underlying earnings in the first half of 2022 as the company benefited from strong customer demand for its products and higher commodity prices.

“Demand for our products has remained strong in both Australia and internationally, due to increased demand and shortages of supply from producing nations due to global underinvestment in new supply. We are seeing these issues play out in the significant shift in global energy policy towards energy security as a key priority,” Gallagher said.

“Our critical fuels not only play a key role in the energy security of Australia and Asia, but they also provide affordable and reliable alternatives to switch from higher emitting fuels. Today’s results demonstrate the strength of Santos, with strong diversified cashflows and capacity to provide sustainable shareholder returns, fund new developments and the transition to a lower carbon future.

“Strong first-half free cash flows mean we are in a position to deliver higher shareholder returns through an increase in the interim dividend and on-market buyback, consistent with our disciplined capital management framework.”