Santos has signed a new contract to supply natural gas to CITIC Pacific’s Sino Iron project, a world scale magnetite mining project in Western Australia.

The gas would be supplied from the Reindeer gas project offshore Western Australia through a new 105 kilometre offshore pipeline and a new onshore sales gas processing facility at Devil Creek, located approximately 45 kilometres southwest of Dampier. The Reindeer project will have the capacity to produce 215TJ of gas per day.

The Reindeer project was deferred in early December following delays in the execution of the gas sales agreement.

Under the new contract, Santos would supply the Sino Iron project 75PJ of gas over seven years commencing in the second half of 2011. The contract is subject to conditions which if fulfilled will enable Santos and its joint venture partner, Apache Corporation, to recommence the Reindeer project.

The contract price for the first three years is a fixed price with periodic adjustments for changes in the consumer price index. Beginning in the fourth year, the price is indexed to international oil prices. The revenue will be denominated in US dollars. Assuming an oil price of US$50 per barrel, Santos’ net share of the expected revenue over the seven years of the contract will be approximately US$585 million.

“We are pleased we were able to sign this new gas sales contract with CITIC Pacific”, Santos Chief Executive Officer David Knox said.

“The Reindeer field and Devil Creek facility represent important steps in bringing a significant new source of gas supply into the rapidly growing Western Australian market”.

Santos has a 45% interest in the Reindeer field and Devil Creek. The remaining interest is held by Apache Northwest Pty Ltd (55% and Operator).

Tags: Santos