Santos pins hopes on first shale gas

17 Aug 2012, 6:16 pm   -   Source: AAP

Santos says Australia's first commercial shale gas well is ready to go into production, which has been welcomed by the market.

Oil and gas producer Santos says Australia's first commercial shale gas well is ready to go into production, helping to boost supply and keep prices stable in eastern Australia.

Santos said its Moomba-191 well in the Cooper Basin was now producing dry gas after the company reported an increase in underlying first half profit and maintained its full-year production guidance on Friday.

The market and analysts were impressed with the well results, sending Santos shares 36 cents, or 3.15 per cent, higher to $11.78.

Chief executive David Knox said shale gas flows from the Moomba well were a significant milestone in the company's program to unlock the vast unconventional gas potential of the Cooper Basin that straddles the South Australian and Queensland border.

"The shale well result has been an outstanding result for us and potentially for eastern Australia for the very long-term future," Mr Knox told analysts on Friday.

Higher gas prices had made producing unconventional gas more attractive, which would lead to more secure gas supplies on the eastern seaboard.

Chief financial officer James Baulderstone was bullish about the gas price but sought to calm consumer nerves.

He said even if prices doubled, the impost on households would only be around 20 per cent.

"Further gas supply adds security, and over the long term it'll actually flat-line the prices that a mum and dad will pay," Mr Baulderstone said.

The comments came after Santos said its net profit of $262 million in the six months to June 30 was down 48 per cent from $504 million in the previous corresponding period.

Profit in the previous first half was boosted by a $246 million gain on the sale of 15 per cent of Santos' stake in the LNG project at Gladstone, Queensland (GLNG).

Underlying profit for the six months to June 2012, which takes out the impact of the asset sale, was $283 million, up 20 per cent on $236 million in the previous Macquarie Analyst Adrian Wood said the financial result was better than expected, but not quite as good as the headline number suggested.

"The share price is up because of the surprisingly good flow rate that they're getting at their Moomba 191 shale gas well," Mr Wood said.

"You can start to talk about some very large numbers on the back of that, but it's very early days.

"Certainly this flow rate was better than we were expecting."

He added that investors now had a better understanding of challenges facing the GLNG project which had been largely written off by the market.

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