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Santos makes big gas discovery in offshore Western Australia's Carnarvon Basin

Singapore — Australia's Santos said Tuesday it made a significant natural gas discovery at the Corvus-2 appraisal well in the Carnarvon Basin in offshore Western Australia, which is likely to boost the company's production capabilities of the fuel in the region.

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The well, located in petroleum permit WA-45-R, is roughly 90 km northwest of the port of Dampier and reached a total depth of 3,998 metres, Santos said in a statement.

"The well intersected a gross interval of 638 m, one of the largest columns ever discovered across the North West Shelf," it said, adding that 245 metres of net hydrocarbon pay was confirmed across the target reservoirs in the North Rankin and Mungaroo geological formations.

"Based on limited information, our initial estimate is a 2.5 tcf gas and 25 million barrel condensate resource. This will be the largest gas discovery in the Carnarvon basin since the Satyr-4 exploration well drilled by Chevron in 2009," Wood Mackenzie senior analyst Daniel Toleman said in a note.

He said Santos' stated 245 m net pay is indicative of a very large gas resource in place, but recoverable volumes will depend on other geological factors.

Santos chief executive Kevin Gallagher said Corvus-2 has opened up a number of additional exploration opportunities in the region, with a higher liquids content and significantly bigger resource volume expected.

"Corvus could be tied back to either our Devil Creek or Varanus Island gas plants, where it has the potential to increase the utilisation of our existing facilities as well as provide backfill and extend plateau, well into the 2030s," Gallagher said.

The Corvus-2 well is located around 28 km from the Reindeer platform, which delivers gas and condensate to the onshore Devil Creek processing plant near Karratha, from where it is used to supply the Western Australia domestic market.

It is also near the Varanus Island processing facility where gas and condensate are used for the domestic market.

If the resource comes in over 2 tcf, Wood Mackenzie believes Santos will explore opportunities to export the gas as LNG, because of Corvus' proximity to the Burrup Peninsula, and a well-supplied domestic market in the short-to-medium term, Toleman said.

He said the discovery could also trigger some upstream deal activity, and one of the North West Shelf partners would be a logical entrant in the offshore discovery.

"If an LNG backfill development is to progress, we expect Santos will look to sell down, as it currently holds 100% in the find," Toleman said.

Santos had expanded its presence in offshore Western Australia in 2018 with the $2.15 billion acquisition of Quadrant Energy, whose key asset was the Carnarvon Basin, considered as Australia's largest offshore oil and natural gas province.

Gallagher said the Carnarvon discovery highlights the value of the Quadrant acquisition and the strategy of pursuing upstream brownfield growth opportunities around existing infrastructure.

"Quadrant's exploration portfolio is shaping up to be a good buy for Santos. Dorado was the third largest oil discovery in Western Australia's history and Corvus is likely to be Santos' largest offshore gas discovery ever," Toleman said.

-- Eric Yep, newsdesk@spglobal.com

-- Edited by Claudia Carpenter, newsdesk@spglobal.com