Dorado Oil Project Stalls as Santos Opts Against FPSO Purchase -- 2nd Update

The Dorado oil project in Western Australia's Bedout Basin has hit a snag as majority owner Santos decided not to proceed with the purchase of a floating production, storage, and offloading (FPSO) vessel. This decision, along with the deferral of front-end engineering and design work, effectively puts the project on hold. Santos' spokesperson cited a detailed assessment of relevant factors, including the need to revisit the development concept for Dorado after further evaluation of Bedout Basin resources.

Carnarvon Energy, which holds a 10% stake in the project, confirmed the deferral and expressed disappointment in the latest delay. The venture will now not make a decision on whether to construct the project this year, as had been originally planned. Santos' decision to prioritize spending on projects that could support its GLNG export facility in eastern Australia and the PNG LNG plant in Papua New Guinea has led to the delay in the Dorado project.

The Dorado project, discovered in 2018, is one of the largest undeveloped oil fields in Western Australia, with estimated reserves of 162 million barrels of light oil and condensate and a significant amount of natural gas. Santos' revised capital allocation framework, aiming to return at least 60% of free cash flow to shareholders from 2026, has led to a shift in focus towards its existing LNG projects.

The deferral of the Dorado project could have implications for Santos' capital allocation, share price, and the project's long-term viability. The reduced capacity and phased development wells may lower the project's overall capex, making it more attractive to investors. However, the delay in the project's payback period and potential impact on Santos' capital allocation and share price should be carefully considered. Additionally, the progress on other projects and the company's financial health could help offset any negative impacts on share prices.

In conclusion, the Dorado oil project's delay highlights the challenges faced by Santos in balancing its capital allocation priorities and the need to re-evaluate the project's development concept. While the reduced capex may make the project more attractive to investors, the delayed ROI and potential impact on Santos' capital allocation and share price should be carefully considered. The project's long-term viability will depend on Santos' ability to mitigate potential risks associated with the delay and balance its capital allocation priorities.