UPDATE: Santos Says Likely Not Doing Another Equity Raising

Santos Ltd. (STO.AU) Chief Executive David Knox said Monday there's a "sporting chance" the oil and gas producer won't have to conduct another equity raising to fund the construction of its liquefied natural gas joint venture at Gladstone in Queensland state.

His comments may cool some investor concerns that Santos would have to sell more new shares at a discount to fund the project before it's due to start shipping gas in 2014.

Knox also said offtake negotiations with potential customers for its LNG are progressing well, although talks with Japanese customers are "really tough".

"The negotiations with customers, frankly, are going quite well for us," Knox told reporters at an industry conference in Darwin.

"(But) ultimately the proof is when we announce heads of agreement and we haven't done that yet."

Santos recently raised A$3 billion by issuing new shares in the company at a considerable discount to their prior market price to help fund Gladstone LNG, pay off some hybrid securities and fund its share of the Papua New Guinea LNG liquefied natural gas project.

"We've got probably a sporting chance of getting right the way through to the end of 2014 without having to come back (to market to raise capital)," Knox said.

"There are low price scenarios where we would need to come back again and there are other scenarios where we definitely don't."

Knox said Adelaide-based Santos and its Gladstone LNG partner, Malaysia's Petroliam Nasional Berhard (PET.YY), are still aiming to make a final investment decision on their project by the first half of 2010, with first gas targeted for 2014.

The affirmation comes amid concerns by analysts that a current slump in LNG demand and increased projected supply will disrupt LNG offtake negotiations.

Knox said BG Group PLC's (BG.LN) recent announcement that it has agreed to sell LNG from its proposed Gladstone project to China National Offshore Oil Corp. was helpful for other coal seam gas-to-LNG players.

But he said talks with Japanese customers are proving difficult.

"Certainly in Japan right now it's very tough with the Japanese buyers, they're going through really tough economic times," Knox said.

Also on Monday, Ryan Lance, senior vice president of exploration and production, international at ConocoPhillips (COP) - which plans to build an LNG plant at Gladstone with Origin Energy Ltd. (ORG.AU) - reiterated the venture's construction timetable and said LNG demand is expected to be strong once the global economy recovers.

Australia's Energy and Resources Minister Martin Ferguson, however, said plant consolidation is likely to occur.

"I think there's going to be a smaller number at final investment decision time," Ferguson told reporters.

Knox and Lance reiterated that they are both open to project collaboration at Gladstone, such as sharing infrastructure or upstream gas resources.

Fereidun Fesharaki, the chairman of global energy consultancy FACTS Global Energy, said he expects rationalization to occur at Gladstone.

"I think one or two will happen, they will take some action, but they are very sensitive to the price of oil," Fesharaki told reporters.

"At US$80 (a barrel) oil everything works, at US$40 nothing works."

-By Ross Kelly, Dow Jones Newswires;

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