UPDATE: Santos 2010 Capex Forecast At A$2.8 Billion, Output May Slip

SYDNEY (DOW JONES)--Santos Ltd. (STO.AU) said Thursday it expects its capital expenditure to nearly double in 2010, as it pushes ahead with several major gas projects to capitalize on booming Asian demand for cleaner fuels.

Adelaide-based Santos forecast total spending of A$2.8 billion in 2010, with A$1 billion earmarked for its planned liquefied natural gas export terminal fed by coal seam gas at the port of Gladstone in Queensland state.

Santos said it expected to invest A$500 million next year in the PNG LNG project in Papua New Guinea, which was sanctioned Tuesday by partners including ExxonMobil Corp. (XOM) and Oil Search Ltd. (OSH.AU). Santos has a 13.5% stake in PNG LNG.

Santos, which has forecast capital expenditure of A$1.6 billion in 2009, is betting big on gas at a time when major Asian consumers like China and Malaysia are worried about energy security and pollution from burning coal.

The company has earned plaudits for spotting early the potential of coal seam gas. It struck a US$2.5 billion deal on May 28 of last year to sell 40% of its proposed LNG export terminal at Gladstone to Malaysia's Petroliam Nasional Bhd., or Petronas.

The LNG would be produced by cooling coal seam gas to a liquid form, so that it can be moved by ship. Several competitors, including Royal Dutch Shell and ConocoPhillips, are planning similar multibillion-dollar projects at Gladstone.

Projects such as PNG LNG and Gladstone LNG are critical to Santos, which has seen its oil and gas output decline in recent years as fields mature.

Santos said it expects to produce between 51 million and 54 million barrels of oil equivalent in 2010, a lower range than its forecast 53 million and 56 million barrels of oil equivalent for the current year.

-By David Winning, Dow Jones Newswires; +61-2-82724688; david.winning@dowjones.com

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