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Santos reveals extent of costs from Barossa court delay

Jacob Shteyman -

Santos has unveiled the extent of a cost blowout at its landmark liquid natural gas project after lengthy court delays, but an expert warns the risk of further overruns remain.

The Adelaide-based fossil fuel producer on Thursday announced its Barossa gas project in the Timor Sea would incur an extra $US200-300 million ($A304-456 million) in capital expenditure costs.

Santos began laying pipe and resumed drilling at the 3.7 million tonnes per annum gas field in December after extensive delays.

Tiwi Island traditional owner Simon Munkara in 2023 lodged civil enforcement proceedings against Santos in the Federal Court, claiming construction of its gas export pipeline would put at risk his cultural heritage.

Justice Natalie Charlesworth granted an emergency interim injunction stopping work from beginning on the pipeline hours before it was due to start in early November, but in December dismissed the Tiwi Islanders' case and awarded costs to Santos.

A few days later, the National Offshore Petroleum Safety and Environmental Management Authority accepted Santos's updated drilling proposal.

In its December quarter results update, the company advised the project was expected to begin producing first gas in the third quarter of 2025, a delay of about three months.

The total cost of the project is now expected to come in at $US4.5-4.6 billion.

MST Financial energy analyst Saul Kavonic said the five per cent cost blowout came just weeks after Santos said the project was on budget and schedule.

"It would be my view that there is still a very acute risk of further cost blowouts and further delays beyond what was announced today," Mr Kavonic told AAP.

Santos chief executive Kevin Gallagher also provided an update on merger talks with Australia's largest oil and gas company, Woodside, saying discussions are in an early stage.

"The parties have agreed to exchange information to assess the benefits for our shareholders," he said.

"Santos continues to consider alternative options to accelerate value for shareholders.

"There is no certainty that any transaction will eventuate from these discussions."

Woodside CEO Meg O'Neill on Wednesday said the company will be disciplined, conduct due diligence and only pursue the deal if it added value to shareholders.

If the merger does not come to fruition, Santos's share price would be at real risk of degradation, Mr Kavonic said.

"Woodside doesn't need to do a deal but Santos has to do something in the wake of a lagging share price and mounting investor frustrations," he said.

Santos recorded $US1.5 billion in sales for the three months to the end of December, while production was slightly higher than the previous quarter at 23.4 million barrels of oil equivalent.

Alex Hillman, lead analyst of the Australasian Centre for Corporate Responsibility, said it was high time that Santos came clean on cost overruns that were due to its "own inability to comply with regulatory requirements deemed workable by the full Federal Court".

"This project was going to have cost and schedule overruns regardless of the Munkara decision," he said.

"Kevin Gallagher remains under significant pressure to pull a rabbit out of a hat over Santos' poor share price performance, whilst acknowledging that there is 'no certainty' that the merger talks with Woodside will progress to a transaction."

Santos shares were 0.8 per cent higher at $7.67 shortly before Thursday market close.

Jacob Shteyman - AAP

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