July 23, 2014 12:00AM
Graham Lloyd Environment Editor Sydney
INCREASED risk has slashed $600 million from the value of Santos’s Narrabri coal-seam gas project in the Pilliga state forest.
A report by financial services group Credit Suisse has found community opposition, uncertain science and unpredictable government regulation have eroded almost two-thirds of the value from the $950m Santos paid junior explorer Eastern Star for the project in 2011. The wealth destruction highlights the huge prices paid to junior explorers by big companies in the early days of Australia’s CSG expansion.
Heavy landowner protests and technical and environmental problems already have weakened the profitability of existing projects and cast a cloud over major investments such as Arrow Energy’s fourth liquefied natural gas export train at Gladstone in Queensland. The suspension of approvals for junior company Metgasco to drill for gas near Lismore in NSW has highlighted the regulatory risk starting to flow through to the valuations of unconventional gas projects.
The report highlights the sensitivity of financial markets to rising risks. Santos’s Pilliga project has been dogged by leaking ponds and ground contamination but is considered the frontline in efforts to secure NSW natural gas supplies as existing production is redirected to exports.
After meeting farm groups and other landholders and visiting the Pilliga site, Credit Suisse says fear and mistrust towards Santos and coal-seam gas in general were widespread. The analyst report says Credit Suisse did not seek to verify the validity of the concerns but “assess the risks to the Narrabri Gas Project due to the complex environmental and social issues”.
Uncertainty over effects on water was the key issue driving opposition, the report says.
Landowner resistance did not pose a direct risk to the project as government approvals were in place but “mass opposition is the key risk in the near term’’.
Protest groups such as the Wilderness Society and Lock the Gate have combined with grassroots organisations to campaign against the project. Credit Suisse says opposition to projects can pose risks to timelines, budgets, regulatory oversight, diversion of management attention, and even project abandonment, regardless of the validity of concerns from economic, scientific, political or broader sustainability perspectives.
A Wilderness Society spokesman said farmers and the northwest NSW community were justifiably concerned about the effects of CSG on groundwater.
Santos has entered a heads of agreement with the NSW government for a decision to be made on whether the project can go ahead early next year. But the company missed a June 30 deadline to lodge an environmental report as outlined in the memorandum of understanding with the state. The NSW Planning Assessment Commission has approved nine exploration wells but Santos has to wait six months to complete water modelling before it can drill.
A Santos spokesman said last night: “We are experiencing strong levels of community support in the areas in which we currently operate in the Narrabri region. Ultimately gas projects seeking to operate in NSW will develop increased levels of understanding and support over time, and this is our direct experience in Queensland where we have many hundreds of landowner agreements and communities reaping the rewards of our operations.”