Santos blows costs, market blows up

The Santos blowout is more about a lack of gas than a cost increase. Gaurav Sodhi investigates whether the original case to buy remains intact.

It’s become a rite of passage. Before completing vast new LNG facilities, producers announce a large increase in costs. So it is with Santos. Last week, the company said it would spend an additional US$2.5bn at its Gladstone LNG project (GLNG). Capital costs due to be spent before the 2015 completion date will increase from US$16bn to US$18.5bn, a rise of 16%.

In response, the company’s shares fell almost 10%, despite predictable management spin on events. Chief executive David Knox insists that this extra spending is not a cost increase.

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