Santos expands gas portfolio as Halyard-2 increases supply to Varanus Island

Santos, one of Western Australia’s leading domestic gas suppliers, has successfully commenced production at its Halyard-2 infill well, marking a significant milestone in the company’s gas production strategy. The well, which came online six weeks ahead of schedule, is now delivering an additional 65 million standard cubic feet per day (mmscf/d) of gas to Varanus Island. This development is expected to convert approximately nine million barrels of oil equivalent (mmboe) of sales gas and condensate into proved plus probable (2P) developed reserves, further strengthening the company’s upstream portfolio.

Santos Managing Director and Chief Executive Officer Kevin Gallagher noted that the project highlights the company’s ability to execute low-cost capital projects efficiently while increasing gas production growth. He stated that the early start of Halyard-2 would provide incremental volumes through to 2027, contributing to a reduction in unit production costs in 2025. This move aligns with Santos’ commitment to cost-effective production, reinforcing its low-cost operating model while delivering strong operational results.

What Is the Strategic Importance of Halyard-2 in Santos’ Gas Portfolio?

The Halyard-2 well is part of Santos’ operations in the Greater East Spar (GES) field, located in Commonwealth waters off Western Australia. The well replaces the depleted Halyard-1 well and connects to existing subsea infrastructure that transports hydrocarbons to Varanus Island for processing.

The company’s development plan for the well includes several key operational phases, including drilling, completion, and the installation of subsea infrastructure to integrate the well into existing pipelines. The project timeline extends from Q2 2024 to the end of 2026, with drilling and completion activities expected to take around 50 days, followed by 15 days for subsea installation and pre-commissioning.

The Halyard-2 well is located within permits WA-13-L and WA-45-L, in water depths ranging from 95 to 125 metres, approximately 100 kilometres north of Onslow, Western Australia. Importantly, the operational area does not overlap with any Australian Marine Parks (AMPs) or state marine reserves. The closest AMP, Montebello AMP, is situated 32 kilometres east of the project site, while the nearest state marine park, Montebello Island Marine Park, lies 52 kilometres east.

How Does Santos’ Reserves Report Reflect Its Long-Term Growth Strategy?

In conjunction with the Halyard-2 production announcement, Santos has released its Annual Reserves Statement, offering insights into its reserves replacement ratio and resource base. At the end of 2024, the company reported a total 2P reserves base of 1,559 mmboe, reflecting a 15 mmboe decrease before production.

This decline was primarily attributed to the sale of a 2.6 per cent stake in PNG LNG to Kumul Petroleum Holdings Limited, which resulted in a 30 mmboe reduction in reserves. However, Santos managed to offset some of this impact through organic reserves additions across multiple assets, contributing 15 mmboe of new reserves.

The company’s three-year 2P reserves replacement ratio (RRR) stands at 58 per cent, reflecting its ability to maintain and replenish reserves despite asset divestments. Notably, 41 per cent of Santos’ total 2P reserves are now held in international assets, while 84 per cent of its reserves portfolio consists of natural gas. This mix underscores the company’s strategic focus on gas production growth as a primary revenue driver.

What Role Does Carbon Capture Play in Santos’ Future Plans?

Beyond hydrocarbon production, Santos is actively expanding its carbon capture and storage (CCS) capabilities to align with decarbonisation goals. The company reported a significant increase in 2C CO2 storage resources, with an additional 47 million tonnes, bringing its total Cooper Basin CO2 storage capacity to 178 million tonnes.

Kevin Gallagher stated that the latest reserves statement reflects Santos’ rigorous reserves review and accounting process, with 97 per cent of total 2P reserves externally audited. He also emphasised that the company’s Moomba CCS project will be instrumental in meeting growing customer demand for CO2 storage solutions. As Santos looks to scale its carbon capture initiatives, its storage capacity is expected to support the commercial expansion of CO2 sequestration efforts across its operational footprint.

What Does the Future Hold for Santos’ Gas and CCS Operations?

The early production start at Halyard-2 and the company’s reserves statement reinforce Santos’ strategic approach to low-cost production growth while strengthening its gas supply portfolio. The company is poised to benefit from a balanced asset mix, leveraging its international gas reserves while continuing to expand its CCS capacity.

With a strong focus on operational efficiency, Santos is expected to provide further updates on its Varanus Island gas supply expansion, as well as additional investments in carbon capture and storage infrastructure. These efforts position the company to navigate the evolving energy market, ensuring both gas production growth and long-term sustainability through its CCS strategy.