Jadestone Energy plc (AIM:JSE), Beach Energy Limited (ASX:BPT), Hibiscus Petroleum Berhad (KLSE:HIBISCS) and The Carlyle Group Inc. (NasdaqGS:CG) are likely to line up for Santos Limited (ASX:STO)'s assets in Western Australia, says MST Financial. MST Financial analyst Saul Kavonic said in a note to investors that the suitors that looked at Woodside's Macedon oil and gas asset when it was for sale would also assess Santos's WA assets. Believed to be on offer from Santos are domestic gas plants at Varanus Island, Devils Creek and Macedon, and offshore gas, condensate and oilfield projects.

Mr. Kavonic said a price of $500 million ($753 million) may be achievable, but it would be hard to do a deal and Santos would be left with the liability of decommissioning the projects. He said the sale was part of a strategy to remove legacy domestic assets to leave a cleaner long-life LNG and oil play. This would have enhance its appeal to global players.

It would also provide more balance sheet room, as Santos approaches a riskier balance sheet position in 2025 amid execution risks. Mr. Kavonic said a clean exit from WA was probably impossible, as including decommissioning liabilities would leave a material negative valuation. Santos may be able to sell some of the still-producing assets including Macedon, Pyrenees and Varanus Island, but would need to keep a lot of legacy decommissioning liabilities on its books.

It could prove complicated to separate the decommissioning liabilities from its Harriet joint venture in the Carnarvon Basin off the coast of Western Australia. These decommissioning costs are estimated at $700 million to $1 billion, and if they were included in the sale, the price could be negative. "We might expect $400 million to $600 million may be achievable for the assets that may be sellable (Varanus Island, Macedon and Pyrenees) once factoring in some of the later life risks," Mr. Kavonic said.

"But Santos would still be left with at least $1.7 billion of WA decommissioning liabilities".