Leading Australian petroleum firm Santos Ltd (ASX: STO) has entered into an agreement to buy the ConocoPhillips subsidiaries that hold its Australian assets and operations for US$1.39 billion.

In addition, the company will also make a payment of US$75 million upon final investment decision of the Barossa development project.

The subsidiaries hold the company’s 37.5% interest in the Barossa project and Caldita Field, its 56.9% interest in the Darwin LNG facility and Bayu-Undan Field, its 40% interest in the Poseidon Field, and its 50% interest in the Athena Field.

ConocoPhillips will retain its 37.5% interest in the Australia Pacific LNG project and operatorship of that project’s LNG facility.

Santos managing director and chief executive officer Kevin Gallagher said Santos has enjoyed a long-established relationship with ConocoPhillips which has operated its northern Australia natural gas assets for many years.

“Santos was a founding partner with ConocoPhillips in Darwin LNG, which has been operating since 2006. The acquisition of these assets fully aligns with Santos’ growth strategy to build on existing infrastructure positions while advancing our aim to be a leading regional LNG supplier,” Mr Gallagher said.

“This acquisition delivers operatorship and control of strategic LNG infrastructure at Darwin, with approvals in place supporting expansion to 10 mtpa, and the low cost, long life Barossa gas project.

“These assets are well known to Santos. It also continues to strengthen our offshore operating and development expertise and capabilities to drive growth in offshore northern and Western Australia.

“Santos is also committed to be Australia’s leading domestic gas supplier and we will be pursuing domestic gas opportunities in the Northern Territory from our broader northern Australia gas portfolio where we have significant resource potential both onshore and offshore.

“Santos intends to manage gearing within our stated operating range and is targeting to sell-down equity in Darwin LNG and Barossa to 40-50% in order to create alignment between joint venture participants as well as by optimising equity levels in our Western Australia assets.

“We are also in discussions with existing Darwin LNG joint-venture partners to sell equity in Barossa and further equity in Darwin LNG and also with LNG buyers for offtake volumes. Santos will target the contracting of ~60-80% of LNG volumes for 10+ years prior to taking FID on Barossa, which is expected by early 2020. Discussions to date have demonstrated strong interest in Barossa LNG, given it is a brownfield upstream development located close to North Asian demand.

“The acquisition is value accretive for Santos shareholders in year one following completion across a range of metrics and importantly further reduces our free cash flow breakeven oil price by approximately US$4 per barrel in 2020.

“As we have demonstrated following the acquisition and integration of Quadrant Energy into our offshore business, Santos’ low-cost operating model is creating opportunities for disciplined growth across Australia.

“We look forward to welcoming ConocoPhillips’ Australia-West employees to Santos and combining the two businesses to create one high performing team with a wide range of exciting career opportunities across Santos,” Mr Gallagher said.

ConocoPhillips executive vice president and chief operating officer Matt Fox said the company is extremely proud of its work in Australia-West over the last 20 years.

“We are pleased that Santos recognises the value of the existing business as well as the opportunity to develop Barossa and thereby continue Darwin LNG’s operations for another 20-plus years,” Mr Fox said.

“While we believe the Darwin LNG backfill project remains among the lower cost of supply options for new global LNG supply, this transaction allows us to allocate capital to other projects that we believe will generate the highest long-term value to ConocoPhillips.”

Production associated with the assets being sold was approximately 50 thousand barrels of oil equivalent per day (MBOED) for the first half of 2019 and proved reserves were approximately 39 million barrels of oil equivalent (BOE) at year-end 2018.

The effective date for the transaction will be Jan. 1, 2019. The transaction is subject to regulatory approval and other specific conditions precedent. The sale is expected to be completed in the first quarter of 2020.