Ann: 2018 Fourth Quarter Activities Report, page-17

Morningstar....

Santos Limited (STO)
Update:  Lower Pricing Trims Near-Term Earnings Expectations for Santos but Longer-Term Growth Stands.
Recommendation:  Accumulate 
Change: No Change
We make no change to our AUD 7.85 fair value estimate for no-moat Santos, despite declines to near-term earnings estimates. The lack of fair value change since our October 2018 note reflects time value of money benefit, offset by a weaker near-term energy price outlook and a softened 2019 production estimate. Longer-term assumptions stand, including production growth to over 100 million barrels of oil equivalent, or mmboe, by 2025 and a midcycle Brent price of USD 60 per barrel. At AUD 5.95, Santos shares are materially undervalued, the market not sufficiently crediting expansion potential.Our 2018 and 2019 EPS forecasts decline 12% and 44% to AUD 0.38 and AUD 0.46 respectively. 2018 earnings include just one month???s contribution from the around USD 2.0 billion Quadrant acquisition, less time than our prior forecast had anticipated. And oil price softened into the final quarter to a low near USD 50 per barrel versus the plus USD 80 levels prevailing in the September quarter. But the biggest price hit to earnings is in 2019, exacerbated by Santos guiding for production of 71-78 mmboe, down on our prior plus 80 mmboe forecast. We rein-in our 2019 production forecast to a guidance high-end 78 mmboe, most of the cut coming from Gladstone LNG. Our oil price forecast is USD 62.50 versus USD 82 at last update.Excluding the acquisition of Quadrant, 2018 sales volumes of 77.2 mmboe were above the upper end of 74-76 mmboe guidance and production was within 56-58 mmboe guidance. Upstream production costs of USD 8.00 per boe and capital expenditure of USD 732 million were at the lower end of USD 8.0-8.6/boe and USD 725-775 million guidance respectively. In combination with an ultimate USD 1.9 billion Quadrant price tag, down from the USD 2.15 billion headline due to completion adjustments and cash acquired, net debt at end of period was a favourably lower than anticipated USD 3.6 billion at December???s end.