Higher prices help propel Santos sales higher
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Santos CEO Kevin Gallagher has made progress on debt reduction.David Mariuz
by Angela Macdonald-Smith
Higher prices and a lift in production have propelled a 10 per cent rise in sales in a third quarter for Santos that was deemed "strong" by analysts and which confirms the oil and gas producer's financial recovery from its battering during the worst of the oil price crash.
Santos also marginally upgraded its guidance for full-year output, and confirmed it has met its debt reduction target more than a year ahead of the original goal.
Chief executive Kevin Gallagher said the result underscored the benefits of a core asset portfolio that generates cash, and Santos' low-cost operating model.
The September quarter also saw Santos resume dividend payments after a two-year hiatus and the $US2.15 billion acquisition of Western Australian gas producer Quadrant Energy.
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Santos' revenues so far this year are running 18 per cent ahead of last year. Santos
"Santos is now positioned for growth with a number of upstream brownfield development opportunities leveraging existing infrastructure positions across each of our five core assets and is targeting production of more than 100 million boe by 2025, almost doubling current levels of production," Mr Gallagher said, confirming a long-term forecast given at last month's investor briefing.
Santos shares dipped just 2¢ to $7.03, despite a 1.6 per cent drop in global oil prices overnight.
Sales in the September quarter rose to $US973 million on output that was 6 per cent higher than the June quarter, at 15 million barrels of oil equivalent. The figures beat estimates by RBC Capital Markets and JPMorgan.
JPMorgan analyst Mark Busuttil described the quarter as "strong", noting the increase in gas volumes supplied to LNG plants in Papua New Guinea and Darwin. 'Stronger balance sheet'
Santos narrowed its guidance for full-year output to a range to 56 million to 58 million boe, from a previous 55 million to 58 million boe, while the capex guidance has also been cut back.
As at June 30, Santos had net debt of $US2 billion, and total debt of $US3.8 billion, with cash of $US1.8 billion.
"In our view the stronger balance sheet should support growth from the Quadrant acquisition, brownfield opportunities in Queensland and the Cooper Basin, and the Barossa-Caldita project," Mr Busuttil said.
Gas from Barossa-Caldita, fields in the Timor Sea, is the lead candidate to replace the declining Bayu-Undan field as the main supply for the ConocoPhillips-led Darwin LNG plant.
The average price Santos got for its oil edged up 3 per cent from the June quarter to $US81.1 a barrel, and the year-to-date oil price is now up 42 per cent. Its average LNG price for the quarter, at $US10.43 per million British thermal units was 39 per cent higher than a year ago. Average domestic gas sales prices were still much lower, at $US4.89 a gigajoule, up from $US4.56/GJ in the year-earlier quarter.
However, year-to-date production is running slightly weaker, at 43.1 million boe, compared with 44.5 million for the first three quarters of 2017. The dip is partly due to an earthquake-enforced shutdown of PNG LNG this year, the sale of Santos' Asian portfolio and the end of production at mature oil fields off Western Australia.
Santos reduced its guidance for capex for 2018 to $US725 million to $US775 million, from as high as $US825 million previously. It said the revision reflects "current internal forecasts and timing of expenditures" while noting there is no change to the expected number of wells to be drilled in the Cooper Basin and at the GLNG project, at 85 to 90 and about 300, respectively.
STO Price at posting:
$7.03 Sentiment: Buy Disclosure: Held
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