The rising value of the Australian dollar has bitten into the sales revenues (and presumably earnings) of Santos Ltd, the country's third biggest oil and gas group.
The company's second quarter and first half production and sales report reveals a near $100 million, or 7.4% drop in revenue, driven mainly by a second quarter 10% fall in the value of the Australian dollar price for oil, as well as lower revenues for condensate, but higher revenues for gas sales.
The fall of just over $98 million will put pressure on the first half earnings, which are due for release next month.
Another reason for investor caution is the situation at the huge mudflow in Indonesia and whether Santos will have to set aside more money to meet costs.
There was no update in yesterday's statement:
"(There was) ongoing monitoring of the Sidoarjo mudflow incident in the Brantas PSC in Indonesia (Santos non-operating 18% interest).
"A net provision of A$67 million (after recognition of insurance proceeds) was recorded as at 31 December 2006. Further announcements in relation to Santos' share of potential costs relating to this incident will be made as definitive information becomes available and has been evaluated."
Santos said total revenues for the first half fell to $1.214.7 billion from $1.313.3 billion, as the average US dollar oil price eased to $68.19 from $68.44 and oil sales fell to 5.825.6 million barrels of oil, from 5.973.2 million barrels. That was a drop of 2.3 %.
But the Australian dollar price dropped a sharp $8.93 a barrel, or 9.6% as the value of the currency dollar rose against the $US.
The price in the latest half was $83.27 /barrel, compared to $92.20 in the first half of 2006.
LPG revenues fell to $88.3 million from $113.1 million, principally due to a drop in the average price (because of the lower dollar). The price fell around $15 a tonne to average $713.47 a tonne in the latest half.
Condensate revenues also fell to $177.5 million from $203.2 million on lower production, sales and prices.
Offsetting this was a rise in gas revenues (ethane and LNG) from $446.3 million to $469.8 million.
Santos said that second quarter 2007 sales revenues fell 8.3% to $634 million because of the timing of oil and gas cargoes, and the stronger exchange rate which resulted in a 10% decline in realised Australian dollar oil prices.
Santos said second quarter production reached a record 15.6 million barrels of oil equivalent (mmboe) and production for first six months of 2007 increased to 30.1 mmboe, compared with 28.7 mmboe in the first half of 2006.
"The stronger production reflects higher gas output due to increased customer demand, the start-up of the Maleo gas field in Indonesia during third quarter of calendar 2006.
"It also reflects increased oil production from the Mutineer-Exeter field offshore Western Australia."
Santos' managing director John Ellice-Flint said the company has continued to deliver positive performances.
"We remain on track to achieve full year 2007 production of between 59 and 61 mmboe," he said.
The guidance is unchanged from Santos' earlier forecast.
"Particularly pleasing was the continued ramp-up of production from the Fairview coal seam gas field, and an ongoing positive performance from the Mutineer-Exeter oil fields.
"We expect to further increase production from both of these areas with additional drilling in the second half of 2007," he said.
Santos said its Cooper oil project remains on track to deliver an uplift in oil production.
But flooding in central Australia and short-term oil pipeline constraints had resulted in the deferral of some production from the second quarter.
"Our large suite of growth options – which include potential LNG projects in Gladstone, PNG and Darwin coupled with developments such as the Reindeer gas field in Western Australia and the Dua and Blackbird oil fields in Vietnam – augur well for our future growth outlook," Mr Ellice-Flint said.
Santos shares edged up 6c to trade around $13.84 as investors ignored the result and continued to focus on the review of the 15% Santos shareholding cap by the South Australia Government.
The results of this review are expected to be announced by the Government prior to the end of September 2007 and punters have taken big positions inSantos expecting the cap to be lifted and the company to be in play and a takeover candidate.