$A Bites Santos, Oxiana, Iluka

By Glenn Dyer | More Articles by Glenn Dyer

As suggested at the time of its half year production report, Santos was hit by the stronger Australian dollar in the six months to June which trimmed earnings noticeably.

The company yesterday said underlying net profit after tax fell to $305 million for the first 6 months of 2007 compared to the record result of $407 million for the first half of 2006 (when the Aussie dollar was much lower).

The company said the fall on underlying profit was recorded notwithstanding record production during the half, which was up by 5% to 30.1 million barrels of oil equivalent (mmboe).

The impact of the higher dollar saw sales revenue fall 7% to $1,215 million: the currency cut the returns from the company's sales of liquids (such as LPG and condensate).

The realised oil price in Australian dollars was down by 9.7% to A$83.27 per barrel, although the price in US dollars was down by only 0.4% to US$68.19 for the period.

But there was a small rise in the average realised gas price received by Santos of $3.84 per gigajoule (GJ). That was 2.2% higher than in the first half of 2006.

The realised Australian domestic gas prices increased by 7%, but again the rise in the value of the Australian dollar cut international gas sales revenue.

Santos said its earnings before interest, tax, depreciation, amortisation and exploration (EBITDAX) fell 4% to $964 million.

Production costs per barrel rose 8% to $A7.01 per (barrel of oil equivalent) boe, "reflecting an ongoing focus on cost control offset by higher unit costs due mainly to production constraints at the Maleo gas field in Indonesia and the deferral of some Cooper Basin oil production."

Operating cash flow fell 16% to $538 million. The company said that reflected an insurance receivable of $95 million relating to the Moomba incident in 2006, higher tax payments in 2007 of $91 million, offset by favourable working capital movements of $107 million.

Commenting on the 2007 first half result, Santos' Managing Director, Mr John Ellice-Flint, said "Santos' solid operational performance continued in 2007 as we delivered record production and managed to control production costs, although the appreciating Australian dollar and higher depreciation and depletion charges impacted negatively on profits."

"Looking forward, our focus is on transitioning our business towards higher margin products and monetising our large contingent resource base."

"LNG will play an increasingly important role as a higher value market for our gas, as evidenced by our proposal to develop an LNG export facility in Gladstone – a transformational project for Santos."

"Not only does this project give us the ability to commercialise large quantities of contingent coal seam gas resources, it also targets these resources towards a rapidly growing, high value and deep international market."

"Significant progress has been made on the ExxonMobil operated PNG LNG project since we kicked off the pre-FEED studies in April this year. The joint venture is aligned behind ExxonMobil and we are on track to move to a formal FEED process by the end of this year."

"Santos' guidance for 2007 and 2008 unchanged, that is, production of between 59 and 61 mmboe, underpinned by the exploitation of Cooper Basin oil and coal seam gas in eastern Queensland."

"Beyond that, we see moderate organic growth into the next decade, followed by a step change as projects such as Dua and Blackbird (Vietnam), Reindeer (Western Australia), Henry and Kipper (Victoria) and Gladstone LNG , PNG LNG and Darwin LNG 2 come on line."

Santos' interim dividend has been maintained at 20 cents per share, fully franked.

The interim dividend will be paid on 2 October 2007 to registered shareholders as at 4 September 2007, with an ex-dividend date of 29 August 2007.

The shares jumped 31c to close at $12.11.


Rising Australian miner, Oxiana says its second half will be strong, offsetting a first half dip in earnings.

The company, which is emerging as an increasingly important base metal group in Australia and parts of Asia, says for a combination of reasons first half profit fell to $172.73 million, from $263.23 million in the first half of 2006.

Oxiana said the fall was driven by "pricing adjustments", the effect of the stronger Aussie dollar and a higher tax rate in Laos.

Earnings before interest, tax, depreciation and amortisation (EBITDA) by around 15% to $334.595 million from $401.453 million in the first half of 2006.

Despite the dip interim dividend has been lifted to 4 cents per share, (up from three cents per share last year).

Chief executive Owen Hearty said it was a very solid first half and with cash-flow particularly strong that enabled a four cent fully franked interim dividend to be declared.

"Our strong balance sheet will allow our exciting organic growth to continue as we expand our operations at Sepon and Golden Grove (mines in Laos and Western Australia respectively) and allows us to continue to grow the Prominent Hill operation.

"It also puts us in a strong position to take advantage of business development opportunities and continue to advance a highly prospective suite of exploration projects in Asia and Australia."

Mr Hearty said Oxidant's prior guidance on production and costs remains unchanged across all commodities and he is predicting a strong second half ahead.

At the Sepon mine in Laos, Oxiana is predicting gold production of 100,000 ounces for the year and copper production of 60,000 to 63,000 tones.

At the Golden Grove operation in Western Australia it is targeting annual production of 140,000 to 150,000 tones of zinc, up from 138,817 tones last year, 10,000 to 15,000 tones of copper,

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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