Short-Term Gain, Longer-Term Pain for Santos, Woodside

By Glenn Dyer | More Articles by Glenn Dyer

Woodside shares slipped and shares in rival energy group, Santos finished the day square after both released 4th quarter and early 2020 data (both have a calendar financial year) that showed signs of improvement.

But the bottom line is that with 2020 revenues lower – 27% in the case of Woodside and 16% in the case of Santos, both companies will be looking at (not unexpected) sharp falls in earnings for the full year when they are revealed in February.

While LNG prices have risen strongly in the past six weeks to two months because very cold winters in Japan and China, the current spot prices are still lower than they were a year ago.

But oil prices will be higher this half than they were in the first half of 2020 when COVID and lockdowns battered demand and forced the two companies to slash spending and staff numbers (like their peers did globally).

The InternationalEnergy Agency reckons global energy demand will remain weaker than though in December for the first half of this year, but should improve in the back half because of rising demand, the positive impact of stimulus spending and COVID vaccinations – and a shortage of supply.

Woodside and Santos boards and managements are certainly hoping that will be the case.

Woodside shares closed down 1.6% at $26.95 despite revealing that 4th quarter sales revenue had been boosted by a surge in global oil and gas prices.

But a cut to 2021 production and sales forecasts because of planned maintenance on the North West Shelf this year worried some investors on Thursday.

The company said in its 4th quarter report that revenue for the three months to the end of December jumped 32% netted $US920 million from the September quarter.

But it was 34% below the $US1.42 billion in revenue for the final quarter of 2019.

Fourth quarter sales volume to 29.1 million barrels of oil equivalent (MMboe) compared to 26.7 MMboe sold in the third quarter and 25.69 MMboe in the final quarter of 2019.

For the year Woodside sold 100.3 MMboe in delivered production over 2020 — a record increase of 12%over 2019’s 85.558 million barrels.

For the year total revenue slumped 27 % (with the impact of COVID and the slump in prices in the first and second quarters playing a big part for that slide) to $US3.613 million from $US4.954 million.

Commenting on the fourth quarter’s activities, CEO Peter Coleman said significant project growth was recorded.

“Production licences were awarded for the processing of Scarborough gas through an expanded Pluto facility and we remain on track for a targeted final investment decision on the development in the second half of this year,” he said.

“Late in the quarter, the North West Shelf Project participants executed fully termed agreements to process third-party gas from Pluto and Waitsia, marking the first step towards securing the long-term future of Australia’s first and largest LNG plant as a tolling facility,” he added.

Looking ahead the CEO expects further oil and gas price recovery in 2021, after company signed its highest-ever spot LNG price.

“Oil and gas prices have strengthened considerably heading into the first quarter of 2021. We agreed to our highest ever spot LNG price for delivery in the coming quarter, surpassing our previous record set in 2012,” Peter said.

The energy giant also released production guidance for 2021, landing between 90 MMboe and 95 MMboe. That’s 5% to 10% lower than 2020 and will be due to planned maintenance on production facilities in coming months.

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Meanwhile shares in Santos ended the day steady at $7.40 after revealing record annual production and sales volumes in 2020.

Santos told the market that it had achieved record annual production of 89 million barrels of oil equivalent (MMboe)in 2020, up 18% on 2019, and at the top end of its upgraded guidance provided in December.

Santos reported record quarterly production of 25.4 MMboe, 1% up on the prior quarter and up sharply from the 18.7 MMboe in the final quarter of 2019, and record Quarterly sales volumes of 31.1 MMboe was up 7% from the third quarter of 2020 and also sharply higher than the 24.1 MMboe in the December, 2019 quarter.

Annual sales volumes of 107.1 MMboe – also a record – generated annual sales revenue of $US3.387 billion, down 16% from 2019’s $US4.033 billion.

Fourth-quarter sales revenue of $US922 million was a 16% increase  from the third quarter and primarily due to stronger LNG sales volumes. Prices jumped from around $US4.27 per mmBtu (million British Thermal Units) to $US5.34.

But that was still sharply lower than the $US9.07 in the final quarter of 2019.

Upstream unit production costs of about $US8/boe were at the lower end of the $US8-$US8.50/boe guidance range.

CEO Kevin Gallagher said in the ASX release that Santos delivered record annual production and sales volumes in 2020, and strong free cash flow of over US$725 million despite lower commodity prices.

“Our consistent and successful strategy combined with the disciplined, low-cost operating model continues to drive strong performance across our diversified asset portfolio and position us for disciplined growth.

“Significant milestones were achieved on the Barossa project during the fourth quarter, including the signing of a binding long-term LNG offtake agreement with Mitsubishi at a price based on JKM and execution of the gas transportation and processing agreements with Darwin LNG. Consents were also received for our sell-downs to SK E&S. Barossa is on- track for a final investment decision in the first half of 2021.

“2020 saw us ride through the bottom of the cycle while still generating free cash flow and deliver a record 4.3 million tonnes of Santos-equity LNG sales.

“We remain focused on controlling our costs and living by our disciplined operating model so we are set up to sustain our base business and remain resilient through the cycle even as we see the welcomed strengthening in prices over the past months.

“Our LNG projects currently have 10 spot cargoes scheduled in Q1,” he said.

 

Glenn Dyer

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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