Record Revenue, Upped Guidance for Santos

Santos has seen record sales revenue across the June quarter and half and raised its output target for the year to December.

The news came two days after the company revealed its ambitions for a $23 billion deal to take control of smaller rival Oil Search.

In its June quarter report to the ASX yesterday, Santos announced sales revenue hit a record $US1.1 billion ($A1.5 billion) taking it to a record-breaking $US2.04 billion over the six months to June 30.

The upbeat report saw Santos shares bounce 2.6% to $6.74, helped also by a strong rise in world oil prices overnight Wednesday.

“Our disciplined, low-cost operating model continues to drive strong performance with $US572 million of free cash flow generated in the first half, and the business remains on track to deliver a free cash flow break-even oil price of $US25 per barrel this year,” CEO, Kevin Gallagher.

“At current oil prices, Santos should generate over $US1.1 billion in free cash flow in 2021,” he said.

Santos also raised its full-year production target, saying it now expects to produce between 87 and 91 million barrels of oil equivalent in 2021, higher than its previous forecast of 84-91 million barrels.

Sales volumes were boosted to a range of 100 mmboe to 105 mmboe versus previous estimates of 98 mmboe to 105 mmboe.

Santos lowered its upstream production costs forecasts. This is now expected to come in at $US7.90 to $US8.30 barrels of oil equivalent (boe). That’s down from $US8 to $US8.50 boe.

The average LNG price rose to $US7.52 per Metric Million British Thermal Unit (MMBtu) in the June quarter from $US6.12 a MMBtu in the March quarter.

But looking at the half year the average price per Metric Million British Thermal Unit for the June, 2021 six months of $US6.74 was still sharply lower than the $US8.57 for the same period of 2020

Demand for domestic gas was also strong with the average gas price hitting US$4.74 per gigajoule (GJ) from US$4.54 per GJ in the previous three months. And the for the six months to June, domestic gas prices rose sharply to $$US4.65 a gigajoule from $US3.79 and the average oil price for the half also rose strongly to $US69.57 from $US47.83 a barrel.

The real story is the continuing contribution from Santos’ takeover of Quadrant Energy in late 2018 for $2.15 billion. That has seen Santos boost sales of oil and gas and achieved significant cost synergies.

Also helping has been the rebound in LNG prices from the lows during the pandemic a year ago

The June quarter recovery came despite a 9% drop in second quarter production to 22.5 million barrels of oil equivalent (mmboe) from the first quarter, primarily due to completion of the 25% sell down in Bayu-Undan and Darwin LNG on April 30, partially offset by stronger gas production in Western Australia and Queensland

First half production of 47.3 mmboe was 23% above the corresponding period and sees 2021 guidance narrowed to the upper part of the range

Santos said the strong cash flows saw its net debt (including leases) cut to $US3.4 billion and gearing to 32% by June 30.

“Consistent with our 2021 strategic priorities, after taking the FID on Barossa in March, we completed the sell-downs in Bayu-Undan and Darwin LNG, and have now commenced all key workstreams on Barossa as well as entering FEED for the Dorado project,” Mr Gallagher said in yesterday’s statement.

“As I have always said, we will remain disciplined and cost-focused during this next phase of growth. Despite cost challenges across the industry, I am pleased that our continued focus on costs sees a lowering of our upstream production cost guidance.

“The Moomba CCS project is FID-ready, and we are actively exploring CCS opportunities at Bayu-Undan and the production of zero-emissions hydrogen at Moomba. These projects provide a competitive advantage as we seek to decarbonise our oil and gas assets on the path to net-zero emissions by 2040,” Mr Gallagher said.

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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