Lean Santos eyes profit

OIL and gas giant Santos will focus on selldowns to balance its projects portfolio and cut debt as it gears up to take advantage of “higher prices than we’ve ever seen before”.

Stronger commodity prices and higher volumes delivered record quarterly and annual sales revenues for the South Australia-headquartered business, which completed a $22bn merger with Oil Search last month.

The inclusion of Oil Search assets boosted fourth quarter production to 22.9 million barrels of oil equivalent (mmboe), leading to a record annual output of 92.1 mmboe.

Quarterly sales revenue rose 34 per cent to a record $US1.5bn with annual sales revenue up 39 per cent to $US4.7bn. Annual sales volumes are 104.2 mmboe on updated guidance.

The highlight was LNG realised prices, with Santos’ portfolio price increasing by 32 per cent in the quarter to US$13.64/million British thermal units (mmBtu).

Santos’ LNG projects shipped 68 cargoes in the fourth quarter, of which 12 cargoes, majority from Darwin LNG, were sold at Japan/ Korea Marker (JKM) spot prices.

“Santos’s strategy is not to focus on what the price is,” managing director and chief executive Kevin Gallagher said. “Our focus is on maintaining as low as possible our free cash or break even price across all of our assets … (so) when oil prices do go up, we will maximise the margins and cash flows from those assets.”

He said oil prices would continue to rise due to many years of supply being crunched against the backdrop of growing demand.

After record prices in the second half of last year, the value of the nation’s gas exports are likely to more than double in the current financial year, to $63bn.

Free cash flow is expected to be around $US1.5bn in 2021, more than double the level in 2020 and will be boosted further by the full integration of Oil Search.

Santos has previously outlined synergies of up to $US115m a year amid expectations of job losses and the potential closure of Oil Search’s Sydney office.

It could potentially be looking to sell about $5bn worth of infrastructure assets – including its Quadrant Energy business in WA, its Barossa project in the NT and its stake in the Gladstone LNG project in Queensland.

GLNG delivered a record 6.4 million tonnes of LNG sales in 2021.

Santos also has a 42.5 per cent in PNG LNG, which produced 8.4 million tonnes of

LNG for the full-year and shipped 110 cargoes, slightly lower than the previous year due to the Covid-19 impact of deferral of maintenance activities from 2020 into 2021.

Bayu-Undan, located in offshore Timor-Leste and operated by Santos, delivered higher gross gas and liquids production in 2021, which enabled Darwin LNG to produce 3.2 million tonnes of LNG, all sold at lucrative spot prices.

A bigger balance sheet may also help to navigate climate pressures and transition to a low carbon energy future.