Thursday, 17 January 2013 15:25
Santos's production costs blew out by up to $50 million in 2012, highlighting the risks to its massive Queensland Gladstone liquefied natural gas (LNG) project.
But the cost hike was offset by an 18 per cent, or $500 million, rise in sales revenue to a record $3.2 billion, Australia's second-largest pure oil and gas company revealed in its fourth quarter production report on Thursday.
Production costs were expected to be about $660 million, above previous guidance of $610 million to $640 million.
That was primarily due to higher costs at non-operated projects, it said, which include the ConocoPhillips operated Darwin LNG and Apache's Devil Creek in WA.
The company's main LNG development project is the $18.5 billion Santos-operated Gladstone LNG project on the Qld central coast, which is part of a suite of coal seam gas-to-LNG projects in the region.
Its cost blew out by $2 billion last year, is only 45 per cent complete and due to come online in 2015.
State One Stockbroking energy analyst Peter Kopetz predicted the partners involved in the Queensland LNG projects - all of which have suffered multi-billion dollar cost blow-outs - will consider combining operations to rein in soaring expenses.
The shale gas boom in the US has made it a potential export competitor to Australian gas, increasing pressure on costs affected by labour and a strong currency.
"It wouldn't surprise me if maybe one or two marry up together due to the fact that having a concentration of four-to-five projects in one area (Gladstone) is pretty difficult," Mr Kopetz told AAP.
The massive gas resources coming into production in the US did not affect Santos adversely, with the company realising a nine per cent rise in the gas price for the year to $5.14 a gigajoule (gj).
However that fell to $5.06/gj in the three months to 31 December, a nine per cent drop on the corresponding period.
The majority of Santos's oil and gas revenue comes out of Australia feeding into domestic pipelines.
Santos posted a 13 per cent rise in fourth-quarter production to 13.2 million barrels of oil equivalent (mmboe) and record sales revenues of $876 million.
Production for the 2012 calendar year rose 10 per cent to 52.1 mmboe from 47.2 mmboe in 2011.
The company said it was on track to meet its 2013 production forecasts of 53 to 57 mmboe and capital expenditure (excluding capitalised interest) to be approximately $4 billion.
Santos said its full-year sales revenue result was driven by a 33 per cent rise in crude oil production, which capitalised on higher prices.
Santos CEO David Knox said new producing assets such as Reindeer and Chim Sao in Vietnam, combined with strong Cooper oil production, drove the production lift.
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