Friday, 22 February 2013 13:57
Santos has impressed investors enough with positive outlooks for more cash flow from new liquefied natural gas projects to overshadow a fall in net profit.
Australia's second-largest oil and gas producer expects to boost production to 53-57 million barrels of oil equivalent (mmboe) in 2013 and is on track for 80-90 mmboe by the end of the decade when its "mega" LNG projects are online.
Santos shares shot up on Friday to outperform the market, gaining 37.5 cents, or 3.2 per cent, to $12.275.
While net profit for the year to 31 December fell to $519 million – including write-downs – from $753 million in 2011, the previous year's result was boosted by the selling down of its stake in the $18.5 billion Santos-operated Gladstone LNG project.
Underlying profit rose 34 per cent to a lower-than-expected $606 million, driven by higher liquids volumes and gas prices which were partly offset by higher costs linked to new assets.
Chief executive David Knox pointed to current high natural gas prices of about $6 to $9 a gigajoule, indicating strong domestic demand.
Gas growth is tipped to increase exponentially in coming years as an energy source supplying growth in Asian emerging economies.
Santos has brought new oil and gas projects on-line, such as Chim Sao in Vietnam and Reindeer in Western Australia, to generate cash flow on top of its major Cooper Basin assets.
The Fletcher Finucane oil project in WA is due to come online this year.
The major Papua New Guinea LNG joint venture project and GLNG project - which is part of several coal seam gas-to-LNG projects in Queensland – are due to come online next year and 2015 respectively.
Mr Knox said Santos had quietly built up its unconventional acreage footprint in Australia - including controversial coal seam gas interests opposed by farmers and other opponents - to 231,000sq km or 54 million acres.
"That has rebased Santos' gas portfolio ... making sure we can supply both domestic markets and LNG markets in the very long term," he told an analysts briefing. "The state and commonwealth regulatory settings must be resolved first.
"We are confident both governments understand how important it is to settle those processes quickly."
Morningstar equities analyst Mark Taylor was impressed with a 32 per cent jump in operating cashflow to $1.658 billion, which was close to larger competitor Woodside's.
"All the ducks are lining up well for them, they are modestly geared," he said.
"Hopefully the LNG commissions okay and there are no more cost blowouts."
Santos revenue rose 18 per cent to a record $3.3 billion and it achieved its highest oil production in four years during 2012.
Production increased by 10 per cent, driven by new assets in WA and Vietnam, and strong Cooper oil production.
Santos in January said its production costs blew out by up to $50 million in 2012, highlighting the risks to its massive Queensland Gladstone LNG project. Santos maintained its fully franked final dividend at 15 cents a share.
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