Santos bottom line hit by operational snags

Company News

by Glenn Dyer

2023 very much mirrored the year before it for gas and oil producer Santos (ASX:STO), with solid prices and demand blunted by unwanted operating problems, forcing the company to trim its production guidance for the coming year after posting lower-than-expected fourth-quarter revenues.

Reduced volumes in Western Australia following unplanned maintenance at its John Brookes platform off the Northwest WA coast was responsible for both dislocations which took the gloss off its production and revenue performance in 2022, especially in the second half of the year to December.

Santos’ production, sales, revenue and earnings had been boosted not only by the surge in oil and gas (LNG as well) in the wake of Russia’s invasion of Ukraine but by the takeover of Oil Search in December 2021.

Santos told the ASX on Thursday that it now expects 2023 output to be in the range of 89-96 million barrels of oil equivalent (mmboe), compared with its previous forecast of 91-98 mmboe, due to the temporary shutdown of the John Brookes offshore platform in Western Australia which has been extended to around late this month or early February.

The unplanned outage offshore field happened in November after an equipment failure forced the company to reduce its supplies of gas supply to the WA domestic market.

The company said on Thursday that the longer than planned shutdown of the John Brookes platform, combined with a delay in starting production at the Spartan field due to the repair work, led to the forecast cut.

Santos – which is Australia’s No. 2 independent gas producer behind Woodside – told the ASX that revenue for the three months ended December 31 came in at $US1.88 billion, higher than $US1.53 billion a year earlier, but below market estimates of $US2.09 billion.

“Our increased LNG position in Papua New Guinea following the Oil Search merger has driven our record performance,” CEO Kevin Gallagher said in the statement.

The company said output in the December quarter fell 2% over the September quarter to 25.6 mmboe, but was higher than 22.9 mmboe reported a year earlier (thanks to the contribution from Oil Search from late 2021 onwards).

The company said that for all of 2022, it had record annual production of 105.4 million barrels of oil equivalent (mmboe), reduced to 103.2 mmboe following including volumes from the Bayu-Undan on a net entitlement basis. That was up 13.2% from 2021.

Revenue for the year jumped 65% to $US7.790 billion (from $US4.714 billion in 2021) thanks to the extra production, higher prices (thanks to the Russian invasion of Ukraine) and sales from Oil Search’s assets and the higher global prices (and domestic gas prices in Australia).

Free cash flow of around $US3.6 billion was also a record and reduced gearing to approximately 18.7% at the end of the year.

Santos said this strong free cash flow positions the company to provide higher returns to shareholders under its new capital management program announced in December, which included a further $US350 million increase in the on-market share buyback to up to $US700 million.

Santos said the binding conditional offer from Kumul Petroleum to acquire a 5% stake in PNG LNG for asset value of $US1.4 billion, including a proportionate share of project finance debt had been extended to April 30 this year.

Santos shares eased 1.6% to $7.24.

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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