CANBERRA: Australia’s Santos posted a 13% rise in production to 28.3 million barrels of oil equivalent in the first half of 2015, up from 25 million boe in the corresponding period last year.
The company posted a “strong operational performance” for the half, but has responded to recent falls in its share price by announcing it would conduct a full strategic review.
David Knox, the company’s longstanding managing director and chief executive officer, has also agreed to step down once a successor has been appointed.
Santos’ interests of 13.5% and 11.5%, respectively, in Papua New Guinea LNG and Darwin LNG performed particularly strongly during the half, the company said Friday.
But lower realized oil prices cut the company’s sales revenue by 15% to A$1.61 billion ($1.18 billion), from A$1.89 billion in the first half of 2014.
“We have again delivered strong operational performance, including higher production and sales volumes, thanks to good performance from our LNG assets and stronger Cooper Basin gas production,” Knox said in a statement. “However, the bottom line result reflects the impact of the severe decline in oil prices compared to the previous first half, along with a higher exploration expense.”
Net profit for the half year was A$37 million, down 82% year on year. Santos’ average realized oil price for the half was $60/barrel, down from $115/b the same period a year ago. In addition to improvements in production, Santos said it achieved significant cost reductions across its business.
“Capital expenditure for the first half was 55% below 2014 levels and we cut the production costs per barrel by 11% to A$13.70/boe,” Knox said. “We have been and continue to take appropriate steps to reduce costs further … [and] are on track to deliver our 2015 target of A$180 million in gross supply chain savings.”
Santos’ 30%-owned and operated Gladstone LNG project on Australia’s east coast remains on schedule to deliver first LNG around the end of the third quarter, Knox confirmed. GLNG comprises two production trains with capacity of 7.8 million mt/year.
The strategic review follows continuing pressure on Santos’ share price in recent months and “approaches from other parties concerning various assets and strategic opportunities.”
Santos Chairman Peter Coates will take executive responsibility for conducting the review with the assistance of Deutsche Bank and Lazard as advisers.
Hong Kong-based analysts with Bernstein Research said they believed an asset sale was inevitable, but a bid by a competitor also seemed likely.
“PNG LNG would be the most likely asset to be sold, although this represents the jewel in Santos’ crown,” the analysts said, pointing to Total or ExxonMobil as likely buyers. “The alternative is that the company is acquired, which seems more likely to us … The most obvious bidders would be Woodside or Total,” Bernstein added.
“Woodside seems more likely politically, although Total have some interesting synergies given their position in GLNG and PNG. Whether the time is right for an acquisition is another thing and buyers may yet want to be patient given the murky near term commodity price outlook.”
The ExxonMobil-operated PNG LNG project has a capacity of 6.9 million mt/year. Darwin LNG produces about 3.5 million mt/year. Santos’ full-year production guidance remains at between 57 million and 64 million boe.
