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Santos - Flat Result For 2019 Fourth Quarter Activities Report

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Santos Ltd (ASX: STO) is an Australian petroleum company. The five main petroleum assets that Santos has an interest in are located the Copper Basin, Queensland, Papua New Guinea, Northern Australia and Western Australia. Santos has a market capitalisation of A$18.5 billion.

SANTOS - FLAT RESULT 2019

 

What are the key features of Santos fourth quarterly activities report?

  • Total production for the December quarter is 18.7 mmboe, down 5% from the previous quarter.
  • Production at Western Australia assets for the December quarter is 7.4 mmboe, down 14% from the previous quarter.
  • Production at the Cooper Basin asset for the December quarter is 4.1 mmboe, up 2.5% from the previous quarter.
  • Production at Queensland and NSW assets for the December quarter is 3.4 mmboe, up 3% from the previous quarter.
  • Production at Papua New Guinea (PNG) assets for the December quarter is 3.3 mmboe, up 6.5% from the previous quarter.
  • Production at Northern Australia and Timor-Leste assets for the December quarter is 0.7 mmboe, down 12.5%.

2019 production and sales volumes were towards the upper end of guidance, while upstream production costs were at the lower end of guidance. All guidance is shown in the table below:

Santos - Table 1

 

2020 Guidance is shown in the table below:

Santos - Table 2

 

Santos performed strongly last calendar year that is demonstrated through a 46% increase in the share price. Santos Managing Director and Chief Executive Officer Kevin Gallagher said:

Santos delivered record annual production and revenues in 2019, and lower unit production costs, clearly demonstrating the effectiveness of our disciplined, cash generative operating model.

 

What is the outlook for Santos?

The outlook for Santos is positive, with a number of projects that could underpin future growth.

On the 8 October 2019, Carnarvon (ASX: CVN) and Santos announced the results of the Caley flow test for Dorado-3. The test was very successful. It was reported that the Caley reservoir flow test exceeded 11,000 barrels of oil per day plus associated gas. Carnarvon notes that the potential flow rate is even higher, but the flow rate was limited by the capacity of the test equipment on the rig. This is a significant oil discovery. The test indicates very high potential flow rates of around 30,000 barrels per day from each production well in the Caley reservoir. Santos has an 80% interest, while Carnarvon has a 20% interest. the Dorado discovery for Santos could provide additional earnings in the early 2020s once production begins. Production is estimated to begin in late 2024.

On the 14 October 2019, Santos announced the acquisition of ConocoPhillips’ (COP) interests in Northern Australia for US$1.39 billion plus a contingent $75 million on Barossa FID. Santos management mentioned that this acquisition gives shareholders operatorship and control of long-life, low cost natural gas assets and strategic LNG infrastructure aligned to Santos brownfield growth strategy. Completion of the acquisition is expected in the first quarter of 2020, subject to third-party consents and regulatory approvals.

 

What is the market reaction?

The market reaction to Santos is broadly neutral. Santos share price is up around 0.1% and is currently trading at A$8.89. Santos has a forward P/E ratio in the mid-teens and an annual dividend yield of around 1.8%.

 


 

Disclaimer:
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.
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