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Santos Third Quarter Activities Report - Positive Result

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Santos Ltd (ASX: STO) is an Australian petroleum company. The five main natural gas 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$16.2 billion.

Santos ltd - report

What are the main points in the September 2019 quarterly report?

  • Production for the September quarter is 19.8 mmboe, up 6% from the previous quarter.
  • Sales volumes for the September quarter is 25.2 mmboe, up 12% from the previous quarter.
  • Sales revenue for the September quarter is $1,030 million, second-highest quarterly revenue on record, and up 7% from the previous quarter. 

What are the drivers of this result?

Santos Western Australia operations performed strongly in the September quarter. Total production for the September quarter is 8.6 mmboe, up 11% from the previous quarter. This increase in production can be attributed to the acquisition of Quadrant in the second half of 2018.

Santos Cooper Basin, Queensland, NSW and PNG operations production levels increased slightly by 0.1 mmboe. Northern Australia operations observed a total production increase by 0.2 mmboe.

This production level is in line with 2019 guidance.

  • 2019 guidance for sales volumes remains 90-97 mmboe.
  • 2019 guidance for Production levels remains 73-77 mmboe.

What is the outlook for Santos?

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

On the 8 October 2019, Carnarvon and STO announced an update on their Caley flow test in 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. Santos management notes,

“Another highlight of the quarter was the successful appraisal of the Dorado field which is one of the most exciting growth projects in our portfolio. Following the strong well test results, we are targeting FEED-entry in early 2020.

On the 14 October 2019, Santos announced the acquisition of ConocoPhillips’ 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.

What is the market reaction?

The initial market reaction to Santos September quarter 2019 report is neutral. Today, Santos share price is up around 1.5% and is currently trading at around A$7.875 (12.45, 23 October). Santos has a P/E ratio around mid-teens and an annual dividend yield of 2.5% (fully franked).

 


 

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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