It’s no wonder Santos reaffirmed its full year production guidance despite posting a 6% drop in output for first quarter.
The company revealed in its March quarter production report yesterday that output for the three months to March 31, was 13.7 million barrels of oil equivalent (mmboe), down from 14.5 million barrels in the previous corresponding quarter of 2007.
Santos said a halt to production for repairs on the Mutineer-Exeter floating ship off the West Australian coast "significantly impacted" first quarter output.
"1Q 2008 production of 13.7 mmboe was significantly impacted by the shutting in of the Mutineer-Exeter FPSO for electrical repairs during the majority of the quarter. The production loss from the equipment failure was 0.2 million barrels.
"Repairs conducted during February and early March on the FPSO’s electrical slipring turret successfully returned oil production on 19 March 2008 to an equivalent rate prior to the failure.
"Offsetting this was higher oil production in Indonesia compared to the previous corresponding period driven by the good performance of Oyong in the quarter and the solid delivery of the base East Australian gas business.
"Record first quarter sales revenue of $634 million was 9% higher than the previous corresponding period.
“With the 1Q 2008 average portfolio gas price of $3.99 per gigajoule (GJ) 4% higher than the previous corresponding period and a 31% jump in the first quarter’s realised oil price to $A106 per barrel compared to the March quarter of 2007."
So it is not hard to understand why the company said it was still on track to deliver "2008 production in the range of 56 to 58 mmboe, in line with our guidance".
“The higher production in Indonesia and return to normal output levels at Mutineer-Exeter should see the guidance met, barring a disaster somewhere in the production group.
Santos shares dipped 3c to $16.61 in early trading, but picked up to close up 18c at $16.82, not far away from the all time high of $17.10.
Santos said higher oil and gas prices achieved during the quarter allowed the company to post a 9% increase in sales revenue to $634 million.
Santos spent almost $49 million on exploration during the quarter.
Zinifex shareholders are probably counting down the number of quarterly reports they will receive in their present form before they become larger and more complex after the merger with Oxiana goes through.
That $5.1 billion takeover by Oxiana (merger of equals they claim) was the biggest event for Zinifex in the quarter, ahead of the eventually successful bid for Allegiance Mining.
Zinifex said third-quarter zinc output rose 2.6% on increased production from the Rosebery mine in Tasmania.
Zinc production from its two mines rose to 146,278 tonnes in the three months to March 31, from 142,525 tonnes in the March quarter of 2007. Lead output fell 14% to 12,974 tonnes, the company said in its report to the ASX.
But lead in concentrate production for the year to date was 4% ahead of the corresponding period last year at 50,380 tonnes, despite the March quarter’s fall.
CEO Andrew Michelmore said that "Zinc prices have averaged US$2,774 per tonne this financial year to date, 24% lower than for the corresponding period last year. Market concerns over a large forecast zinc surplus, which has yet to appear, has been putting zinc prices under pressure.
"In addition the ongoing weakening of the US dollar is also impacting revenue. Lead prices strengthened at the end of the quarter, although they remain below the record highs experienced in the June 2007 Quarter.
“Year to date prices have averaged US$3,099 per tonne, 50% higher than the corresponding period last year, due to low stocks and ongoing concerns on reliability of supply.
"A major step in the strategy to grow Zinifex’s mining business was announced in March with our agreement to merge with Oxiana to create a new major diversified base and precious metals mining company.
“The merged business will have exceptional strength to add further shareholder value by capturing the growth in global demand for metals generated by China.
"The merger will be by way of a Zinifex Scheme of Arrangement in which Zinifex shareholders will receive 3.1931 Oxiana shares for each Zinifex share they own. The terms reflect a merger of equals with the merged entity to be owned 50% by Oxiana and Zinifex shareholders, respectively.
“Zinifex plans to dispatch a Scheme Booklet to shareholders in mid May to inform them of the merger process in preparation for a General Meeting that is currently proposed for 16 June 2008 at which they will be requested to vote on the Scheme.
"Zinifex’s offer for Allegiance Mining also reached a milestone on 17 March as we took a controlling interest in the company. Immediately following, the Board of Allegiance was reconstituted with the appointment of three Zinifex representatives and resignations of three former Allegiance directors. An interim Chief Executive Officer, Bruce McGowan, was also appointed.
"Work continues at Allegiance’s Avebury nickel project with pre-production testing to commence in May and wet commissioning of the concentrator throughout June.
"Production and ramp up to full capacity will occur across the September 2008 Quarter.
"The acquisition of Allegiance is an important step in Zinifex’s strategy of diversifying its exposure to high margin metals and expandable mines. It is also a perfect fit with the merged Zinifex and Oxiana making the combined entity the world’s second largest producer of zinc and a substantial producer of copper, nickel, lead, gold and silver.
"Our Century regional exploration program returned signific
