Like Woodside on Wednesday, the 2008 oil price boom was good to Santos, the country’s third largest oil group
The Adelaide-based company yesterday reported a 42% rise in 2008 annual underlying profit, boosted by strong operating performance and higher prices for oil and gas.
The company posted an underlying profit for the year to December 31 of $571.6 million.
That underlying profit was better than market forecasts of $558 million.
Woodside reported net profit before one-off items was $1.83 billion in 2008, below analysts’ expectations of $1.99 billion.
Reported net profit, which includes significant items, jumped 73% from a year ago to a record $1.79 billion.
Santos’ net profit, including one off items, was a record $1.7 billion, lifted by a $1.2 billion profit on the sale of a 40% stake in its Queensland liquefied natural gas project to Malaysia’s Petronas during the year.(Source,Comsec)
That was on revenue up 11% to $2.8 billion, which was underpinned by higher oil, condensate and gas prices, and the weaker Australian dollar.
The company announced a final dividend of 20c, unchanged from a year earlier. That took the total payout to 42c a share, up 5% on 2007’s payout.
The shares finished up 18 cents at $14.41.
And, like Woodside, Santos is pulling in its horns, cutting non-essential spending and redirecting cash towards its best prospects, export gas.
The credit crunch and global commodity slump has seen the oil and gas company cut its capital and exploration spending by more than $300 million and redirecting those savings into liquefied natural gas plants under development in Gladstone (GasLNG) and Papua New Guinea (LNG).
The move followed Woodside’s decision on Wednesday to cut spending by $500 million to shore up funding for its $12 billion Pluto project off the Northwest Coast of Western Australia..
Santos CEO, David Knox, said the high priority placed on gas was intended to capitalise on an expected boom in demand for gas in a lower carbon economy.
Santos, which produced 54.4 million barrels of oil equivalent in 2008, forecast in January that its 2009 production was expected to be broadly steady at between 53-56 million barrels of oil equivalent (mmboe).
”Looking forward, Santos is well positioned despite the global financial crisis,” Santos chief executive David Knox said in a statement.
The company recorded impairment losses of $216.6 million against a number of assets including Jeruk and Oyong in Indonesia and the Ballera Plant and Patricia Baleen projects in Australia.
The oil and gas producer has a joint venture with Petronas to develop an LNG plant in Queensland, using coal seam gas as feed.
”Australia has a strategic advantage in its natural gas reserves – it is an abundant and reliable fuel source for low carbon intensity base load power generation,” Mr Knox said.
“2008 was defined by delivery from the base business and Santos’ progress on our LNG growth strategy.
"Both the GLNG and PNG LNG projects achieved significant milestones during the year. We look forward with confidence to working with our partners towards the sanction of both projects. We are very excited about how our LNG portfolio is evolving.
“On GLNG, we were pleased to enter a long term, fully aligned joint venture with PETRONAS. And in December, we announced the appointment of Bechtel as the FEED contractor for the downstream elements of the project.
"The combination of Santos, PETRONAS and Bechtel means our project is in safe, experienced and capable hands."
Santos has 60% of the Gladstone plan and 19% of the PNG plan which is being run by Oil Search Ltd.
A final investment decision is expected by the end this year on the $7.7 billion Gladstone LNG project to enable first cargoes to be exported in early 2014.
Mr Knox also revealed that Santos is in talks to restart its stalled Reindeer gas project in Western Australia.
The project development was suspended in December after contract negotiations for gas sales with a customer fell through.
Santos signed a contract with CITIC Pacific in January, however, to supply gas from Reindeer to the company’s iron ore project.
Reindeer’s operator, Apache Northwest Pty Ltd, holds a 55% stake, with Santos holding the balance.
Santos chief executive David Knox said the company was in discussions with "Apache and engineering firms" to restart the project soon.
Santos said it was in a strong position, with lots of cash, low debt and rising reserves.
"Cash balances at 31 December 2008 were $1.6 billion. Net debt was $506 million and gearing was 10%. In addition Santos has committed but undrawn debt facilities of $700 million available.
"As previously announced to the market, Santos increased its proved and probable (2P) oil and gas reserves by 134 million barrels of oil equivalent (mmboe) in 2008, taking the Company’s total 2P reserves past the 1 billion barrel mark.
"The significant growth in 2008 was achieved despite Santos monetising over 90 mmboe of 2P reserves via the selldown of a 40% stake in the Gladstone LNG to PETRONAS. Contingent resources increased by 254 million boe to 2.85 billion boe."
Lihir Gold Ltd has shown the benefits (like Newcrest) of scrapping a restrictive hedging policy and going ‘naked’ so to speak in surfing the vagaries of the world gold prices.
