The global liquified natural gas boom (LNG) and energy shortage in Europe and China over the last half of 2021 saw major energy producers Santos and Woodside Petroleum Limited report strong fourth quarters on Thursday, leaving them on track to reveal big rises in profits and rewards for shareholders when the full year results are released.
Both companies reported record quarterly revenue for the three months to December thanks largely to higher oil prices and a number of record highs for LNG prices, especially in the Asia basin.
2021 was a vastly different year to 2020 – oil prices and demand recovered despite the onset of Covid delta in many parts of the world and the late appearance of the omicron version. Demand and output picked up and prices rose, helped by stringent caps on production by OPEC and friends (mostly Russia).
That was in stark contrast to 2020 which was a year when demand plunged production stuttered and energy companies were forced to slash staff, investment and other costs to remain alive as the pandemic strangled revenues.
Helping 2021’s recovery was the shortage of energy – mostly gas – in Europe for much of the year because of shortfalls in renewable output at key times and sluggish gas supplies from Russia for geopolitical reasons.
At the same time sudden power rationing and shortages in China saw LNG demand and prices surge from around August through December, and the extra demand from Europe for gas merely boosted LNG prices higher – in some cases to more than $US50 a million BTUs. On some days prices were 10 times what they were in depressed 2020.
Woodside, which is in the middle of completing the takeover of BHP’s oil and gas business, delivered an 86% quarter on quarter increase in sales revenue to $US2.852 billion in the three months to December thanks to the highest oil and gas prices for years.
This was driven by a 22% increase in sales volume to 31.8 million barrels of oil equivalent (mmboe) and a 53% lift in its average realised price to $US90 a barrel of oil equivalent.
For the full year, revenue is expected to be US$6.973 billion – almost double the revenue of 2020’s $US3.612 billion.
A small negative for Woodside was weak production in 2021.
December quarter production came in at 22.6mmboe. While this was up 2% quarter on quarter, it was down 9.2% from the final three months of 2020.
This took its full year production to 91.1mmboe, which is down 9% from the record production of 100.3mmboe it in 2020.
Looking ahead, management expects its production to improve in FY 2022, though it doesn’t expect to reach the record levels of FY 2020. It has guided to production of 92mmboe to 98mmboe, excluding any impact from the proposed merger with BHP Petroleum.
Woodside CEO Meg O’Neill said in the ASX release that “The 86% increase in sales revenue for the quarter was underpinned by a 22% increase in sales volume as well as significantly stronger average realised prices. We achieved our highest quarterly sales revenue on record.
“The upward trajectory in global oil and gas prices resulted in a portfolio realised price of $90 per barrel of oil equivalent and a strong realised LNG price of $93 per barrel of oil equivalent. This increase in realised price demonstrates the continued strong demand for LNG and improvement in the trading environment over the course of 2021.”
Woodside shares rose 1.5% to $25.81.
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Santos’s results included a small contribution (but helpful) from Oil Search which officially became part of the company from December 11 last year.
Santos said it achieved production of 22.9mmboe during the fourth quarter, up 5% quarter on quarter but a short of the market’s expectations.
This took its full year production to a record of 92.1mmboe, which was up 4% year on year.
This includes 1.7mmboe from Oil Search assets following the completion of their merger on 11 December (almost half that 4% annual increase)
Santos also revealed a 7% increase in sales volume to 26mmboe for the quarter but this wasn’t enough to stop the company from reporting a 3% decline in annual sales volume to 104.2mmboe (meaning it sold more oil and gas and other products than Woodside did over the year – a first).
Santos still recorded a 34% increase in quarterly sales revenue to $US1.532 billion and a 39% lift in annual sales revenue to $US4.714 billion.
And a year after the company slashed spending and staff (and especially investment) as the slide in oil and gas prices slashed revenues and cash flows, Santos reported a 62% increase in full year capex to $US1.387 billion and record free cash flow of $$1.5 billion (and double 2020’s level).
Santos’ CEO Kevin Gallagher, said in the statement to the ASX: “Our disciplined, low-cost operating model continues to drive strong performance across the business and has positioned us to take full advantage of the increase in commodity prices. The completion of the Oil Search merger delivers us the size and scale to deliver even stronger outcomes in 2022 and beyond.”
“Our merger with Oil Search delivers increased scale and capacity to drive a disciplined, low-cost operating model and unrivalled growth opportunities over the next decade – with a vision of becoming a global leader in the energy transition,” he added.
Guidance for FY 2022 will be provided with its full year results next month.
Santos shares edged up 0.8% to $7.26.
