Santos shares sink 4% on lower sales outlook

Investors wiped almost 4 per cent from Santos’ share price on Thursday morning as it laid out its 2018 strategy.
Nanjing Night Net

While production levels are forecast to remain stable, the energy company predicted a significant fall in sales volume for the year ahead.

The announcement saw its share price sink from a 2017 high of $4.78 to a daily low of $4.57. It was trading at $4.625 at 11.20am.

The company has kept to previously stated 2017 forecasts, expecting production levels to hit the upper end of 58 to 60 million barrels of oil equivalent (mmboe) and sales of 79 to 82 mmboe.

Chief financial officer Anthony Neilsen forecast production to remain steady for the next decade at between 55 and 60 mmboe.

However, sales volumes are expected to fall next year to between 72 and 78 mmboe, “primarily due to lower forecast third-party gas sales volumes and lower non-core asset volumes,” Santos said in a statement.

Santos has pushed the operational price at which it breaks even down this year to $32 a barrel.

The company has expanded its core asset focus to now include the Narrabri coal seam gas project in NSW, beyond the existing pillars of its Gladstone liquefied natural gas project (GLNG); PNG LNG; northern Australia, which includes its Barrosa, Petrel-Tern and Crown Lasseter gas development projects; and additional projects in Queensland’s Cooper Basin.

“This core portfolio is positioned to provide stable base production for the next decade and positive free cash flow in an oil price range of $US35 to $US40 a barrel, pre-major growth opportunities,” Santos chief executive Kevin Gallagher said.

GLNG hitting full-load installed capacity of 6 million tonnes a year by the end of 2019 has been pointed to as a key factor for Santos, which could offset natural declines of some of its assets.

Citibank analysts believe the company’s future market direction depends on its continued strong performance and sales volumes at this project.

“Share price performance is to a large degree hinged on cash-flow generation (GLNG cash flow outlook); an orderly ramp-up of Roma to nameplate capacity should de-risk long-term production,” Citi analysts said.

Santos is also looking to open two potential projects in the Northern Territory, at McArthur and Amadeus.

Santos’ executive vice president for marketing and trading, Phil Byrne, called Amadeus exploration a “basin opener”.

The company also plans to expand drilling within the Cooper Basin alongside Beach Energy to grow production, and provide increased levels of gas supply for the domestic market.

“The Cooper Basin is one of the world’s super basins,” Santos executive vice president, onshore upstream developments, Brett Woods said.

Santos has already committed to supplying 30 petajoules of domestic gas for 2018 and 2019.

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