LNG prices drive record Santos quarterly sales

Strong LNG export prices has fuelled record quarterly revenue for Santos, which has also upgraded its full-year guidance for production and costs despite a dip in output in the most recent three months.

The oil and gas producer posted sales revenue for the September quarter of $US1.14 billion ($1.5 billion), up 6 per cent from the June quarter but lower than some analysts’ forecasts. Free cash flow surged 33 per cent to a record $US359 million.

Twelve LNG cargoes were sold during the three-month period linked to the north Asian benchmark spot price for LNG, which spiked to a record earlier this month.

Chief executive Kevin Gallagher said that at current prices for oil and gas, Santos should generate close to $US1.3 billion ($1.7 billion) of free cash flow for the full year.

He said that Santos’ proposed $21 billion merger with Papua New Guinea’s Oil Search is on track for completion by the end of the year, and signalled he expects no issues with approval from the PNG government for the deal.

“I’m very happy with how the merger is progressing, and particularly acknowledge the positive comments from PNG Prime Minister Hon. James Marape, at what is an incredibly important time for energy markets and energy companies around the world,” said Mr Gallagher, who met with Mr Marape and senior government figures in PNG earlier this month.

“Size and scale have never been more important as we look to fund the energy transition to net-zero emissions, and the merger is expected to create one of the top-20 companies in our sector globally and a top-20 ASX-listed company.”

Average LNG prices for Santos surged in the quarter to $US10.36 per million British thermal units, more than double prices in the same quarter last year. Across Darwin LNG and PNG LNG, Santos was involved in shipping 12 cargoes sold against the north Asian benchmark price of JKM.

JPMorgan energy analyst Mark Busuttil cited the LNG price as a key positive in the “strong” quarterly result, noting it beat his estimate of $US9.72.MMBTU. The average price Santos got for domestic gas, of $US4.98 a gigajoule, was 10 per cent above JPMorgan’s forecast.

Production of oil and gas in the September quarter slipped 3 per cent from the June quarter, however, to 21.9 million barrels of oil equivalent.

Still, Santos slightly upgraded its output guidance for the full year to between 88 million boe and 91 million boe, from an earlier range of 87 million boe-91 million boe.

It also reduced its guidance on capital expenditure for 2021, in particular for the Narrabri gas project in NSW where work has been delayed by 12 months due to a legal challenge that was resolved earlier this week. Expected capex on major growth projects is now estimated at $US500 million-$US600 million, down from $US700 million.

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