Santos Limited (ASX: STO), an energy sector company based in Flinders Street, Adelaide, Australia, deals in treatment and marketing of condensate, natural gas, crude oil, liquid petroleum gas and naphtha. The first quarter operations report was released by Santos today for the period ending 31 March 2019.
According to Kevin Gallagher, company’s MD and CEO, the company experienced excellent production volume and a record free cash flow in the first quarter. He believes that the company’s brownfield growth strategy and disciplined Operating Model has worked towards delivering positive free cash flow for twelve consecutive quarters.
During the quarter, the company’s production volume was reported as 18.4 mmboe (million barrels of oil equivalent) which is 33% higher than the corresponding quarter (Q1 2018) production volume. This was due to the successful acquisition of Quadrant Energy in November 2018 combined with the PNG LNG earthquake effect in the previous quarter, partially balanced by the sale of the non-core Asian assets in September 2018.
The company reported sales volume of 22.8 mmboe in the first quarter which was 21% higher than the corresponding quarter (Q1 2018)’s figure primarily due to the successful acquisition of Quadrant Energy partially neutralised by lower PNG sales volumes due to the timing of LNG shipments.
The first quarter sales revenues were up by 28% to $1,015 million as compared to the corresponding quarter’s revenue which is the second highest quarterly revenue on record.
In April 2019, the Australian Parliament modified the Petroleum Resource Rent Tax (PRRT) Laws which will take effect on 1 July 2019. As per the new laws, the ability to transfer onshore exploration costs and the tax value of the past onshore investment is eliminated from 1 July 2019.
The plant outages and shutdowns for tropical cyclone Veronica in March led to lower customer nominations which resulted in lower Western Australia’s sales gas production volumes as compared to prior full quarter (proforma Santos + Quadrant Energy).
The drilling activity levels continue to rise in the first quarter within disciplined Operating Model. Cooper Basin drilled around 15 development wells and eleven appraisal wells in the first quarter with an 85% success rate.
The drilling pace was on track across the GLNG acreage in the first quarter with 87 wells drilled in Q1 2019 with a 100% success rate. With this pace, 350-400 wells might be delivered this year in GLNG.
The Corvus-2 appraisal well on the offshore of Western Australia in which Santos has a 100% interest was discovered as a significant gas resource. Drilling of the Muruk-2 appraisal well in which Santos has a 10% economic interest continued during the quarter, and a drill stem test confirmed the presence of gas in the Toro A reservoir. The Muruk-2 result confirmed that the field is a vital gas discovery having the potential to support PNG LNG expansion.
Santos priced $600 million worth senior unsecured fixed rate bond transaction in March in the US$ Regulation S market. The bonds were priced at a fixed coupon rate of 5.25%, for a period of 10 years with the maturity date as 13 March 2029. Partly funded by Regulation-S bonds, Santos paid $1.1 billion gross debt during the period. Its net debt reduced to $3.4 billion on quarter end (after annual dividend payment excluding the impact of new AASB norms)
The company’s balance sheet reflects $1 billion cash and cash equivalents with $4.4 billion gross debt at the quarter end.
The stock of the company is trading at a current market price of AUD 7.120 and has seen a daily price change of AUD 0.050 and 0.71%.