Santos

About the author:

Author name:

By Adrian Prendergast

Job title:

Senior Analyst

Date posted:

21 July 2015, 10:25 AM

Sectors Covered:

Mining, Energy

It was a steady June quarter result for Santos (STO) given the depressed oil/LNG price environment. Higher production during the quarter was offset by lower prices, but all eyes remain firmly fixed on GLNG. The first LNG from train 1 is on schedule, on budget and due at the end of the quarter.

Tough quarter for the Energy sector

2Q15 production rose 12% on the previous quarter at 14.3mmboe. It was a particularly strong quarter out of STO's Cooper basin gas operations with a number of new development wells brought online. Volume of sales was 15.7mmboe, but the decline in realised prices saw STO's 2Q15 sales revenue fall 5% on the previous quarter to A$786m.

Exploration expenses came in above our estimates at A$207m for the first half, while overall capital expenditure for the quarter came in below our expectation at A$366m. First half operational expenditure was another positive, averaging below FY15 guidance during the quarter at A$14/boe. STO maintained its FY15 guidance for production, production costs and capital expenditure.

GLNG start almost here

On schedule and within budget, all upstream facilities are now fully commissioned, with the majority of gas produced from Fairview and Roma fields injected into storage. 478 CSG wells are now online across Fairview (358) and Roma (120). Downstream development is progressing smoothly, increasing the potential for a better ramp up phase than we had forecast.

What we think

Following the 2Q15 result we maintain our Add recommendation with a marginally increased share price target. The two critical risks to our price target remain the successful start-up of GLNG and the oil price. Both could conceivably put a strain on STO's balance sheet.

More information

Morgans clients can access our detailed research and share price target for Santos (STO). If you are interested in becoming a Morgans client, please contact your nearest Morgans office.

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