Santos Half Year Result: STO 2018 guidance stronger as the rebuild phase continues

Energy producer, Santos Limited (STO) reported a net profit of US$156 million for the first half of 2017 against a US$5 million loss in 2016. The company has been in a rebuilding phase over the last 18 months and is well on the way to meeting its renewed strategy under new CEO Kevin Gallagher. 

 Santos updated the market last week on impairments and accounting changes that would impact this result totalling US$689 million. A one off non-cash impairment US$149 million primarily due to lower oil prices from its AAL (Indonesia oil) business and a US$870 million changer on its Gladstone Liquid Natural Gas (GLNG) operation and this was partly offset by a write-back from the Cooper Basin totalling US$330 million. 

 The average oil price did increase over the first half of the year which has helped lift margins over the term. Production levels fell 5% over the half, as expected, due to the sale of its Victorian Mereenie and Stag assets. The remaining core asset production increased by 2% thanks to higher output from its Gladstone Liquid Natural Gas (GLNG) program 

 Santos continues to look for efficiencies within its business to help drive higher realised prices for its products, Santos said its earnings (EBITDAX) increased by 46% over the year to US$718 million, up 1.4% over the last half. Santos capital expenditure increased to US$321 million up from US$283 million including the Muruk acquisition and exploration drilling costs. 

 2017 year end forecast for free cash flow breakeven cost is expected to fall to US$33/bbl down 30% on year end 2015. Santos has reduced its hedging positions to allow it to monitor the impact of commodity price volatility. Net debt was reduced to US$2.9 billion and Santos is targeting a net debt level of US$2 billion by the end of 2019. 

 Santos expects production of between 57-60 million barrels of oil equivalent (Mmboe) for the FY17 year and expected sales of 7 –82 (Mmboe) Santos will not be paying an interim dividend for 2017. 

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