Santos reports first half profit of $290 million
- First half net profit after tax up 240% to $290 million
- Underlying profit up 48% to $242 million
- Cash flow up over 190% to $565 million
- Interim dividend up 20% to 18 cents per share
- Revised 2005 production forecast of 55 mmboe – up 17% on 2004
- Strong growth outlook
Santos Limited today announced a record $290 million net profit after tax for the six months to 30 June 2005.
This compares with net profit of $85 million in the first half of 2004 when earnings were impacted by the loss of production caused by the Moomba incident.
The 2005 first half result is favourably impacted by the partial reversal of impairment write-downs booked on transition to the Australian equivalent of International Financial Reporting Standards (A-IFRS), which is not considered part of the underlying profit.
The profit was achieved on opening half sales revenue that topped the $1 billion level for the first time, representing a 73% increase on the first half of 2004.
Cash flow from the Company’s operating activities was up over 190% to $565 million.
First half production rose 24% from 21.2 mmboe to 26.3 mmboe and included the benefit of the Company’s Mutineer-Exeter oil field off Western Australian coming on stream ahead of schedule.
Santos has increased its forecast full year production to 55 mmboe compared with 47 mmboe in 2004.
A further production increase of at least 10% is forecast for the 2006 calendar year.
Directors increase interim dividend to 18 cents
Directors have declared an increased fully franked interim dividend of 18 cents per ordinary share – a 20% improvement on the 2004 interim dividend of 15 cents per share.
Santos’ Chairman, Mr Stephen Gerlach, said the increase in interim dividend reflects the Board’s continued confidence in Santos’ growth outlook, and follows a rise in last year’s total annual dividend from 30 cents to a fully franked 33 cents per share.
“Santos is delivering” – Managing Director
“The record first half result demonstrates the ways in which Santos’ strategy is building earnings momentum, whilst at the same time progressing options for future value creation,” the Company’s Managing Director, Mr John Ellice-Flint, said today.
“The higher profit and interim dividend reflect our growing production profile and the increased proportion of liquids versus gas in our production mix,” Mr Ellice-Flint said.
“The drivers behind this improvement in liquids mix are new projects such as Mutineer-Exeter, Bayu-Undan and an expanded Cooper Basin oil exploitation program.”
“Our sales revenues and increased margins reflect the strong oil price and a 10% increase in the average gas price across our portfolio.”
Unprecedented number of new projects
This result has further highlighted the unprecedented number of projects that have either recently come on stream or are in development.
Three new projects – Bayu-Undan liquids, Minerva and Mutineer-Exeter – have added to the Company’s production profile in the past year.
Five new offshore projects will commence production over the next 18 months, including John Brookes, Casino, Oyong, Maleo and the LNG phase of Bayu-Undan.
These projects are in addition to development activities in the Company’s existing onshore assets where the focus remains on drilling, completing and connecting wells to extend and grow production.
Significantly for Santos, its key growth projects are in most cases performing above expectations, including:
• Mutineer-Exeter
Production from this Santos operated oil field has continued to perform well since commencing production at the end of the first quarter.
Oil production during the first half – including the ramp up phase – averaged 72,000 barrels per day, and current production is consistently in excess of 80,000 barrels per day.
Project pay-back has been rapid – in fact, the entire gross capital cost of around $440 million has already been recovered.
The Mutineer 11 appraisal well drilled in May was a positive result. Two additional development wells will now be drilled next year, one on Mutineer and the other on Exeter.
• Bayu-Undan
Production from the Bayu-Undan liquids phase commenced in the first quarter of 2004 and since that time the field has exceeded expectations, with current gross liquids production of over 100,000 barrels per day.
Since the end of the half, formal LNG sales contracts have been signed and first gas has been introduced into the pipeline from the platform to the LNG plant under construction at Wickham point near Darwin.
Current exploration activity in the region – including the Caldita well which is currently drilling, and the upcoming Firebird well – is aimed at proving up additional gas, and potentially liquids, to provide feedstock for an expansion of Bayu-Undan LNG production.
• John Brookes
Production from the John Brookes field is expected within the next few weeks, following recent successful development and appraisal drilling.
The scope of work for the development has been increased post sanction, reflecting the potential for higher production due to increased reserves, and also the need to add CO2 removal facilities.
Since the end of the half, additional volumes of John Brookes gas have been commercialised, with the sale of 229 PJ to a new gas fired power station to be built in Kwinana.
• Casino
The first half saw the development wells successfully drilled on the Santos operated Casino field with higher than expected flow rates and good reservoir quality.
The recent Henry gas discovery, just 8.5 kilometres north of Casino, should be readily commercialised due to Santos’ pre-existing option to deliver more gas into the contract with TRU Energy.
Exploration
Santos’ exploration program delivered a 22% wildcat success rate in the first half with two discoveries from nine wildcat wells – Hiu Aman in the deep water Kutei Basin and Hurricane in the offshore Carnarvon.
The remainder of our 2005 exploration drilling program includes 19 wildcat exploration wells across a range of areas in Australia and internationally.
The first of these, Henry 1 is a commercial discovery.
Outlook
Mr Ellice-Flint said Santos’ Australian oil and domestic gas businesses provide the Company with strong and predictable cashflows, together with incremental growth opportunities – and will continue to do so for many years to come.
“The growth in operating cash flow bodes well for our ability to invest in growth projects, whilst continuing to reward shareholders via dividend payments,” he said.
Mr Ellice-Flint said Santos had a large number of options to continue to satisfy eastern seaboard gas markets due to the Company’s infrastructure and supply position.
“We have already demonstrated our ability to create value through innovative contracting for the Casino gas field, and with gas swaps through several states and joint ventures,” he said.
“In addition, our unique gas storage capabilities in Moomba and south western Queensland provide us with flexibility and security of supply advantages, the value of which are increasingly being recognised by the market.”
Tipperary acquisition
Mr Ellice-Flint said the proposed US$466 million Tipperary acquisition will underpin Santos’ core position as a major supplier of gas to eastern Australia.
“Integrating the Fairview operation into Santos’ existing business, and further monetising the large uncommitted reserves will be the key priorities for Santos once the acquisition is completed later this year,” he said.
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Santos stock symbols: STO (Australian Stock Exchange), STOSY (NASDAQ ADR), Ref #82-34 (Securities Exchange Commission).
