Santos today announced its 2017 Second Quarter Activities Report.
• Forecast free cash flow breakeven for 2017 reduced to US$33/bbl1, down from US$36.50/bbl in 2016.
• 2017 production cost guidance reduced to US$8-8.25/boe, down from US$8.45/boe in 2016.
Balance sheet strengthened
• Net debt reduced to US$2.9 billion at the end of the quarter, down from US$3.5 billion at the end of 2016.
Production and sales guidance upgraded
• 2017 production guidance upgraded to 57-60 mmboe and sales guidance upgraded to 75-80 mmboe.
Record PNG LNG performance
• PNG LNG operated at an annualised rate of 8.6 mtpa in June, the highest monthly rate since start-up.
Growth in PNG and Northern Australia
• PNG: The Muruk drilling programme confirmed the discovery of a potentially significant new gas field.
• Northern Australia: Positive results from the two-well Barossa appraisal drilling campaign strengthened the field’s position as lead candidate to supply backfill gas to Darwin LNG.
Santos Managing Director and Chief Executive Officer Kevin Gallagher said the company’s second quarter results delivered further progress on reducing costs, lowering net debt and improving the free cash flow position.
“Compared to the end of 2016, our net debt position is US$600 million lower to US$2.9 billion and our forecast free cash flow breakeven for 2017 now sits at US$33 per barrel1, well below the US$47 per barrel at the beginning of 2016.
“These are strong outcomes that highlight Santos’ ongoing transformation into a low-cost, reliable and high performance business with a robust asset portfolio that can generate significant free cash flow in a lower oil price environment.”
Second quarter production of 14.7 mmboe was in line with the previous quarter. Sales volumes were up 16% to 21.5 mmboe and sales revenues up 12% to US$769 million primarily due to higher LNG prices and the timing of liftings. As a result of this solid operational performance, Santos has increased its production and sales volume guidance for 2017 to 57-60 mmboe and 75-80 mmboe respectively.
Mr Gallagher said more efficient, lower cost operations had enabled Santos to increase drilling activity in both the Cooper Basin and across its GLNG acreage. This has been achieved as a result of the significant improvements in drill, complete and connect upstream operations unit cost performance over the last 18 months. These additional wells will help boost production over the next few years so Santos can deliver increased gas supply for the domestic market. Santos also executed a number of term gas sales into the east coast domestic market during the second quarter.
“As a long-standing supplier of gas to Australian customers in both the east and west coast, we understand the importance of well-functioning domestic market,” Mr Gallagher said.
“It is also pleasing to see our exploration and appraisal activity growing as part of our disciplined operating model, with successful outcomes in the Cooper Basin, as well as Muruk in PNG and Barossa offshore Northern Australia.”
1 Free cash flow breakeven is the average annual oil price in 2017 at which cash flows from operating activities (including hedging) equals cash flows from investing activities. Forecast methodology uses corporate assumptions. Excludes one-off restructuring and redundancy costs and asset divestitures.