PERTH (miningweekly.com) – Oil and gas giant Santos has reported a 48% fall in underlying profits for the six months ended June, with the company swinging to a net loss after tax.
The company has reported a net loss of A$289-million, down from a net profit after tax of A$388-million in the previous corresponding period, while underlying profit decreased from A$411-million to A$212-million.
The company told shareholders that the financial results for the interim period reflected the significantly lower oil prices, owing to the impact of the Covid-19 pandemic on global oil demand.
The net loss also resulted from a non-cash impairment charge of A$756-million before tax at its Gladstone liquefied natural gas (LNG) asset and for its exploration assets.
Meanwhile, product sales for the six months under review also declined by 16%, from A$1.97-billion to A$1.66-billion.
MD and CEO Kevin Gallagher noted that the first half of the financial year delivered record production volumes and strong free cash flow, despite the significantly lower oil prices.
“These results again demonstrate the resilience of our cash generative operating model in a lower oil price environment, and strong operational performance across our diversified asset portfolio. Completion of the ConocoPhillips acquisition in May boosted our production to record levels and we expect even stronger production in the second half.”
A record 38.5-million barrels of oil equivalent were produced during the six months under review.
“Our disciplined operating model enabled us to maintain activities key to sustaining strong operational performance and stable production across all of our core assets, and we are now targeting a free cash flow breakeven oil price of less than $25/bl in 2020,” said Gallagher on Thursday.
“Consistent application of our disciplined operating model continues to deliver cost reductions and efficiencies, with unit production costs down 6% to $6.81/bl of oil equivalent, excluding the ConocoPhillips acquisition.”
He said that the acquisition of ConocoPhillips assets in northern Australia and Timor-Leste was fully-aligned with Santos’ growth strategy to build on existing infrastructure positions and delivered operatorship and control of strategic LNG infrastructure at Darwin.
“We were pleased to complete the acquisition in May for a reduced up-front purchase price and the integration of our two businesses is progressing well. Integration savings are being identified and realised rapidly, and we are now targeting the upper end of synergy guidance of $50-million to $75-million.
“Our balance sheet is strong with over $3-billion in liquidity and we remain well positioned to leverage our growth opportunities when business conditions improve.
“Covid-19 and the low oil price have presented a challenging time over the past couple of months, however, our disciplined, low-cost operating model has allowed us to navigate these challenges while remaining well positioned for growth on the other side.
“Santos remains confident that when prices and demand recover, our projects will be better placed than those in our competitor countries to leverage the opportunities that will inevitably re-emerge,” Gallagher said.
He noted that while the final investment decision on the Barossa project was deferred given the uncertain economic impact of Covid-19 combined with the lower oil price environment, since assuming operatorship Santos has progressed value improvement work targeting reduced project costs.
Barossa remains an important project for Santos owing to its brownfield nature and its low cost of supply, Gallagher said.
“We are also well-progressed on Dorado pre-front-end engineering design (FEED) and aim to take a FEED-entry decision on this exciting project in the second half of 2020.
“The Narrabri gas project was referred to the New South Wales Independent Planning Commission in June with a determination expected in the third quarter. Narrabri has the potential to supply up to half of New South Wales' natural gas demand.
“In the Cooper basin, our focus on low-cost, efficient operations contributed to stronger production and record liquids throughput as we continue to optimise capital efficiency and identify new opportunities to extract value from our significant midstream infrastructure.
“We are also progressing FEED work for the Moomba carbon capture and storage project, which has the potential to significantly reduce emissions and be an enabler for the production of hydrogen in the future,” Gallagher said.