However, strong gas production in the Cooper basin and fixed price contracts are helping Santos remain confident it can weather the COVID-19 storm.
Australia’s second-largest independent gas producer’s first quarter production of 17.9 mmboe was 4 per cent lower than the prior quarter, primarily due to an unplanned domestic gas customer outage in Western Australia and the impact of Cyclone Claudia.
This was partially offset by a 23 per cent increase in Cooper Basin gas production on the previous quarter, its highest quarter of production in the region since 20111 driven by strong flow rates from new wells.
Santos’ revenue fell to $US 883 million for the quarter ending March 31, down 13 per cent on the $US1.02 billion in generated in the March quarter last year.
Demand destruction due to the coronavirus pandemic and a Saudi Arabia-Russia price war in March have upended energy markets this year, with crude prices sinking below $US30 a barrel.
Investors helped Australian stocks into positive territory in early market trading this morning after a rise in world oil prices overnight.
Australian LNG companies, which sell most of the commodity through long-term oil-liked contracts, have delayed investments in major growth projects to cope with the recent collapse in crude prices.
Last month, Santos cut its full-year capital spending by $US550 million and deferred an investment decision on its $US4.7 billion Barossa gas project off northern Australia, in which it recently sold a stake to Japan’s JERA.
It also announced a target free cash flow breakeven oil price of US$25 per barrel.
Santos Managing Director and Chief Executive Officer Kevin Gallagher said about 70 per cent of the company’s forecast production volumes were either fixed-price domestic gas contracts or oil hedged at an average floor price of US$39 per barrel.
He said the current environment was a time for discipline.
“We have a strong liquidity position with over $3 billion available and we have sufficient headroom in our debt covenants for a number of years at current oil prices,” chief executive Kevin Gallagher said in a statement to the ASX this morning.
“The COVID-19 crisis continues to put demand pressure on industries across the globe and we are not immune.
“I remain confident our disciplined, low-cost operating model is built to see Santos through these challenging periods and today’s results are a strong base for us to build on as we fight current low oil prices and COVID-19. Santos is well positioned to leverage the opportunities when prices and demand recover, which they will.”
Santos produced 17.9 million barrels of oil equivalent (mmboe) during the period, down from 18.4 mmboe last year.
The ASX-listed firm raised its annual output forecast to between 81 mmboe and 89 mmboe as it expects to complete the acquisition of ConocoPhillips’ northern Australia business by the end of the first half of 2020.
Santos shares were up 7 per cent to $4.30 in the first three hours of trade following this morning’s announcement.
The company’s share price reached $9 on January 15, its highest level since 2014 but plummeted in February and March to a low of $2.75 on March 19 before recovering some ground in recent weeks.
Santos was ranked No.1 in InDaily’s SA Business Index annual listing of South Australia’s top 100 businesses in 2019.
– with AAP
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