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Santos production up as sluggish oil prices hinder revenue growth

Business

Santos has delivered record oil and gas production and sales volumes in the September quarter. But despite the production boom, the struggling world oil price has kept its sales revenues down by more than 20 per cent on this time last year.

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Production of 25.1 million barrels of oil equivalent (mmboe) was a record for Santos and 22 per cent up on the previous quarter while sales revenue of $1.12 billion ($US797 million) was up by 2 per cent on the June quarter. Production was higher across all five core assets, driven by increased domestic gas and LNG volumes.

However, its revenue is still 22 per cent down on the September quarter last year when it achieved $1.45 billion in sales on the back of much stronger pre-pandemic oil prices.

Santos generated $201 million in free cash flow for the quarter, bringing total free cash flow for the calendar year to $808 million.

Managing director and chief executive officer Kevin Gallagher said Santos’ disciplined, low-cost operating model had delivered another solid quarter, highlighted by record production and sales volumes, and another strong free cash flow result.

“As COVID-19 and the lower oil price continue to challenge us, we have remained resilient with stable revenues and consistent free cash flow generation from the core assets. Our balance sheet is strong and we remain well positioned to leverage our growth opportunities when business conditions improve,” he told the ASX in a statement this morning.

“We expect the third quarter to represent the trough for LNG prices, with higher prices expected in the fourth quarter based on current JCC oil-linked and JKM spot pricing.

“Our base business is strong with production levels expected to remain relatively steady for the next five or six years, allowing us to continue to progress our major capital projects while maintaining capital discipline and flexibility in commitment timing.”

Meanwhile, Santos says it has successfully injected about 100 tonnes of carbon dioxide deep underground into depleted gas reservoirs as part of the final field trial for the Moomba Carbon Capture and Storage (CCS) Project.

Gallagher said the successful injection occurred earlier this month in the Strzelecki field in the Cooper Basin and Santos would now finalise technical and commercial arrangements with the aim of having the 1.7 million tonne per annum project ready for Final Investment Decision by the end of the year.

The Moomba CCS Project has the potential to store up to 20 million tonnes of carbon dioxide per annum, making it the second-largest in the world and one of the lowest cost projects.

“We will need an approved methodology for CCS to be in place with the Clean Energy Regulator before we take a final investment decision on our Moomba CCS Project because carbon credits are essential to make it stack up economically with the cost of abatement still at around A$30 per tonne,” Gallagher said.

“Our aim is to drive these costs lower with scale and experience, but the first step is to generate carbon credits to enable initial development.

The initial 1.7 million tonne project is expected to support about 230 jobs through construction.

South Australia’s second-largest resources company Oz Minerals also published its September quarter results this morning.

The copper and gold miner continued its strong 2020 year with consistent production across its Prominent Hill and Carrapateena mines in South Australia.

Prominent Hill achieved record underground ore movement with 1Mt for the quarter and accelerated decline development underway to support increased mining rates to 4-5Mtpa from 2022.

An update on its proposed Prominent Hill expansion study is expected next month.

The ramp-up at its new Carrapateena mine is on track to reach 4.25Mtpa by year-end.

The company said a new 270 km power transmission line to Prominent Hill via Carrapateena has been completed and commissioned providing sufficient power for all future regional expansions.

Earlier this month, Oz Minerals acquired 100 per cent of the shares in Cassini Resouces, giving it a 100 per cent ownership of the West Musgrave project in Western Australia.

The West Musgrave project was acquired from BHP in 2014 and hosts three nickel and copper sulphide deposits.

It has been a year of strong growth for Adelaide-based Oz Minerals, despite the COVID-19 pandemic. The company’s share price dipped below$6 in March but has steadily grown to more than $15 this month, giving it a market capitalisation of $15 billion.

“The third quarter saw a solid production performance from our assets and progress milestones achieved on our growth projects,” managing director and CEO Andrew Cole said.

“Annual gold production guidance has been increased as a result of continued strong grade performance and recoveries at Prominent Hill and annual cost guidance has been further reduced on the back of continuing strong gold prices and maintained cost performance.

“The quarter saw underground ore movement records at both Prominent Hill and Carrapateena, with further AISC and C1cost guidance reductions assisted by an increase in the assumed 2020 full year gold price to US$1,758/oz and favourable exchange rates.”

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