Australian Santos Halves Loss, PNG Expansion 'Likely'

Australian independent Santos has reduced its 2016 full year net loss by more than 46% to US$1.047bn and cut net debt by 26% to US$3.5bn. It also hinted that an expansion of the Papua New Guinea LNG project is "likely" following a gas resource re-certification there.

Net debt was reduced through a combination of asset sales, free cash flow generated by the business and successful completion of the A$1.04bn institutional placement in December, the company said February 17.

The 2016 result includes an impairment charge for Gladstone LNG of US$1.05bn after tax taken in the half-year results. No further impairment of GLNG occurred in the second half. Additional net impairment charges of $51mn after tax were recorded against other assets in 2016, Santos said. Excluding impairments and other significant items, the company recorded an underlying profit of $63mn.

Santos said its focus will be on five core long-life natural gas assets (Photo credit: Santos) 

Santos achieved record production and sales volumes in 2016. Production was up 7% to a record 61.6mn boe, primarily due to the start-up of GLNG train 1 in September 2015 and train 2 in May 2016, and strong production from PNG LNG. Sales volumes were up 31% to a record 84.1mn boe, driven by higher LNG (up 89%) and gas (up 26%) sales volumes. 

Sales revenue increased by 6% to $2.6bn. The average realised oil price fell 14% to US$46.43/b while the average LNG price was 33% lower at US$6.03/mm Btu. LNG sales revenue was up 27% due to the start-up of GLNG and strong performance from PNG LNG, Santos stated.

The company has maintained that production and sales volume guidance for 2017 at 55-60mn boe and 73-80mn boe, respectively.

Santos has a 13.5% stake in Exxon-operated PNG LNG, which started production in April 2014, and a 30% stake in GLNG which it operates and which began production in September 2015 and shipped its first cargo the next month. 

PNG LNG gas resource upgrade

Santos noted February 17 that an "expansion of PNG LNG [is] likely and details [are] evolving."

That followed an announcement the previous day by its operator, ExxonMobil, that 2.3 trillion ft³ had been added to the existing PNG LNG project fields’ resource base following an independent review by Netherland Sewell Associates. The recertification study, which included all PNG LNG fields, found that the most likely technically recoverable resource is 11.5 trillion ft³, a 25% increase beyond the earlier 9.2 trillion ft³ assessment. 

“The independent review highlights the exceptional quality of the PNG LNG project resources and the significant increase in resource provides the potential for additional mid or long-term sales,” said Andrew Barry, ExxonMobil PNG managing director February 16.

PNG LNG produced 7.9mn metric tons in 2016, an increase of 14% from its original design specification of 6.9mn mt/yr.

Shardul Sharma