Santos has flagged that it will make a final investment decision on its next major growth project, the LNG venture in Papua New Guinea, in the December quarter, after bringing online two multibillion-dollar projects in Australia and Alaska.
The start-up of the Barossa gas project in the Timor Sea and also the Pikka oil project in Alaska are expected to boost cash flows for Australia’s second-largest oil and gas company later in the year, after delays pushed out their contribution to first-half results.
In the six months to June 30, net profit before one-off items, the figure most closely watched by the market, dropped 22 per cent to $US397 million ($561 million), which was slightly below the analyst consensus estimate of $US408 million. Sales edged up 2 per cent to $US2.62 billion.
Santos, which last year was the subject of a failed $36.4 billion takeover bid led by the Abu Dhabi National Oil Company, declared an interim dividend of US11.6¢ per share, beating most expectations and reflecting confidence in a bumper second half.
The payout “highlights the board’s comfort and expectations of a strong second half outlook and performance”, said UBS energy analyst Tom Allen.
Santos chief executive Kevin Gallagher said in July that the impact of stronger oil prices as a result of the Middle East conflict had started to flow through to LNG. Santos’ LNG contract prices are indexed to crude with a lag of six months.
“That inflection point we’ve been talking about for some time is on us,” Gallagher said. “As long as we continue to perform at an asset level – and we expect a 20 to 30 per cent increase in production in the second half – then that should translate to much stronger cash flows through this period.”
Shares in Santos were up 2.5 per cent at $8.31 on Wednesday.
Gallagher said Papua LNG was the key focus for the second half, amid keen interest from potential customers.
Development work on the project, led by France’s TotalEnergies, was paused in 2024 after a blowout in costs that Papua New Guinea’s Prime Minister James Marape put at 50 per cent, to $US18 billion. The capital expenditure has since been lowered to about $US15 billion, according to analysts.
More savings are being targeted through closer co-operation with the existing ExxonMobil-operated PNG LNG venture, amid reports of talks on the potential transfer of the operator role for Papua LNG from TotalEnergies to the US major.
Gallagher said project financing for Papua LNG was progressing well, despite a long-running climate activist campaign seeking to persuade banks to shun the project. At least 60 per cent of the cost is set to be funded through project debt.
“There has been absolutely no shortage of interest from financial institutions or [export credit agencies] – it’s very well-supported, it’s moving forward at pace.”
The venture will involve three 1.33-million-tonnes-per-year LNG units built next to PNG LNG and sharing its infrastructure for a tolling fee.
Santos, whose GLNG venture in Queensland is a prime target of the federal government’s planned gas reservation scheme, also highlighted its contribution to the domestic gas market.
Since GLNG started exporting in 2015, its total east coast domestic gas supply was the equivalent of about 26 per cent of its share of GLNG exports, Gallagher said. That is more than the 20 per cent required under the reservation scheme, for which an exposure draft legislation is expected next month.
“We’re not overly panicky about anything that is being proposed here,” said Gallagher. “We’ve been a strong contributor [to the domestic market] forever. We will continue to be a strong contributor.”