LA Private

Santos reports robust sales revenue, production, and free cash flow in Q2 2023

Santos (ASX:STO) has announced strong financial and operational performance in its second-quarter report for 2023. The company achieved sales revenue of AU$1.3 billion during the quarter, indicating robust sales performance. Additionally, production reached 22.8 million barrels of oil equivalent (mmboe), a significant increase compared to the previous quarter. This growth was primarily driven by higher domestic gas volumes in Western Australia.

One of the key highlights for Santos was the successful start-up of the Spartan project offshore Western Australia. The project has begun supplying gas to the domestic market, contributing to the company’s revenue and overall performance. However, Santos expects the Bayu-Undan project, which has been a consistent producer, to reach the end of its field life in the second half of 2023.

During the second quarter, Santos generated approximately AU$400 million in free cash flow, further strengthening its financial position. The company has a strong balance sheet, as evidenced by the completion of its AU$700 million share buyback program, in which approximately 139.1 million shares were repurchased.

Santos continues to focus on delivering its development projects. The Barossa project, currently 66% complete (excluding the Darwin Pipeline Duplication project), is on track for first production in 2025, pending the assessment and acceptance of the environment plan by the regulator. The drilling activities for the project remain suspended but are expected to recommence before the end of the year.

In its efforts to decarbonise the energy supply chain, Santos Energy Solutions has made significant progress. The Moomba CCS project, which aims to capture and store carbon dioxide emissions, is 70% complete, with the first injection expected in Q1 2024. Santos also completed the construction of the first 0.25-tonnes-per-day Direct Air Capture unit, which will undergo optimisation before field trials in the Cooper Basin begin in the second half of 2023. The company has executed four memorandums of understanding to underpin potential CO2 supply to the Bayu-Undan CCS project, with volumes representing over 10 million tonnes per annum of CO2 injection capacity.

In terms of sales volumes, Santos reported 23.3 million barrels of oil equivalent (mmboe) during the second quarter. While this figure was slightly lower than the previous quarter, it can be attributed to lower liquefied natural gas (LNG) volumes due to seasonal shaping at GLNG. The company ensured a greater availability of domestic volumes for customers during colder periods, resulting in lower LNG sales but higher domestic gas sales in Western Australia.

The second-quarter sales revenue amounted to AU$1.3 billion, with lower LNG sales volumes and commodity prices for all products contributing to the decline compared to the previous quarter. The average realised prices for LNG, domestic gas, crude oil, condensate, and LPG were all lower than in the first quarter of 2023. These prices were influenced by factors such as sales contracts linked to lower lagged Japan Customs-cleared Crude (JCC) prices and lower average JKM spot prices.

Looking ahead, Santos has narrowed its production volume guidance range for 2023 to 89-93 mmboe, while sales volume guidance remains unchanged. The company has also revised its capital expenditure for major projects in 2023 to approximately AU$1.5 to AU$1.6 billion. Santos expects depreciation, depletion, and amortisation (DD&A) to be around AU$1.9 billion in 2023.

Santos will release its half-year results for 2023 on 23 August 2023. The company’s financial information included in the second-quarter report is unaudited and subject to finalisation through the company’s accounting and audit processes, as well as board review. Thus, actual results for the half-year ending 30 June 2023, may differ from the information provided in the report.

The Western Australia region played a significant role in Santos’ overall performance during the second quarter. The company achieved strong sales volumes and revenue from sales gas, condensate, and crude oil. Sales revenue in the region reached AU$182 million, while production volumes totalled 5.5 mmboe. Capital expenditure in Western Australia amounted to AU$54 million, supporting the growth and development of the region’s gas and liquids resources.

Santos Energy Solutions has been actively engaged in exploring opportunities for decarbonisation. Feasibility studies are underway to capture and transport CO2 emissions from local industrial and international sources, aiming for long-term storage in several of Santos’ gas reservoirs. The company is collaborating with nearby large emitters and international industrial groups to develop decarbonisation solutions for various heavy industries.

Santos’ second-quarter report highlights its strong performance, with robust sales revenue, production, and free cash flow. The company’s focus on developing key projects, along with its commitment to decarbonisation, positions it for continued growth in the energy sector.