Santos Profit Rises 58% on Oil; Plans Power Station

By Angela Macdonald-Smith
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Aug. 21 (Bloomberg) -- Santos Ltd., Australia's third- biggest oil and gas producer, posted a 58 percent gain in first- half profit after prices rose, and said it intends to move into electricity production to speed the development of gas reserves.

Net income climbed to A$303.7 million ($265 million), or 48.1 cents a share, in the six months ended June 30, from A$192.7 million, or 29.3 cents, a year earlier, Adelaide-based Santos said today in a statement. Profit before one-time items rose to A$289 million, compared with a market consensus of A$295 million cited by UBS AG.

Santos in May reached a A$2.51 billion accord with Malaysia's Petroliam Nasional Bhd. to sell a stake in a planned liquefied natural gas project and said today it will buy back A$300 million of shares to distribute some of the proceeds to shareholders. Australia is due to start a carbon trading system in 2010, boosting demand for power generated from cleaner fuels such as gas rather than coal.

``It's a robust result, it's within consensus,'' said Brendan Warn, an oil and gas analyst at Macquarie Group Ltd. in Sydney. ``The move down the value chain into power generation makes sense in that they are going to be long in gas in Victoria.''

Santos rose as much as 8.9 percent to A$18.73 in Sydney trading and was at A$18.57 at 10:13 a.m. local time.

Prices Rise

Sales advanced 14 percent to A$1.4 billion, buoyed by gains of more than 40 percent in the Australian dollar-denominated oil and condensate prices compared with a year earlier. Production fell 8 percent to 27.6 million barrels of oil equivalent due to field shutdowns in Western Australia.

``Looking forward, our focus is on delivering the base business and executing our LNG and Asian growth strategies,'' Santos Chief Executive Officer David Knox said in the statement, sent to the exchange. ``Entry into power generation is consistent with Santos's strategy of accelerating the commercialization of its gas reserves and resources.''

The first phase of the Shaw River power project in western Victoria state will cost A$800 million for a 500-megawatt plant. Engineering studies will start immediately and the project is scheduled for approval by the end of 2009, enabling the plant to start up in 2012, Santos said. The project may be expanded to a three-unit 1,500-megawatt plant at a later stage, it said.

Gas will be supplied to the generator through a 105- kilometer (65-mile) pipeline from Port Campbell near the coast into which gas will be delivered from Santos's offshore fields.

The company reiterated its reduced full-year production forecast of between 54 million and 56 million barrels of oil equivalent. It declared an interim dividend to 22 cents a share, up 10 percent on the final dividend last year, and said it intends to repay some existing debt as part of its capital management plan post the Petronas transaction.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net