Santos, Bolstered by Cash, Says Outlook Is `Positive'

By Angela Macdonald-Smith

Oct. 23 (Bloomberg) -- Santos Ltd., Australia's third- biggest oil and gas producer, said its outlook is ``positive,'' with the company bolstered by a $2 billion investment from Malaysia's Petroliam Nasional Bhd.

All development projects are on schedule and its finances are ``very solid'' amid the global credit crisis, Adelaide-based Santos said today in a statement to the Australian stock exchange. It maintained a reduced full-year production forecast of 54 million to 56 million barrels of oil equivalent.

Santos received the cash payment from Petronas in July as part of a venture to develop coal-seam gas reserves in Queensland for fuel exports. The investment helped fund a A$300 million ($199 million) share buyback. Santos today reported a 16 percent gain in third-quarter sales as increased prices outweighed lost output caused by a gas plant blast.

``The balance sheet is in order, so that all looks good, and the Australian dollar is providing a bit of a buffer with the oil price,'' said Luke Maffei, an analyst at Shaw Stockbroking Ltd. in Melbourne. ``They're probably in not too bad shape compared to some other companies at the moment.''

Santos dropped 83 cents, or 7.1 percent, to A$10.89 in Sydney trading. The decline compared with a 4 percent decline in the exchange's benchmark energy index after crude-oil prices fell yesterday in New York.

Higher Costs

Santos retained forecasts for A$230 million in exploration spending this year, and A$75 million for evaluation. Net financing costs will be lower than last year because of the Petronas cash payment, it said.

The company increased its estimate for production costs this year by A$20 million because of additional work due to take place at the Mutineer-Exeter field off Western Australia by the year end and additional spending on oil wells in the Cooper Basin in central Australia. The latest estimate is A$80 million higher than last year's production costs, it said.

Sales advanced to A$730 million in the three months ended Sept. 30, from A$627 million a year earlier, Santos said in the statement. Output dropped 12 percent to 13.2 million barrels of oil equivalent, after a June explosion at Apache Corp.'s Varanus Island gas plant off Australia's northwest coast reduced flows from the John Brookes gas field and oil production fell from Mutineer-Exeter.

The average price the company got for its oil in the quarter was A$146.42 a barrel, 59 percent higher than in the year-earlier period, while the average gas price rose 25 percent to A$4.90 a gigajoule, mostly due to higher ethane and liquefied natural gas prices.

Since the end of the quarter, the Australian currency has fallen 16 percent against the U.S. dollar, reducing the effect in local currency terms of a 30 percent drop in Asian benchmark crude-oil prices, according to data compiled by Bloomberg.

``The outlook for Santos remains positive despite the global financial crisis,'' Chief Executive Officer David Knox said in the statement. ``All our development projects remain on schedule, and we remain focused on delivering our strategy.''

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