By Angela Macdonald-Smith
Feb. 19 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil and gas producer, cut spending on projects and exploration as it focuses on the development of two liquefied natural gas projects that will cost about $16 billion.
Capital investment for 2009 has been reduced by A$350 million, more than 20 percent, and will be about A$1.5 billion, Chief Financial Officer Peter Wasow said today. Santos reported a 42 percent jump in 2008 profit before one-time items to A$572 million ($366 million), beating most analyst estimates.
Santos is a partner in one of five rival ventures that intend to convert coal-seam gas in Australia’s northeast into fuel for export to Asia. It also has a stake in an $11 billion, Exxon Mobil Corp.-led LNG venture in Papua New Guinea, for which the partners are aiming to give the go-ahead late this year.
“The 2009 outlook is not about production and earnings growth but about delivery of LNG outcomes,” said Andrew Williams, an oil and gas analyst at Credit Suisse Group in Melbourne. “We see the potential for a number of projects within the portfolio.”
Santos gained as much as 38 cents, or 2.7 percent, to A$14.61 in Sydney trading and was at A$14.49 at 12:45 p.m. local time. That outpaced an advance of as much as 1.3 percent in the Australian stock exchange’s benchmark energy index. Credit Suisse has an “outperform” rating on the stock.
While the reduction in planned spending trims investment to about A$100 million less than an earlier estimate, it translates to a cut of about A$350 million because of changes in exchange rates, Wasow said on a conference call. Spending in eastern Australia has been pared by about A$100 million, by about A$90 million in Western Australia and about A$80 million in Asia.
‘Straitened Times’
A A$50 million cut in the exploration budget to A$180 million is partly because of “straitened times” in the energy markets, Wasow said. Crude-oil prices have dropped more than 75 percent in New York from a record $147.27 a barrel in July.
The cutbacks don’t affect exploration in coal-seam gas, where Santos is “on track” to build reserves for its planned A$7.7 billion Gladstone LNG project, Chief Executive Officer David Knox said. The venture, which includes Malaysia’s Petroliam Nasional Bhd., is “confident” it will give the go-ahead for the project in the first of half next year, he said.
Santos is “open to consolidation or collaboration” with rival LNG ventures in Gladstone, which could take the form of cooperation in gas transmission or joint use of LNG export equipment to save costs, Knox said. Any company interested in broader cooperation in the first two production units “better get on the blower” to Santos, he said.
Gain on Sale
Full-year net income surged more than fourfold, buoyed by a gain on the sale of the 40 percent stake in the Gladstone LNG venture to Petronas.
Net income jumped to A$1.65 billion in the year ended Dec. 31, from A$359.3 million a year earlier, Santos said today in a statement. Sales rose 11 percent to a record A$2.8 billion, driven by higher prices, while production fell 8 percent on a gas production outage in Western Australia and lower output at maturing fields.
The result “was certainly better than the market was looking for,” Credit Suisse’s Williams said, citing lower royalty and tax costs than he had estimated.
The payment from Petronas boosted Santos’s cash balance to A$1.6 billion at Dec. 31, while net debt was A$506 million and gearing, or the ratio between debt and debt-plus-equity, was 10 percent. The company also has un-drawn debt of A$700 million available.
Reindeer Gas
The cash balance “positions us well to execute our growth strategy despite the current disruptions to global capital markets,” Wasow said.
The company confirmed a 2009 output forecast of between 53 million and 56 million barrels of oil equivalent, little changed from last year’s 54.4 million.
Work is set to recommence “very soon” with Apache Corp. on the A$900 million Reindeer gas project in Western Australia after it was suspended in December after failing to secure a customer agreement, Knox said. The Henry gas project, which was due to start up in the southeast this half, will be delayed “about a year,” he said.
LNG is gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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