Santos revenue soars as spectre of government gas cap looms
Santos’ annual revenue has soared to a record but the producer is under the spotlight thanks to industry tensions with the federal government.
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Sales revenue at Santos came in at a record $US7.8bn ($11.2bn) in 2022, up 65 per cent on the previous year, even as the temporary shutdown of an oil platform in Western Australia dented its fourth-quarter production and forced it to cut output guidance.
The bumper revenue number at a time of rising tensions following the federal government’s price cap intervention on gas drew a response from the competition regulator, pointing to the figure as evidence that companies could keep investing in new supply despite new intervention measures.
“The results of Santos today show how significant the returns are that it is currently possible to get in terms of international sales, and they’ll continue to have most of their returns determined from international sales, which therefore are available for an investment case for new supply,” Australian Competition and Consumer Commission chair Gina Cass-Gottlieb said.
Big producers including Santos have slammed the government for pursuing energy market nationalisation and warned of a potential investment and supply freeze amid a series of major policy changes.
Still, Santos could also point to east coast domestic customers paying less than half the average price forked out by Asian customers for LNG, saying local supplies averaged $US7.74 ($11.20) a gigajoule, less than the $12 a gigajoule domestic price cap imposed by the Albanese government.
“We remain committed to supplying the domestic market at reasonable prices,” Santos chief executive Kevin Gallagher said.
Fourth quarter production of 25.6 million barrels of oil equivalent was down 2 per cent over the previous three months due to reduced domestic gas volumes in WA following unplanned maintenance at the John Brookes platform. Santos shut down the production facility in November after methane leaks were seen in the water around the platform, reducing supply through the company’s Varanus Island hub. The gas major said it did not expect the facility to resume production until at least the end of the month.
Alcoa, a major gas user, said on Thursday its total alumina production would slip by about 500,000 tonnes for the full year, partly as a result of supply problems in WA.
Santos’s annual production was 103.2 million boe, up 12 per cent on a year earlier and at the lower end of its guidance of 103-106 million boe. The company expects 2023 production to come in lower in the range of 89-96 million boe and from the prior 91-98 million boe guidance, primarily due to the John Brookes shutdown. It is also on track to deliver $US122m in sustaining annual synergies as a result of its merger with Oil Search, towards the upper end of the $US110m-$US125m guidance range.
Macquarie analysts said the fourth-quarter results were broadly in line with expectations and the downgrade to 89-96 million boe was relatively “minor”.
“Santos remains our top pick in large cap energy. Production guidance delay won’t materially impact 2023 free cash flow given lower WA margins versus Santos’s portfolio at current oil/LNG prices. We still expect PNG LNG selldown and Barossa drilling to be key catalysts for rerating in the first half of 2023,” Macquarie brokers told clients.
Santos in December lost a Federal Court appeal over insufficient consultation with traditional owners for its $US3.6bn Barossa gas project in the Northern Territory, in a decision expected to cause upheaval across Australia’s offshore oil and gas industry.
Still, Citi said it could be rekindled later this year.
“The timing of Barossa drilling is uncertain; however, we understand from speaking to the company that if submissions are accepted in a timely manner, then drilling may recommence by mid-year. We fear that any delay beyond this point will have fully utilised the project’s contingency allowance,” Citi analyst James Byrne said in a note.
Santos shares fell 1.6 per cent, or 12c, on Thursday to $7.24.
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Originally published as Santos revenue soars as spectre of government gas cap looms
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