PORT MORESBY, 20 JULY 2018 (THE FINANCIAL REVIEW) – Santos has revealed it is considering a formal proposal to invest in a promising gas field in Papua New Guinea, underscoring it is back on the growth path and wants to beef up its position in the important LNG sector.
The company, which in May knocked back a $14.4 billion (US$10.5 billion) takeover offer from private US suitor Harbour Energy, has for several years signalled its keenness to take a stake in the P’nyang field, a cornerstone field for LNG expansion in PNG.
In its quarterly report it said it is “in discussions regarding a proposal” to farm into the PRL3 licence area which holds P’nyang, where gas reserve estimates were lifted by 84 per cent in April.
Santos wouldn’t comment on the commercial terms, but it is expected to take a stake roughly in line with its 13.5 per cent stake in the PNG LNG venture.
The June quarter also saw Santos and its partners move ahead with engineering and design work on the Barossa offshore gas project north of Australia, and commit to a $400 million (US$294 million) coal seam gas development in Queensland. Both will help maintain gas supply for LNG export plants.
The company also last month flagged the likely resumption of dividend payments in August as it nears its target to reduce debt to below US$2 billion about 12 months early.
“We remain on track to achieve our net debt reduction target in the second half of 2018, more than a year ahead of schedule, and we now have a significantly stronger balance sheet and cash flows to support our growth strategy,” chief executive Kevin Gallagher said.
He pointed to “good progress being made towards building partner alignment in PNG for three additional LNG trains on the PNG LNG site”.
Production in the June quarter edged up 3 per cent from the March quarter to 14.2 million barrels of oil equivalent, beating most analyst estimate. Prices also rose, helping drive sales revenues up 12 per cent to US$886 million (AUD$1.2 billion), also ahead of expectations.
RBC Capital Markets analyst Ben Wilson described the operating result for the three months as “strong”, and said it underscores the oil and gas producer’s “continuing revival”. Santos was hit hard by the collapse in oil prices in 2014-15, when debt ballooned and cash flows sank, forcing it into an emergency capital raising, asset sales and cost cutting.
But JPMorgan said Santos still has to address a “lack of medium term growth optionality”, noting that most of its new projects are intended to maintain, rather than grow, production.
First half sales were up 16 per cent to $US1.68 billion, despite an overall 5 per cent dip in output, which was affected by the near two-month shutdown of PNG LNG after a deadly earthquake.
Gallagher reiterated that the board rejected Harbour’s offer “as it did not represent appropriate value for the company and, when combined with the additional risks, was not in the best interests of Santos shareholders”.
At the end of the half, Santos’ net debt a stood at US$2.4billion, down by US$100 million.
The P’nyang gas field is held by ExxonMobil, operator of the PNG LNG venture, Oil Search and JX Nippon.
