As part of its portfolio optimisation drive Australia’s Santos is targeting total sales proceeds of between $2 billion and $3 billion by shedding some assets.
In its yearly financial results released today, Santos said it wants to reduce its share of upstream oil and gas projects, such as Pikka in Alaska and Dorado in Australia. The company is also likely to consider selling down some interests in its recently acquired upstream projects in Papua New Guinea (PNG), although Santos did not specify exactly what is up for sale.
Santos reported record free cash flow of US$1.5 billion and underlying profit of US$946 million for full-year 2021. “The results reflect significantly higher oil and LNG prices compared to the corresponding period due to the recovery in global energy demand combined with supply constraints across the industry due to lower capital investment through the pandemic, and three weeks contribution from the Oil Search assets.”
The results also reflect Santos’ disciplined, low-cost operating model which delivered a free cash flow breakeven of US$21 per barrel in 2021.
The reported net profit after tax of US$658 million includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments, and is significantly higher than the corresponding period mainly due to impairments included in the previous year.
2022 production is expected to increase to a range of 100 to 110 million barrels of oil equivalent (mmboe) primarily due to higher production from PNG following the Oil Search merger. This is expected to be offset by a lower share of Bayu-Undan production, which is expected to be approximately 10 mmboe less than 2021, due to a lower average working interest following the 25% sell-down to SK E&S in 2021, lower gross production as the field approaches end of field life and lower net entitlement under the Production Sharing Contract due to higher forecast LNG prices.
Sales volumes in 2022 are expected to be in the range of 110 to 120 mmboe. Sustaining capital expenditure is expected to be approximately US$900 million and restoration expenditure is expected to be approximately US$200 million. Sustaining and restoration expenditure is self-funded within the disciplined operating model and is included in the 2022 forecast free cash flow breakeven oil price of less than US$25 per barrel.
Major growth projects capital expenditure is expected to be in the range of US$1.15 billion to US$1.3 billion. A contingent amount of up to approximately US$400 million could be added should the Dorado and Pikka projects take final investment decisions. Guidance assumes current Santos interest in all projects.
At an average oil price of approximately US$65 per barrel in 2022, it is expected sufficient free cash flow would be generated to fund forecast major growth projects capital expenditure, including the contingent amount, said Santos.
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