Woodside, Santos reap the benefits of merger deal

Santos, which absorbed Oil Search in December 2021, posted cash flows for the half of June of US$1.7 billion, three times its mid-June level last year. Woodside reported a 44 percent increase in revenue in the June quarter to $3,438 billion, driven by a one-month contribution from BHP assets, which were repossessed on June 1.

Bernstein Research analyst Neil Beveridge described Woodside as a “key holder in a world of LNG shortages”, noting that despite investments in new growth projects such as the $16.5 billion Scarborough gas venture, Woodside will still be able to generate more than 10 percent of free cash flow proceeds this year. this, which should cover dividends.

But strong oil prices meant Woodside had to scrap plans to sell a stake in the $4.6 billion Sangomar oil project off the coast of Senegal that was due to go online next year after lengthy discussions with potential buyers.

“When we have oil coming into the market in the near term, our expectations of fair value, are quite attractive, and in a high price environment, it is sometimes difficult for buyers and sellers to return home. alignment on what price is appropriate,” said Ms O’Neill Australian Financial Overview.

“We have had extensive discussions with a number of potential partners, and have not been able to reach an agreement with the right partner at the right price.”

Analysts said they were not surprised that no deal was struck at Sangomar, with Jarden’s Nik Burns saying that potential sales dips once production starts in about a year “could lead to better pricing results” for Woodside.

Credit Suisse’s Saul Kavonic described the results as a clear signal of a buying market for greenfield oil in places like West Africa but added that Woodside “is not under pressure to sell at a discount so it can hold on to it”.

Woodside owns 82 percent of the 231 million barrel oil field, which is expected to produce up to 100,000 barrels per day.

Sales increased to US$3.438 billion in the April-June period, up more than 160 percent from a year earlier.

O’Neill said Woodside could sell additional LNG from non-contracted cargo “on the market at high prices” after accelerating production from the Pluto field and processing it through North West Shelf’s Karratha gas plant.

However realized prices for LNG produced by Woodside weakened in the June quarter, to $13.80 per million British thermal units, significantly lower than the average price of $US21.50/MMBTU for LNG traded.

Woodside provided guidance for full-year production of between 145 million and 153 million barrels of oil equivalent, less than the market had anticipated, with some suggesting that Woodside’s underlying business appeared to be underperforming.

“It’s a bit difficult to properly assess likes, but perhaps for us the outlook guidance is a bit disappointing,” said Katana Asset Management portfolio manager Romano Sala Tenna, who owns both stocks.

He said the drop in share prices showed the market was becoming “a little shortsighted” given price strength.

“Santos we think are doing fine, with some of the prices they can afford and some of the extra cargo they get. If you estimate that amount of revenue and make some reasonable assumptions around costs… this looks like a very, very strong financial result ahead of us.”

But the bumper number was attacked by the Australasia Center for Corporate Responsibility, which accused Woodside of “seeking profit from the war” and said the company had missed an opportunity to accelerate its new energy plans.

The comments came as Sustainable Fitch, the ESG arm of the rating firm, said oil and gas companies were struggling to come up with a credible plan to switch to low-carbon energy and had not yet addressed the possible demand crushing.

Under estimate

June-quarter earnings for Santos were roughly flat, as falling output offset higher prices, topping analyst estimates even as first-half sales jumped 85 percent.

Sales for April-June totaled US$1.879 billion as production fell 2 percent due to reduced flows from the aging Bayu-Undan gas field in the Timor Sea and maintenance work at several gas plants.

Chief executive Kevin Gallagher said output, revenue and free cash flow all hit records in the middle of June, “indicating the strong performance of our basic business and strategic benefits from our diversified portfolio, despite a number of major closures planned for the second quarter”.

He said Santos “is well positioned to take advantage of Asia’s growing LNG demand, which is expected to double by 2050”.

Santos is building the $3.6 billion Barossa gas project off the north coast to supply replacement gas for the Darwin LNG plant, with construction 40 percent complete.

It also has a stake in the Papuan LNG venture in Papua New Guinea, where operator TotalEnergies announced a decision late Wednesday to begin engineering and design work for the gas production portion of the project. A similar decision on the LNG processing section is targeted for the December quarter.

Mr Gallagher said Santos was supporting the domestic gas market by diverting gas from the GLNG export business at Gladstone, and by committing to a fifth drilling rig in the Cooper Basin. Santos customers in Australia pay “significantly less” than international customers, he said.

Santos received an average price for its LNG of US$14.66/MMBTU during the June quarter, up from US$13.77/MMBTU in the March quarter and nearly double from US$7.52/MMBTU a year earlier.

The average price for domestic gas was $US6.60 per gigajoule on the east coast, slightly higher than in the March quarter, and just over $US4/GJ in Western Australia.

Santos narrowed its guidance for production by full 2022, which involved a slight downgrade, to a new range of 102 million-107 million boe. Sales volume guidelines were also slightly lowered, but capital expenditures for large projects were also lowered slightly, as were upstream production costs.

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