The oil price tells the story of Santos’ woes: the company realised $US60 per barrel in the second half of last year compared to $US115/bbl in the first half, a drop of 47%, and of course the oil price has since slid to below $US50/bbl.
Revenues declined by 15% to $1.6 billion and EBITDAX was down 5% to $900 million.
The company is now banking on its 30%-owned Gladstone LNG project’s start up to boost its fortunes, because the company can’t afford to have many more tragic half-yearly results given rating agencies – such as Standard and Poor's - are getting increasingly worried about the company's investment-grade status.
The good news is that GLNG has achieved key milestones and is on track for first LNG around the end of the third quarter, and within budget too.
Strong operational performance, particularly from PNGLNG and Darwin LNG, drove production up 13% to 28.3 million barrels of oil equivalent and the company managed to drive its unit costs down 11% and its overall capital expenditure down by 55%.
Costs of production are now $13.70 per barrel of oil equivalent.
Santos CEO and managing director David Knox, who has announced his intention to step down, said the company was on track to deliver savings of $180 million across the supply chain as the company battens down the hatches for the lower for lower oil price environment.
The 2015 exploration program was weighted to the first half and resulted in expenses of $194 million.
The campaign of drilling in PNG and Malaysia produced the successful Bestari-1 oil discovery offshore Malaysia but did not result in other commercial finds.
Hides-F1 in PNG and three other wells in Malaysia - Menawan-1 and Lawa-1 in Block R and Ehsan-1 in Block S - were all dusters.
An appraisal well for Bestari 1 is being planned for later this year.
The company had more luck in the Cooper Basin with Seven discoveries out of eight near-field exploration well program in the Patchawarra wet gas campaign and encouraging long term flow results from its Permian source wells.
Santos has decided to focus on short-term horizons for project delivery, and will not rule out assets sales.
In terms of GLNG, Knox said that with the major upstream works completed, the power facility commissioned the refrigerants in storage and the first gas into train one, the project was in its final commissioning stages.
Santos is looking to LNG as its saviour.
LNG sales revenue was up over 150% to $448 million due to strong production performance from both PNG LNG and Darwin LNG, and GLNG should add multiples of that.
Santos had $2.2 billion in cash and undrawn debt facilities at June 30 and debts of $8.8 billion that it needs to start paying off, especially because the weaker Aussie dollar increased net debt by some $500 million in the first half.
Santos shares closed at $5.61 yesterday, and are at their lowest point for five years, and well below the peak of $19.80 achieved in June 2008, or the 52-week high of $15.30.
The company expects to produce between 57-64MMboe for calendar 2015 at average production costs between $14.2-14.6/boe.
