Production and financials

The ASX-listed major lifted its underlying profit up 20% to $283 million, beating analysts’ expectations, who had forecast the figure to be in the $265 million range.

Its net profit did take a hit of 48%, but this was mainly due to its first half 2011 net profit, including a $246 sale of 15% equity in the GLNG project to Kogas.

Meanwhile, production was up for the half year to 25.4 million barrels of oil equivalent, or an 11% spike when compared to the same period last year.

It said production from new assets such as Chim Sao in Vietnam plus higher output from the Cooper Basin contributed to the gain.

Its full-year production guidance is unchanged at 51-55MMboe.

Santos chief executive David Knox said the production gain was a great result.

“First half production was the highest in three years, which combined with higher oil and gas prices has produced a strong first half result. The base business is performing well and we expect production in the second half of the year to be stronger than the first,” he said.

Sales revenue was also up, beating last year’s figure of $1.17 billion by 27% to post $1.49 billion.

Sales revenue, while partially driven by an upswing in revenue also benefited from higher prices for oil and gas.

Its average realised price for oil was up 3% to $A118.42 per barrel, while the $5.01 per gigajoule it got for gas was up 14%.

Meanwhile, Santos has become the second major after Woodside to offer guidance on its liability under the carbon tax.

It said it would be liable for roughly $45 million to $65 million.

In a move sure to unnerve domestic buyers, it said that it would seek to limit the damage by, in part, via “cost pass through in domestic sales agreements”

It will also seek to sell some of the free permits it was given as the operator of an LNG project under the jobs and competitiveness provisions of the carbon legislation.

Project updates

One of the bigger shocks of the year was Santos’ announcement that it was bringing forward $US2.5 billion ($A2.37 billion) in capital in an attempt to boost CSG deliverability into the GLNG project in the initial phase.

While the street read it as Santos admitting it was unable to bring up enough gas during the initial phase of the project to meet initial cargoes, it also flagged the sale of additional LNG, should it be able to find customers for it.

However, there was little earth-shattering news in Santos’ half-yearly accounts, with Santos telling the market that everything was going smoothly.

It said construction camps at upstream gas fields was well underway and are progressively being occupied. Meanwhile, site preparation is underway at three hubs near Roma and Fairfield.

Almost all the transmission pipeline has been manufactured and deliveries of pipe to the GLNG site have started, ready for pipe-lay later this year.

Meanwhile in PNG, it said the PNG LNG project was going smoothly with first LNG still pencilled in for 2014.

There was no indication from Santos there would be a third train at the project.

It said construction of the Hides gas conditioning plant and Komo airfield is underway. It said the offshore section of the gas transmission pipeline is complete and the onshore section is “well advanced”.

Shale surprise

Aside from releasing its half-yearly accounts to the market today, Santos has told investors that it has officially flowed dedicated commercial shale gas from Moomba-191 in the northern Cooper Basin at 2.56 million cubic feet of gas per day.

It said it had tapped the Roseneath, Epsilon and Murteree targets with the vertical well, producing what it called first commercial production from an Australian shale gas well.

Production from the well will be tied into the Moomba facility later this year.

The well was drilled down to a total depth of 3010m, with each of the intervals fractured individually.

Santos said that this would provide it with invaluable information as it prepares to drill a horizontal well, which it said it plans to drill early next year.

Market reaction

The market’s take on the numbers and shale news has been broadly positive, with Santos shares jumping by just over 5% to $12 in early morning trade.

This article first appeared in ILN's sister publication EnergyNewsBulletin.net.