A flat quarterly production report from Santos has been overshadowed by news its massive LNG projects are nearly completed.
Australia’s biggest domestic gas producer Santos is likely to be exporting more than it supplies for local use by 2015.
The company’s two massive liquefied natural gas projects in Queensland and Papua New Guinea, built to produce higher priced exports, are on track to be operating within the next year.
The good news about its growth projects and prospects overshadowed a flat first quarter production and sales performance that missed estimates.
The shift towards exporting won’t be welcomed locally though, due to concerns about a domestic supply crunch and higher prices.
Chief executive David Knox said on Thursday the Santos-operated $US18.5 billion Gorgon coal seam gas project (GNLG) was 80 per cent complete – up from 75 per cent in February – and on track for first LNG in 2015.
First production from the Exxon Mobil-operated $US19 billion PNG LNG project, in which Santos is a partner, is expected by July 1, 2014.
Santos hopes the two projects will give it a sharp boost in production and cash flow.
The major risks for investors are more of the cost blow-outs that have marred LNG construction projects and a lack of gas feedstock for the plants from Queensland’s coal seam gas reserves.
“The risk is still there due to the fact that it’s new, it has not been done before with coal seam gas worldwide,” State One Stockbroking analyst Peter Kopetz said.
However the risks were abating, and the fact that BG Group’s rival $US20 billion LNG project would be online six months ahead of GLNG could provide lessons for Santos, he said.
Santos shares dropped two cents to 13.42, with investors preferring rival Woodside Petroleum, which said in its quarterly production report it was benefiting from higher LNG prices.
However Mr Kopetz said he favoured Santos’s growth prospects over Woodside, as the latter’s Israeli and WA growth projects were at least five to seven years away.
Santos increased first quarter sales revenue by 28 per cent from a year ago to $913 million, due mainly to higher third-party crude oil sales.
It only lifted sales volumes by six per cent to 13.8 million barrels of oil equivalent (mmboe).
Production was up one per cent to 12.2 mmboe, missing analysts estimates, with lower seasonal gas demand partly to blame.
Santos maintained guidance for full year production of 52 million to 57 mmboe, after missing guidance and underlying profit forecasts with a weaker $504 million.