The ‘old’ Santos is going out with a bang and the newly combined Santos-Oil Search is already presenting an enticing bouquet of projects and possibilities. STO’s record annual production has coincided with sharply rising commodity prices.
Full year production of 92.1mmboe included 1.7mmboe contribution from OSH (from 11 Dec) and still exceeded STO’s guidance range of 88-91mmboe. Curiously, it also topped the 91.1mmboe produced by Woodside Petroleum in its last result before adding the BHP Petroleum assets.
The average realised price of LNG received in 4Q21 was US$13.64/mmBtu which was 32% ahead of 3Q21 and a 155% increase on 4Q20. Along with multiple cargoes of LNG sold at spot prices, STO generated revenue of US$1.5 billion in the quarter and US$4.714 billion for the full year (39% increase). Production costs of about US$7.80/boe were also at the low end of guidance.
Investment view
The standout metric for the year will be the free cash flow approaching US$1.5 billion. STO reports its FY21 result on 16 February and the figures will include just a handful of days from the OSH merger. The big catalyst to watch for is a partial sale of PNG LNG which may precipitate a flurry of other transactions in 2022 as STO reshapes the combined portfolio and balance sheet. There is execution risk in all of this but STO is proving adept at the financial and operational adjustments needed to get the best from its portfolio. In an environment of rising world oil commodity prices, STO presents as an outstanding opportunity which the share price is yet to recognise.
