By Robb M. Stewart
MELBOURNE, Australia--Santos Ltd. (>> Santos Ltd) plans to step up drilling in Australia's Cooper Basin and the natural-gas fields in the east that feed a flagship liquefied natural gas project, although it has flagged a decline in sales volumes next year and steady production costs.
The energy company said it expects production and sales in 2017 to be at the upper end of guidance it tightened last month, though would be held back in 2018 as natural field decline in its non-core assets offsets output elsewhere and it handles lower third-party gas volumes through its operations.
Santos has restructured its operations and tied its future to the GLNG liquefied natural gas operation on Australia's east coast that counts Total SA (>> Total SA) among its partners, the Exxon Mobil Corp.-led (>> Exxon Mobil Corporation) PNG LNG operation in Papua New Guinea and projects in northern Australia, Western Australia, and the Cooper Basin straddling South Australia and Queensland states.
In an investor briefing on Thursday, Chief Executive Kevin Gallagher said that since the start of 2016 the company had substantially reduced costs, arrested a production decline in the Cooper Basin and benefited from a ramp-up in liquefied natural gas production at both GLNG and PNG LNG.
Output this year is now expected to be toward the upper end of a 58 million to 60 million barrels of oil equivalent target, and sales toward the top of a 79 million-82 million barrels range.
With the increase in drilling, capital expenditure in 2018 is expected to be between US$825 million and US$875 million, up from levels this year and after a drop of more than 50% to US$625 million in 2016 as Santos continued to reduce its debt burden.
Santos said all of its core assets are expected to deliver higher production next year, including allowing for major plant shutdowns at PNG LNG and the Darwin LNG operation in northern Australia. Still, it forecast output for 2018 of 55 million-60 million barrels, although it said upstream unit production costs are expected to be broadly in line with 2017 levels.
Sales in 2018 are expected to be between 72 million and 78 million barrels, held back by lower third-party volumes and lower volumes from non-core assets, it said.
Write to Robb M. Stewart at [email protected]