September 19

Santos Limited: Strong Resilience in Challenging Energy Markets and Future Growth Prospects

Santos Limited (STO) is a low-cost producer of oil and gas committed to cleaner energy and clean fuels production with operations across Australia, Papua New Guinea, Timor-Leste and North America. Santos has been supplying energy to Australia and the Asia-Pacific for over 50 years.

Our $12.30 fair value for Santos stands. Australia’s second-largest oil and gas producer reported a 37% decline in first-half 2023 underlying net profit after tax, considerably ahead of our expectations. It was a strong result in the face of weakening energy prices. Revenue declined 22% to USD 3.0 billion, with average pricing down 7% to USD 62.60 per barrel of oil equivalent and production down 13% with Darwin LNG in runoff and a temporary shutdown of the John Brookes platform in Western Australia. The beat reflects lower-than-expected operating costs and tax, partially offset by higher-than-anticipated depreciation. The margin on third-party sales was higher than we expected, and administrative costs were lower. Despite the strong first half, our 2023 EPS is little changed at $0.68. We have tempered margin expectations for the second half given the inflationary environment. Santos hasn’t changed any 2023 guidance, including for production of 89-93 million barrels of oil equivalent, or mmboe. We still sit at a high-end 93mmboe, with Santos having produced just over 45mmboe in the first half. Effective delivery of the Barossa project is a key potential catalyst for price appreciation toward fair value. So, too, is progress on the Papua LNG project in PNG.


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