"We declare our first goal to be for every person to be dynamically involved in the process of freeing himself or herself from every form of domination or oppression so that each man or woman will have the opportunity to develop as a whole person in relationship with others".

- Papua New Guinea National Goals and Directive Principles

Monday, 6 October 2014

Long-life assets tie Santos to Asian energy needs

October 1, 2014 David Lennox What's new? An announcement by Santos in April heralded the start of production at its Papua New Guinea Liquid Natural Gas facility (PNG LNG). The first commercial cargo of LNG was shipped to Japan in May. PNG LNG cost $US19 billion ($21.5 billion) to develop, with completion reached within a revised budget and ahead of schedule. Santos holds a 13.5 per cent interest in PNG LNG. Other participants include Oil Search with 29 per cent, ExxonMobil with 33.2 per cent, the PNG government with 16.8 per cent and others at 7.5 per cent. The PNG LNG facility is the processing hub for the Southern Highlands that now host oil and natural gas fields. The first oil field was discovered in 1992, and has since grown to some seven producing fields with numerous prospects still being developed and explored. The PNG LNG facility will produce some 9 trillion cubic feet of natural gas and 200 million barrels of liquids over an expected 30-year life. Annually, PNG LNG will produce about 6.9 million tonnes of LNG in its current two processing train configuration. Santos' Peluang gas field in East Java, in which it has a 67.5 per cent interest, also came on stream in March. The field is expected to produce around gross 25 million standard cubic feet of natural gas at its peak per day. The two start-up events had an immediate impact on Santos, with average daily production on a barrel of oil equivalent per day (boepd) basis surging to an average 164,000 for July, up from the 141,000 boepd average for the June quarter 2014. Outlook Production will surge through 2015, as new production from PNG LNG and Peluang are incorporated into the reported operational volumes. The better volumes will provide Santos with some revenue protection in what could be a volatile oil and natural gas pricing environment. Certainly, the reduction in capital costs to build PNG LNG and the replacement of the cash outflow with revenue should have a positive impact on Santos's financial performance, including strengthening an already impressive balance sheet. The benefits flowing from PNG LNG should end the 30¢ dividend plateau, with the company flagging its intention regarding dividends. The 2014 interim dividend was increased by 5¢ to 20¢, the first rise in three years. While PNG LNG will have an impact on 2015, Santos will in 2016 experience a replication of 2015, as its Gladstone LNG (GLNG) project moves into production. Santos holds a 30 per cent interest in the GLNG project. Santos remains on track to achieve 2014 production guidance of 52 million to 57 million boe. Price Over the past 12 months, during which time Santos has been building two LNG projects, its share price has traded in a broad sideways channel. Support though has been found at $13.20 and resistance at $15.25. Global events concerning the environment, and a growing sea change in energy usage toward natural gas is generating significant investor interest in Santos, with its natural gas exposure. Add PNG LNG now in production and GLNG coming on stream in 2015, and the financial benefits generated by these two projects; a challenge on the $15.25 resistance could be expected in the months ahead. Worth buying? Santos appears to be well positioned to participate in Asia's growing energy requirements now and in the years ahead. With its pipeline of long-life energy assets in Asian, Santos is in an enviable position to meet this increasing demand. While Santos' long-life assets also have the capability to deliver energy into Asia over the medium to long term.

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