Santos to Push Drilling After 2017 Revenue Benefited From Higher Prices

By Robb M. StewartFeaturesDow Jones Newswires

MELBOURNE, Australia--Santos Ltd. (STO.AU) plans to ramp up drilling further this year as the Australian oil-and-gas producer shifts its focus to growth after cutting debt and reducing costs in 2017.

Santos's sales volumes rose modestly in the latest quarter, though they dipped over the year, but it benefited strongly from higher prices. That came in a year in which its debt--built up in recent years with heavy investment in gas-export projects from eastern Australia to Papua New Guinea--was cut by 23% to US$2.7 billion and upstream production costs were further trimmed.

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After drilling 61 new wells in 2017, the company said Wednesday it expects 70 to 80 wells to be drilled this year, including 20 exploration wells. In just the last quarter, nine natural-gas and 13 oil wells were drilled, with most cased and suspended for future production.

In August, Santos rebuffed a takeover approach worth 9.48 billion Australian dollars (US$7.58 billion) from energy investment firm Harbour Energy, arguing the indicated price wasn't enough and that the sources of funds behind the offer were uncertain. In late 2015, it rejected as too low a A$7.14 billion approach from Scepter Partners, a Bermuda-based private-equity firm backed by sovereign investors and wealthy members of Asian and Gulf-based ruling families.

Since taking over as chief executive and managing director in early 2016, Kevin Gallagher has focused Santos on the GLNG gas-export operation in east Australia that counts Total SA (TOT) among its partners, the Exxon Mobil Corp.-led (XOM) PNG LNG operation in Papua New Guinea, and projects in northern Australia, Western Australia, and the Cooper Basin straddling South Australia and Queensland states. Just over a year ago, he moved to bundle noncore operations to be run as a separate business and targeted a further US$1.5 billion drop in debt to less than US$3 billion by the end of 2019.

Santos's sales revenue in the fourth quarter of 2017 was 8.6% higher quarter-over-quarter at US$861 million, and up 20% for the year at US$3.11 billion, the company reported. Sales volumes were 1.4% higher on-quarter at 21.8 million barrels of oil equivalent, but down 0.8% over 2017 to 83.4 million barrels.

For 2018, Santos said it was targeting sales volumes of between 72 million to 78 million barrels, and production of 55 million to 60 million after output slipped 3.4% to 59.5 million last year.

"Santos is now a stronger, more resilient company with the capacity to execute and bring on-line growth opportunities across its core long-life natural gas assets," Mr. Gallagher said.

Liquefied natural gas volumes were up 10% in 2017 to a record 3.1 million metric tons, as production remained strong at the PNG LNG project and continued to build at the GLNG venture on the Queensland coast of Australia.

The average prices Santos realized for LNG, domestic gas, oil and other products were all higher in the last quarter and over 2017.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

January 23, 2018 18:44 ET (23:44 GMT)