Santos profit slips in the mud

SANTOS has posted a 16% drop in full year profit, despite record production. But the company says it is on track to maintain its record production target for 2007/08 and sees moderate growth ahead.
Santos profit slips in the mud
Santos profit slips in the mud
Santos profit slips in the mud
Santos profit slips in the mud
Santos profit slips in the mud

The oil and gas producer today said net profit for the year ended December 31, 2006, was $643 million, a fall of 16%, due to impairment adjustments and one-off expenses mainly relating to the Indonesian mud disaster triggered by a gas wildcat.

Underlying net profit was $683 million, a rise of 7%.

Santos said the record underlying profit was driven by a 9% increase in production to 61.0 million barrels of oil equivalent (MMboe) and a 12% increase in sales revenue to $2.77 billion.

The company said the net profit was $40 million below the underlying net profit due to a net provision of $67 million for the Banjar Panji mud incident in Indonesia and an impairment write-down of $14 million, which were partially offset by a gain on asset sales of $41 million.

The average realised gas price of $3.78 per gigajoule (GJ) and oil price of $A89.35 were 4% and 21% higher than 2005, respectively.

Santos said its guidance for 2007 and 2008 is to maintain production at current record levels of between 59 and 61 million barrels of oil equivalent, after taking into account the sale of the US business.

“Beyond that, we see moderate growth into the next decade, followed by a step change as LNG projects in PNG and Darwin come on line,” the company said.

Managing director John Ellice-Flint said looking forward, a key value and growth driver for Santos will be its contingent resource position, which now stands at over 2.2 billion barrels of oil equivalent and is predominantly gas.

“With the increasing drive towards more environmentally friendly, low-carbon fuels, we see gas as the transition energy to displace other less clean fuels used for power generation,” Ellice-Flint said.

“Coupled with rapid growth in Asian economies and the consequent growth in demand, timeframes to monetise these gas resources are shortening, and as a result the inherent value of these resources is increasing.”

The company also announced it had boosted its provision for the Banjar Panji mud disaster in East Java from $24 million in the 206 interim accounts to $89 million in the 2006 year-end accounts.

“While neither Santos or its subsidiary, Santos Brantas Pty Ltd, has admitted any liability, this provision reflects the board’s prudent estimate of the costs that may arise relating to the incident,” Ellice-Flint said.

“We have also recognised $22 million insurance proceeds in the accounts, leading to net costs of $67 million.”

Santos said the proceeds include its subsidiary’s share of the $US25 million well control insurance held by the joint venture, of which a small initial amount has already been received by the JV.

“The balance relates to Santos’ own well control insurance and reflects a progress claim under its own policy, while the company continues to work towards a resolution with its insurers,” it said.

Ellice-Flint said the ultimate total cost cannot be accurately assessed, as “the matter is subject to investigation, arbitration, litigation and discussion between relevant parties.”

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