Robust free cash flow, significant projects progress and Moomba CCS phase one online
Robust free cash flow
- Free cash flow from operations of ~US$400 million, compared to US$377 million in prior quarter.
- Sales revenue of US$1.3 billion, slightly lower than prior quarter.
- Production decreased 3 per cent quarter on quarter to 21.6 mmboe.
- Gearing was 21.7 per cent, excluding operating leases (25.0 per cent when included).
Major project delivery
- Moomba Carbon Capture and Storage (CCS) project completed commissioning and is now online and storing CO2 in Cooper Basin depleted reservoirs at full rate. Technology and reservoir performance is in line with expectations. Santos expects to inject approximately 250,000 tonnes (gross) of CO2 in 2024, with the project already at full injection rates.
- Barossa Gas project is now over 82 per cent complete and remains on track for production in Q3 2025.
- Pikka phase one is now 67 per cent complete and focused on accelerating pipelay activities to two programs following increased realised productivity over the 2023 winter season. Twelve wells have now been drilled, with seven stimulated and six flowed back. Well tests continue to de-risk subsurface, with well results in line with expectations. Following the post 50 per cent review, the combination of accelerated pipelay activity costs and inflation experienced since FID means we now expect development capital for Pikka phase one, including D&C sustaining capex post first oil, to increase approximately 20 per cent. Around 70 per cent of this projected increase has already been incurred in 2024 with the remainder still to be incurred over 2025 and 2026. The Pikka phase one project remains on track to deliver significant value for shareholders.
- There is no change to 2024 capital expenditure guidance.
Operating highlights
- GLNG midstream operations executed successful planned maintenance shutdown of Train 1. The work was performed in parallel with turbine changeouts and other project works, and completed safely, on schedule and within budget.
- Drilling of the Halyard-2 infill well in WA commenced. Well logging activities indicated successful intersection of gas column and reservoir quality in line with pre-drill expectations. Final well completion and testing to occur in the coming weeks. Halyard-2 will supply gas to the Varanus Island Plant following connection to existing pipeline network in early 2025.
- High compression reliability at Gobe and Kutubu fields has continued to provide additional backfill to PNG LNG facility in the third quarter.
- Angore currently being commissioned with well clean-up activities being undertaken. Full production of ~350 mmscf/day gross is expected into PNG LNG in the fourth quarter.
- Executed two mid-term, oil-linked LNG Supply and Purchase Agreements (SPA) with Glencore and TotalEnergies Gas & Power, each for supply of approximately 0.5 million tonnes of LNG per annum over a period of three years and one quarter, delivered ex-ship.
- Refinancing of syndicated bank loan facility completed, increased to US$850 million, full-revolving loan maturing in January 2030. Floating interest rate over the Secured Overnight Funding Rate with margin to Santos’ external credit rating, currently 1.55 per cent per annum for the 5.5-year facility.
- The Alaska State Department of Natural Resources approved Santos’ application to expand the joint venture’s Pikka Unit acreage in September 2024, increasing the joint venture’s acreage position in the Pikka Unit by approximately 25 per cent.
Santos Managing Director and Chief Executive Officer Kevin Gallagher said the business performance reflects a focus on operational excellence and project execution, delivering another strong quarter of production and cash flow.
“Free cash flow from operations of almost US$1.5 billion year to date creates a strong platform to provide solid returns to shareholders, backfill and sustain our existing business, and continue to grow our Santos Energy Solutions business,” Mr Gallagher said.
“We are extremely proud of the safe operations of our business. Over the past quarter we have continued to develop our major projects and undertaken major maintenance and shutdown activity, all done safely and efficiently. Safety is our number one priority.”
“The successful start-up of Moomba CCS phase one is a potential game changer not only for Santos, but for hard-to-abate industries across Australia. With a lifecycle cost under US$30 per tonne of CO2, CCS can no longer be ignored. This is a real carbon management industry opportunity for Australia, generating real jobs that are high-skilled, long-term and well-paying in South Australia.
“Australia’s Clean Energy Regulator and South Australia’s Department for Energy and Mining are world-class regulators implementing international standards, thereby giving confidence in the integrity of measurement, monitoring, verification and carbon credit generation.
“There is strong customer interest in our Moomba CCS project and Santos has recently signed a series of MOUs with domestic and international third parties to evaluate the potential to capture, transport and sequester their emissions at Moomba. This provides strong momentum for Moomba CCS phase two as a commercial service,” Mr Gallagher said.
“Our oil and gas development projects also continue to deliver to plan and will be well positioned in an Asia Pacific market with ongoing strong demand for oil and gas. I am very pleased with the progress of the Barossa Gas project. The FPSO is in the pre-commissioning yard in Singapore, the fourth well is under way and other activities are on track for offshore commissioning to commence in the first half of 2025.
“The Pikka project is progressing well with the project now 67 per cent complete. High productivity across all scopes of work over the 2023 winter season is pleasing. The team are now focused on delivering another high productivity winter season, weather permitting, which could create the potential for first oil production up to six months earlier than originally planned. This would be a great result and help offset increased project costs. At a consensus oil price of US$75/bbl, the IRR of the project is 20 per cent, so Pikka is set to deliver significant value for our shareholders.
“We now see line of sight to our major projects progressively coming online, putting us in a strong position to deliver stable, long-term production and sustainable, superior shareholder returns.
“Our focus for the remainder of 2024 is on project execution and cost discipline – managing costs, delivering on our promises, pursuing excellent results. With the Moomba CCS project already running to full capacity, excellent progress at Barossa and the Alaskan winter season ahead of us, Santos is in a great position to deliver superior shareholder returns over the coming years,” Mr Gallagher said.
