Australian gas supplier Santos Ltd <STO.AX> on Thursday posted a 1% drop in underlying profit for 2019, missing estimates, as a jump in production thanks to assets it bought a year earlier only partly offset the impact of weaker gas prices.
Reporting underlying profit eased to $719 million from a year earlier, Santos said it expects to reach a final investment decision on its Barossa project in the second quarter. Barossa is key to plans to increase output more than 50% over the next five years through projects in Australia and Papua New Guinea.
However, Chief Executive Kevin Gallagher said, gas marketing for the project, off northern Australia, has slowed amid a slump in liquefied natural gas (LNG) prices, while the coronavirus epidemic has also limited travel for potential buyer meetings.
With Asian LNG <LNG-AS> having dropped to record lows below $3 per million British thermal units (mmBTU), Santos is reluctant to seal new gas deals, even though there has been plenty of interest in Barossa gas, Gallagher said.
"Right now spot prices are significantly below the actual cost of supply," Gallagher told analysts on a conference call. "We are conscious of not locking in too much volume at the bottom of the market."
However, he reiterated Santos hopes to line up contracts for "significant" volumes from Barossa before making a final investment decision on the project.
Barossa would be developed to feed an LNG plant in Darwin from 2024 which Santos is set to acquire shortly from ConocoPhillips <COP.N> as part of a $1.4 billion deal agreed last October.
There is a roughly 18-month gap between when the Bayu-Undan gas field that currently feeds the Darwin plant is set to run dry, in 2022, and when Barossa is due to start producing. Gallagher hopes to narrow that gap by extending the life of Bayu-Undan.
Santos shares slipped 0.6% in a broader market that was up 0.4%.
But the earnings result was in line with an estimate by Citigroup, which rates Santos as its top pick among Australia's oil and gas explorers and producers (E&Ps).
"Santos is the only large-cap E&P with the balance sheet to comfortably execute on its growth capex aspirations, while still paying an approximately 5% dividend yield," Citi analyst James Byrne said in a note.
(Reporting by Rashmi Ashok in Bengaluru and Sonali Paul in Melbourne; Editing by Kenneth Maxwell)
