Company Overview - Santos Limited is an oil and gas producer. The Company's principal activity is the exploration for, and development, production, transportation and marketing of, hydrocarbons. It has an Asian portfolio, with a focus on three core countries: Indonesia, Vietnam and Papua New Guinea. It has interests in four liquid natural gas (LNG) projects, comprising GLNG, PNG LNG, Darwin LNG and Bonaparte LNG. Its business units include Asia Pacific, Eastern Australia, GLNG, and Western Australia and Northern Territory. The Asia Pacific unit includes operations in Indonesia, Papua New Guinea, Vietnam, India, Malaysia and Bangladesh. It is a producer of natural gas, gas liquids and crude oil in eastern Australia. It sells gas to domestic retailers and industry while gas liquids and crude oil are sold in the domestic and export markets. It produces domestic natural gas in Western Australia and is also a producer of gas liquids and crude oil. It also has an interest in the Bayu-Undan/Darwin LNG project.


STO Dividend Details
 
Exploration results from South Australian Gas: Santos Ltd (ASX: STO) has 60% interest in South Australian Gas Ex PEL 513, while Beach Energy has 40% interest in the venture. Recently, Beach energy reported that the Berylium-1 which is near the  RL 200, and over 50 kilometers north-west of the Moomba gas processing facility, is among the second of the four near-field exploration wells targeted to be drilled in the ex PEL 513 permit area in FY16. The drilling campaign is aiming the liquids-rich gas play area of the southern Patchawarra Trough, having strong prospects on the Jacenza 3D seismic survey. Meanwhile, this well intersected gas pay across the target Patchawarra Formation sandstones and was cased and suspended as a future producer although the outcome indicated the well to be a low-side gas pay. Sphalerite-1 is the third near-field exploration well in the ex PEL 513 permit area which is located in PRL 200, around 10 kilometers north-east of the Berylium-1 gas discovery. Sphalerite-1 targeted sandstones within the Patchawarra Formation. Evaluation of results indicated no gas pay and the well was plugged and abandoned. As per the South Australian Gas PEL 570, with the group having 35% stake and Beach having 47.5%, stake, the Washington-1 gas exploration well was drilled in October 2015 which was targeted to test the prospects of deep coals within the Toolachee, Epsilon and Patchawarra formations. Fracture stimulation were finished in November 2015, with five stages placed and a 100% placement rate achieved. Post the installation of production finishing, production test began in March 2016, but the well was consequently shut-in due to rain and more testing is planned for first half of 2017.
 

Cooper Basin wells (Source: Company Reports)
 
Positioning GLNG project with solid prospects: Santos is mainly focusing on its prestigious project, GLNG, being the operator for the project who has 30% stake along with other partners including PETRONAS of Malaysia with 27.5%, Total of France with 27.5% and KOGAS of South Korea with 15%. The project is aiming to offer natural gas from Queensland’s coal seams and converting it into liquefied natural gas (LNG). This project has gas field development in the Surat and Bowen Basins, a 420-kilometre gas transmission pipeline and a two-train1 LNG plant on Curtis Island, near Gladstone, Queensland. As a result, after the plant is totally operational, the group would have the capacity to produce 7.8 million tonnes of LNG per year. Accordingly the group’s Project revenue would be supported by the binding long-term LNG sales contracts with PETRONAS and KOGAS comprising more than 90% of the plant’s capacity based on the 20-year binding offtake agreements having over 7.2 million tonnes per annum (mtpa) of LNG in aggregate.
 
GLNG Project trains performance: The first LNG at the GLNG project started during September 2015 while first cargo in October 2015 noted the result of several years of efforts of development, construction and production activity by Santos and its GLNG joint venture partners. Management reported that after their final investment decision on GLNG in January 2011, many 100 million work hours were invested by more than 10,000 people for constructing and operating the project. Accordingly, given the start of that first LNG cargo from Gladstone aboard the Malaysian-owned Seri Bakti en route to customers in Korea, the GLNG ranks was shifted into the ranks of global LNG producers. Santos expects that it exports an average of two cargoes per week as well as supply over 11% of Korea’s domestic gas needs and 9% of Malaysia’s domestic gas needs. The group reported that they shipped cargoes of LNG from the project as at the end of February 2016. The group already sold these commissioning cargoes in advance on a blend of oil-linked and spot based pricing. Revenues related to its oil-linked long-term contracts with GLNG’s foundation customers are estimated to start during March 2016. With the practical completion of Train 1, the handover of facilities from Bechtel as the construction contractor to GLNG were finished. This indicates further confidence on the group’s GLNG business. For the Train 2, work is ongoing and forecasted to generate first LNG in the second quarter of 2016. As a result, management believes that if both trains are fully ramped-up, than GLNG would be delivering over one cargo per train per week. Accordingly if both the trains are totally ramped-up, GLNG is forecasted to be exporting greater than 100 cargoes per annum. Shipping costs are the charged to the buyers while LNG vessels differ in size. However, standard volumes are between 120,000 m³ and 180,000 m³ per cargo. Meanwhile, Train 1 production has regularly surpassed 110% of nameplate capacity while the starting of Train 2 is on track having first LNG by the second quarter of 2016. Fairview as well as Roma fields are supplying gas to Train 1.
 

Solid GLNG presence (Source: Company Reports)
 
Outlook: For the full year of 2016, the group intends to focus on lower risk, near-field exploration wells which target domestic gas markets via present infrastructure. At the Carnarvon Basin the group is evaluating the Davis-1 well results that have finished drillings in February. For the East Java, Indonesia, the group intends to leverage its expertise in shallow water developments as well as drill the Merem-1 and Meliwis-1 exploration wells for the first quarter. Accordingly if this move is positive, the group intends to produce through the existing infrastructure. Santos would be diverting their investments for future longer term supply opportunities for respective LNG infrastructure, and in Papua New Guinea, the group is planning to drill the Strickland-1 exploration well in the first half. On an overall note, in the McArthur Basin the group intends to implement a stratigraphic drilling program in the third quarter to further calibrate the play models that were developed post the success of the Tanumbirini-1 exploration well and explore for new unconventional plays in the northern permits.
 

Production volume and Sales revenue (Source: Company Reports)
 
Stock Performance: The shares of Santos have fallen more than 40.94% (as of April 12, 2016) in the last one year like its peers owed to the ongoing pressure in the commodity markets. On the other hand, STO recovered over 33.22% in the last three months partly driven by positive drilling results, contribution from GLNG train 1 and cost cutting efforts. As per its production highlights for 2015, the Western Australia & Northern Territory Business Unit produced 15.9 mmboe in 2015 accounting 28% of total production while Asia Pacific Business Unit produced 19.2 mmboe in 2015 representing over 33% of the group’s overall production. STO sold 58 LNG cargoes from Darwin LNG while its appraisal program is boosting its resource position. The group intends to focus on proven basins in Australia and South-East Asia as a part of its exploration strategy by leveraging its current infrastructure only in these basins, and avoiding new investments. Therefore, the group is targeting selected frontier basins which provide strategic transformational potential. Meanwhile, Santos also reported that its PNG LNG operations are performing better than expectations with 101 cargoes shipped in 2015 and believes to have more potential for PNG LNG Project expansion. Accordingly, the group is assessing opportunities accordingly. The group also witnessed a major oil discovery at Bestari-1 exploration well, at offshore Malaysia. Given such strong prospects and potential for STO, we believe that the positive momentum in the stock would continue in the coming months. Based on the foregoing, we put a “BUY” recommendation on this dividend yield stock at the current price of $4.10
 
 
STO Daily Chart (Source: Thomson Reuters)

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