Santos Limited

PNG LNG resumes normal production: Santos Limited (ASX: STO) announced about the operation at its PNG LNG plant which has resumed at normal production rates. Moreover, the production has been gradually ramping up since the Hides gas conditioning plant and one train at the PNG LNG plant restarted recently. As per the management, liquefied natural gas (LNG) production in PNG will come back to full capacity in May month following February's earthquake-enforced shutdown. The group, which holds 13.5 per cent interest in the Exxon-led PNG project, revealed about LNG train 2 at the plant is now operationalized and exports of LNG have also restarted. On the other hand, the company recently released first quarter activities report for the period ending 31 March 2018 and revealed that it is reaping the benefits of its new low cost, high efficiency operating model. The Group generated $246 million of free cash flow and reduced the net debt (to $2.5 billion) by 8 per cent as compared to previous quarter.


Comparative Performance (Source: Company Reports)

Gas investments: Moreover, the company has successfully completed commissioning and start-up of the Scotia CF1 project in Queensland. The project came in ahead of schedule and below budget with initial full field production exceeding 40 terajoules/day of natural gas. The project was estimated to cost A$493 million, but the group delivered it for A$416 million, sixteen per cent under budget. In fact, Mines Minister Dr Anthony Lynham had welcomed the commissioning of the Scotia Project in the Bowen basin in south-west Queensland and highlighted that this is another fixed capital investment in the $70 billion LNG industry, which generates billions in revenue including $9.8 billion in LNG exports over the 12 months to February 2018.

Apart from this, the Group has completed the sale of its non-core Denison Trough assets in Queensland to Orient (Denison Trough), owned by a consortium of Shandong Order Gas Company and Orient Energy, for up to A$43 million. Santos has received A$22 million in cash at the completion and is entitled to further contingent payments of up to A$21 million if certain milestones are achieved by the purchaser. The group expects to record a profit on sale at completion of approximately A$70 million. The stock price climbed up by 77.97% in the past one year (including some loss witnessed on April 30, 2018 with the release of the update while some profit-booking activity geared up). We do see some more potential coming in, and based on foregoing developments, we maintain our “Hold” recommendation on the stock at the current market price of $ 6.16.

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