PERTH (miningweekly.com) – Oil and gas major Santos has reported a 23% increase in production volumes for the half-year ended June, compared with the same period in 2020, while sales volumes in the same period increased by 15%.

Production in the first half of 2021 reached a record 47.3-million barrels of oil equivalent, compared with the 38.5-million barrels delivered in the previous corresponding period, while sales volumes in the same period increased from 46.9-million to a record 53.8-million barrels of oil equivalent.

Sales revenue for the half-year was up 22%, from $1.66-billion to $2.04-billion, while earnings before taxes, depreciation and amortisation and exploration expenses were up by 24%, from $995-million to $1.2-billion.

Net profits for the half-year increased by 222%, to $354-million, up from a loss of $289-million in 2020.

Santos MD and CEO Kevin Gallagher said Santos delivered record production and sales volumes in the first half of 2021, and strong free cash flow of $572-million despite lower average liquefied natural gas (LNG) prices.

“These results again demonstrate the resilience of our cash-generative base business and strong operational performance across our diversified asset portfolio.

“Consistent application of our low-cost disciplined operating model continues to deliver cost reductions and efficiencies despite cost challenges across the industry and Covid-related cost impacts in the base business.

“We will remain disciplined and cost focused as we enter our next phase of growth and progress the proposed merger with Oil Search.

“The proposed merger is a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets.

“The merged company will have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns,” said Gallagher.

The two companies earlier this month reached an agreement on the merger ratio with Oil Search shareholders to receive 0.6275 new Santos shares for each Oil Search share held via a scheme of arrangement.

Following approval of the scheme, Oil Search shareholders will own approximately 38.5% of the merged group and Santos shareholders will own approximately 61.5.

The merged entity will have a diversified portfolio of high-quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea (PNG) and North America, and a pro-forma market capitalisation of A$21-billion which will position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies, with a combined 2021 production of approximately 116-million barrels of oil equivalent.

“The merger will also build on our industry-leading approach to environmental and social governance through the combination of Santos’ net-zero 2040 pathway, including its sector-leading carbon capture and storage (CCS) projects, and Oil Search’s unique social programmes in PNG, underpinned by a strong balance sheet to fund the transition to a lower-carbon future,” Gallagher said on Tuesday.

“I am pleased with the progress we are making on due diligence and look forward to the signing of a binding merger implementation deed in the coming weeks.”

Meanwhile, Gallagher noted that since taking a final investment decision (FID) on the Barossa project in March, the project is off to a great start including the cutting of first steel for the floating production and storage and offloading (FPSO) turret, commencing manufacturing of subsea and export flowlines, and the assembly of subsea trees. 

FPSO hull build and topsides fabrication is scheduled to start in the third quarter, and the project is on track for first gas in the first half of 2025.

“While Barossa FID is a visible benefit of the acquisition of the ConocoPhillips assets in Northern Australia and Timor-Leste, I am also pleased with the very strong result from the first infill well drilled at Bayu-Undan, with an initial gas rate of 178-million standard cubic feet per day and liquids rate of 11 350 bbl/d. The infill campaign adds immediate value and extends the life of Bayu-Undan.

“We are extremely appreciative of the positive working relationship we have with the Timor-Leste regulator Autoridade Nacional do Petróleo e Minerais and the Timor-Leste government, whose support enabled this late-life infill campaign.

“Our Moomba CCS project is FID ready, subject to eligibility for Australian Carbon Credit Units, which is expected in the fourth quarter. We are also assessing the feasibility of creating a CCS hub at Bayu-Undan with the capacity of approximately 10-million tonnes per annum of CO₂ and providing a cost-effective solution for Barossa reservoir emissions as part of our roadmap to net zero by 2040.

“We have also made significant progress on our exciting Dorado project with front-end engineering design entry on an integrated oil and gas project taken in June. We are targeting FID in mid-2022 on the first phase of liquids production, with FID on a second phase of gas development to backfill our Western Australia domestic gas infrastructure likely to occur in the second half of the decade.

“Our strongly cash-generative base business, diversified portfolio and disciplined approach to capital allocation means that we are well positioned to drive free cash flow and sustainable shareholder returns,” Gallagher said.