Santos Q2 sales volume jumps, helping to offset oil price drop

[MELBOURNE] Australia's Santos Ltd reported a 25 per cent rise in oil and gas sales volumes in the June quarter on Friday, largely reflecting the smooth start-up of the second unit at its US$18.5 billion Gladstone LNG (liquefied natural gas) plant.

Sales rose to 19.6 million barrels of oil equivalent (mmboe) in the second quarter of 2016 from 15.7 mmboe a year earlier, slightly higher than analysts at RBC had expected, while production of 15.6 mmboe was in line with forecasts.

June quarter revenue fell 3 per cent to US$590 million from a year earlier, hurt by a 24 per cent slump in average realised oil prices. Santos said it had reduced production costs by 15 per cent to US$8.80 per barrel of oil equivalent in the first half of 2016 on a year earlier.

The company has been racing to cut costs to weather the oil price collapse under its new chief executive, Kevin Gallagher, who took the helm in February shortly after the company's shares sank to a 23-year low.

"There is a lot of work ahead of us but today's results show we are heading in the right direction," Mr Gallagher said in a statement.

Santos has switched to reporting in US dollars as most of its sales are priced in US dollars since the start of exports from Gladstone last October. The change also makes it more comparable with peers, like Woodside Petroleum.

With the currency change, it restated its production cost forecast for 2016 to US$9.50-US$10 per barrel of oil equivalent and restated its capital spending forecast for this year to US$750 million.

It still expects to produce between 57 and 63 mmboe of oil and gas this year.

The company is searching for a new chief financial officer, after announcing this week that Andrew Seaton, in the job since 2010, will be retiring later this year. The company's credit rating slumped to one notch above junk status under his watch.

REUTERS