Like fellow oil/gas producer Woodside Petroleum Limited (ASX: WPL) two weeks ago, Santos Ltd (ASX: STO) released record quarterly results to the market on Friday.
Echoing my sentiments from the Woodside article, Santos's report could prove to be the last of the good times for shareholders if low oil prices continue to persist this year.
Before we get to the outlook for 2015 however, here are the highlights from the fourth quarter of 2014:
- Yearly production of 54.1 million barrels of oil equivalent (mmboe), within guidance of 53-55mmboe
- Production costs of $820-$880 million ($15-16 per barrel)
- Depreciation, depletion and amortisation expense of $18.50 per barrel
- Total sales revenue of $1,090 million, up 2% on the prior corresponding period (pcp)
- Average realised oil price of A$92.09/ barrel
- Approximate revenue derived 35% from oil, 24% from LNG, 26% from gas, 9% from condensate, remainder from LPG
- Full year capital expenditure of $3.8 billion, down from $4.3b in 2013
- Gladstone LNG project on track and on budget for start-up in second half of 2015
Santos also experienced a fair degree of exploratory drilling success during the quarter.
As readers can see, Santos continues to enjoy good margins on its oil production, although recent Brent Crude prices of ~A$50 per barrel are significantly lower than Santos' average realised price of A$92 during 2014.
Pleasingly, only one third of revenue comes from oil, and while the value of oil has declined, natural gas and LNG prices actually rose over the past quarter, which helped mitigate the impact.
Still it's hard to escape the idea that Santos is going to report weaker results in the first quarter of 2015, with the lower oil price potentially losing the company around $90 million in profit if oil volumes remain the same.
There is also the potential for Santos's share price to fall in the short term if the company makes big write-downs or if its debt ratings are downgraded.
However with the Gladstone LNG project coming online and a number of other opportunities in the LNG/gas sectors, Santos continues to look like a long term buy. Fool.com writer Tom Richardson could indeed be left sitting pretty in 2016 thanks to his bet on Santos.
