The Santos Ltd (ASX: STO) share price will be on watch today after the energy producer released an update on its guidance for FY 2020.
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What did Santos announce?
This morning Santos upgraded its production guidance and reduced its cost guidance for the 12 months ended 31 December.
According to the release, Santos is now expecting its production to be in the range of 87 to 89 million barrels of oil equivalent (mmboe) in FY 2020.
This compares to its prior guidance of 83 to 88 mmboe and represents 15% to 18% production growth for the year and more than 50% growth since 2015.
Management advised that this is being driven by its strong operating performance across the base business.
In respect to its costs, management advised that Santos is on track to deliver the production cost reductions announced in March in response to the COVID pandemic. This will see its FY 2020 guidance lowered to $8.00-$8.50/boe.
In addition to this, management revealed that its capital expenditure is still expected to be approximately $900 million. This is consistent with the 38% reduction for the year that it announced in March.
Acquisition integration update.
Santos also provided an update on the integration of the ConocoPhillips acquisition which completed in May 2020.
Management advised that the integration is proceeding well, with guidance on acquisition synergies upgraded to $90 million to $105 million per annum.
Santos' Managing Director and Chief Executive Officer, Kevin Gallagher, commented: "Our strategy has been to establish a disciplined low-cost operating model that delivers strong free cash flows through the oil price cycle. Our 2020 forecast free cash flow breakeven oil price is less than US$25 per barrel before hedging and around US$20 per barrel after hedging."
"Our base business is strong with production levels expected to remain relatively steady for the next decade and providing significant free cash flow. This cash flow combined with a strong balance sheet and control over the timing of our major projects, means we are well positioned for disciplined growth," he added.
Santos also announced another major step towards a final investment decision on the Barossa project. Management advised that this follows Darwin LNG approving tolling agreements to transport and process Barossa gas through DLNG.
Finally, Santos has also announced an ambitious roadmap to net-zero emissions by 2040 and new emissions targets designed to support Australia's commitment to the Paris Agreement. This includes a 26% to 30% reduction in scope 1 and 2 emissions by 2030, and a commitment to actively work with customers to reduce their emissions.
"Our focus over the last three years on step change technologies such as carbon capture and storage has enabled a pathway that allows us to go further faster when it comes to emissions reduction," Mr Gallagher concluded.
