Santos production to overflow

Oil and gas producer, Santos Limited (ASX: STO) looks set to see production output explode in the next few years, as two of its giant LNG projects and several other major oil and gas projects come on stream.

Announcing its first quarter results today, Santos said its PNG LNG project is over 80% complete and on track for first LNG in 2014. Partner, Oil Search Limited (ASX: OSH) will be gushing at the news.

Santos’ other LNG project, the Gladstone LNG, is over 50% complete and scheduled to produce its first LNG in 2015.

Additionally, Santos expects its Fletcher Finucane oil project, offshore Western Australia tracking ahead of schedule and expected to produce oil by the middle of this year. Its Peluang gas project, offshore East Java Indonesia is expected to produce its first gas in the first half of next year.

After producing 52 million barrels of oil equivalent (boe) in 2012, Santos expects to see a slight increase in in the 2013 financial year, forecasting production of between 53 and 57 million boe. During the first quarter, production dropped by 8% compared to the December quarter 2012, due to major planned shutdowns. The Mutineer-Exeter oil project, operated by Santos on behalf of its partners including Woodside Petroleum (ASX: WPL), was dry-docked during the quarter, resulting in crude oil production falling 19% below the previous quarter.

Looking further out, Santos has several prospective projects underway. Its South Australian Cooper Basin joint venture – with partners Beach Energy (ASX: BPT) and Origin Energy (ASX: ORG) is rapidly expanding its existing gas reserves. Santos has already signed a contract to deliver 750 Petajoules (a lot!) of gas over 15 years at oil-linked prices, beginning in 2014. Other companies are lining up to drill in the Cooper Basin, but crucially, Santos controls the only gas processing facilities in Moomba, giving it a significant advantage in the years ahead.

Foolish takeaway

Trading on a P/E ratio of over 21, some of the growth appears baked in. However, as we’ve seen with Woodside and the contribution from its Pluto LNG project has made to total production, the market could be undervaluing Santos’ potential. This oil and gas producer is definitely one to consider for your watchlist.

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The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in Woodside and Origin.

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