Three important takeaways from Santos’ AGM

Energy producer Santos (ASX: STO) gave investors a fresh update on its strategic direction at the company’s AGM this week.

While it wasn’t all good news, the long-term outlook presented by the company suggests it is fighting fit to achieve consistent, long-term growth. Here are three of the important takeaways for investors:

1. Full year FY13 production is going to fall short

Santos expects to produce 51 million barrels of oil equivalent (mmboe) for the full 2013 financial year, slightly down on the 52.1 million produced last year and a fall on initial guidance of up to 57 mmobe.

Part of the problem was attributed to a fault with Vietnamese oil and gas pipeline Chim Sao which has now been repaired, while a period of transition currently occurring for domestic east coast gas demand was another driver.

2. It has still been a great year

Despite the fall in production, 2013 has still been a great year for Santos. The company achieved record sales in the third quarter of just over $1 billion, up 20% on the same period in 2012 and a solid result given the 1% drop in production.

The key to the strong result has been the lower Aussie dollar throughout the year, which acted as the rocket fuel when combined with higher oil and gas prices.

Santos made some positive new steps through the year including signing a joint venture deal with Drillsearch (ASX: DLS) to further develop the Cooper Basin.

With all the positive news, shareholders reacted in kind pushing Santos’ share pice up a massive 30% in the last 12 months, almost twice as much as the S&P/ASX 200 Index (ASX: XJO) which is up 16.6%.

3. The long-term outlook is rosy

Santos has forecast a compounded growth rate of 6% through to 2020 which will be driven by major projects coming online. These include the PNG LNG project being conducted in conjunction with Oil Search (ASX: OSH) which is set for first production in the second half of FY14.

The completion of PNG LNG will contribute to higher cashflows in FY14 and lower capital expenditure, dropping from $4 billion this year to $3.5 billion.

Further out, long term LNG demand is expected to continue to grow at a rate slightly ahead of planned production capacity, despite a potential overlap in 2015.

Santos chart1

Above: forecast LNG demand vs planned production capacity through to 2030. Source: Santos FY13 AGM presentation

Foolish takeaway

The AGM update reinforces the strong growth trajectory Santos is on which should result in increased cashflows and dividends over the coming years. Santos’ share price has fallen back slightly in the last month and a further reduction would have me happily considering adding the company to my portfolio.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned.

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