Santos (ASX:STO) share price on watch after record Q3 production

The Santos Ltd (ASX:STO) share price will be on watch this morning following the release of its third quarter update…

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The Santos Ltd (ASX: STO) share price will be in focus on Thursday following the release of its third quarter update.

How did Santos perform in the third quarter?

For the three months ended 30 September, Santos delivered record third quarter production of 25.1 mmboe.

This was 22% higher than the prior quarter and driven by higher production in all five of the company’s core assets. This was particularly the case for domestic gas and LNG volumes.

Third quarter sales revenue grew 2% quarter on quarter to US$797 million. Management believes this demonstrates the strength of Santos’ diversified portfolio of fixed-price domestic gas contracts combined with a higher equity level in Bayu-Undan. This more than offset lower JCC-linked LNG pricing.

In respect to free cash flow, Santos revealed that it generated US$143 million in free cash flow for the quarter. This brought its total free cash flow for the nine months to-date to US$574 million.

Santos Managing Director and Chief Executive Officer, Kevin Gallagher, was pleased with the quarter.

He commented: “The operating model combined with our portfolio of fixed-price domestic gas contracts, enabled us to deliver higher quarterly revenues and consistent free cash flow generation despite the impact of significantly lower oil price-linked contracted LNG prices.”

Outlook.

Mr Gallagher appears optimistic that the worst is now over for LNG prices.

“We expect the third quarter to represent the trough for LNG prices, with higher prices expected in the fourth quarter based on current JCC oil-linked and JKM spot pricing, with JKM currently above US$6/mmBtu for December delivery,” he explained.

He also sees growth opportunities for the company once business conditions improve.

“As COVID-19 and the lower oil price continue to challenge us, we have remained resilient with stable revenues and consistent free cash flow generation from the core assets. Our balance sheet is strong and we remain well positioned to leverage our growth opportunities when business conditions improve,” Mr Gallagher said.

No changes have been made to its full year production guidance (83-88 mmboe), but management has been able to lower is upstream unit production cost guidance by 15 to 25 US cents.

It explained: “Upstream unit production cost guidance is lowered to US$8.25-8.75/boe due to continued focus on operating efficiencies across the base business and despite one-off cost impacts due to managing the impact of COVID-19. All other guidance is maintained.”

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