Santos (ASX:STO) share price jumps on record quarterly sales

Santos is having a “peacock” moment as it tries to impress its takeover target Oil Search with its quarterly report.

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Santos share price worker in front of oil mine puts thumbs up

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The Santos Ltd (ASX: STO) share price jumped after it posted record sales revenue for the June quarter.

Call it a “peacock” moment for the ASX gas producer as it structs its stuff to woo over Oil Search Ltd (ASX: OSH).

The Santos share price jumped 2.6% to $6.74 in early trade but a lift in the oil price overnight is also boosting the fortunes of the sector.

The Woodside Petroleum Limited (ASX: WPL) share price added 2% to $22.33 while Oil Search share price gained 3% to $4.16 at the time of writing.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) advanced by 0.9% on positive leads from Wall Street.

Santos share price having a peacock moment

Santos unveiled its highest ever quarterly sales of US$1.1 billion ($1.5 billion). This in turn has led to the company declaring a record first half sale revenue of US$2 billion.

Management also tightened its 2021 full year production and sales guidance to the top end of its previous forecast.

Production is now expected to range between 87 million barrels of oil equivalent (mmboe) and 91 mmboe. This compares to the earlier guidance of 84 mmboe to 91 mmboe.

Sales volumes are also getting a boost. The updated guidance is for 100 mmboe to 105 mmboe versus previous estimates of 98 mmboe to 105 mmboe.

Santos share price bolstered by lower cost estimates

To add a bit more kick to the quarterly report, Santos lowered its upstream production costs forecasts too. This is now expected to come in at $7.90 to $8.30 boe. That’s down from $8 to $8.50 boe.

The record quarterly sales were achieved even as second quarter production fell 9% to 22.5 mmboe compared to the previous quarter.

Production decline offset by other strong positives

The drop was due to the completion of the 25% sell down in Bayu-Undan and Darwin LNG to SK E&S on 30 April.

Offsetting this was stronger gas production in Western Australia and Queensland, and higher gas prices.

The average LNG price rose to US$7.52 per Metric Million British Thermal Unit (MMBtu) in the June quarter from US$6.12 per MMBtu in the March quarter.

Demand for domestic gas was also strong with the average gas price hitting US$4.74 per gigajoule (GJ) from US$4.54 per GJ in the previous three months.

Santos share price fails to impress

Santos made no mention of its merger proposal with Oil Search. But the messaging in the quarter was clearly aimed at the target as much as its own shareholders.

Santos chief executive Kevin Gallagher said Santos had delivered another strong quarter. Its performance stands in contrast to the turmoil within Oil Search.

But as I wrote yesterday, the outperformance of the Oil Search share price compared to Santos share price since the merger was announced makes it harder for the suitor to consummate the deal.

Santos will need to offer a bigger engagement ring. This is especially after it reported US$270 million in free cash flow for the quarter and US$572 million for the first half.

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Motley Fool contributor Brendon Lau owns shares of Santos Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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