Santos Ltd (ASX: STO) shares will be in the spotlight this week with the oil and gas ASX share due to hand in its FY23 half-year result on Wednesday.
The company's success for the six months to June 2023 can be quite dependent on energy prices and how much it's producing.
Let's look at what we already know.
Operational update
Last month, the company gave its quarterly update for the three months to June 2023. In the first six months of 2023, Santos delivered production of 45 million barrels of oil equivalent (MMboe). This was down 13% year over year, while sales volume fell by 15% to 47.1 MMboe.
Sales revenue was down 21% to $2.97 billion, with both the LNG and crude oil price lower than in 2022. The average LNG price dropped from US$14.19 to US$13.24, while the crude oil price dropped from US$116.28 to US$85.75.
Santos explained the LNG price declined in the latest quarter "reflecting the link of sales contracts to a lower lagged Japan Customs-cleared Crude (JCC) price" and lower average JKM [LNG price benchmark] spot prices.
The business also said in its recent update that it completed a US$700 million share buyback, with approximately 139.1 million shares purchased.
At June 2023, it had net debt of $4.1 billion, which represented gearing of 21.9%. In the second quarter of 2023, it made free cash flow of around US$400 million and in the first quarter of 2023, it made free cash flow of US$720 million.
What's expected of Santos shares?
In its earnings preview for reporting season, Goldman Sachs suggested it's expecting "momentum to build on recent oil prices rises, with potential positive updates on catalysts" which the broker thinks can close a "25% valuation gap".
Goldman Sachs believes the ASX oil and gas share will provide an update on the proposed sale of 5% of PNG LNG for US$1.4 billion (including US$0.3 billion of project finance debt) where the company has extended an exclusivity period with Papua New Guinea's Kumul Petroleum to 31 August.
The broker suggests completion of that deal could improve free cash flow by around 6% and support additional shareholder returns which could be in the form of an additional share buyback program. This could be supportive for Santos shares.
Goldman Sachs also suggested updates could be provided on the progress of the Barossa LNG development after a re-submission of an environment plan to the regulator for assessment. The investment bank thinks uncertainty about Barossa has weighed on market sentiment over the past year.
According to Commsec, for the full 2023 financial year, Goldman Sachs is expecting Santos to generate earnings before interest, tax, depreciation and amortisation (EBITDA) of $4.32 billion, net profit of $1.45 billion, earnings per share (EPS) of 44 cents, and pay dividends per share of 23 cents.
Santos share price snapshot
Since the start of 2023, Santos has risen by close to 10%, while the S&P/ASX 200 Index (ASX: XJO) has gained around 3%.
