When it comes to Santos, no news is good news. And the message from its half-year results this morning was clear; everything is going according to plan.
Santos (STO) is a company in transformation. Once seen merely as a dividend stream from its Cooper Basin interests with capital growth shackled by state government legislated limits on shareholdings, now is a growth stock.
The results themselves – earnings up 3%, revenue up 1% and production down 4% – were largely irrelevant.
Instead, the costs associated with its two huge new developments that were under the spotlight. And both showed no indication of the kind of blowouts that have afflicted major resource developments of recent years, sending the company's share price up 0.14% to $14.03 in morning trade compared to a 0.9% fall in the wider index.
Its PNG liquefied natural gas development is now 90% complete with scheduled production now just months ahead rather than years. The Gladstone LNG project is 60% complete and should be exporting gas by 2015 (see Tim Treadgold's Santos fires up on LNG).
That has drawn investor eyes to the future, 18 months to three years forward. And Gladstone the project with the greatest capacity for things to go haywire, has seen cost estimates remained unchanged at $18.5 billion.
The first-half production shortfall, flagged last month in detail by the company following planned shutdowns particularly in the Cooper Basin, was more than compensated by improved prices. Gas and oil prices both were up with the company posting record average prices.
In the past year, there have been serious concerns about the viability of Australia’s LNG industry following major shale gas discoveries in the US and the possibility of cheap American gas flooding the Asian market.
Much of that analysis overlooks the potential for increased demand as Asian development continues and as the preference for LNG as a cleaner fuel than coal.
But Santos appears to be well insulated from short term price declines with offtake arrangements inked with Total, Petronas and Kogas, the major players in Asia’s gas industry.