Santos Looking to Expand Its Portfolio

Santos Ltd said it was aiming to boost production, cut costs and expand its portfolio through acquisitions after an overhaul of its reserves and structure in 2001.

Santos' 2001 full-year net profit slipped 8.4 per cent to A$445.9 million, in line with expectations, after it warned of a possible 10 per cent slide due to lower product prices, operating expenditures and the impact of a long-awaited reserves review.

Santos said net income in the six months ended December 31 fell to A$194.4 million ($99 million), down from a year-earlier A$279.8 million. The company doesn't report earnings per share for the second half.

After last month announcing it would take a A$40 million charge to account for an 18 per cent decline in oil and natural gas reserves, Santos said it will spend A$160 million this year to increase output 3 percent and double the amount of oil and gas resources it discovered in 2001.

"That's going to be a tough ask," said Andrew Williams, an analyst at Auzeq Securities Ltd. in Melbourne, who rates Santos stock a "reduce." "They've got to deliver to those benchmarks or they'll be treated accordingly." Santos plans to add about 130 million barrels to its resource after spending A$151 million to discover an estimated 67 million barrels of oil equivalent last year.

"If successful, this would make a significant contribution towards reserve replacement," Managing Director John Ellice-Flint said in a statement.

Product sales for the full-year declined 2.5 per cent to A$1.46 billion while total revenue fell 17 percent to A$1.56 billion. Operating costs rose almost one-tenth to A$288 million as it brought its Legendre oil field, off Western Australia state, into production last May.

Santos managing director John Ellice-Flint said the company was looking toward production growth of three percent in 2002, before exploration success or acquisitions, and would target cost control and reserve replacement.

"2001 was a year where Santos laid the foundations for further growth," he stated. Ellice-Flint said the company was actively reviewing acquisition opportunities and had the capacity to "do something quite material".

"Acquisition opportunities have generally been inflated over the last year and we would hope to see improved opportunities as the low oil price environment pulls back valuations," he said. Santos plans to spend A$160 million on exploration and appraisal in 2002 aimed at delivering twice the mean resource of 67 million barrels of oil equivalent discovered in 2001. "If successful this would make a significant contribution towards reserves replacement," Ellice-Flint said.

The spending will include A$120 million in wildcat wells as the company pursues higher risk/reward opportunities than a past approach mainly targeting incremental reserve growth from fields.

The 17 wildcat wells will be drilled in Queensland, offshore Western Australia, Victoria's Otway Basin, East Java, Papua New Guinea and the Texas Gulf coast.

The company's current major production asset is its majority interest in the mature Cooper/Eromanga Basin fields in central Australia, which has key gas supply contracts in South Australia and New South Wales coming up for review.