RBC Capital Markets analyst Ben Wilson has just returned from a trip to Santos’ Western Australian and Northern Australian assets including Varanus Island gas plant Darwin LNG.
He said the trip was important given the two states represent the company's largest prospects for growth.
"With the transition of Quadrant operatorship of WA to Santos complete and Conoco-Santos Darwin transition scheduled for the first quarter of 2020, Santos is well positioned to execute these growth ambitions," he wrote.
Santos announced the Quadrant buy, valued at US$2.15, last year and in October announced it would take ConocoPhillips' Northern Australia assets for close to $1.4 billion. In both cases it shared some of the assets already.
He noted the transfer of staff from both, meaning assets remain managed by those who understand them.
Santos is now supplying 400-500 terrajoules per day into the WA market though has not drilled a development since 2012.
Output from Varanus Island and Devil Creek will peak in the second half of next year with the beginning of the new Alcoa contact, he said.
Santos' size, with an enterprise value of over US$15 billion and free cash flow of $1 billion a year, now means it is harder for individual projects to have much of an impact on share price.
"For a market which increasingly asks ‘so, what have you done for me lately?', the impetus to create and execute growth projects only intensifies as an E&P company grows larger."
However with a recently larger footprint in the west and north of the country it now has a "diverse array of impactful growth levers".
Those levers include the Dorado find's oil and related gas, Barossa field backfill to Darwin LNG and the longer term multi-train expansion via McArthur Basin unconventional and Browse and Bonaparte Basin 2C resources.
He also suggests farm downs next year, unsurprising for anyone who has been following the company. It has long said it would farmdown a portion of the 80% of Dorado it shares with Carnarvon Petroleum (20%) and when it announced the ConocoPhillips acquisition it would sell a 25% to project partner SK E&E.
"Longer term we also see McArthur Basin and Narrabri as farm down opportunities," he said, though the latter is still subject to approval from the state of New South Wales.
At Darwin LNG feed gas for the possible additional trains could come from the MacArthur Basin in the Northern Territory. It is permitted for up to 10MMtpa.
Source: Energy News Bulletin
Read more here
