The new target, up from the 100 mmboe Santos set in 2018, represents a cumulative annual growth rate in production of over 8 per cent to 2025.
Speaking at the company’s Investor Day in Sydney, Santos managing director and chief executive officer Kevin Gallagher said the execution of the company’s transform-build-grow strategy since 2016 had the company positioned for disciplined growth and sustainable shareholder returns.
“Our strategy has been to establish a disciplined low-cost operating model that delivers strong cash flows through the oil price cycle. Our 2019 forecast free cash flow breakeven oil price is now US$29 per barrel,” Gallagher said.
“The recently announced acquisition of ConocoPhillips’ interests in northern Australia and Timor-Leste will further reduce our breakeven oil price and deliver operating interests in long-life, low-cost conventional natural gas assets and strategic LNG infrastructure.
“We are now positioned for disciplined growth leveraging existing infrastructure in all five of our core assets, which we believe will deliver 120 mmboe by 2025,” he said.
The disciplined growth portfolios include: Barossa LNG – targeting FID around the end of first quarter 2020; Dorado liquids – targeting FEED-entry second quarter 2020; PNG LNG expansion – targeting FEED-entry in 2020; and Cooper Basin production growth.
Gallagher said Santos was well positioned to fund growth out of operating cash flow and debt while maintaining gearing levels within the company’s target range through the major growth phase, with rapid de-gearing expected thereafter.
“Natural gas is forecast to supply a quarter of the world’s total energy demand by 2040. Through our energy solutions business, we are investing in projects to lower emissions and assessing the significant potential for carbon capture and storage in the Cooper Basin,” Gallagher said.
Santos has narrowed its 2019 production guidance to 74-76 mmboe (previous 73-77 mmboe) and sales volumes guidance to 93-95 mmboe (previous 90-97 mmboe).
The company’s 2019 upstream unit production guidance has been lowered to $7.25-7.50/boe (previous $7.25-7.74/boe).
Its capital expenditure is expected to be $1 billion (previous $950 million to $1050 million) including major growth.
Santos’ 2020 production is expected to increase to between 79-87 mmboe, including 73-80 mmboe from the base business (excluding the ConocoPhillips acquisition and expected 25 per cent sell-down to SK E&S) and 6-7 mmboe net from acquired assets after the sell-down.
The company expects to complete its acquisition of ConocoPhillips’ LNG assets in northern Australia in the first quarter of 2020, subject to third-party consents and regulatory approvals.
Its capital expenditure in 2020 is expected to include $950 million of sustaining capex in the base business (including all onshore drilling, asset sustaining capex, exploration and corporate) and $500 million major growth capex for Barossa, Dorado and PNG LNG expansion.