Santos 1Q24 results
Santos’ 1Q24 results provided more clarity into Santos’ spend in Energy Solutions for the quarter.
Our view
We welcome the addition of Santos Energy Solutions capex in quarterly results. Santos must now demonstrate to investors how it plans to increase investment to meet its $3-4.5bn ambition.
Investors engaging with Santos should ask for:
Quantification of the overall cost and emission implications of producing synthetic methane and providing carbon capture services.
Plans to monitor the effectiveness of its Moomba CCS project and how potential liabilities will be managed should it fail to capture all emissions from external sources.
The alternative transition strategies Santos could consider if it cannot build a significant and viable proposition for fossil-based fuels (synthetic methane) and CCS as a service.
Provide emissions disclosure on a financial year basis to align with financials.
Key takeaways
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Santos now includes low carbon capex disclosures for its Santos Energy Solutions business. Capex for 1Q24 was $37m, up 3% from 1Q23.
However, this increase was dwarfed by upstream oil and gas capex growth, up 23%to $649m.
As a percentage of total capex, low carbon was only 5% in 1Q24, down from 6% in 1Q23.
We estimate this will need to rise to an annual average of 24% between FY24-FY33, to meet their $3-4.5bn cumulative capex ambition.
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Revenue fell 14% from 1Q23 to 1.4bn, with >70% of the decline coming from LNG.
Production fell 2% from 1Q23 to 21.8 M boe, with the company citing weather outages in WA and Cooper basin and planned maintenance in LNG.
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Santos reported that the Moomba CCS project is 85% complete, and reiterated first injection will start in mid-2024.
However, the company flagged that the timing behind the Bayu-Undan CCS project, (targeting FID in 2025 first injection in 2028) is “dependent on factors beyond Santos control”, including regulatory factors related to CO2 transport and storage requirements between Australian and Timor-Leste governments.
We expect similar arrangements would need to be established to support current proposed initiatives to capture, transport, and sequester emissions from Japan to the Cooper Basin.
Santos also reported that it continues to conduct studies for the ‘potential’ of a synthetic methane project in the Cooper Basin, but is yet to provide information regarding the sourcing of green hydrogen. Santos does not have a pipeline of renewable projects to produce their own.
