Santos Share Price Up, Races to Net Zero and Increased Production

The Santos Ltd [ASX:STO] share price is up today after increasing their production guidance to 87–89 million barrels of oil equivalent (mmboe). This is up from 83–88 mmboe.

Santos also lowered their production cost guidance to $8–8.50 per boe and said capital expenditure will still be $900 million, 38% lower.

Managing Director and Chief Executive Officer Kevin Gallagher said:

Our strategy has been to establish a disciplined low-cost operating model that delivers strong free cash flows through the oil price cycle. Our 2020 forecast free cash flow breakeven oil price is less than US$25 per barrel before hedging and around US$20 per barrel after hedging.

It hasn’t been a great year for oil or oil companies

Oil has taken a hit after demand collapsed earlier this year with the lockdowns. Oil has been trading at around US$ 40 a barrel since, close to half of where it was at the beginning of the year when it was at US$70 a barrel. At time of writing, WTI is trading at US$45 and Brent crude at US$47.59 a barrel.

But it’s not just lower oil demand, oil companies are facing pressure from investors and the shift to renewables.

In fact, Santos has had to write-down US$756 million this year with the largest portion from their Gladstone LNG project in Queensland.

Roadmap to net zero emissions by 2040

Along with upgrading their guidance, Santos also announced today a road map to net zero emissions by 2040. This follows other companies in the industry like Woodside Petroleum, who plans to go to net zero by 2050.

Santos said they are looking to include a 26–30% reduction in scope 1 and 2 emissions by 2030 and has committed to working with their customers to reduce emissions by over a million tonnes a year by changing to cleaner fuels.

Santos said they’ve been focusing on carbon capture, that is, a technology that prevents carbon from releasing to the atmosphere.

Gallagher said:

Our focus over the last three years on step change technologies such as carbon capture and storage has enabled a pathway that allows us to go further faster when it comes to emissions reduction.

He also said Santos had installed more than 5.5 megawatts of solar electricity and 4 MW hours of battery storage. But they have high hopes for the Moomba CCS project, which is expected to store 1.7 million tonnes of carbon dioxide every year.

As he continued:

Through large-scale carbon capture and storage, world-leading nature-based offsets, increased use of renewables and energy efficiency projects, Santos will continue to be a leading clean fuels company at the forefront of the energy transition to a lower-carbon future.

The announcement got a lukewarm reaction. Santos’ share price is up close to 0.81% since the announcement and trading at $6.21 at the time of writing.

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Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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