Australian oil and gas producer Santos reported a better-than-expected first-half profit despite a year-on-year decline, as higher costs associated with the start-up of Barossa LNG and Pikka offset increased production and broadly stable revenue.
Underlying profit fell to $397 million from $508 million a year earlier, while net profit after tax declined to $355 million from $439 million. EBITDAX slipped to $1.56 billion from $1.76 billion, while product sales revenue edged higher to $2.62 billion from $2.58 billion.
First-half production rose 3% year over year to 45.6 million barrels of oil equivalent, with Santos describing 2026 as a transition year as its two major growth projects move through commissioning and ramp-up.
The company expects production in the second half to be 20% to 30% higher than in the first half as Barossa and Pikka move toward steady-state output. Santos maintained its full-year production guidance of 99 million to 105 million boe.
Barossa was producing around 550 million cubic feet per day at the time of the results, with output expected to rise to roughly 600 million cubic feet per day by the end of the third quarter. Seven Barossa LNG cargoes were delivered by the end of June, with another five delivered since July 1.
In Alaska, the Pikka Phase 1 project achieved first oil in May and continuous production in June. Output was around 23,000 barrels per day gross at the end of the first half, while Santos lifted the project’s first 450,000-barrel crude cargo in August. Production is expected to build toward a gross plateau of about 80,000 barrels per day late in the third quarter.
Santos also expects stronger second-quarter Japan Crude Cocktail pricing to support realised LNG prices and cash flow during the second half. Around 80% of its contracted LNG position is linked to JCC and other oil-indexed pricing, much of it with a roughly three-month lag.
Free cash flow from operations fell to $378 million from $1.09 billion a year earlier. Santos attributed the decline partly to commissioning activity at Barossa and Pikka, cargo timing around the end of June and an approximately 1.3-million-boe under-lift position at PNG LNG. The company expects those timing effects to unwind early in the second half.
Santos said peak major-project capital spending on Barossa and Pikka is now behind it, positioning the company for stronger cash generation as production rises.
The company also said Papua LNG remains on track for a targeted final investment decision in the fourth quarter of 2026, with at least 60% of the project expected to be financed through project financing facilities.
Santos ended June with $3.77 billion of liquidity and total net debt of $6.12 billion. It has no debt maturities until September 2027 and is targeting a $2.5-billion reduction in net debt by 2030.
The board declared an interim dividend of 11.6 U.S. cents per share, totaling $377 million.
By Charles Kennedy for Oilprice.com
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