Santos gets improved forecast

Santos gets improved forecast

Bloomberg, Sydney

Santos Ltd., Australia's biggest natural gas producer, had its 2005 and 2006 earnings forecasts raised by Macquarie Equities Ltd. after agreeing to start development of the Oyong oil and gas project in Indonesia.

Adelaide-based Santos said April 14 it and its partners in the Oyong field will begin pumping oil by year-end and producing gas by the end of 2006 in a two-phase project.

"The new phased development approach has resulted in increased earnings in 2005-2006, slightly increased production in 2005 and added 2 cents per share to our Santos valuation," Sydney-based oil and gas analysts Andrew Blakely and Jodie Phillips said in a report on April 15.

The revision boosted Macquarie's net income forecast by 4 percent to A$532 million (US$407 million) this year and A$626 million in 2006.

Santos had a profit of A$379.9 million in 2004.

Initial oil production is expected to be about 20,000 barrels a day, while gas production will be between 40 million and 60 million cubic feet a day, Santos said.

The delayed project, which had originally involved simultaneous start-up of oil and gas output, has been restructured to take advantage of high oil prices, it said.

Singapore Petroleum Co. and Cue Energy Resources Ltd. own stakes in the $120 million project.

Macquarie retained its "under-perform" rating on Santos stock, which it values at A$7.63.

The securities firm has a 12- month price forecast of A$8.49 on the shares.

The field is expected to show an "extremely steep decline rate" from the initial oil production, the analysts said.

Merrill Lynch & Co. increased its earnings forecast for Santos by 0.5 percent for 2005 and 0.6 percent for 2006 as a result of a higher-than-expected initial oil output from Oyong and, Merrill said in a report on April 14.