By Robb M. Stewart 
 

MELBOURNE, Australia--Santos Ltd.'s (STO.AU) first quarter sales revenue was squeezed by a drop in production following a severe earthquake in Papua New Guinea, which offset stronger prices.

Still, the oil-and-gas producer said it continued chipping away at its debt pile, putting it on track to hit a US$2 billion net debt target more than a year ahead of plan. The company, a target of a takeover offer worth about US$10.5 billion, previously raised the prospect of returning capital to shareholders if it can hit the target ahead of schedule.

Santos produced 13.8 million barrels of oil equivalent in the first three months of the year, a drop of 8% on the prior quarter and down 6.8% from 14.8 million barrels a year earlier.

The February earthquake forced the temporary closure of Exxon Mobil Corp.'s (XOM) PNG liquefied natural gas operation, in which Santos has a 13.5% stake. Planned maintenance at operations in Australia also dented quarterly output, Santos said.

The shutdown in Papua New Guinea is expected to reduce output and sales volumes by about 2 million barrels for the full year. Santos said it had trimmed the upper end of its earlier forecast for a production range of 55 million-58 million barrels.

Last week, Exxon said the PNG LNG plant had restarted and deliveries would resume soon.

The hit to production weighed on revenue in the first quarter, which fell 7.8% quarter-over-quarter to US$794 million, though revenue was still up 16% on a year earlier due to a jump in realized prices.

Chief Executive Officer Kevin Gallagher said strong cash flows during the quarter allowed Santos to cut net debt 8% since the start of the year to US$2.5 billion. If oil prices remain at current levels, he said the company should achieve its end-2019 debt target sometime in the second half of 2018.

After riding the Australian boom in oil-and-gas investment, pouring billions of dollars into new projects, Santos was forced to sell assets to shore up its balance sheet when it was hit by a slump in oil prices.

Since taking the helm in early 2016, Mr. Gallagher has tied Santos's future to the GLNG gas-export operation in east Australia that counts Total SA (TOT) among its partners, the PNG LNG operation in Papua New Guinea, the Darwin LNG project in northern Australia and assets including in the Cooper Basin straddling South Australia and Queensland states.

Early in April, Santos received a fresh takeover proposal from private-equity-backed Harbour Energy Ltd. Santos agreed to engage with the suitor and Mr. Gallagher said Harbour had begun confirmatory due diligence to determine if it would proceed with a formal bid.

Harbour, which is managed by EIG Global Energy Partners, plans to use Santos's assets as a platform for growth in Australia and throughout Asia.

 

Write to Robb M. Stewart at robb.stewart@wsj.com

 

(END) Dow Jones Newswires

April 18, 2018 20:11 ET (00:11 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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