Santos has made further inroads in its debt-reduction task and also reported progress on cutting its break-even costs in a quarterly report described by one analyst as "solid".
But the March quarter report also revealed the extent to which Santos' GLNG export venture in Queensland relies on external purchases of gas, providing further fuel for critics who blame the venture for exacerbating the squeeze in the east coast domestic market.
Chief executive Kevin Gallagher said the oil price at which the oil and gas producer now expected to break even this year on cash flows stood at $US34 a barrel, down from $US47 at the beginning of 2016, and 7 per cent below last year's average.
Net debt was lowered by $US380 million ($505 million) in the March quarter to $US3.1 billion, making progress towards Santos' target of $US1.5 billion by the end of 2019, which the oil and gas producer has advised could also involve further asset sales.
JPMorgan analyst Mark Busuttil labelled the debt reduction as "impressive" but said he remained cautious on the stock because of GLNG's short position on gas in the tight east coast market.
Almost 60 per cent of the gas for the $US18.5 billion GLNG project in the quarter was bought in from third parties. While that share was down from 62 per cent in the December quarter, the ramp-up in output at the plant in Gladstone meant it swallowed an additional 1.6 petajoules of third party gas in the quarter, Mr Busuttil noted, just as attention has heightened on the extent the project is sucking up local gas from the southern states.
Santos shares ended 2.5 per cent lower at $3.57.
Still, other analysts are more positive on the stock. "Although the GLNG project has its challenges, the risk-reward for investors looks attractive at current valuation levels," Bernstein Research's Neil Beveridge said.
Mr Gallagher took over the helm at the weakened Adelaide-based producer early last year with a mission to steady the ship after a tumultuous period during the oil price downturn, when the company was forced to raise equity to shore up its balance sheet. In December, the company announced a restructuring to house its second-tier assets in a separate division, run from Sydney.
The March quarterly performance was helped by a strong improvement in oil prices from a year ago, helping sales climb 14 per cent from the same period last year to $US684 million, despite a 6 per cent slide in output to 14.8 million barrels of oil equivalent.
But both output and sales were softer than in the immediately preceding quarter mostly due to the sales of fields in Victoria, the Northern Territory and Western Australia.
At GLNG, production rose to 1.367 million tonnes in the quarter, 43 per cent higher than a year earlier as the second production unit ramped up. Santos' share of revenues was $US167 million.
Santos flagged maintenance shutdowns at part of GLNG and the Papua New Guinea LNG venture over the next few months, which will affect output but maintained guidance for full-year production of between 55 million and 60 million boe.
The second production train at GLNG will be temporarily closed for inspection in June, while the first train will be shut for maintenance in July. At PNG LNG, work is planned at a compressor unit in May, which is expected to reduce production rates for about three weeks.
