Santos, Beach Energy may reveal bad news about project costs

He added that there is a risk “that free cash flow may not be as strong as many expect.”

Jarden analyst Nik Burns said he did not expect any of the ASX-listed oil and gas shares he covers to significantly beat consensus on the day, adding he was more focused on “stocks that we believe are less likely to disappoint”.

While Jarden includes Santos, Origin, Beach and Karoon Energy in that category, Mr Burns highlighted the risk of cost increases at Santos’ $US2.6 billion ($4 billion) Pikka oil project in Alaska, which was approved for investment in August 2022 and is due to come online in 2026. With construction more than half complete, a cost and schedule review is likely to be completed soon, and the inflationary environment poses a risk to the budget, he said.

The market will also be looking for an update on the timeline and costs of Santos’ Barossa gas project in the Timor Sea, which has already seen cost increases and delays following failed legal challenges by environmental activists.

Mr Kavonic said investors would also be watching for indications of the economics of Santos’ Moomba carbon capture project, which is due to be released in a few weeks. He said the market wanted clarity on Santos’ ability to fund new projects such as Dorado in Western Australia and the delayed Papua LNG project in Papua New Guinea.

In Beach, where the energy reporting season begins on Monday with the release of annual results, Mr Burns highlighted the risk of “further decline” at the Waitsia gas project in Western Australia.

Beach in April reported a cost increase for the troubled project, up to $1.3 billion, nearly doubling the original estimate. The project, which will introduce a mid-sized oil and gas producer to LNG exports, has been hit by the collapse of contractor Clough’s administration and, later, substandard construction that required the rebuilding of some systems.

Barrenjoey energy analyst Dale Koenders forecasts Beach’s core net profit will be 34 percent below consensus, but said the company’s under-leveraged balance sheet should support dividend growth. He told clients the “bad news” about Beach should end and the focus should be on increasing production and cutting costs.

At Woodside, which reports its first-half results on Aug. 27, investors are expected to be clamoring for more details on two recent surprise U.S. takeovers that have sparked a sell-off in shares.

Neither Woodside’s $900 million deal to acquire LNG export terminal developer Tellurian nor its $2.35 billion deal two weeks later to buy an ammonia project in Texas have been well-received, with investors demanding more details about the project’s economics and sales strategy.

“To date, the market has struggled to model deals and assign values ​​to them, instead focusing on the negative impact on the balance sheet in the short term, without any offsetting positive valuation gains,” Mr Kavonic said.

“Investors will also want clarity on the dividend payout in connection with acquisitions and whether Woodside intends to maintain its historical payout ratio of 80 per cent.”

Woodside has already reported a 15 per cent drop in average oil and gas prices in the first half of June compared with a year earlier, while Santos and Origin also reported declines in average LNG prices in the first half and full year respectively.

The North Asian LNG spot price rose on Friday from $US12.80/MMBTU a week earlier, supported by gains in Europe, Reuters reported. European gas prices rose 11.6 percent on the week.

Still, the market has largely priced in the risk of supply disruptions from Russia, and fundamentals remain “otherwise bearish” due to comfortable inventory levels and uncertain demand, according to Rystad Energy analyst Christoph Halser.