After reporting what the investment house described a good set of March numbers for Santos, CSFB said the challenge it saw for the SA-based company was to deliver on production beyond 2005 and to convert its high-impact/high-risk exploration program into growth projects.

“The 2005–06 period still represents the period of peak earnings growth in the absence of any new developments acquired or advanced in this period, but with the potential for upside if outperformance can be delivered and maintained at Mutineer and represents peak earnings,” said Andrew Williams.

“Jeruk may yet be a significant oil discovery, although reserves remain conjectural until additional flow data can be obtained. The company is looking for a fast-track option and we would expect some developments by the end of the year.”

“The company does have a strong continuing exploration program, with a robust schedule containing a number of high-impact wells to be drilled out through the first quarter. Results to date have been mixed overall, with Jeruk being the strongest potential commercial success against failures at Hill, Amrit and Khefren, but this is the nature of exploration. The Hui Aman and Hurricane discoveries will also be appraised in the second half,” he said.

“The question mark in the short term is the production performance of the Mutineer oil development, which will begin contributing significantly from the second quarter. Although production rates are still uncertain, if flows at the top end of guidance (70–90kbpd) are delivered, production levels may be higher than indicated by the company.”