November 8, 2017 / 10:55 PM / a year ago

UPDATE 2-Australia's Santos growth to come from 2023 onward

* Sales volume set to fall around 7 pct in 2018

* Output from core assets seen steady through 2025

* Santos may be able to revive dividend at end 2018 (Adds CEO, analyst comments)

MELBOURNE, Nov 9 (Reuters) - Australia’s Santos Ltd expects to hold its gas output roughly steady over the next several years, with growth to kick off in 2023 from projects in northern Australia and Papua New Guinea.

Chief Executive Kevin Gallagher sought to reassure Santos investors on Thursday that the company has halted a decline in its natural gas output from its ageing Cooper Basin field and is on track to cut net debt to $2 billion by the end of 2019.

“We acknowledge that there’s still more to go, but significant progress has been made on the journey so far,” he told investors at a briefing.

“We’ve now got a core portfolio that has no decline between now and beyond 2025,” he said, referring to the company’s five main holdings - Gladstone liquefied natural gas (LNG), Narrabri, and assets in the Cooper Basin, northern Australia and Papua New Guinea.

Santos expects production in 2018 to be roughly in line with this year at between 55 million and 60 million barrels of oil equivalent (mmboe).

However investors sent Santos shares down 3 percent, after the company forecast its sales - which include some third party gas - would drop by about 7 percent to between 72 and 78 mmboe in 2018, partly due to declining output from non-core fields in Indonesia and Vietnam.

At the same time it plans to increase capital spending by about 17 percent to between $825 million and $875 million.

But Gallagher was upbeat as Australia’s no.2 independent gas producer has slashed production costs by a third to the point where it breaks even at an oil price of $32 a barrel, well below current prices around $60.

If oil prices remain at these levels through 2018, Santos could be in a position to revive its dividend, scrapped in 2016, or return cash to shareholders some other way by the end of next year, he said.

“It’ll be a great problem to have in 2018 to be talking about that again,” Gallagher said, adding that the company will also be able to fund growth projects that it expects to sign off on in late 2019 or 2020.

There would be “no big step-out” acquisitions, but Santos would look at deals around its five core assets.

That could include increasing its stake in Darwin LNG to match Santos’ 25 percent interest in the Barossa-Caldita gas field, which is likely to feed the LNG plant from 2023.

Reporting by Nicole Pinto in Bengaluru and Sonali Paul; Editing by Richard Pullin

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