By David Winning

SYDNEY--Santos Ltd. said it benefited from stronger demand and higher prices for its oil and natural gas output in the second quarter, as it moved to narrow annual guidance for production and sales volumes.

Santos said sales revenue totalled US$1.08 billion in the three months through June, despite production falling 9% compared to the previous quarter, mainly due to the sale of a 25% stake in the Bayu-Undan gas field and Darwin LNG project to South Korea's SK E&S at the end of April.

Santos, which this week said a proposal to combine with Oil Search Ltd. had been rejected, said first-half production rose 23% on year to 47.3 million barrels of oil equivalent. That led management to narrow a forecast for annual output to 87 million-91 million BOE, from 84 million-91 million BOE.

"Our disciplined, low-cost operating model continues to drive strong performance with US$572 million of free cash flow generated in the first half, and the business remains on track to deliver a free cash flow breakeven oil price of US$25 per barrel this year," said Chief Executive Kevin Gallagher. "At current oil prices, Santos should generate over US$1.1 billion in free cash flow in 2021."

Santos also narrowed its guidance for sales volumes this year to between 100 million and 105 million BOE, from 98 million-105 million BOE. Production cost guidance was revised down to US$7.90-US$8.30/BOE.

Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

07-21-21 1907ET