Santos cuts spending in response to COVID-19 outbreak
Australian LNG player Santos has decided to cut its spending by $550 million in 2020 in response to the current environment.
The company added that in addition to the 38 percent capital expenditure cut it will also reduce its 2020 production costs by $50 million and will target a 2020 free cash flow breakeven oil price of $25 per barrel.
Fixed-price gas sales contracts are expected to account for approximately 35 percent of sales volumes in 2020, including the commencement of a new 12-year domestic gas contract in Western Australia for an initial supply of 120 TJ/d from mid-year at favorable fixed price US$-denominated pricing.
Forecast capital expenditure in the base business in 2020 has been reduced by $200 million. The reductions in expenditure in the base business are not expected to impact 2020 production guidance.
Forecast major growth capital expenditure has been reduced by $350 million, reflecting re-phasing in expenditure for the Barossa and PNG LNG expansion projects.
Santos managing director and CEO Kevin Gallagher said, “Whilst the current oil price dynamic is challenging, the eventual recovery will create opportunities for companies positioned to act on them. Our strategy to leverage existing assets and infrastructure remains unchanged and we expect to pursue these exciting opportunities when conditions permit.”
He added that the uncertain economic impact of COVID-19 combined with the lower oil price, Santos expects to defer FID on Barossa until business conditions improve. Barossa remains an important project for Santos due to its brownfield nature and its low cost of supply.