Santos flags $1.05 billion GLNG impairment

Australian LNG operator Santos on Monday said it is writing down the value of its GLNG project in Queensland due to low oil and gas prices.

Santos expects to recognise an impairment charge against the carrying value for its GLNG project of about US$1.05 billion after tax ($1.5 billion before tax) in its 2016 half-year accounts.

The impairment outcome is subject to finalisation of the half-year accounts, which will be released on August 19, Santos said, adding it will be a non-cash charge and will “not affect the company’s debt facilities.”

According to Santos, during the course of this year there has been a slower ramp up of GLNG equity gas production and an increase in the price of third party gas. This has caused the Australian LNG operator to adjust its upstream gas supply and third party gas pricing assumptions for GLNG, Santos said.

“The expected impairment charge for GLNG is clearly disappointing but it is a consequence of the challenging environment which we now face. We have decided to adjust our long-term operating assumptions for GLNG to reflect the reality of the current oil price environment,” said Santos chairman Peter Coates.

“However, we firmly believe in the strong long-term growth of LNG consumption and demand globally. GLNG will continue to be an important part of our LNG portfolio and a key supplier of LNG to the Asian market,” Coates said.

Santos started producing the chilled fuel from the first GLNG train on Curtis Island in September 2015. The second train at the $18.5 billion GLNG project started producing liquefied natural gas in May this year.

The company has a 30% interest in Australia’s GLNG. Other co-venturers include Petronas (27.5%), Total (27.5%) and Kogas (15%).

Santos reported earlier this year a net loss of A$2.7 billion ($1.93 billion) for 2015, after booking A$2.8 billion in impairment charges also blaming low oil and gas prices.

The impairment charges related to the company’s Cooper Basin gas producing assets, GLNG assets and Gunnedah Basin assets,

“Low oil and gas prices continue to challenge our upstream business and the entire oil and gas industry,” Santos chief executive Kevin Gallagher said in the statement on Monday.

“We will continue to maintain a disciplined approach to capital allocation, reducing costs and seek opportunities to optimise our asset portfolio in a manner that delivers value to shareholders.”

LNG World News Staff