Santos plans more cuts to counter oil price slump

Australian LNG operator Santos on Friday said it plans to cut more costs in an attempt to plug debt holes and preserve cash as global oil and gas prices continue to fall world-wide.

Santos has already in November last year initiated a A$3.5 billion cash raising to plug the debt holes caused by low oil prices.

“The oil industry has continued to experience significant volatility with the oil price falling more than 40% since the announcement of the company’s capital initiatives in November 2015. In accordance with its usual timetable and processes for the preparation and finalisation of its full-year accounts, Santos is currently considering the oil price assumptions it uses for asset impairment analysis and reserve bookings,” the Adelaide-based company said in a statement.

The company expects to book reductions to both asset carrying values and reserves as part of finalising its full-year financial accounts, which are scheduled to be announced on February 19.

Santos said its fourth quarter production of 14.9 mmboe was down 1 percent on year, while full-year production stood at 57.7 mmboe. This was the highest annual production since 2007, a 7% increase on the previous year and within the company’s guidance range of 57-59 mmboe, according to the statement.

Fourth quarter sales revenue of $828 million was 24% below the corresponding quarter, with the average realised oil price down 33% to A$61 (US$44) per barrel. Full-year revenue dropped 20% to A$3.2 billion.

Santos Executive Chairman Peter Coates said the company’s fourth quarter results reflect Santos’ response to the challenging oil price environment.

He said Santos will continue to review its operational and development plans with a focus on preserving cash.

“Santos is well placed to withstand an extended period of low oil prices, with $4.8 billion in cash and committed undrawn debt facilities, and no material debt maturities until 2019,”  Coates said.

“We are continuing to focus on reducing our capital expenditure and will build upon the significant improvements that we have made to our operating efficiency.”

Coates also said that the PNG LNG and Darwin LNG project operated at record rates during the fourth quarter, while GLNG has ramped up as expected following first LNG in late-September.

PNG LNG

During the quarter PNG LNG operated at an annualised rate of approximately 7.6 mtpa, 10% above nameplate capacity. ExxonMobil-operated PNG LNG project shipped 26 LNG cargoes during the fourth quarter, taking the full-year total to 101 LNG cargoes shipped and 156 cargoes in total since start-up in May 2014.

GLNG

As previously reported, GLNG’s first cargo left Curtis Island on 16 October. A total of 11 cargoes have now been shipped from the Santos-operated project, with seven of those departing Gladstone during the fourth quarter.

Commissioning cargoes were sold in advance on a blend of oil-linked and spot-based pricing. Sales under the long-term contracts with GLNG’s foundation customers will commence during March 2016.

According to Santos, Train 1 produced 544,000 tonnes of LNG during the fourth quarter and achieved daily LNG production rates more than 10% above nameplate capacity.

Commissioning work on the second LNG train is underway with first LNG expected in the second quarter of 2016.

Bayu-Undan/Darwin LNG

ConocoPhillips-operated Darwin LNG plant in in the Northern Territory achieved record annual LNG production of 3.8 million tonnes, Santos said. Fifteen LNG cargoes were shipped during the quarter, bringing the total for the year to a record 58 cargoes.

2015 guidance

According to Santos, full-year production of 57.7 mmboe was within the company’s guidance range of 57-59 mmboe.

Capital expenditure, excluding capitalised interest, was 8% below 2015 guidance and 54% below the prior year.

Standard and Poor’s rating

In a separate statement on Friday, Santos said that Standard and Poor’s ratings Services (S&P) has revised Santos’ long-term senior unsecured credit rating from BBB to BBB-.

Santos’ credit rating “remains investment grade and there is no material change in Santos’ financial position as a result of the announcement from S&P“.

None of the company’s existing drawn or undrawn debt facilities contain any credit rating-related covenant triggers or review events, Santos added.

1 Australian dollar = 0.70142 U.S. dollars

LNG World News Staff