SANTOS has cut its forecast capital expenditure for 2015 by 25 per cent and made its first asset sale in response to plummeting oil prices.
The company offloaded half of its stake in the Sole gas field and Orbost gas plant in the offshore Gippsland basin to Cooper Energy on 16 December for an initial $2.5 million, with Cooper to front 100% of the initial $50 million project costs.
Santos will cut capital expenditure from $2.7 billion to $2 billion though there was no need “at present” to raise equity, the company said in an announcement on 11 December.
Santos’ low margin natural gas projects have made it one of the hardest hit Australia-listed oil and gas companies – with its market value having halved from a high of $15 per share in September.
“Asset divestments remain under consideration as part of the company’s ongoing portfolio management provided fair long term value is realised,” Santos said.
Standard & Poor’s (S&P) downgraded Santos’ credit rating from BBB+ (negative outlook) to BBB (negative outlook) on 9 December.
Chief executive David Knox defended the credit rating downgrade, saying Origin Energy, Amcor, AGL Energy, Crown Resorts and Boral shared the same status.
“S&P, in their announcement, noted Santos’ track record of a conservative funding approach, favourable debt maturity profile and adequate liquidity,” Mr Knox said.
Mr Knox said the company remained in a strong financial position, with its PNG LNG and Gladstone LNG (GLNG) projects set to provide the company with cash flow in 2015 and 2016.
“The PNG LNG project is producing at full capacity [and] the GLNG project is 90% complete and remains on track for first LNG in the second half of 2015,” Mr Knox said.
“First commissioning gas is expected to be introduced to the LNG plant before the end of 2014. Offtake agreements are in place with large, well-capitalised buyers.”
He said Santos was in a “robust funding position” with about $2 billion in cash and undrawn debt facilities as at 30 November.
Santos downgraded growth and sustaining capital expenditure from $1.9 billion to $1.4 billion and $800 million to $600 million respectively.
Expenditure on GLNG will fall from the forecast $750 million to $700 million, Cooper gas growth from $450 million to $300 million, exploration from $350 million to $250 million, and other ventures from $400 million to $150 million.
Ongoing spending on Cooper basin projects would fall from $500 million to $400 million, spending on Western Australian and Northern Territory projects would fall from $160 million to $100 million, and other sustaining spending will be halved to $50 million.
The company said the spending downgrade was a “prudent reflection of the revised environment and does not prejudice the company’s long-term growth options”.
Santos said production for 2015 would be maintained at a rate of between 57 million and 64 million barrels of oil equivalent.
“To be clear, the underlying performance of our business remains strong with production continuing to grow in the second half of this year,” Mr Knox said.
Mr Knox said volatile oil prices had driven a focus on efficiency, cost reduction, and prudent capital management.
Directors buy up de-valued shares
Nine out of 10 Santos directors and senior managers have responded to the halving of the company’s market value by snapping up over $786,300 worth of shares.
Directors David Knox, Kenneth Dean, Kenneth Borda, Peter Coates, Gregory Martin, Jane Hemstritch, Yasmin Allen and Hock Goh bought up shares at prices between $7.00 and $7.38 between 11 and 15 December.
Ms Hemstrictch spent the most at the lowest price, buying 15,000 indirect and 10,000 direct shares at $7.06 on 12 December.