Santos says it’s “very well placed” to ride out the current crisis and will keep vital gas flowing

Santos boss Kevin Gallagher has moved to assure investors and the nation that the company is on a strong financial footing and committed to keeping the nation’s gas flowing.

Santos managing director Kevin Gallagher says the gas will keep flowing.

• Adelaide Casino closes with 1000 jobs at risk
• Santos delivers record 2019 revenue
• Prizes, discounts, freebies: Check out the latest subscriber rewards

Santos will “keep the lights on” and “keep the gas flowing” through this crisis, managing director Kevin Gallagher says.

Mr Gallagher, who has been meeting with the state and federal governments to ensure Santos workers can safely continue to supply the nation with vital gas supplies, told The Advertiser that the company provides an “essential service” and lauded the efforts of workers in areas such as the Moomba gas fields in ensuring energy supplies would continue to flow.

Mr Gallagher said Santos was “very well placed to ride this out” from a financial perspective.

Santos has announced it will target a free cash flow break-even price of $US25 per barrel of oil, reduce 2020 capital expenditure by $US550 million or 38 per cent, and trim $US50 million from production costs.

“Santos’s balance sheet remains strong,’’ the company told the ASX. “Free cash flow generation in the first two months of 2020 was $US186 million, resulting in cash on hand of $US1.2 billion at the end of February.

“Fixed-price gas sales contracts are expected to account for approximately 35 per cent of sales volumes in 2020.

“In addition to these fixed price sales volumes, Santos has 6.2 million barrels of oil production hedged in 2020 at a floor price of $US54 per barrel.’’

Mr Gallagher said the company had spent the past four years setting the business up so that it could withstand shocks to the oil price.

“We’ve designed it since 2016 in the knowledge that we cannot control the commodity prices,’’ he said.

“But what we have to be ready for is surprises in the market that take us to the bottom of the cycle unexpectedly.

“That’s not to say that we would ever have forecast a one in 100 year event like we’re seeing, but we’ve designed the business to be a low cost business.

“We’ve got relatively steady production from our core assets for the next four or five years. We’ve now reset the business to deliver on that basis, and limiting growth until we see things improving.

Mr Gallagher said the company did need to move some critical workers across borders and was in talks with governments as to how this would be managed.

“(Production) does require some people moving across borders, some critical workers, it does require logistics, to take food to sites, to take equipment to sites.

“And we have to fly our people in and out. As long as we can keep doing that, and we’re working with government to ensure that we can do that ... then what we’re saying is we’ve got a business model that is sustainable and allows us to operate through low points in the cycle and come out the other side strong and ready to go again.

“What that’s meant though, frankly, is we’ve had to put our growth to one side. These are unprecedented times and so we just don’t have the capital, nor the willingness to risk the company by investing in big growth projects, whilst the world in is this state of flux.

“Until we can see the shoots of recovery ... we’ll leave those growth projects on the shelf. They’re all still great projects, just not for today.’’

Mr Gallagher said there were no plans for staff reductions in the base business, although there might be a need to look at reductions in the growth projects at some point.

Some workers needed to be on-site so the company had instituted social distancing and hygiene standards to ensure they could work safely, while ramping up working from home measures.

Santos shares were trading 16c lower at $2.89.