Santos to enforce ‘absolute capital discipline’ to weather oil price ructions
Santos says the lessons of the last oil price crash have been learned, and it’s well-placed to ride out the current turbulence.
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Santos has no plans for mass job cuts but says it will freeze new external hiring and review all discretionary capital expenditure to ride out the current oil price ructions.
The Adelaide company sacked more than a thousand people in the last oil price rout in 2015-16, but has since cut its free cash flow break-even price to below $US30 per barrel of oil and aggressively paid down debt.
The stock, along with the entire energy sector, has fallen precipitously this week following the breakdown of the OPEC oil cartel over the weekend.
But managing director Kevin Gallagher says “ now is a time for absolute capital discipline’’, and the company is well placed to emerge from the current crisis in good shape.
“Santos is a much more resilient company today than we were in 2015-2016 when we last faced very challenging oil price and market conditions,’’ he said in a statement to The Advertiser.
“Ours is a cyclical business which is why, over the last 4 years, we have embedded a disciplined low cost operating model to make Santos sustainable throughout the oil price cycle. We’ve also rebalanced our portfolio to give us a balanced exposure to a range of markets and products, with more than 35 per cent of sales on fixed price contracts.
“While our year-end 2019 free cash flow break-even oil price was less than US$30, Santos remains focused on managing our costs and generating free cash flow to fund our key activities, pay a dividend to our shareholders and pay down our debt.’’
Mr Gallagher said there would be a freeze on new hires”but there are no plans for mass job cuts because we have focused over the last few years on being right-sized to remain resilient at low oil prices.’’
“At times like these it is important not to lose sight of the longer term,’’ he said.
“Our strategy has been widely accepted in recent years as a good one. It is still a good strategy.
“Fortunately Santos is in control of its capex profile over the next few years because we now operate most of our assets.
“All of our major capital projects are yet to take final investment decisions and our production levels from our current assets are relatively steady beyond 2025 without any new growth projects.’’
Mr Gallagher said strong balance sheet discipline would enable the company to be well-positioned to take advantage of any opportunities “that will inevitably re-emerge’’ as the oil price recovers.
Santos shares hit a 12-month high of $9.07 on January 8, and as 12-month low of $4.66 yesterday.
Oil prices dropped about 30 per cent over the weekend when OPEC members failed to come to an agreement on production figures, in the worst falls since the first Gulf War in 1991. The price of Brent Crude has since recovered from about $US31 to $US37.78, comfortably higher than Santos’s break-even price for now.
Cooper Energy shares also dropped more than 5 per cent to 43.5c yesterday despite the Adelaide company announcing a milestone for its Sole Gas Project off the Victorian coast.
Cooper said it had introduced gas from the Sole field into the Orbost processing pant for the second and final phase of commissioning. Commercial production is expected this month.