Santos facing first loss in 20 years
Santos chief Kevin Gallagher could preside over the first underlying interim or full-year loss for at least 20 years.
New Santos chief Kevin Gallagher could this week preside over the company’s first underlying interim or full-year loss for at least 20 years, as the cost of debt taken on to finance boomtime LNG investments wipes out profit diminished by low oil and LNG prices.
On Monday, the struggling Adelaide oil and gas company announced a $US1.5 billion ($1.9bn) pre-tax writedown of its stake in the Gladstone LNG project, bringing total impairments over the past three years to more than $8bn because of low oil prices, high construction costs and fields in NSW and Queensland not performing as expected.
While the impairments represent loss of future cashflows and will mean a statutory first-half loss of close to $US1bn for Santos, the more closely watched underlying interim profit to be released on Friday will not be hit by the writedowns.
Still, of the major investment banks, UBS, Citi and Macquarie, only Macquarie is expecting Santos to log an underlying interim profit. Citi is expecting a $US80 million loss, UBS a $US20m loss and Macquarie a $US40m profit.
Analysis of accounts back to 1997 shows the company has not had a first or second-half underlying loss in that time.
The big debt load Santos has taken on to finance its interests in the $US18.5bn Gladstone LNG project and the $US19bn Papua New Guinea LNG project means it faces net interest payments of $US70m this half, according to UBS estimates.
There is growing speculation chairman Peter Coates, who presided over the approval of GLNG and acted as executive chairman in overseeing a strategic revue and subsequent $2.5bn equity raising this year, will step down at or before the May 2017 annual meeting. The company would not comment, but assuming Mr Gallagher has been in the CEO role for more than a year by then, it would be a good time for the transfer.
Mr Coates stepped down as chairman in 2013 but took the role up again after his successor, Ken Borda, suddenly retired after two years in the job.
Santos shares have not suffered from the impairments, rising in both sessions this week as investors bet Mr Gallagher has cleared the decks and may have positive cost information to announce on Friday.
Being the most leveraged Australian energy stock to oil price gains also helped.
The shares rose 12c to $4.90 yesterday, adding to a 1 per cent gain on Monday.
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