Santos poised to lay out road to recovery

Speculation was increasing last night that Santos will unveil a sweeping overhaul.

Speculation was increasing last night that Santos will unveil a sweeping overhaul of the embattled oil and gas producer as early as today that could include an ­estimated $3 billion capital ­raising.

Management at the country’s third-largest energy producer, now run by mining heavyweight Peter Coates, had been conducting a wide-ranging strategic review of the debt-laden business.

Santos has been hit hard by the global fall in energy prices ­because of the high amount of debt it took on to build the $US18 billion ($25.6bn) Gladstone LNG project, in which it has a 30 per cent stake.

In August, it reported an 82 per cent dive in first-half profit, ­forcing it to cut jobs, slash capital expenditure and remove chief executive David Knox.

Last month, the Santos board knocked back a $7.14bn takeover offer by Brunei-backed private equity group Scepter Partner, calling it “opportunistic in nature”. The bid sent Santos shares soaring by almost $1 to $6.32.

The share price has since held up moderately well since the takeover offer of $6.88 a share, heightening market speculation the troubled energy producer would launch a capital raising. Santos shares closed on Friday 10c lower at $5.91. Industry observers said Santos would have to launch the raising this week if it wants to get the deal done before markets close down for the Christmas break.

“Plenty of people are thinking they should make the most of the opportunity now, since the Scepter bid in October gave their share price a big free, and much-needed, kick,’’ said one market watcher yesterday.

A Santos spokesman could not be reached for comment last night. Any planned raising would have to be at a significant discount, experts suggest. A recent research note from UBS noted that Santos had about $3.5bn of debt maturing between 2015 and 2020.

The oil price was just under $US45 a barrel at the time of the bid and is still close to that level now, having run up to $US48 ­between times, so in simple terms the Santos share price has outperformed the oil price since the bid was announced.

The strategic review is investigating selling some of the company’s key assets to pay down its growing debt. Its crown jewel is a 13.5 per cent stake in the Papua New Guinea LNG project.