Santos slashes spending as oil prices plunge
Santos cuts 2020 spending by 38pc and delays decision on its Barossa project amid virus volatility and plunging oil prices.
Santos has slashed its spending for 2020, reduced its breakeven oil price and delayed an investment decision on its $US4.7bn Barossa project in response to the plunge in crude prices and coronavirus volatility.
The South Australian producer will cut its spending this year by 38 per cent to $US550m ($947m), trim its production costs by $US50m and has issued a target for 2020 free cash flow breakeven oil price of $US25 a barrel, from $US29 a barrel last year.
Santos had hoped to make a final investment decision on the Barossa gas project in northern Australia by the June quarter but will defer any move until market conditions improve.
“Given the uncertain economic impact of COVID-19 combined with the lower oil price, we expect to defer FID on Barossa until business conditions improve. Barossa remains an important project for Santos due to its brownfield nature and its low cost of supply,” Santos chief executive Kevin Gallagher said.
“The current environment is a time for discipline. In the short term, we will remain focused on the health and safety of our people and delivering our production target for 2020, whilst not compromising on safety or asset integrity.”
Australian energy companies have been scrambling to redraw their plans after oil plunged by more than half to less than $US25 a barrel.
Oil Search cut its 2020 spending by 40 per cent last week and pressure is now mounting on Woodside Petroleum to issue an update to the market and provide guidance on the fate of its planned Scarborough LNG project.
Santos in December provided a $US25 a barrel breakeven oil price target for 2025 which has now been brought forward to 2020 in response to market turmoil.
“The initiatives announced today demonstrate we are taking decisive action to ensure Santos is well-positioned in a lower oil price environment,” Mr Gallagher said.
“Whilst the current oil price dynamic is challenging, the eventual recovery will create opportunities for companies positioned to act on them. Our strategy to leverage existing assets and infrastructure remains unchanged and we expect to pursue these exciting opportunities when conditions permit.”
Some $US350m of spending has been cut this year due to “rephasing” investment in Barossa and PNG LNG while the $US200m balance relates to the base business.
Santos has net debt of $US3.1bn, liquidity of $US3.1bn including $US1.2bn in cash and $US1.9bn in undrawn debt facilities.
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