Santos flags $2.4bn oil and gas writedown

SANTOS has taken a $2.36 billion pre-tax write-down on its Australian oil and gas assets because of its controversial Narrabri coal seam gas project and slumping oil prices.

SANTOS has taken a $2.36 billion pre-tax write-down on its Australian oil and gas assets because of its controversial Narrabri coal seam gas project and slumping oil prices.

But the company has left the book value of its Gladstone LNG project unchanged, despite rival BG Group taking a $US4bn impairment on its 75 per cent stake in the neighbouring Queensland Curtis LNG project.

Santos (STO) did not say why Gladstone had not been impacted by the writedowns.

The impairment testing, which calculates the value of assets based on future cash flows, is contingent on oil prices rebounding back to $US90 a barrel in 2019, from below $US60 now. This is in line with some analyst forecasts and the testing done by BG (which is estimating $US90 a year later) but lower than futures markets are implying.

“This is a reflection of the current oil price environment. The non-cash impairment charges are not expected to impact Santos’ investment grade credit rating or debt facilities,” chief financial officer Andrew Seaton said.

While Mr Seaton blamed only sliding prices in his commentary on the writedowns, the biggest individual hit, at $808m, came at Narrabri, acquired for $924m through a 2011 takeover of Eastern Star Gas.

That writedown reflected delays and a previously-flagged 30 per cent reduction in reserves at the project, which was put on “minimal spend” in December when Santos cut group capital spending because of oil prices. The project has been delayed by community opposition.

The next biggest pre-tax writedown was the company’s Cooper Basin oil assets in South Australia and Queensland, which were written down by $688m before tax. Cooper Basin gas assets were not written down.

The total after-tax writedown was $1.56bn. Santos reports full-year results on February 20.

Shares have tracked in the opposite direction to the market since the new year, with the stock down 6.5 per cent for the year to day against a benchmark index rise of 6.6 per cent.