Santos to spin off non-core assets, cut debt with new strategy

Oil and gas company Santos has launched a new strategy that will see it focus on its key assets and spin off its non-core business into a new company.

Speaking at a company investor day, managing director and chief executive Kevin Gallagher said Santos would implement a three-phase strategy, underpinned by disciplined capital management.

Santos will target a US$1.5 billion (US$2 billion) reduction in debt to less than US$3 billion by the end of 2019 by increasing cash flow and offloading non-core assets and infrastructure.

The company will focus on five core gas business assets: Cooper Basin, Gladstone LNG in Queensland, Papua New Guinea, northern Australia and Western Australia gas.

Its remaining assets will form the new company, which will operate separately as a standalone business and be run by former AWE chief executive Bruce Clement.

The new strategy aims to help Santos recover from the impact the downturn in the oil price had on the company over the past two years. Gallagher said substantial progress had been made in turning the company around in 2016.

“We have reduced the free cash flow breakeven oil price to US$39 per barrel, down from US$47 per barrel at the start of the year,” Gallagher said.

“Capital expenditure and upstream unit production costs have been reduced by 53 per cent and 17 per cent respectively, headcount has been reduced by more than 500 positions, and the business has been free cash flow positive for each of the last seven months.”

The company has also revised its 2016 production costs to below US$9 a barrel of oil equivalent, down from the previous range of between US$9-9.50 a barrel of oil equivalent.