Santos to strip back costs and investment

Santos will embark on a campaign of cost cutting and halting investment in the face of slumping oil prices, joining the trend of conservative financial strategy among miners.

Speaking to investors in Sydney on Tuesday, Santos CEO David Knox said the company was taking action to respond to falling oil prices, which are trading around $US74 a barrel.

“Oil prices have effectively fallen 30 per cent in three or four months, which has surprised us all and been far faster than we, or anyone else, expected,” Knox said.

However Santos chief financial officer Andrew Seaton said analysts had forecast prices would return to $US90 per barrel by 2016.

With operational investments on Curtis Island and Papua New Guinea coming online, capex will decrease, production will increase and effect operating cash flow cash flow increases.

Seaton said 2014 capex guidance of $3.5 billion remains unchanged, reducing by 20 per cent to $2.7 billion in 2015.

Growth based expenditure in 2015 will be $750 million on GLNG, $450 million in the Cooper Basin, $350 million on exploration activities, and $400 million for other projects including PNG LNG, Combabula, AAL, Narrabri, WA and the NT.

Sustaining costs will amount to $800 million throughout operational ventures.

Knox also revealed a plan for hybrid fundraising to refinance existing debt and enhance liquidity, which will maintain Santos’s credit rating, The Australian reported.

The chief executive confirmed that the GLNG gas plant will meet budget, and exports will begin in the second half of next year.

Santos announced earlier this month that the final module of the second train had been successfully delivered and installed, a key milestone for the project.

In full production the GLNG plant will produce 7.8 million tonnes of liquefied natural gas each year.

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