Santos to write off $1bn from gas asset
SANTOS will take a pre-tax writedown of up to $US800 million ($1.14 billion) in its half-year results with the value of its GLNG gas export project slashed after the energy producer lowered its oil price assumptions to reflect the crude market crash.
The Adelaide-based company will take a non-cash impairment on GLNG of $US640m-$US700m before tax and a $US60m-$US100m hit after cutting the value of its exploration assets in the Cooper and Amadeus basins.
With Santos part way through a critical public hearing over its proposed $3.6bn Narrabri gas project in NSW, the writedown may also reignite concern among critics who are worried over the potential for stranded gas assets amid a shift among investors away from fossil fuels.
Global major BP, which in June took a writedown of up to $US17.5bn, slashed its long-term energy price assumptions and warned it might leave oil and gas in the ground amid a rapid transition away from fossil fuels.
Santos said the hit was due to cutting its long-term oil price assumptions by more than 10 per cent resulting from COVID-19’s effect on energy market demand. But it said the move had no impact on its oil and gas reserves. It has a $US45 a barrel forecast for 2020, rising to $US49 in 2021 and gradually recovering to $US62.50 in 2025.
The move will increase its gearing by 1.5 per cent, with the producer maintaining its debt covenants have sufficient headroom and “are not under threat at current oil prices for a number of years”.
Nearly $20bn has been dusted in writedowns and charges on Australian and Papua New Guinea projects run by Woodside Petroleum, Shell, Origin Energy and Oil Search so far in July, as some of the nation’s biggest gas producers adjust to an uncertain outlook for the fossil fuel.
Crude prices have doubled from record lows recorded in April to $US43 a barrel, but even at those improved levels many projects remain marginal.
Producers have responded by lowering price assumptions, triggering writedowns of oil and gas assets, to reflect a collapsing demand outlook.
The next wave of major developments worth in excess of $50bn now faces fresh uncertainty too. Woodside last week delayed its $US11.4bn ($16.3bn) Scarborough to Pluto development until the second half of 2021, while a decision on the go-ahead for the long-delayed $US20.5bn Browse project now won’t be made until 2023. Santos has also deferred an investment decision on its $US4.7bn Barossa project over the oil plunge and coronavirus ructions.
“Santos is well positioned to leverage our growth opportunities when business conditions improve,” Santos chief executive Kevin Gallagher said.