If anything, investors took some heart from yesterday’s surprise statement from Santos (STO) about asset impairments totalling $2.35 billion (before tax).
After tax the impairment loss totalled $1.564 billion and will push the company into a loss when it reports its results next week.
Investors did the usual thing at first and sold off the shares straight after the news was made public in the morning.
But they went back and reassessed the statement and the stock recovered most of its early 33c (around 4% loss) and closed at $7.59, down 1.5%.
On top of the $700 million write down in exploration and development spending announced in December, Santos will have made total cuts of more than $3.2 billion, which on a pro-rata basis will be close to what the likes of BP, Shell and Chevron (much larger companies) have so far announced as cuts to spending, investment and asset values.
The write-downs are the usual ’non-cash’ losses and affect its core Cooper Basin oil and gas activities as well as oil and gas assets in PNG, Asia and Western Australia.
More than $800 million has been written off the value of its controversial NSW coal seam gas project which is centred in the Narrabri area.
Around $600 million was written off the producing oil and gas assets in the Cooper Basin and a further $201 million off the oil production facilities in the Carnarvon Basin in WA.
But the new $US18.5 billion ($23.95 billion) GLNG liquified natural gas venture under construction in Queensland is not included.
STO 1Y – More asset writedowns at Santos
Santos said the impairments were not expected to affect its investment grade credit rating, or its debt facilities.
"The impairment charge reflects the lower oil price environment and is a non-cash accounting adjustment that relates to the historical book value of the company’s assets," Santos said in a statement on Thursday.
The company said that in testing the carrying value of its assets, it "used future oil price estimates, which assume short-term market prices for four years, reverting to a long-term price of $US90 a barrel from 2019 in real terms. It assumed a US80c exchange rate for the Australian dollar”.
Santos releases its 2014 results on February 20, and Woodside, which has also flagged cuts, reports on February 18. Oil Search, another local company which has warned of cuts, is due to report its 2014 figures the week after on February 24.
BG Group took a large impairment of its new Queensland LNG venture this month after the near 60% drop in oil prices since June.
In fact BG revealed $US8.9 billion in write-downs and impairments in its 2014 results earlier this month, with most of them being taken against the value of the Queensland gas project.
BG Group wrote $US2.7 billion off the value of the physical assets of the project and a further $US4.1billion impairment charge has been taken in Australia “driven mainly by a reduction in the group’s assumptions of future commodity prices” (i.e. lower oil and gas prices).
BG says it will cut its capex this year by up to 30%, to between $US6 billion and $US7 billion.
