Santos (STO) has joined the likes of BHP Billiton (BHP), Rio Tinto (RIO), Woodside Petroleum (WPL) and a host of other resource majors and minors in selling its cost cutting and attempts to improve efficiency.
BHP management have been busy selling its cost cutting efforts in the past week or so – on Monday it was copper and coal – a week or so ago it was iron ore.
Rio Tinto has done likewise and Woodside management makes the point about controlling costs and returning cash to shareholders whenever they appear in public.
The company’s investor day yesterday was all about cutting costs, spending and improving the productivity of its assets here and offshore – a much needed campaign given the way the company’s share price has been trashed by the falling price of oil.
As world oil prices have fallen more than 30% in the past five months, Santos share price had fallen from $15.32 in September, to less than $12 ($11.98 yesterday, up 1.2%), which is just above the low of $11.49 hit last week.
STO YTD – Oil slump sees Santos slash
The company’s CEO David Knox said his company is “relentlessly” pursuing cost cuts and reining in capital investment in response to the drop in crude oil prices.
Mr Knox said the price slump had been more rapid than Santos or “anybody” had expected.
"Companies have to respond," he said. "That’s absolutely going on inside Santos and it’s a relentless pressure."
The company warned of a likely 30% cut in reserves this year at its Narrabri coal seam gas project in NSW “to match phased development”.
Santos also narrowed its production target for 2014 to 53 million to 55 million barrels of oil equivalent (mmboe), from previous guidance for 52 mmboe to 57 mmboe.
Santos’s chief financial officer Andrew Seaton said the company would slash capex next year by a third from 2013’s levels to to $2.7 billion from $4.1 billion.
But spending this year will still come in around the target of $3.5 billion.
He also said Santos was looking to a 9% cut in per barrel production costs next year, from this year’s levels.
Santos’ capital is already falling as the spending on the huge PNG LNG has ended with the project’s completion early this year, and ending of investment at the $US18.5 billion LNG project in Queensland, which is 90% complete.
Santos has also deferred some projects as it cuts spending, including the Bonaparte Gulf floating LNG venture which was postponed earlier this year.
Santos defended the idea of a possible potential European hybrid issue announced on Monday that will refinance debt and increase liquidity.
"This is not M&A-related at all, this is not capex-overrun-related at all. This is just prudent good business, being ahead of the curve,” Mr Seaton told investors yesterday.
The hybrid issue still has to be finalised and its timing depends on market conditions and could be delayed until 2015.
“We’re making sure that in a volatile world our balance sheet is in very good shape to tackle anything that may come towards us,” Mr Knox told the briefing.
Santos has narrowed down the expected start-up schedule for the Queensland export gas project to the second-half of 2015, a bit later than expected by the market.
It had previously said exports would start up in 2015, but hadn’t said when.
