There’s the likes of BHP Billion and BP committing to plans to spend or support billions of dollars debt on major projects in the Gulf of Mexico, and yesterday we had the straggling Santos revealing yet another strategy to try and rebuild after its near death experience in the past two years as world oil and gas prices plunged, then rebounded.
Santos shares hit a long time low of $2.48 11 months ago (on January 20) and since then they have bounced back as world oil prices have risen from less than $US30 a barrel to around $US50 a barrel. Yesterday they fell 2% to $4.27.
The company has sold assets, cut jobs, changed CEOs and board members, closed assets, sold equity, all to keep its head above water.
The operator of the Gladstone liquefied natural gas project in Queensland (one of three, including Origin’s), Santos has struggled with debt as the two and a half year slide in oil prices coincided with the $18.5 billion project coming online.
The company made a $US1.1 billion loss in the first half of 2016 (to June 30) after taking a $US1.5 billion impairment against the value of the LNG project.
Yesterday came a new strategy, one that seems to be a bit longer term than what we have seen over the past two years.
Santos is following Origin in splitting itself and will package up its non-core assets in a separate business. The restructuring will leave the main company focused on five key assets.
At the same time assets will be sold if the price is right. These include Santos’s Asian business, its controversial Narrabri coal seam gas project in NSW and a range of ventures off Western Australia including the Barrow, Mutineer-Exeter and Fletcher-Finucane oil projects.
The move will contribute to a $US1.5 billion ($2 billion) debt reduction target in to less than $US3 billion by the end of 2019 (on a net debt basis).
New CEO Kevin Gallagher said yesterday will be based in Sydney and will be run by former AWE Ltd CEO Bruce Clement (https://www.youtube.com/watch?v=NkDqOCdajAw&feature=youtu.be).
The company said the five key, long-life assets to remain within the core company comprise the Cooper Basin venture, the GLNG project in Queensland, the Papua New Guinea business PNG LNG , in which Oil Search is a major shareholder), northern Australia and Western Australia gas.
It will be “run separately for value as a standalone business,” said Santos, in a statement accompany the 84 page strategy document filed with the ASX for yesterday’s investor day.
Mr Gallagher said Santos had already reduced its breakeven oil price to $US39 a barrel, from $US47 a barrel at the start of the year and the company has been free cash flow positive for each of the last seven months, he added.
"Our turnaround strategy also brings significant oil price leverage, with operating cash flow forecast to increase by $US300 million in 2017 for a $US10 per barrel oil price move above $US50 per barrel," Mr Gallagher said.
Santos has been under pressure by cornerstone Chinese shareholder ENN Holding to take action to speed up the task of restoring shareholder value. This strategy should be seen as a reply from the company.
Santos also released guidance for 2017, including production of 55 million-60 million barrels of oil equivalent, down from an expected 60 million-62 million this year.
