Great Artesian Basin Protection Group 12 mins · . SANTOS is looking at cutting contract workers as part of plans to deal with sliding oil prices that have cut the company’s market value in half and forced it to slash capital spending by 25 per cent. Santos would not say whether the $700 million of 2015 capital spending cuts announced yesterday would affect 2016 oil production, but it is understood it is reviewing contractor numbers as it deals with plunging internal cashflow forecasts. The Adelaide oil and gas producer again ruled out an equity raising yesterday, underlining this with a combined $350,000 of personal share purchases by chief executive David Knox, chairman Ken Borda and non-executive directors Peter Coates and Ken Dean. “We remain on track to realise the cashflow benefits in 2015 and 2016 from our growth investments in recent years,” Mr Knox said. “The company has no present need or intention to raise equity.” Santos shares, the second worst performing top 100 stock after Arrium this half, fell another 63c, or 8.3 per cent, to a fresh 10-year low of $7 yesterday. The stock is now down more than 50 per cent since early September. The director share purchases were announced after the market closed. Santos has been the hardest hit of Australia’s bigger energy players because of its growing exposure to oil prices through LNG projects in Papua New Guinea and Gladstone, and a push to link the price of domestic gas contracts to oil. But there has also been concern that the company will pursue an equity raising to strengthen its balance sheet so it can retain its investment grade credit rating. In the release yesterday, Mr Knox said a downgrade of its senior debt by Standard & Poor’s to BBB this week gave it the same rating as Origin Energy, Amcor, AGL Energy, Crown Resorts and Boral. He did not mention that the rating of Santos, unlike all of those companies apart from Origin, has been placed on negative watch for another downgrade. The director share purchases confirm the board has not decided to raise equity, because if it had, the directors would have been frozen from making the purchases. This will not please everyone, though. Credit Suisse this week called on Santos to pursue a $2 billion-plus raising to strengthen the balance sheet against further oil price falls or blowouts at the $US18.5bn ($22.4bn) Gladstone LNG project. “I’m surprised they decided not to raise equity,” Quest Asset Partners fund manager Michael Evans said. “Because now they have to hope the oil price comes up or the currency comes further down.” But Deutsche Bank analyst John Hirjee said the spending cuts gave extra funding headroom to complete Gladstone LNG, which is due for first shipments late next year. “Even at a $US60 a barrel oil price through to the end of 2015, we estimate Santos has about $1.3bn in excess funding,” Mr Hirjee said. “Based on this analysis, Santos could withstand a $7bn increase in GLNG capital expenditure and still be able to fund its share.” Oil prices fell further on Wednesday night, with benchmark Brent futures down $US2.60 to a fresh five-year low of $US64.24 a barrel. Mr Knox said he was focused on keeping a strong balance sheet without making “short-term reactive decisions that could damage the long-term interests of the company or the interests of shareholders”. The $2bn Santos capital expenditure budget is now in line with its $2bn of cash and undrawn debt facilities. Santos would not say what effect the spending cuts would have and whether they would result in future production pullbacks. Next year’s production guidance was maintained at 57-64 million barrels of oil equivalent. Santos said its growth options would not be prejudiced. Only $50m was cut from its previous $750m Gladstone LNG capital allocation for next year. The major cut to growth spending was a $250m cut at a group of assets simply labelled “other”. They include the controversial Narrabri coal-seam gas project in NSW and the company’s West Australian and Northern Territory assets.
Posted on: Sat, 20 Dec 2014 03:38:02 +0000
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