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Santos slashes spending to combat virus, plummeting prices

Business

Santos will slash its 2020 capital spend by $550 million and defer a final decision on a major Northern Territory gas project in a bid to counteract plunging oil prices and coronavirus.

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South Australia’s biggest company lost $10.45 billion off its market capitalisation between February 20 and March 20 when its share price fell from $8.07 to $3.05.

The oil and gas giant this morning announced a series of financial measures to ensure the company’s survival in the low-oil price environment of the COVID-19 pandemic.

The company’s share price slumped further to $2.86 this morning in the first three hours following the 8.32am announcement.

The measures include:

Santos will also defer its final investment decision (FID) on its offshore Barossa project, 300km north of Darwin.

Santos managing director and CEO Kevin Gallagher said the company was committed to supporting government and community efforts to limit the spread of the virus and had implemented a series of its own measures.

He said the financial measures undertaken would ensure Santos was well positioned to survive in a lower oil price environment.

“Whilst the current oil price dynamic is challenging, the eventual recovery will create opportunities for companies positioned to act on them,” Gallagher said.

“However, given the uncertain economic impact of COVID-19 combined with the lower oil price, we expect to defer FID on Barossa until business conditions improve. Barossa remains an important project for Santos due to its brownfield nature and its low cost of supply.”

“The current environment is a time for discipline. In the short term, we will remain focused on the health and safety of our people and delivering our production target for 2020, whilst not compromising on safety or asset integrity.”

Fixed-price gas sales contracts are expected to account for approximately 35 per cent of Santos sales volumes in 2020.

In addition to these fixed price sales volumes, Santos has 6.2 million barrels of oil production hedged in 2020 at a floor price of US$54 per barrel.

In January, Santos announced record annual production, sales and revenue in 2019 following several years of cost cutting and restructure.

“Santos today is in control of our capital expenditure profile. All our major capital projects are yet to take final investment decisions, providing flexibility in commitment timing and our production levels from our current assets are relatively steady for the next four or five years without any new growth projects,” Gallagher said today.

The Barossa field sits within Santos’ northern Australia portfolio, one of the company’s core long-life, natural gas asset regions.

The project area encompasses petroleum permit NT/RL5 located in Commonwealth waters offshore Northern Territory and includes a 260km gas export pipeline linking into the existing Bayu Undan to Darwin pipeline.

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