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Santos credit rating affirmation sparks small share price recovery

Business

Global credit risk researcher Standard & Poors has reaffirmed Santos’ BBB-credit rating, fuelling an early jump in the South Australian oil and gas giant’s share price this morning.

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The S&P rating means the state’s largest company has been assessed as having “adequate capacity to meet financial commitments, but more subject to adverse economic conditions”.

According to a Santos announcement to the ASX this morning, S&P noted the company had a solid buffer to withstand current oil prices due to the strong balance sheet built up over the past two to three years. The announcement said S&P also noted Santos had the financial capability to undertake the previously announced acquisition of ConocoPhillips’ northern Australia and Timor-Leste business.

Santos chief financial officer Anthony Neilson said the company’s disciplined operating model was focussed on maintaining a strong balance sheet and generating operating cash flow through improvements in productivity and maintaining discipline in capital expenditure through the cycle.

“The confirmation from S&P of Santos’ BBB- (stable) rating is an outcome of the disciplined low-cost operating model we have implemented over the past four years making us more resilient through the oil price cycle,” he said.

“This model combined with the disciplined financial measures we announced yesterday, including material reductions in 2020 capital and operating expenditures, ensure Santos is well-positioned in the current lower oil price environment.”

Santos’ share price has dived from a 2020 high of $9.00 on January 15 to $2.75 on March 19, wiping more than $10 billion from its market capitalisation.

Santos shares opened at $3.52 this morning and had jumped to $3.83 by 10am.

The company announced on Monday it would slash its 2020 capital spend by $550 million and defer a final decision on a major Northern Territory gas project, Barossa, in a bid to counteract plunging oil prices and coronavirus.

Santos managing director and CEO Kevin Gallagher said on Monday 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.”

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