Embattled energy company Santos (STO) has moved to meet market demands for some radical action in the face of the collapse in its share price and the rapid fall in world oil prices by revealing big cost cuts for 2015.
In its second statement to the ASX this week and a third in the past 8 days, Santos revealed plans to slash its capital expenditure by 25%.
The news helped steady the share price coming after trading started as the Santos share price was down more than 8%.
The statement was released at 10.17 am, and the share price drop levelled out and remained around 7% to 8% down for the rest of the day.
Santos losses looked like being smaller, but towards the end, the shares fell again and they ended down 8.2% at $7.00, the low for the day and not a very encouraging close.
STO YTD – Santos hacks into 2015 spending
In this statement, from CEO David Knox this time, the company said its projected capital expenditure for 2015 had been cut by $700 million to $2 billion.
The two previous statements had been from the company’s chief financial officer.
Mr Knox repeated previous claims that the company was in strong financial shape and could meet its production forecasts for 2015.
Mr Knox said the company’s underlying performance remained strong, with production rising in the second (current) half of this year.
He also insisted Santos had no need, or plan, to raise equity, noting that it had $2 billion in cash on its books and undrawn debt facilities – an attempted answer to demands from some analysts that the company look to raise cash to protect its credit rating.
Mr Knox said Santos was on track to realise cash flow benefits from its growth investments and was continuing to consider possible asset divestments – a hint that it could follow BG group for instance which this week sold its Queensland coal seam gas distribution network for $US6 billion to APA Group.
“We remain on track to realise the cash flow benefits in 2015 and 2016 from our growth investments in recent years,” Mr Knox said in yesterday’s statement.
“The PNG LNG project is producing at full capacity. The GLNG project (in Central Queensland) is 90% complete and remains on track for first LNG in the second half of 2015. First commissioning gas is expected to be introduced to the LNG plant before the end of 2014. Offtake agreements are in place with large, well-capitalised buyers.
"Santos has a robust funding position with approximately $2 billion in cash and undrawn debt facilities available as at 30 November 2014.
"While Standard & Poor’s has reduced its rating of Santos’ senior debt this week, the revised BBB rating is the same as the current rating for Origin Energy, Amcor, AGL Energy, Crown Resorts and Boral. S&P in their announcement noted Santos’ track record of a conservative funding approach, favourable debt maturity profile and adequate liquidity.
"Growth and sustaining capital expenditure in 2015 are now forecast at $1.4 billion and $600 million respectively, as outlined on the attached slide. Asset divestments remain under consideration as part of the company’s ongoing portfolio management provided fair long term value is realised.
"This is a prudent reflection of the revised environment and does not prejudice the company’s longer term growth options. 2015 production guidance is maintained at 57 to 64 million barrels of oil equivalent.
“To be clear, the underlying performance of our business remains strong with production continuing to grow in the second half of this year,” Mr Knox said.
“The company has no present need or intention to raise equity.”
“The current volatile oil price means that Santos is focused on driving operational efficiency, reducing costs, prudently managing capital and making sure our balance sheet remains strong – without making short term reactive decisions that could damage the long term interests of the company or the interests of shareholders.”
“We remain committed to restoring value for our shareholders.” Mr Knox said in yesterday’s statement.
That came after oil prices slipped to new five-year lows overnight Thursday.
The key US marker crude, West Texas Intermediate has fallen to below $US60 a barrel, 40% down from mid year. Brent, the global marker crude is down a similar amount.
Santos’ shares have been hammered by nervy local investors worried about the impact of the sliding oil price.
The shares are down more than a third in the past three weeks and have more than halved since mid year. The question now is whether this is enough, or whether Santos will have to sell assets to bolster its cash reserves to assuage nervy investors?
