PERTH (miningweekly.com) – Oil and gas major Santos has announced plans to cut planned capital expenditure and reduce production costs in response to the Covid-19 pandemic and the falling oil prices.
The ASX-listed company would reduce planned capital expenditure for 2020 by some A$550-million, or 38%, while also targeting a A$50-million reduction in cash production costs for the full year, and a free cash flow breakeven oil price of A$25/barrel.
“The initiatives announced today demonstrate we are taking decisive action to ensure Santos is well positioned in a lower oil price environment,” said MD and CEO Kevin Gallagher.
“While the current oil price dynamic is challenging, the eventual recovery will create opportunities for companies positioned to act on them. Our strategy to leverage existing assets and infrastructure remains unchanged and we expect to pursue these exciting opportunities when conditions permit.
“However, given the uncertain economic impact of Covid-19 combined with the lower oil price, we expect to defer final investment decision on Barossa until business conditions improve. Barossa remains an important project for Santos due to its brownfield nature and its low cost supply,” Gallagher said.
Forecast capital expenditure in the base business has been reduced by some A$200-million for 2020, with discretionary spending and exploration programmes having been deferred, while forecast major growth capital expenditure has been reduced by A$350-million, reflecting the re-phasing in expenditure for Barossa and the Papua New Guinea liquefied natural gas expansion project.
Gallagher noted that the current environment was a time for discipline, and in the short term, Santos would remain focused on the health and safety of its staff and on delivering its production target for 2020, while not compromising on safety or asset integrity.
“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 added.
Santos noted that in the first two months of 2020, the company generated A$186-million in free cash flow, adding that fixed-price gas sales contracts were expected to account for some 35% of sales volumes in 2020, including the start of a new 12-year domestic gas contract in Western Australia for an initial supply of 120 TJ/d from mid-year.
In addition to these fixed price sales volumes, Santos also has 6.2-million barrels of oil production hedged in 2020 at a floor price of $54/bl.