Santos has a new strategy to concentrate on 5 core assets

Aerial view of Santos GLNG’s LNG plant under construction at Curtis Island, Gladstone. Supplied.

Santos has developed a new strategy, including further reducing debt and focusing on five core assets, to take advantage of improving demand for oil and gas.

CEO Kevin Gallagher will tell an investor day in Sydney today of the company’s disciplined, three-phase strategy to drive shareholder value.

Gallagher, the former head of engineering services group Clough appointed to Santos at the start of 2016, says the aim is to create a low cost, reliable and high performance business.

He says substantial progress was made in 2016 on the Santos turnaround.

The company’s break-even oil price has been reduced to $US39 per barrel, down from $US47 at the start 2016. Capital expenditure is down by 53% and production costs by 17%.

More than 500 jobs have been cut from the business.

At the end of last month, net debt was down by $US455 million to$US4.3 billion and another $US1.5 billion will go by 2019.

The three stage transformation:

  • Simplify the business to focus on five core, long-life natural gas assets: Cooper Basin; GLNG; PNG; Northern Australia, and Western Australia Gas. The remaining assets will be packaged and run separately for value as a standalone business.
  • Build: Growth opportunities across higher margin assets and maximise production across operated assets. Open infrastructure and facilities to drive down unit costs.
  • Grow: Develop focused exploration strategy and capability, and identify additional gas supply to drive long-term value from the five core, long-life natural gas assets.

The five core assets:

Santos also announced the appointment of Bruce Clement, a former CEO of AWE Limited, as vice president to run the new standalone low cost business comprising all non-core assets.

In a market update, Santos says global oil demand is growing faster than supply. The market is returning to balance, the company says.

Santos also sees strong demand for natural gas.

Santos, like most resources companies, has been cutting costs, trying to catch commodity prices as they keep falling and make up the shortfall with extra production.

In February it reported a full year loss of $2.7 billion, including impairments of $3.924 billion before tax ($2.761 billion after tax), mainly relating to Cooper Basin gas producing assets, GLNG and Gunnedah Basin.

Underlying net profit was 91% lower than the previous year at $50 million. Sales revenue decreased by 20% to $3.2 billion, primarily due to a 48% drop in the average realised oil price in 2015.

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