Santos now has $2.5 billion to reduce debt

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Santos has completed its $2.5 capital raising, part of a plan to pay down debt and strengthen its balance sheet in the face of falling oil prices.

A short time ago, the energy company’s share price was steady at $4.07, up just 0.25%, and still well ahead of the entitlement price of $3.85.

The retail component of the entitlement issue fell short at 57%, raising $775 million. The difference was sold on market at $4.10, a 25 cent or 6.5% premium on the entitlement price of $3.85.

About $585 million was raised in the retail shortfall bookbuild, the final stage of the $2.5 billion equity raising, announced early last month.

“We appreciate the support we have received from our retail and institutional shareholders throughout this process,” says Santos executive chairman Peter Coates.

“We are confident the entitlement offer, along with our other capital initiatives, will drive better returns for shareholders by substantially strengthening our financial position.”

The $2.5 billion capital raising is part of a $3.5 billion plan to pay down debt.

Another $520 million will be raised from sale of the company’s interest in Kipper gas field to Mitsui E&P Australia.

And $500 million will come from an affiliate of the China-based international private equity firm, Hony Capital through a private placement of shares at $6.80 each, a 15% premium to Friday’s closing price of $5.91. Hony Capital will end up with a 7.9% holding in Santos.

Santos has been cutting costs and shedding staff in response to falling oil prices. Capital expenditure is down by $900 million and 768 jobs have gone. And costs to produce a barrel are down 15% to $13.80.

The company’s net profit dropped to $37 million for the half year. The oil and gas producer managed to get just $US60 per barrel in the six months to June compared to $US115 in the previous first half, a 47% fall.

Kevin Gallagher, the CEO of engineering services group Clough, starts as the new CEO of Santos in early 2016.

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