Santos takes a $US1.5 billion hit on its Queensland gas project

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

Santos is writing down the value of its GLNG gas project in Queensland by $US1.5 billion ($A1.95 billion) as low prices for energy, including natural gas, squeeze assets.

The energy giant made the announcement before its half year results due to be released Friday this week. The latest non-cash charge will add to losses.

A short time ago, Santos shares were down 1% to $4.68.

The company says there has been a slower ramp up of gas production at the LNG plant on Curtis Island, near Gladstone, and an increase in the price of third party gas. This has caused Santos to adjust its gas supply and third party gas pricing assumptions for GLNG.

“Low oil and gas prices continue to challenge our upstream business and the entire oil and gas industry,” says CEO Kevin Gallagher.

“At GLNG we are seeing the effects of ongoing constraints on capital expenditure and a softer LNG market. We are experiencing a slower ramp up in production of GLNG equity gas and the price of third party gas has increased.”

The first shipment of liquid natural gas, created from Queensland coal seams, was made in October last year from the GLNG project.

GLNG is led by Santos in partnership with PETRONAS from Malaysia, Total from France and KOGAS from South Korea.

Santos Chairman Peter Coates says the impairment charge is clearly disappointing but it is a consequence of the challenging environment which we now face.

“We have decided to adjust our long-term operating assumptions for GLNG to reflect the reality of the current oil price environment,” he says.

“However, we firmly believe in the strong long-term growth of LNG consumption and demand globally. GLNG will continue to be an important part of our LNG portfolio and a key supplier of LNG to the Asian market.”

Santos, like most resources companies, has been cutting costs to match falling commodity prices and make up the shortfall with extra production. The company has cut its dividends and tied future payouts to profit.

In February Santos 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.

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