Australian Santos Expects $690mn Half-year Impairment Due to Lower Oil Prices
Australian Santos is expecting a non-cash net impairment charge of around $690mn after tax in its 2017 half-year results, due largely to lower oil prices, the company said August 15.
The oil and gas producer lowered its Brent oil price forecasts to $50/b for 2017, $55/b for 2018, $60/b for 2019, $65/b in 2020, and around $70/b from 2021, it said.
As a result of the changes in assumptions, Santos is expecting an impairment on Gladstone LNG of approximately $870mn after tax, it said.
RBC Capital Markets analyst Ben Wilson said in a research note that the GLNG impairment brings the total Santos share of impairments recognised on the project to $2.2bn.
“We note that the asset impairments at GLNG to date have not been accompanied by material write downs in reserves,” he said.
He said Santos’ reduction in Brent forecasts for 2017, 2018 and the longer term forecasts are down from its previous expectations of $60/b, $70/b and $75/b, respectively. RBC forecasts $51/b for 2017, $53/b for 2018, and $64/b for the long term.
The lower oil price assumptions also impacted its Cooper Basin assets, Santos said.
“However, this is more than offset by a continuation of the cost efficiencies and performance improvements achieved during 2016 allowing increased drilling activity and production,” it added.
It’s resulted in an expected positive net write-back to the Cooper Basin carrying value of approximately $330mn after tax, it said.
“The Cooper Basin asset write back is of particular interest following Santos’ work on reducing costs in the business and the write back comes in spite of a lower Santos oil price deck,” he said.
“We believe it is likely that the firming gas price outlook on the east coast is also playing into the write back. Together with the announcement yesterday to supply the Engie operated Pelican Point with 15PJ points to a positive implication for Cooper Basin reserves,” he said.
Santos also expects to take an impairment charge against the non-core AAL asset in Indonesia of approximately $150mn after tax following an assessment of the impact of the lower oil prices, the company said.
Nathan Richardson