Santos to write down assets amid lower prices

OREANDA-NEWS. Australian independent Santos plans to take impairment charges totalling A\$1.6bn (\$1.23bn) with the write-down in the value of its oil and gas assets because of the sharp fall in oil prices during the past six months.

The largest write-down is the A\$808mn pre-tax charge against its Narrabri coal-bed methane (CBM) gas project in the Gunnedah basin in northern New South Wales. It is also taking a A\$688mn charge on assets in the Cooper basin in South Australia.

The write-down on the Narrabri CBM project by Santos partly reflects the delay in the project to the end of the decade from a previously indicated start-up either this year or next year. It also reflects expectations that proven and probable reserves at Narrabri will be lowered by 30pc from the 1,141PJ (30.47bn m?) of proven and probable reserves at the end of 2013.

Santos made a further A\$70mn pre-tax write-down on its Cooper basin unconventional gas assets. There is no impairment charge for the two-train 7.8mn t/yr Gladstone LNG (GLNG) in which Santos is the operator and owns a 30pc stake.

GLNG is on track for first LNG in the second half of 2015 and is within its \$18.5bn budget. UK energy firm BG this month booked a pre-tax non-cash impairment charge of \$6.8bn, mainly on its main Australian asset, the 8.5mn t/yr Queensland Curtis LNG project, also at Gladstone.

The net impairment charge for Santos on a pre-tax basis is A\$2.36bn and A\$1.56bn after tax. Other assets included in the write-down are its oil assets at Mereenie in Australia's Northern Territory, its interests in the Stag, Barrow and Thevenard oil fields and the Winchester and Zola gas fields in the Carnarvon basin offshore Western Australia and the southeast Gobe field in Papua New Guinea.

Santos has already cut spending by 26pc to A\$2bn for this year and added A\$1bn of debt funding to improve its financial status.

Santos forecasts the Brent crude price to average \$55/bl in 2015, \$70/bl in 2016, \$80/bl in 2017, \$90/bl in 2018 and \$90/bl over the long term from 2019. These forecasts are more or less in line with the recent forecasts by credit rating agency Standard & Poor's. S&P last month cut its oil price assumptions for the third time in two months. It latest forecasts have Brent crude averaging \$55/bl in 2015, \$65/bl in 2016 and \$80/bl longer term.

Ratings agency S&P last week said it does not see an immediate risk of a further ratings downgrade for Santos despite weaker oil prices and possible asset write-downs. Santos' credit rating was cut to BBB from BBB+ in December, bringing its rating in line with other Australian energy companies including Origin Energy and AGL Energy.