Santos to Book US$1.05 Billion Impairment Charge -- Update

   By Robb M. Stewart 
 

MELBOURNE, Australia--Santos Ltd. continues to be battered by the slump in oil and gas prices, forcing a US$1.05 billion after-tax impairment charge against the value of its flagship gas-export project on Australia's east coast.

The charge is likely to lead to a sharp first-half loss for the energy company when it releases its results on Friday.

Chairman Peter Coates said the impairment reflected the challenging environment facing the company, which had led it to adjust long-term operating assumptions for the GLNG liquefied natural gas operation on the coast of Queensland state.

There had been a slower ramp-up of production and an increase in third-party gas prices feeding the plant over the course of 2016, which meant the company had to adjust supply and pricing assumptions.

"We are seeing the effects of ongoing constraints on capital expenditure and a softer LNG market," said Kevin Gallagher, who took the helm as chief executive in February after previously leading engineering firm Clough Ltd.

The US$18.5 billion GLNG operation, which counts France's Total SA and Malaysia's Petronas Gas Bhd. as partners, shipped its first cargo of LNG in late 2015. It is one of three new massive LNG plants on eastern Curtis Island that have added to a growing glut of liquefied natural gas from Australia targeting demand for cleaning burning fuels in Asia.

Santos has been working to restore investor confidence and repair a balance sheet stretched by its heavy investment in energy projects from Queensland to Papua New Guinea. Last October, the Adelaide-based company rejected as too low a 7.14 billion (US$5.46 billion) takeover approach from Bermuda-based Scepter Partners that had the backing of sovereign investors and wealthy members of Asian and Gulf-based ruling families.

The company reported a net profit of A$37 million in the first half of 2015 but was pushed to a full-year loss of A$2.7 billion after booking A$2.8 billion in impairment charges to reflect the fall in crude-oil prices.

Santos said the fresh impairment hit will be a "non-cash" charge and won't affect its debt facilities.

Mr. Coates said the company continued to believe in longer-term growth for LNG consumption and demand globally, adding GLNG would continue to be an important part of Santos's portfolio.

Write to Robb M. Stewart at [e-mail]

(END) Dow Jones Newswires

August 14, 2016 20:09 ET (00:09 GMT)

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