SANTOS confirmed the inevitable this morning: Barossa’s sanction has been delayed..
The Barossa field was due for final investment decision in the next quarter and would be destined as backfill for the Darwin LNG plant as the current Bayu Undan field goes into decline.
It has also "re-phased" its planned spend at PNG LNG, the ExxonMobil-operated LNG project that was planning a one train expansion and commercialisation of the P'nyang gas field. Given the joint venture's gas agreement talks with the Papua New Guinea government had already stalled it is no surprise.
"Barossa remains an important project for Santos due to its brownfield nature and its low cost of supply," managing director Kevin Gallagher said this morning.
It will cut spending by almost 40% making it the second major ASX-listed oiler to revise guidance after Oil Search cut all spend guidance and announced the delay of a farmdown of its Alaska project last week.
Santos will lower its capital expenditure this year by $550 million and will cut $50 million from cash production costs and is now targeting a lower breakeven cost of US$25 per barrel.
"The reductions in expenditure in the base business are not expected to impact 2020 production guidance," it said.
The company said it generated $186 million in free cash flow in the first two months of this year.
It has hedged a portion of its oil and has fixed price gas contracts to fall back on - which it said will account for 35% of this year's sales volumes - and recently began a new 12-year domestic gas contract in Western Australia for 120 terajoules a day, which is priced in US dollars.
It has 6.2 million barrels of oil hedged this year at a floor price of US$54/bbl.
It still expects its acquisition of ConocoPhillips Northern Australia assets to complete next quarter and will then farm down a share of the assets to SK E&S as planned.
In October it announced it was taking a larger share of the assets it already shared with the US oiler for a total of $1.4 billion, but would sell down 25% interest in Bayu-Undan and DLNG to SK for $390 million, giving the latter a larger stake.
It said there are still "a number of interested parties" it is talking to regarding selling a stake in Barossa.
It expects gearing of around 35% "reduce by year-end based on the current oil price environment and including a dividend based on the free cash flow policy".
Its debt covenants are not under threat at current prices for a number of years.
Source: Energy News Bulletin
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