Angela Macdonald-Smith Santos has flagged the likelihood of write-downs after the dive in oil prices which has eroded the value of its oil and gas assets. The advice came as Santos reported a 2 per cent increase in revenue for the December quarter from a year earlier, to a record $1.09 billion, thanks to a 15 per cent jump in production, which outweighed the impact of lower prices. The revenue figure beat UBS’s estimate of $946 million for sales in the three months ended December 31. The quarterly figure took full-year sales to $4.04 billion, up 12 per cent on 2013, while production climbed 6 per cent to 54.1 million barrels of oil equivalent, almost exactly at the mid-point of the latest guidance of 53 million-55 million boe. Crude oil prices sank 50 per cent last year, and have fallen further in 2015 as booming US shale liquids production combined with OPEC’s refusal to cut back production drives supply. Analysts have been signalling that write-downs are on the cards, with the Pilliga coal seam gas project near Narrabri a prime candidate for impairment. Santos retained its guidance on production costs for 2014 at $820 million-$880 million, but revised up capital spending for last year to $3.6 billion from $3.5 billion. It advised it will now see a royalty taxation benefit after tax of as much as $40 million, after previously advising of a likely $60 million expense. But it warned that the bottom-line figure could be hit by write-downs. “Guidance on 2014 financial outcomes above is preliminary and subject to finalisation of the company’s accounting and audit process, which includes an impairment review being undertaken against the current lower oil price environment,” it said in its quarterly report on Friday. The dramatic drop in the oil price has slammed oil and gas share prices across the world, with Santos one of the worst hit in the local market because of its relatively stretched balance sheet and low-margin production. The company’s BBB credit rating is also coming under pressure due to the collapse in prices, which will cut revenues from its costly new LNG projects. The Australian Financial Review BY Angela Macdonald-Smith
Posted on: Thu, 22 Jan 2015 23:39:28 +0000
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