Dec 2014 This is one of the longest takeovers I’ve seen! LOL
But now that our friends at OPEC have declared war on US shale, determined to run them out of business, it obviously affects Australian gas exporters (did you know that LNG contracts are tied to the oil price??!)
Santos high costs of production and poor reserves of cash (they’re tapping shareholders despite losing 20% of the value in the past 3 days) means the talk of a takeover is back on the table
Santos cheap but only for the brave
December 01, 2014
SANTOS has become the obvious takeover target in the oil and gas sector, given that shares in the $10 billion producer are now trading at $10.10 two thirds of their September level.
Frances Total has been named as the most likely suitor, given its GLNG joint venture with Santos, although it has not yet made any move.
Weighing against the argument of any deal in the space, however, is that the global giants do not believe that coal-seam gas or Cooper shale gas would work as a strong investment proposition at the current prices.
But but but … there’s a lot of talk about that over the recent years …
Mergers, acquistions and big business
30 April 2014
Hydrocarbons heavyweight Santos (STO) is a potential foreign takeover play: but in a rare display of realism, the company is perfectly OK with this conjecture. Chief executive David Knox admits that Santos is an increasingly attractive takeover target, as its massive $21 billion Gladstone liquefied natural gas (GLNG) project of which Santos owns 30%, along with partners Petronas, Total and Kogas gets closer to making its first shipments in 2015.
Santos suitors circle
14 February 2014
Santos chief executive David Knox concedes the oil and gas group will become an increasingly appealing takeover target now the bulk of the capital spending on its massive $US18.5 billion ($20.6 billion) Gladstone liquefied natural gas venture has happened.
Santos takeover talk rekindled
12 JUL 2013
Gas firm Santos Ltd is the target of fresh takeover talk after a spike in trading of the firm’s shares, according to The Australian.
The rumours suggest Chevron or ExxonMobil may be interested in Santos as both companies seek to expand their presence in Australia’s gas sector.
Analysts at JP Morgan and Deutsche Bank name Santos as takeover target
WALL STREET JOURNAL JUNE 07, 2012
TAKEOVER chatter about Australian energy company Santos has bubbled to the surface again, with JP Morgan and Deutsche Bank naming it as a potential target in as many days.
Australia Woodside dismisses Santos takeover talk
Mar 25, 2010
Shares in Santos, Australia’s third-largest oil and gas producer, jumped as much as 4.7 percent on Thursday after The Age newspaper said Woodside could bid for Santos to secure its coal seam gas-to-liquefied natural gas (LNG) project in Queensland state.
Citing market rumors, the newspaper said Woodside planned to sell off Santos’ non-export gas interests to help defray the cost of a takeover.
Speculating About A Takeover Of Santos
25 March 2009
Global energy giants BP, Eni and Shell are eyeing possible bids for Australia’s No.3 oil and gas firm Santos, which one analyst valued at around $7 billion, but a bid from China looks unlikely, dealmakers say. Takeover speculation has swirled around Santos, which has a strong balance sheet and coveted liquid natural gas (LNG) prospects, since Nov 29 when a government cap on foreign ownership expired.
Santos surges on speculation
May 02, 2008
AUSTRALIA’S listed coal seam methane (CSM) sector rocketed to a record high yesterday, adding $1 billion to the value of 17 listed stocks, as speculation mounted that the super oil majors, along with the Japanese and Chinese oil giants, would make a move on the sector following BG Group’s $12.9 billion bid for Origin Energy.
It’s hard to buy declining stocks, in a poor market, in a sector that looks set to be receding … purely on the chance of a takeover
Not for me
there’s a HUGE amount of shorting Santos today
Reported Gross Short Sales 3,216,886
.32% of issued
STO have lost a staggering 39% over the past 3 months
Short people just scored a handy profit
with OPEC war on shale just started, and little company cash-on-hand, methinks STO is in deep doodoo
more downside to come
Shorters making a killing
-10% already today
The effect of OPEC’s decision to hold production cannot be underestimated regarding CSG … Santos shares, for example have dived 40% in 3 months. Who knew that the price of a barrel of oil was tied to the international export price of our LNG?
Some analysts are saying OPEC’s decision was to squeeze out the US shale oil competition, others say they’re out to affect Putin & Gazprom selling gas to China … either way, Australia’s gas industry is caught in the cross fire.
The production cost of CSG at Gloucester according to AGL is $8/GJ … today’s Sydney gas spot price is $3/GJ
Economics are going to play an important part in the downfall of CSG, and OPEC’s actions are the most important key element for the next year or longer. OPEC won’t meet again for another six months which means a lot of pain for Origin, Santos and our exporters.http://www.youtube.com/v/gKYJc3L1wMg?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
Santos tossed back from debt markets
Australian energy producer Santos has been forced to postpone a 500 million ($733 million) hybrid debt raising in Europe and will slash capital and operating expenditure following a slump in oil prices below $US70 a barrel.
Chief financial officer Andrew Seaton said the company had decided to defer any hybrid issue until market conditions improve, noting the oil market had experienced volatility following the decision by the Organisation of Petroleum Exporting Countries not to cut output at a meeting in Vienna last Friday.
Mr Seaton said Santos holds a robust funding position with $2 billion in available liquidity but will review its spending plans for 2015.
The yield on the securities has spiked by an enormous 40 per cent in two trading sessions to almost 5 per cent from 3.5 per cent at the start of the month.
Looks like Santos have no choice now but to tap the shareholders for operating cash
I love short people 🙂
Oil futures are down down prices are down
watch the shorters tickle the price up a little near close today ready for another piledriver tomorrow morninghttp://www.youtube.com/v/xx6ZIQ7mcA4?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_UShttp://finviz.com/futures_charts.ashx?t=CL
There goes the divvies …
1,903,316 shares loaded up on the short side
Santos unlikely to be able to fund dividend from cash generation
Santos’s promise to grow its dividend next year is under threat, while marginal exploration projects look set to be axed as the oil and gas producer strives to retain its investment grade credit rating following a slump in the oil price.
Santos has been forced to postpone a 500 million ($733 million) hybrid debt raising in Europe and will slash capital and operating expenditure following a drop in oil prices to less than $US70 a barrel.
Chief financial officer Andrew Seaton said the company had decided to defer a hybrid issue until market conditions improved, noting the oil market had experienced volatility following the decision by the Organisation of Petroleum Exporting Countries (Opec) not to cut output at a meeting in Vienna late last week.
Santos held a robust funding position, with $2 billion in available liquidity, but would review its spending plans for next year, Mr Seaton said.
… more …
“Santos is the hardest hit, we estimate, with forecast debt of $8.2 billion by year end 2015, due to a further $2.7 billion capex in 2015,” UBS energy research analyst Nik Burns said. “We believe high debt plus low oil price implies its credit rating will likely come under pressure.”
Another 3.78% profit for the shorters todayhttp://www.youtube.com/v/ARGAdIiLblM?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
Another great day for the shorters
down 1.07% today
down 43.66% in 3 months
down 41.79% in 12 months
it’s a smackdown!http://www.youtube.com/v/hY1ChFvZhxA?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
10% profit for the shorters this morninghttp://www.youtube.com/v/IOrUtaBAZbE?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
S&P cuts Santos credit rating because of falling oil price
AUSTRALIAN oil and gas producer Santoss credit rating has been cut because of its exposure to the falling oil price.
Standard & Poors said it had lowered the Adelaide companys long-term corporate credit and issue credit ratings on its senior notes to BBB from BBB+. The hybrid notes have been lowered to BBB- from BBB. The outlook on its long-term corporate credit rating remains negative.
The rating action reflects the pressure on Santos earnings and cashflows from the rapid fall in oil prices, credit analyst Craig Parker said.
This pressure, together with the sizeable capital expenditure committed for the completion of its GLNG project, will significantly weaken Santoss credit metrics.
Santos last week stepped away from a planned hybrid fundraising and announced spending cuts in the face of the falling oil price, which was down about 30 per cent in the past few months.
Standard & Poors said it had expected Santoss credit metrics to be weak in 2013 and 2014 because of the large amount of capital required to fund the companys LNG projects but it had previously expected those metrics to recover strongly in 2016, when both projects would be complete.
However, the fall in oil prices would reduce Santoss internal funding buffer for the GLNG project and increase its borrowing levels from what were our original expectations, Mr Parker said. However, we anticipate that Santos can maintain a trajectory that its adjusted funds from operations to debt can improve toward 30 per cent in 2016 and consolidate above 30 per cent in 2017. We also expect the company to maintain sufficient liquidity during the development stage of its projects.
Standard & Poors said the BBB rating could accommodate some weakening in oil prices, such as remaining below $US75 a barrel in the next three years.
We could consider changing the outlook to stable when we have better visibility that the company will achieve credit metrics in line with our expectation for the rating, Mr Parker said. This could occur if we have a high degree of certainty concerning the completion and ramp up of the GLNG project, while the oil prices are not weaker than our base assumption.
Another six percent wiped off the share price of Santos this morning
Another Top Drop Brain Buster!http://www.youtube.com/v/fdmc6vNztN0?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
While you’re quoting the company PR … which looks like it was written by Hallmark … let’s look at what the analysts are saying about Santos’ debt …
Santos’s best option is equity raising, analysts say
Santos might be better off biting the bullet and carrying out an equity raising to provide funding for growth projects, rather than facing a future of depleting resources and production, some analysts say.
The oil and gas player reiterated this week it had no intention of raising equity now, and is expected to consider such a move only if its investment grade credit rating comes under threat.
But Credit Suisse analyst Mark Samter said Santos would be better off raising at least $2 billion in fresh equity, rather than “starving the business of oxygen”.
Mr Samter said Santos needed more cash to develop gas, oil and power projects using undeveloped resources it held, which he valued at about $1.70 a share.
But it has no capital to invest in growth projects, given that even on the “bullish” assumptions Standard & Poor’s is using for oil prices, the critical ratio between Santos’s funds from operations and debt only approaches the 30 per cent threshhold necessary for an investment grade credit rating in 2015-16.
“An E&P [exploration and production company] can starve itself for a while without too much noticeable wilting, but depleting resources catches up with you before too long,” Mr Samter said.
“We truly believe that a sizeable [$2 billion-plus] raising is a necessity to allow us to get more positive on Santos.”
Santos declined to comment.
Market worries about Santos’s potential need to do an emergency equity raising or about a possible severe cost blowout at GLNG are thought to be partly behind the collapse in its share price.
The stock closed on Wednesday at $7.63, down 0.9 per cent on the day.
Santos’s market value has almost halved since early September, falling by $7.4 billion.
The stock has also been targeted by short-sellers, some sources say.
Other analysts have a different view, with Deutsche Bank’s John Hirjee saying an equity raising would be a last resort, given the resulting dilution to shareholders.
He calculates that Santos, which has $2 billion in cash and undrawn, is well funded to cover its remaining share to complete the $US18.5 billion GLNG project in Queensland, even if the project suffers a cost over-run.
GLNG is also expected to add significantly to Santos’s cash flows when it starts production in the second half of next year, even at lower oil prices, providing funds for investment.
But Credit Suisse, a noted bear on Santos, said that using the futures curve for oil, its valuation on the stock was $9.40, or just $7.70 a share for the company’s producing assets.
Topstocks certainly has changed … used to be that a post on the money for a 20% profit in a week used to earn more than 2 ‘likes’
Shorting Santos has earned a 19.58% profit in 5 days … 40% in a month … another 8.26%% profit today
There hasn’t even been any let up, to reloadhttp://www.youtube.com/v/p6ks3-VjAT8?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
Santos lost 24% in the last ten days
If I were a board member seeking to return this sick puppy back to health, I’d lose the assets that are still risky and cash flow negative … like the political risky Narrabri/Pilliga project which still has the capex expenditure of the pipeline, RO plant and associated infrastructure … all yet to be built … all amid a fierce and well organised local opposition
Mr Knox also said Santos would also consider asset sales, raising concerns in the market that it may sell assets at a time when prices are depressed by low oil prices.
UBS analyst Nik Burns suggested that Santos could consider selling its Chim Sao and Dua oil interests in Vietnam, its offshore interests in Western Australia, or its Victorian gas interests.
Narrabri is on the chopping block … remember that you read it here 😉
Analysts crawl over Santoss gas pipeline stake
In the wake of BG Groups knockout $US5 billion Queensland gas pipeline sale, fund managers and analysts are asking why Santos shouldnt follow suit.
It seems Citi agrees with me 😀
… investors, who were briefed further by the company after the announcement, came away with the impression the controversial Narrabri coal-seam gas project in NSW was close to being mothballed
Santos should have acted earlier as oil prices fell, investors say
WHEN Scott Sheffield, chairman and chief of $US20 billion ($24bn) American shale oil company Pioneer Natural Resources, flew to Australia for a Santos board meeting in late October, he came with a sombre message.
Crude oil prices, then holding above $US80 a barrel, would probably fall further and then stay down for a prolonged period, he warned.
The message was delivered to some investors in Sydney and Asia whom Sheffield, the highly paid Texas oilman who joined the Santos board in February, met during his brief visit and was no doubt also passed to the Santos directors.
Then, when Sheffield returned to the US, he promptly went out and raised $US1bn on the equity market for Pioneer.
Our rationale for capital funding is it allows Pioneer to really prudently develop its assets in what I believe could easily be a $US70 or $US80 oil price environment over the next two years, he told US investors on November 5 after completing the raising.
Its going to take a while to get the demand side up in the world today and, at the same time, were in a battle with Saudi Arabia in regard to market share versus US shale oil.
Now, a month later, US oil prices have dipped below $US60 a barrel after Saudi Arabia stepped up its fight and refused to cut production.
And Santos is scrambling to cut costs and reassure the market it will not pursue an equity raising at current depressed prices, with its shares down 40 per cent in the three weeks since OPECs November 27 meeting, when Saudi Arabia elected not to cut oil production.
If Santos was swayed by Sheffields concerns, it did not let on to investors last month.
As a company, Santos has never been in better shape, Santos chief David Knox said when he opened the companys annual investor day on November 26.
Since then, Santos has pulled a flagged hybrid debt-equity raising, Standard & Poors has downgraded the companys debt rating and the companys shares are down 40 per cent.
At the investor day, chief executive David Knox and chief financial officer Andrew Seaton addressed falling oil prices and said moves to cut costs and spending were under way.
But the only scenario they referred to was one in which prices would return to $US90, which was where the analyst consensus was.
Investors and analysts, with the benefit of hindsight, are split on whether the Santos board should have moved faster to raise equity or a hybrid and to decisively cut spending to send a positive message to the market.
When Santos gave that presentation, they had $2bn of liquidity available and no commentators were predicting the slide in oil prices that weve seen since, a fund manager said at one major institutional Santos shareholder.
Theyre on the higher cost side, so naturally theyre going to be more leveraged to falls in the oil prices, and they are more exposed than someone more diversified, like Origin Energy.
But not all are being so forgiving, and rumblings about managements handling of the situation are growing.
Credit Suisse analyst Mark Samter has said the company needs to do a $2bn-plus raising to strengthen its balance sheet.
One fund manager who holds the stock said the company should have acted faster to guard against a falling oil rice.
And when its European roadshow faltered in the days after OPECs decision to keep oil flowing, it should have immediately put in place some capital expenditure saving announcements to stem sliding shares.
It feels they are hoping they can delay the hybrid offer for another quarter and theyll be fine, but Im not sure if the market will be open then, and if it is, I think that the price will be a lot higher, he said.
On Thursday, Santos declared it would cut its 2015 capital spending by 25 per cent, or $700 million to $2bn, in line with its available funding.
Santos gave little indication of how this would be done and what operations would feel the brunt of the cut in its announcement.
And it refused to give any further guidance to the press, including what it would mean for future production.
But investors, who were briefed further by the company after the announcement, came away with the impression the controversial Narrabri coal-seam gas project in NSW was close to being mothballed, that Browse Basin appraisal was on the backburner and that the Ande Ande Lumut development in Indonesia would attract minimal spend next year.
UBS analyst Nik Burns questioned whether the cuts were realistic and what impact they would have on production.
Sustaining capex is called that for a reason how sustainable is cutting $200m of sustaining capex? Mr Burns asked.
We had anticipated Santos may cut capex by up to $400m and saw that as difficult to achieve in our view $700m is well and truly into the red zone.
UBS said Santos needed to take more action to reduce its net debt through asset sales, a hybrid raising or an equity raising.
Another aspect that could be weighing on the Santos price is a view the company has a tendency to withhold, or soften, bad news.
The problem with Santos is that what they tell you is never the whole story, said one investor after this weeks capital cuts announcement.
The view goes back to a 2012 development cost increase at the Gladstone LNG project, from $US16bn to $US18.5bn, which was presented as a shuffling of funding between sustaining and development capital rather than a cost blowout.
In February this year, another $1.3bn of GLNG costs were classified as outside the budget, so again not a blowout.
An example of delayed bad news was shareholders having to wait until the November 26 briefing to have confirmed that GLNGs 2015 start target would not be in the second half of 2015. This is something its partner, French oil giant Total, told its investors publicly in September.
Total has also told Australian media, first in July and again this month, that GLNG is short of gas reserves, something Santos has denied.
Things all investors and analysts agree on is that the company is in no danger of folding, GLNG is no danger of being cancelled and that if oil prices start going back up, Santos will benefit.
If you think the price is coming back up, you wouldnt buy Woodside, said one investor.
Santos is where you would want to be because it will have a huge leverage to increases.
Santos still haven’t made the final investment decision …
A message on the Narrabri Gas Project
As has been reported in the media, the price of oil has fallen significantly over the past month which is having a major impact on not only oil and gas companies globally but also many countries that rely substantially upon oil revenue. Santos has been similarly impacted by this oil price decline and like other companies, we are reviewing our operations to ensure all our capital programs are appropriate for the current environment.
The natural gas contained in Santos NSW licences remain vital to the future economic viability of domestic manufacturing and in putting downward pressure on the cost of energy for families in NSW.
Santos Narrabri Gas Project is being progressed with our Environmental Impact Statement close to finalisation which is a critical step along the Governmental approval pathway. We will take the necessary time to ensure this document is of the highest standard.
I would like to thank the local community, including those that work with and for us and also the local landholders who host our activities on a daily basis, for their ongoing support. Santos remains focused on supplying natural gas to the 1 million families in NSW that use our product in their homes and the tens of thousands of people who rely on the energy provided by gas for their employment.
Our current operations in NSW will continue as we work with investors, customers, the NSW Government and our local community. The time frame of any investment decision enabling first gas from this project depends upon a range of factors including the appropriate support from all these stakeholders.
Narrabri Coal Seam Gas Project
This note provides an analysis of the Narrabri Coal Seam Gas Project (NGP) from an Economic Value (EVA) perspective and considers, amongst other things, the question, Can the development of the Narrabri Gas Project assist in putting downward pressure on gas prices in NSW?
Development of a coal seam gas project requires substantial capital investment. The thesis that the development of the Narrabri Gas Project (NGP) is a partial solution to gas pricing and supply issues typically never seems to consider either: that stakeholders will demand an appropriate economic return on their investment, or the feasibility of constructing a pipeline, or indeed the quantity of gas that would be supplied into the NSW market.
Putting aside pipeline construction uncertainties and likely landholder opposition, our research concludes that the likely substantial capital investment of the project means that if stakeholders in NGP are to enjoy at least cost-of-capital returns, the project will likely have little to no influence in driving lower gas pricing in NSW.
. Executive Summary
An expected tripling of gas demand in Eastern Australia – largely created by the Queensland LNG export projects is diverting traditional supply from the Cooper Basin producers and Queensland coal seam gas (CSG) away from NSW.
The NSW wholesale gas market has entered a period of material change given that the LNG export netback value is now a factor in determining domestic prices. There have been numerous studies which have investigated the likely impact on Queensland LNG exports on Eastern Australian domestic gas prices and supply, and while all studies have concluded that gas prices will rise, there is no consensus on how fast they will rise, and to what level they will rise.
Whilst analyses differ in the exact future trajectory of NSW gas prices, there seems little debate that NSW wholesale gas prices are set to at least double compared to historical levels. The question that is rarely, if ever, asked is: can coal seam gas development in NSW – in this case the Narrabri Gas Development – deliver gas into the Sydney market at competitive prices?
According to Santos, the NGP could supply 200TJ/day, which is equivalent to approximately 50% of NSW gas needs. At its Investor Briefing on November 26, 2014, Santos noted a likely 30% reduction in 2P reserves in 2014 to match phased development.
It is unclear what, if any implications there would be for gas production and/or total investment spend. We have therefore given the project the benefit of the doubt and assumed production of 200 TJ/day, and undertaken a scenario analysis of total investment. Given the delay in submitting an Environmental Impact Statement (EIS), if approved, the project would likely commence production in 2018 at the earliest.
In February 2014 the NSW Government and Santos Ltd signed a memorandum of understanding (MOU) which states that, Santos will construct the NGP and a purpose built pipeline heading south to connect into the existing NSW gas network, enabling supply to NSW customers. However, the MOU states clearly it is not a legal document, and both parties will commit to using their best endeavours to implement the commitments in this MOU.
Even if the gas is delivered to NSW, there is no mention of at what price the gas would be delivered.
When NGP is touted as a solution for future NSW gas supply, the fact that a pipeline needs to be built is rarely mentioned. A pipeline proposal for the NGP has not yet been submitted for assessment and recent history provides evidence of organized landholder opposition to gas pipeline proposals. Furthermore, whilst the MOU between the NSW Government and Santos only refers to a pipeline running south to NSW, the proposed Queensland Hunter Gas Pipeline Project would also run north to feed into the Queensland gas pipeline network via the Wallumbilla hub.
As with all three LNG export projects, Gladstone LNG ((GLNG), 30% Santos) is short gas, and Santos would be incentivised to supply additional gas to GLNG from its own assets if the economics are favourable. Profit optimization would suggest that the direction of supply would logically be determined by optimizing economic returns for the NGP shareholders, in the absence of a legally binding MOU.
Even if the gas does flow south to Sydney (as noted, the MOU between Santos and the NSW Government is non-binding, so Santos has no legal obligation to supply NSW), given the NGPs likely total project investment, in order to at least cover its cost of capital it would likely need to charge higher Sydney wholesale prices than even the wholesale price forecasted in the ACIL Allen CSG Freeze scenario ($7.20/GJ (Gigajoule) in 2018).
Our research highlights that given that the NGP will likely have little to no influence in driving lower gas pricing in NSW, more research and investment into demand side solutions are going to be increasingly important.
… more at link …
Santos shareholders lodge complaint to ASIC over Narrabri Gas Project
A formal complaint accusing gas giant Santos of misinforming its investors has been lodged with the Australian Securities and Investments Commission.
One of the voices behind the complaint is David Quince, a grazier and councillor from north west New South Wales who says Santos isn’t giving the full picture to the community.
He says after attending two annual general meetings and reading the investor presentation he believes the information presented about the Narrabri Gas Project isn’t true.
“We are just all fed up with these outrageous presentations that Santos is giving to its investors and the stock market,” he said.
“They’ve been showing maps at these presentations stating that they have 95 per cent, over 95 per cent, of the land secured for initial phase one development, this is misleading because it suggests 95 per cent of the landholders whose access consent is required, have granted access.
“They state quite clearly they’ve got no intentions of coming down on to the Liverpool Plains, they said that at their AGM, yet at their presentations they quite clearly show six other prospective basins.”
David Quince says his shares come from a family purchase of Eastern Star Gas shares that used to be respectable.
He says the company will have to clarify a substantial amount of information for him to withdraw his complaint.
AUDIO: Santos shareholder David Quince and Santos’s Peter Michley (ABC Rural)
… more on the ABC website …
Santos tipped to put CSG stake on block amid operation go slow
SANTOS is looking to sell down its 80 per cent interest in the controversial Narrabri coal-seam gas project in NSW amid speculation it has put the development on a go slow.
The energy company, which has been forced to cut capital expenditure because of the sliding oil price, said it did not comment on market speculation but it is believed to have been shopping around a stake in the project.
EnergyAustralia owns 20 per cent of the asset in the Pilliga forest region.
The oil price decline has wiped about $8 billion from Santoss market value in three months, with the stock losing a third of its value in just one week at the start of December.
Santos declared earlier this month it would cut its 2015 capital spending by 25 per cent, or $700 million to $2bn, in line with its available funding. The $700m includes $150m from other growth projects, which includes Narrabri.
One analyst said that realistically Narrabri would be top of the list to be pushed back. The only inference you can take from them cutting capex is delays, he said.
While Santos will not comment on any plans to sell down its interest in Narrabri, its 80 per cent stake is high for the company given its approach to other joint ventures. The highest joint-venture interest it has is in the Cooper Basin at 67 per cent and at its Queensland LNG project it has a 30 per cent interest.
Santos is said to have had several approaches about Narrabri but that they had not been at the level required and any deal was unlikely to occur until final approvals for the project were received.
It is understood that potential buyers of the stake could include manufacturers given the project is to provide gas for the domestic gas market.
Citi had recently suggested Santos could reduce its stake in Narrabri by 30 to 50 per cent.
Peter Mitchley, Santos general manager energy NSW, said in a recent update on the Narrabri project that the company had been affected by the oil price decline and it was reviewing its operations to ensure all its capital programs were appropriate for the current environment.
Our current operations in NSW will continue as we work with investors, customers, the NSW government and our local community, Mr Mitchley said. The time frame of any investment decision enabling first gas from this project depends upon a range of factors including the appropriate support from all these stakeholders.
A Santos spokeswoman said the company was focused on completing the environmental impact statement for the project. The EIS was scheduled for completion in the second half of 2014 but is now targeting the first half of next year.
The Narrabri project still has a list of boxes to be ticked before it goes to a final investment decision but the company is yet to push back its forecast of first commercial gas production in 2017.
Investment bank UBS has forecast that if the project goes ahead it expects first commercial production in 2020.
Community members still believe the company is tracking 2017 for first commercial gas and have been told that once final approval was given it would be full steam ahead.
Credit Suisse analyst Mark Samter said in a client note last week that Santos projects that clearly could not be funded, such as Narrabri, had been pushed back.
He said that the investment bank had cut the value of Santoss unsanctioned assets, which included Narrabri, by 50 per cent. These assets simply cannot be funded by Santos with its capital position. Until equity is raised, we do not believe the market can ascribe a full valuation to anything unsanctioned.
Analysts have also said a writedown on the Narrabri asset was likely given Santos paid almost $1bn in late 2011 for the project. UBS has a value of $285m on it, while Credit Suisse recently put a $303m value on it, a cut from the $700m it had on it in July. In a low-price environment there would have to be a question over its commerciality and the value potential suitors were willing to ascribe to a stake, one analyst said.
Currently down 7% today … literally decimated in early trade
They’ve been rejected for a loan in Europe, they’re way over-leveraged as it is
their Gladstone port isn’t finished & doubts appear as to whether the oil/gas price will support it even if it’s built right next door to BG Group’s plant,
Narrabri/Pilliga looks set to go on the market – even though it’s a high cost field … if the spot price doesn’t hold, this is another stranded asset
and the price of oil/gas is set to go lower which compounds all of the above
$7 share price again before too long, I reckon
Santos shares worthless at current oil price, broker says
A theoretical exercise by Credit Suisse equity analysts has made the startling finding that Santos’ equity is worthless when current oil prices and foreign exchange rates are assumed to persist for ever.
Assuming oil prices of $US55.20 a barrel, and Australian dollar at US80.6 and a slope of 8.5 times for the east coast gas price results in a calculation for Santos’s net present value of negative 13 a share, Credit Suisse energy analyst Mark Samter has told clients.
The impact of those assumptions on other ASX-listed oil and gas stocks is almost as dramatic, with Woodside Petroleum’s base net present value calculated at $18.74 a share, and Oil Search’s at $3.70 per share, both about half of their current levels.
While all the energy stocks have been hammered by the sharp dive in the oil price in recent months, their share prices remain well above those levels.
Santos on Tuesday dipped 8.6 per cent to $7.55, and is down about 54 per cent since August. Woodside closed Tuesday at $36.46, while Oil Search closed at $7.31. Santos fell a further 4 per cent in early trading on Wednesday to $7.25.
“Clearly the equity market isn’t pricing in spot to perpetuity and, whilst none of us are smart on a 20-year view, arguably nor should it,” Mr Samter wrote.
On his calculations, assuming current exchange rates, Woodside’s share price assumes an oil price of about $US81 a barrel, Oil Search about $US70, and Santos about $US83.
Mr Samter notes that the impact of the weak prices has been worst on companies with weak balance sheets: hence the pressure on Santos, which is still funding completion of its $US18.5 billion liquefied natural gas project in Queensland, and on Origin Energy, which has a similar, $24.7 billion, project under construction in Gladstone.
… more at link …
5.20% wiped off the share price todayhttp://www.youtube.com/v/ZpPYoSChLVI?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_US
“I have taken note and will remind you shortly how stoopid that prediction is”
nice one, GH 🙄
It looks like my $7 prediction will be hit soon … probably before S&P’s downgrade later this week
Santos considers asset sales to counter oil price fall
Santos chief executive David Knox has signalled that asset sales are being considered as the oil and gas producer deals with the hit to its business from the slumping oil price, with transactions likely to provide better results than some in the market expect.
Mr Knox said that despite the weak oil price depressing valuations, and analysts warning of potential asset writedowns, valuable deals were still to be done.
“The skill in asset sales is to sell assets which are more valuable to other players than they are to yourself and I still believe that’s the situation,” Mr Knox said on Tuesday.
“We do have assets which are more valuable in other peoples’s hands than they are in ours.”
A series of deals in the oil and gas sector, including Apache’s $US3.75 billion sale of its liquefied natural gas interests to Woodside Petroleum, and BG Group’s $6 billion divestment of its Queensland gas pipeline to APA Group have been struck in the past few months.
Santos’s GLNG venture in Queensland owns a similar gas pipeline, which some analysts say could be a candidate for divestment, while others point to oil field stakes in Vietnam and Western Australia, or an oil products pipeline in South Australia, that could be on the block.
Santos has also been seeking to sell part of its 70 per cent stake in the Narrabri coal seam gas venture in NSW.
The divestment of assets is one of several levers that Santos has to relieve pressure on its balance sheet, which is being stretched by more than six months of spending before completion of its $US18.5 billion GLNG venture in Queensland.
It has already slashed its 2015 capital expenditure budget by $700 million, and is cutting costs.
Santos is also expected to reconsider an issue of euro-denominated hybrid securities, after being forced to shelve that move in early December as oil prices tumbled.
Fully underwriting the dividend re-investment plan is another option, although UBS analyst Nik Burns said he didn’t expect that alone would remove the risk of another cut to Santos’s credit rating.
But Mr Knox insisted Santos still had several options other than raising equity.
Santos is struggling to hold on to its BBB credit rating, with the risk of a downgrade increased after Standard & Poor’s cut its oil price assumptions again late on Friday.
The agency’s assessments of the impact of the lower prices on companies are expected to trickle out this week.
Santos’s rating remains two notches above the investment grade threshold Mr Knox is determined to retain, even though losing it would not trigger any debt covenants.
“We do have opportunities, we do have flexibility, not just the $3 billion in the bank but we have sensible bits of business which we will plan to do in ’15,” he said.
But some analysts believe that an equity raising could be the best option for Santos, particularly given the risk of a further slide in oil prices and the need to fund the development of resources to provide growth.
“What seems strange is this resolute stance that raising equity is a bad thing,” Credit Suisse’s Mark Samter said.
… more at link …
Santos is negotiating with gas buyers, manufacturers and international companies as it seeks to sell about 30 per cent of its proposed $2 billion Narrabri coal seam gas venture in NSW.
“We are in active conversations with a number of parties,” James Baulderstone, Santos vice-president eastern Australia, said.
“There won’t be a project unless there are more investors coming in. The question is when, and how and where you go about it.”
The move to sell down its 80 per cent stake in the controversial Narrabri project pre-dates the oil price slump that has forced Santos to consider asset sales. Mr Baulderstone said that a stake of about 50 per cent was always seen as more appropriate for the project.
“I have taken note and will remind you shortly how stoopid that prediction is” ~ Green Hornet ;)http://www.youtube.com/v/ZpPYoSChLVI?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_UShttp://www.smh.com.au/business/santos-looking-for-investor-into-narrabri-coal-seam-gas-venture-20150121-12v877.html
Farmers are thrilled with the news that Santos is considering ditching their assets and selling a stake of the Narrabri Gas Project (NGP).
Liverpool Plains farmer, Phil Herbert said there have been indications that Santos looking for asset sales to balance their books.
“Words is, it’s been floated,” Mr Herbert said.
“I think Santos are struggling in the financial market.”
“Problem we (farmers) have, is that Santos will never tell the truth,” he said.
Mr Herbert is calling on the NSW government to declare coal seam gas (CSG) off limits in the critical water recharge area for the Great Artesian Basin (GAB).
“If something was to happen (spills, leakages) the consequences cannot be undone,” Mr Herbert said.
“Agriculture cannot and will not be collateral damage to a short-term industry.”
Santos were contacted by the Western Magazine, to find out if they were planning on deserting their assets and selling a stake of the NGP.
The questions were:
WM. Are there any plans for Santos to sell a stake of the Narrabri Gas Project?
S. Ever since Santos acquired Eastern Star Gas in 2011, we have openly pursued joint venture opportunities that would be beneficial to the development of the Project and in line with our plans. That was the case in 2011 and it continues to be the case. An 80 per cent stake is generally considered to be very high for our industry and projects like that proposed for Narrabri.
WM. Are Santos struggling financially?
S. As has been reported in the media, the price of oil has fallen significantly over the past month which is having a major impact on not only oil and gas companies globally but also many countries that rely substantially upon oil revenue. Like other companies, we are reviewing our operations to ensure all our capital programs are appropriate for the current environment. Santos remains in a strong position and is well prepared, with approximately A$3 billion in liquidity and a diverse portfolio ensuring good returns across a variety of oil prices. Our current operations in NSW will continue as we work with investors, customers, the NSW Government and our local community.
Santos to undertake white elephant review
From The Australian, the former stars are forming meteor shower:
Santos posted record annual and quarterly sales revenue figures driven by the ramping up of production from the PNG LNG project as well as higher Cooper Basin output.
Santos said it will be undertaking an impairment review in the wake of the lower oil price, which has slumped to six-and-a-half-year lows.
As such, Santos said, the groups financial results for the year, to be announced in February, may differ from the guidance provided today.
Stand by for white elephant write downshttp://www.youtube.com/v/ZpPYoSChLVI?modestbranding=1&&&autoplay=0&rel=0;version=3&hl=en_UShttp://www.macrobusiness.com.au/2015/01/santos-to-undertake-white-elephant-review/
SANTOS chief David Knox says jobs will go as part of cost and spending cuts at the Adelaide energy company in the face of lower oil prices, which are also expected to lead to writedowns next month.
The company released a strong fourth-quarter production and sales report yesterday, beating expectations and delivering record production and revenue. It also reported a strong result at the Barossa-3 offshore appraisal well in the Northern Territory, increasing the fields credentials as a potential supplier of gas to the Darwin LNG plant.
While this is good, the market is firmly focused on a coming production jump through Gladstone LNG, due to start this year, and how the company deals with oil prices that have slumped from above $US100 a barrel to less than $US50 in the past six months.
Its a solid set of results. When youre in a tough price environment, you want the business running well, so that gives me a lot of confidence, Mr Knox told The Weekend Australian yesterday.
Whatever else the market throws at us, this is helpful. Santos shares, which have fallen almost as much as the oil price, rose 38c, or 5.1 per cent, to $7.80 yesterday, partly in reaction to the good result. Rival energy stocks Origin Energy and Woodside Petroleum were up 3 per cent and 2 per cent respectively on the back of oil price gains after the death of Saudi Arabias King Abdullah bin Abdulaziz Al Saud.
Fourth quarter revenue of $1.1 billion beat UBS expectations of $946 million and brought full-year revenue to $4bn. Fourth quarter production of 15.1 million barrels of oil equivalent was up 15 per cent on the corresponding quarter.
Full-year production reached 54.1mboe a 6 per cent increase in full-year production and within the companys guidance range.
But the revenue beat was offset by a $100m over run on capital spending last year.
Santos last month said it would cut 2015 capital spending by $700m to mitigate the effects of the falling price and protect its credit rating, which is being reviewed by Standard & Poors for a potential downgrade to the lowest investment grade rating.
When you cut $700m out of your budget, you will see reductions and that will be reflected in the company, Mr Knox said.
Were turning over every stone now to make sure we drive efficiency right through the business. Were looking to take between 10 and 30 per cent out of our operating base.
Santos flagged write downs at next months full-year profit report, saying it would review carrying values in light of recent oil price falls.
The non-cash writedowns will not impact the Santos credit rating or its debt covenants.
Santos has flagged asset sales as part of its plans to strengthen its balance sheet and give it access to cash, naming the Gladstone LNG pipeline and a stake in the Narrabri coal-seam gas project in NSW as potential candidates. Mr Knox said the companys recent Lasseter and Crown discoveries in Western Australias offshore Browse Basin were not candidates.
This forum may have noticed, maybe not, that I didn’t post here for about 18 months while I took on a gas company setting up coal seam gas fracking operations in my valley, just 300m from the homes of some of my friends, to avoid conflict on this forum
I tentatively returned to warn you all when it became obvious to this old f@rt that the investment potential did not meet the industry hype
My motives on this share market forum have always been about the economics, not the politics. There are plenty of other social media forums for me to delve into the political ethics
By the time that OPEC’s war against shale is over, our major global competitor, Russia, will be shipping via Vladivostok until the two new gas pipelines to china are complete
Don’t believe the hype surrounding LNG gas … please, put it into global perspective … the economics just don’t stand up
Australia is a high cost producer, even without me working fulltime in the media and my co-workers in the farming industry protecting their industry … let me say this again … THE ECONOMICS JUST DON’T STAND UP
Save your money … protect your money
Now that Santos is worth less than $3 per share, ahead of another anticipated credit rating hit, mergers and take over talks start again in earnest.
Origin has emerged as a likely partner … though that would leave the new look company with an extra $25 billion white elephant at Gladstone … with very little chance of selling it at any price – each shipment costs money!
It looks like Reserve Bank board member Cath Tanna bailed out of BG Group (QGC) just at the right time, though her writing off $248 million on CLP’s investment in STO must have hurt. She called Santos Narrabri/Pilliga gas field “worthless”
More number crunching here …
One clear winner from this debacle is David Knox, who doesn’t need to work ever again.
David Knox’s salary / Santos share price
2008 $1.75 mil / $22
2013 $6.2 mil / $15
2014 $6.7 mil / $7.16
2016 pending retirement / less than $3
“Santos told me they are not exploring for gas on my place, they’re on the place next door” – Barnaby Joyce
It’s not looking good for Santos
Down another 9% this morning
S&P might say there is no immediate plans to write down Santos’ rating … but that was before this morning’s bloodbath
It won’t be long IMHO before the write down and then we’ll see STO decimated yet again
Grandmothers are queuing up to be arrested at Santos’ Pilliga gas field
See today’s news at link
Santos are desperately trying to get the Pilliga gas field, which sits on a recharge area of the Great Artesian Basin, up to production so they can sell
(sell at least part of it – see this thread where Santos is negotiating the sale 30% of the gas field)
I’m aware that there are right-wing nutjobs who want to bulldoze the nannas into the ground … but seriously, what sane politician or company has the stomach for the daily media coverage of police arresting grandmothers protecting their water for their grandchildren
I predict Santos below $2 by the end of the month
near 70% decline in the share price of Santos since this thread began … and it’s not over yet
SANTOS AND WOODSIDE AT RISK
Standard and Poor’s reduced last week its long-term price assumption for Brent to just $US50 a barrel from $US70, raising concerns among analysts that credit ratings on companies such as Santos and Woodside are at risk.
Santos has said that a $US15 a barrel reduction in its price assumptions would lead to a pre-tax impairment of up to $3.4 billion, or up to $2.4 billion after tax.
JPMorgan analyst Mark Busuttil said in a report last week he was assuming an after-tax impairment of $1.4 billion, or $2 billion pre-tax.
“But we note the recent fall in oil prices could mean a significantly higher impairment,” he added.
Santos’ gearing would increase from 32 per cent to 35 per cent on JPMorgan’s estimate, or to 37 per cent if the post-tax write-down was $2.4 billion.
Santos, where Kevin Gallagher is due to start as the new chief executive on February 1, took after-tax impairments of $1.56 billion in February 2015, but to the surprise of some analysts its $US18.5 billion GLNG project in Queensland escaped any impact.
The venture has since begun production, but does not cover its operating and funding costs at current oil prices of about $US30 a barrel.
Yeah MINUS $1.51 per share …
JP MORGAN says Santos is barely breaking even at current oil prices, and believes incoming CEO Kevin Gallagher could re-start its asset sales process and even do another capital raising as the bank values the struggling oiler at a shocking minus-$2.664 billion, or -$1.51 per share.
While Santos maintained that its $18.5 billion Gladstone LNG mega-project was cash-flow positive at $US40/barrel and a foreign exchange rate of A80c/US dollar when its first cargo was sent on October 16, Brent crude was $50.46/bbl that day.
The world has changed since then, with Nymex crude falling below $30/bbl last Friday for the first time in 12 years, and the US Energy Information Administration doesnt think the glut will ease up until well into next year. Brent dropped again to $28.73 yesterday.
Modelling using Brents price on January 13 ($30.31), JP Morgan found that by subtracting Santos $5.447 billion net debt from its $2.883 billion enterprise value, the SA oiler had an equity value of -$2.664 billion and a share price of -$1.51/share.
JP Morgan initiated coverage on Santos with an underweight rating and a $A2.75/share December 2016 price target, after the bank halted its Australian oil and gas coverage briefly when analyst Ben Wilson left in May 2015.
JP Morgans new oil and gas analyst Mark Busuttil says Santos is unlikely to be cash flow positive at spot commodity prices given GLNG is still very capital intensive, estimating that the mega-project is costing about $A900 million a year between now and 2020.
Unless prices improve, Busuttil says Santos could need another capital injection unless prices improve.
After resisting an equity raise for months, Santos finally relented to what some investors deemed inevitable last November and announced a $3 billion capital raising and the placement of $500 million in shares to Chinese group Hony Capital to pay down its $8.8 billion debt mountain.
On the upside, JP Morgan said that compared to Woodside Petroleum and its one-time takeover target Oil Search, Santos had the greatest earnings and value leverage to oil price changes due to its still-high debt levels and the high cost nature of its assets.
Therefore in a rising oil price environment which is the banks base-case Santos stock could well outperform its peers.
Nonetheless, we believe commodity price risks point to the downside and consensus downgrades will act as a strong headwind for the stock, Busuttil said.
Notwithstanding commodity price movements, former Clough CEO Kevin Gallagher, who starts his rescue mission at Santos on February 1, could provide a welcome catalyst for Santos.
We believe further asset sales are possible which considering the point in the cycle could be made at lower than full value, the analyst said.
It remains to be seen what priorities he sets for Santos and if he makes widespread changes once he starts. However, some things that could come from the management change include large asset impairments and/or the reintroduction of asset sale process.
Overall, we believe a key focus has to be on increasing institutional investors interest in the stock noting that retail investors hold 92% of shares outstanding according to Bloomberg.
Having given Santos the GLNG project as his legacy, tying the companys future, to an extent, to Asian demand growth, David Knox stepped down as CEO last November once the strategic review was completed.
While Santos could be in for an after-tax impairment of about $A850 million having been forced to reduce its too-optimistic oil price assumptions by $US5/barrel, a $15/bbl revision in oil price expectations will see the impairment increase to $A2.4 billion.
JP Morgan also said Santos disclosure and financial accounts were by far the most complicated compared to Woodside and Oil Search.
As Santos 15 assets are combined into four business segments (Eastern Australia, WA & NT, Asia Pacific and GLNG) makes assessing performance and value of individual assets difficult.
That, and the fact that there are a number of intercompany and third-party sales agreements, led the bank to the conclusion that it has much less confidence in its earnings forecasts and asset valuations for Santos than its peers.
….. interesting JP Morgan Aus has 11 percent stake in it STO
Santos and Origin merging will leave the new entity with a spare loss making $25 billion LNG plant at Gladstone, plus extra assets they need to sell to get their economies of scale right
add to the disruption is Shell’s takeover of BG Group (QGC) … they’ve already flagged shedding jobs and assets
this has been a game of musical chairs, and the music has stopped
Did Shell Take On Too Much Risk In This Oil Price Environment?
On the heels of its acquisition of BG Group at a time when everyone else is offloading assets in these days of dismal oil prices, Royal Dutch Shell is banking optimistically on $50 oil to make this work, and hoping that a much leaner BG will do the trick.
The $50 billion acquisition is a risky prospect indeed, even though Shell is adamant that after dumping assets and jobs, the acquisition will actually turn a profit at $50 per barrel of crude. According to Shell, this is the worst-case, short-term scenario.
Despite plenty of sentiments to the contrary, Shell is fervently lobbying for this deal to go through. Last week, an influential shareholder advisory groupInstitutional Shareholder Serviceseven recommended that investors embrace the BG takeover, according to the Wall Street Journal. They cited credible evidence that Shell was paying a fair price, even in the current oil price slump.
There are, however, two outstanding questions that could make or break the success of this deal. 1) Will Shell find any buyers for these assets at this lean time when most prudent players arent looking to buy? and 2) Will prices reach $50 per barrel in the near termor even in the medium term?
I think it’s more a ‘given’ 😆
Laugh of the day;
Did Christopher Pyne Buy Santos Shares??? :shock :shock
If ever there was an example of fundamentals driving change in share price, and charts having absolutely no bearing … it’s the last 2 years of Santos’ history … sorry to disagree 🙂
BTW it’s great to see Forbes journalists read Topstocks … how many days were we ahead of this news … ?
LNG Merger Urged As Low Oil Prices Bite And Exports Become Less Attractive
Low oil prices are accelerating the urge to merge among petroleum producers with the latest speculated deal being a tie-up between two new producers of liquefied natural gas (LNG), Australian-based Santos and Origin Energy .
Neither company has confirmed that they are talking but the logic behind a deal is compelling for potential cost savings and because it could be a way of limiting future LNG exports.
Both Santos and Origin joined the LNG rush when oil prices were trending up and it made financial sense to liquefy natural gas for sale to a energy-hungry Asia.
$40 Billion Sunk
The consortiums formed by Santos and Origin would have expected a high level of profitably when construction of the projects started, but the collapse in the oil price has reduced the estimated $40 billion invested in the two projects to break-even, at best.
Over the past 12-months both the Gladstone LNG (GLNG) project led by Santos and the Australia Pacific LNG (APLNG) project led by Origin have started production, and will steadily increase output to nameplate capacity of 10 million tons of LNG and 7.6 million tons respectively.
story continues at link …
Last November when Chinese private equity fund Hony Capital invested heavily & saved the day for Santos, they agreed not to increase their stake for three months – that restriction ran out on the 10th February.
In the first week they had clear, Hony increased their stake from 9.81% to 11.62%
I think it’s fair to say that buying was the only thing holding up the share price.
I have no doubts they increased their stake further on Friday, when the stock plummeted 8% on the news of the 3.9% billion impairment.
Investors in Hony’s private equity funds include numerous American and Canadian pension funds, the Bill & Melinda Gates Foundation, Goldman Sachs, and China’s national social insurance fund.
Some more background …
How to lose $425m in three months: bet on Santos
January 28, 2016 Ouch. Chinese private equity fund Hony Capital is down $425 million on its investment in ailing Santos.
The oil price has plunged a further 40 per cent since Hony came to the rescue in early November 2015, as part of the temporary fix to the Santos balance sheet, which also included a rights issue, a cut in dividends, and big cost reductions.
Hony, through its quaintly named investment vehicles United Faith Ventures and Robust Nation, holds 9.81 per cent of Santos.
It will soon find itself free of restrictions three months from November 9, 2015 prevented it moving 9.9 per cent under the original agreement to become a cornerstone shareholder.
Will it double down and buy more stock at cheaper prices once the shackles come off from February 10?
It had a small holding of 1.4 per cent before picking up 73.5 million shares in the initial placement announced on November 9, at $6.80 a share, and bought more in the rights issue that followed, which pushed its entry price lower.
All up, its average entry price is believed to be $5.34 for the 173.2 million Santos shares it owns.
Hony is a $10 billion-plus entity and has deep pockets. It was founded as an offshoot of China’s Legend Holdings, the holding company for the world’s biggest personal computer maker, Lenovo, and has a long-term investment horizon.
But the Santos investment is causing angst. Among Hony’s hard-headed backers are Singapore’s Temasek, China Life Insurance and the Canada Pension Plan Investment Board.
For the 57 per cent of Santos shareholders who took up their rights in the retail component of the one for 1.7 entitlement issue late in 2015 at $3.85, only to watch the stock slide further, there might be a smidgin of solace.
Even the oil industry experts have got their timing wrong as this particular falling knife tumbled to earth.
Scepter Partners, the mysterious entity backed by nine of the world’s wealthiest royal families, including those from oil-rich nations Brunei and the United Arab Emirates, came in with an indicative buyout proposal of $6.88 a share, revealed publicly on October 22, 2015.
With former Santos chief executive John Ellice-Flint in its camp and ready to run Santos if it was successful, Scepter has quietly retreated, with the value of Santos shares now below $3. It had tumbled to a close of $2.48 on January 20, its lowest for more than two decades.
Even allowing for the usual 25 to 30 per cent takeover premium rule of thumb in corporate Australia, the Scepter proposal is now viewed as excessively generous, in a rear-view mirror splattered with oil price forecasts that kept going lower over the past three months.
The World Bank on January 26 outlined in a fresh report that it expected the average oil price over 2016 to be $US37 a barrel. A year ago it attempted to put oil prices in perspective, saying the four years of relatively stable prices at about $US105 a barrel before June 2014 were an aberration, and part of the commodities supercycle.
Hony is taking a long-term bet that oil prices will recover once over-supply is soaked up. New chief executive Kevin Gallagher takes the reins at Santos from February 1, but more bad news is coming. Santos is expected to announce write-downs and impairments of more than $3 billion when it announces its full-year results on February 19.
Credit Suisse analyst Mark Samter says impairments shouldn’t be ignored but they highlight the “sins of the past” and it will be reserves downgrades that will be the big focus.
He has crunched the numbers and says Santos seems to be pricing in a $US55 a barrel oil price in perpetuity, and that markets seem to forget at the top and bottom of a cycle just how cyclical things can be.
He labels Santos a risky bet, but says the value looks compelling, and he has a target price of $5 on the stock.
You’re betting on a recovery in the oil price … that’s the key to Santos’ profitability, even it’s survival as a company
There are more write downs ahead unfortunately, and asset sales … Gladstone is the white elephant in the room
Marcus200013 days ago
ENN Group and their friends at Hony have taken their holding up to the 14.9% of SANTOS allowed before they must front up at the FIRB.
It seems they are keen for a board seat and are unimpressed with Santos mgt for doing little to solve their $4.7 debt problem, other than sacking a lot of good workers and selling a few minor assets for around $200 million. Over the last few days STO bought into another PNG LNG field given their Qld fields are underperforming. Santos are now hedging oil to protect their downside, but that’s too little too late IMO.
Mgt are cutting costs to try an operate in a $50-55 oil environment. Oil slipped today to around $49 on fears of next week’s OPEC meeting.
STO was $10.10 when I started this thread … it was $2.84 earlier this year and has crept back to $4.16 today following the recent surge of Chinese buying.
Not looking good.
Wang Yusuo, who runs ENN Group, says in a one-page letter to Santos chairman Peter Coates and chief executive Kevin Gallagher that investor and market confidence needs to be rebuilt and he’s not prepared to sit around and watch the company’s value slide.
One Gas Field
Located in sunny bushfire prone Pilliga Forest, NSW
Involved in two write-offs in past 2 years, totalling $1.4 billion
Needs new pipeline, water treatment plant, associated infrastructure, and gas wells
Friendly neighbours will greet you every morning on the way to work
SRSLY … Buyer Beware
Santos to carve out non-core assets to cut costs, slash debt by $US1.5b by 2019
Weakened oil and gas producer Santos will package up its non-core assets in a separate business in an acceleration of its efforts to cut costs and restore value.
The restructuring, which will leave the main company focused on five key assets, flags the potential sale of the others in what Santos describes as a “sweat or exit” strategy.
Potential divestments include Santos’s Asian business, its controversial Narrabri coal seam gas project in NSW and a range of ventures off Western Australia including the Barrow, Mutineer-Exeter and Fletcher-Finucane oil ventures.
The move will contribute to a targeted $US1.5 billion ($2 billion) reduction in net debt to less than $US3 billion by the end of 2019, new chief executive Kevin Gallagher said.
The new stand-alone business will be based in Sydney and will be run by former AWE Ltd chief executive Bruce Clement. A “lean, fit-for-purpose operating model” will drive efficiency and increase productivity, and the portfolio will be continually “optimised” to maximise value, Santos said.
The five key, long-life assets to remain within the core company comprise the Cooper Basin venture, the GLNG project in Queensland, the Papua New Guinea business, northern Australia and Western Australia gas.
It will be “run separately for value as a standalone business,” said Santos, which will present the full strategy at an investor briefing in Sydney on Thursday.
Mr Gallagher said Santos had already reduced its breakeven oil price to $US39 a barrel, from $US47 a barrel at the start of the year. The business has been free cash flow positive for each of the last seven months, he added.
“Our turnaround strategy also brings significant oil price leverage, with operating cash flow forecast to increase by $US300 million in 2017 for a $US10 per barrel oil price move above $US50 per barrel,” Mr Gallagher said.
Santos’s board has been under pressure by cornerstone Chinese shareholder ENN Holding to take action to speed up the task of restoring shareholder value. Wang Yusuo, the billionaire that runs ENN, wrote to Santos chairman Peter Coates in November outlining his “grave fears” for the future of the oil and gas producer and has been angling for a board seat.
The move follows peer Origin Energy’s announcement earlier this week that it will float its conventional oil and gas business.
Santos also released guidance for 2017, including production of 55 million-60 million barrels of oil equivalent, down from an expected 60 million-62 million this year.
RBC Capital Markets analyst Ben Wilson said the guidance for 2017 production and sales was “short of our forecasts.”
The internal restructuring will increase cash flow and release capital through asset sales, Santos said.