Santos sinking a water monitoring bore for CSG in the Pilliga forest, near Narrabri.Santos has slashed more than $800 million from the value of its Narrabri coal seam gas assets as part of multiple write-downs across its assets after the collapse in oil prices.
The write-downs, which total $2.4 billion before tax and $1.6 billion after tax, also affect its oil exploration and production assets in the Cooper Basin, as well as producing fields and discoveries in Western Australia and Asia.
However Santos’s new $US18.5 billion ($23.95 billion) Gladstone liquefied natural gas venture under construction in Queensland has escaped any impairment, despite rival BG Group advising this month of an enormous $US6.8 billion impairment of its new Queensland LNG venture.
Importantly, Santos said the impairments were not expected to affect its investment grade credit rating, or its debt facilities. Santos’s credit rating from Standard & Poor’s was cut in December to BBB from BBB+ and has been seen at risk of a further downgrade, although S&P said last month the latest rating was at no immediate risk.
Santos shares were down 3.5 per cent to $7.44 at 10.15am AEST on Thursday.
“The impairment charge reflects the lower oil price environment and is a non-cash accounting adjustment that relates to the historical book value of the company’s assets,” Santos said in a statement on Thursday.
Woodside Petroleum and Oil Search have already advised of write-downs after the near-60 per cent drop in oil prices since June. Woodside said last month it expected to take pre-tax write-downs of $US250 million-$US400 million and Oil Search estimated its impairments at $US150 million-$US200 million pre-tax.
Santos’s write-down on its Narrabri CSG interests reflected a 30 per cent reduction in proven and probable reserves at the project, which was signalled last November, as well as delays in development, which have pushed back the start-up date. Santos acquired the business through the takeover of Eastern Star Gas several years ago.
The next biggest impairment came at the producing Cooper Basin oil venture, which is being written down by $688 million before-tax, while producing oil fields in Western Australia are being reduced in value by $201 million. WA exploration discoveries at Winchester, Zola and Bianchi will cause a $198 million impairment before tax, but other write-downs are smaller.
Santos said that in testing the carrying value of its assets, it used future oil price estimates, which assume short-term market prices for four years, of $US55 a barrel for Brent crude this year, rising to $US70 in 2016, $US80 in 2017 and $US90 in 2018.
The assumption then reverts to a long-term price of $US90 from 2019 in real terms. It assumed a US80c exchange rate for the Australian dollar.
The impairments will be reflected in Santos’s full-year results, to be released on February 20.
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