Australia-based Santos announces various measures in response to the low oil prices and the prevailing COVID-19 crisis

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Santos announces revised strategy for 2020 following COVID-19 outbreak and low oil prices. (Credit: Santos Ltd)

Santos said that it will defer its final investment decision (FID) on the Barossa gas project offshore Australia and also cut its budget for this year owing to the prevailing low prices for oil and also the COVID-19 outbreak.

As part of the cost-cutting measures, the Australian oil and gas company announced a 38% or AUD550m ($327.8m) reduction in its 2020 capital expenditure. The company will also reduce its 2020 cash production costs by AUD50m ($29.8m).

Its base business will see an AUD200m ($119.2m) reduction in its allocated budget for 2020, although the company plans to maintain production and safe operations.

The company said that it had deferred discretionary expenditure and exploration programmes where appropriate.

The remaining AUD350m ($208.6m) reduction will be made in the company’s major growth capital expenditure, which reflect the re-phasing in expenditure for the Barossa and PNG LNG expansion projects.

Santos said that it is targeting a free cash flow breakeven oil price of AUD25 ($14.9) per barrel in 2020.

The company, while reporting its full year 2019 results, had announced about AUD1.45bn ($864.1m) of capital expenditure for 2020, which includes nearly AUD500m ($298m) for its major growth projects and nearly AUD950m ($566.2m) for its base business.

Santos’ major growth projects for 2020 include the Barossa, Dorado and PNG LNG train 3 projects.

Santos CEO comments on the revised strategy for 2020

Santos managing director and CEO Kevin Gallagher said: “The initiatives announced today demonstrate we are taking decisive action to ensure Santos is well-positioned in a lower oil price environment.”

“Whilst the current oil price dynamic is challenging, the eventual recovery will create opportunities for companies positioned to act on them. Our strategy to leverage existing assets and infrastructure remains unchanged and we expect to pursue these exciting opportunities when conditions permit.”

The company said that its previously announced $1.4bn acquisition of ConocoPhillips’ northern Australia assets and operations is likely to be closed in the first half of this year, subject to third-party consents and receipt of regulatory approvals.

The acquisition will increase Santos’ stakes in the Barossa project and the Darwin LNG facility apart from other gains.