Oz Santos Announces $560mn Impairment Charge

Australian oil and gas explorer Santos expects to recognise a non-cash impairment charge in the range of US$490-560mn after tax (US$700-800mn before tax) in the six-months to June 30 thanks to Covid-19 induced drop in oil and gas prices, it said on July 21 in a statement.

Santos will recognise non-cash impairments of Gladstone LNG (GLNG) of US$640-700mn before tax and exploration assets, primarily in the Cooper and Amadeus Basins, of US$60-100mn before tax in the half-year results. There is no impact on any of the reserves, Santos said.

The company said it sets its long-term oil price assumptions by referencing, as a guide, the average oil price assumptions of a number of independent energy analysts. Using this approach, Santos has reduced its long-term price assumption by over 10% while also forecasting a slower recovery in the short to medium term.
 
Santos has revised its oil price assumptions since the last assessment of asset carrying values at December 31, 2019. There is a reduction over the near-term and a revised long-term Brent crude price assumption of US$62.50/barrel from 2024.

In response to Covid-19 and the lower oil price environment, Santos announced in March financial measures including reductions in capital and operating expenditure. It slashed the 2020 capital expenditure by 38%.

The sharp decline in global oil and gas prices has resulted in asset writedowns and sharp cuts in spending. Earlier this month, another Australian oil and gas company, Woodside, said it will recognise non-cash, post-tax impairment losses of $3.92bn (A$5.6bn) during the six months to June 30.