Oz Santos Cuts 2020 Capex by 38%
Australia’s Santos March 23 announced a 38%, or $550mn reduction in 2020 capital expenditure in response to Covid-19 outbreak and collapse in oil prices. The company is aiming for a 2020 free cash flow breakeven oil price of $25/barrel.
Santos has deferred the investment decision on the Barossa project just days after awarding contracts for the supply and installation of subsea infrastructure. The award was the last major facilities commitments ahead of a final investment decision (FID).
“Given the uncertain economic impact of Covid-19 combined with the lower oil price, we expect to defer FID on Barossa until business conditions improve. Barossa remains an important project for Santos due to its brownfield nature and its low cost of supply," Santos CEO Kevin Gallagher said.
The company has joined a slew of producers of all sizes who have announced radical cost-cutting plans as the Brent crude oil price has declined sharply this month. At the time of press, Brent crude was trading at $26/b.
The Barossa field sits within Santos' northern Australia portfolio, one of the company's core long-life, natural gas asset regions. The project area encompasses petroleum permit NT/RL5 located offshore Northern Territory. Santos holds a 25% interest in the Barossa joint venture along with partners ConocoPhillips (37.5% and operator) and SK E&S (37.5%). The development concept consists of an FPSO, six subsea production wells, supporting in-field subsea infrastructure and a gas export pipeline tied into the existing Bayu-Undan to Darwin pipeline, supplying gas to Darwin LNG. Santos is also a joint venture partner in Darwin LNG with an 11.5% interest.
Commenting on its takeover of ConocoPhillips' northern Australia business, Santos said the acquisition is expected to complete in the first half of 2020. ConocoPhillips is offloading its 56.9% position at the 3.24mn mt/yr Darwin LNG export terminal and the Bayu-Undan gas field that supplies it. In addition, the company is offloading its 37.5% share in the Barossa and Caldita gas fields.
Santos has also announced an agreement to sell 25% interest in Bayu-Undan and Darwin LNG to South Korean SK E&S for $390mn. The deal is conditional on Santos completing the ConocoPhillips deal.