Santos Vows Cost Cuts After $2.8 Billion Charge on Oil Crash

  • New CEO Gallagher seeks to lower costs, scrutinize assets
  • Oil producer reports full-year net loss of A$2.7 billion

Santos Ltd.’s new Chief Executive Officer Kevin Gallagher promised to cut costs further after the oil price crash led to a wider net loss and A$3.9 billion ($2.8 billion) in writedowns.

The full-year net loss was A$2.7 billion, compared with a loss of A$935 million a year earlier, Adelaide-based Santos said Friday. Profit, excluding one-time items, fell 91 percent to A$50 million, from A$533 million the previous year. The mean estimate of 14 analysts surveyed by Bloomberg was A$87 million.

Santos, Australia’s third-largest oil and gas producer, has joined companies including Origin Energy Ltd. in seeking to shore up its balance sheet after the slide in crude prices. The oil producer, which unveiled a A$3.5 billion program to cut its debt in November, said it doesn’t need to sell assets and that the steps it has already taken will provide a buffer.

“We have to do better in the future,” Gallagher told analysts on an earnings call. “It is therefore imperative that we continue to take costs out of our business. Hence my absolute focus and my first priority over the next few months will be to look closely at our operations. I will be scrutinizing our portfolio of assets.”

‘Deck Clearing’

Santos, which lost almost half its value in Sydney trading last year, was down 3.7 percent at A$3.41 as of 1:14 p.m. in Sydney on Friday, paring an earlier loss of as much as 8.8 percent. Competitor Woodside Petroleum Ltd. on Wednesday reported a 99 percent decline in full-year profit after writedowns.

Pre-tax writedowns for Santos included A$565 million from its Gladstone liquefied natural gas project in Queensland and A$2.1 billion for its Cooper Basin gas assets in central Australia. The company also cut its proved and probable reserves by 24 percent, and its spending forecast for 2016 by 34 percent to A$1.1 billion.

“The extent of reserve downgrades and impairments are of major concern,” and may show the start of a “deck-clearing” phase from the new CEO, Goldman Sachs Group Inc. analyst Mark Wiseman wrote in a note.

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