Australian independent Santos plans to cut capital expenditure (capex) next year in the wake of falling global oil prices. The company's capex is already expected to drop in 2015 with the planned start-up of the 7.8mn t/yr Gladstone LNG (GLNG) project in Queensland that it operates.
The GLNG project is expected to start first shipments in the second half of 2015, with Santos last week saying the project was about 90pc complete. Santos' other major project it has invested in recent years is the ExxonMobil-led 6.9mn t/yr PNG LNG project in Papua New Guinea (PNG), which started shipments earlier this year.
Santos' capex guidance was A$3.5bn ($2.94bn) for 2014. "Given the current oil price environment, it is prudent for the company to review its spending plans for 2015 and we expect to significantly reduce capital and operating expenditure," said Santos' chief financial officer, Andrew Seaton.
The slump in oil prices come as the cost of finding and developing gas resources has risen almost threefold since 2010. This cost averaged A$4.16/GJ ($3.70/mn Btu) in the three years to 2013, 2.7 times the average for the three years to 2007, according to a study commissioned by the main industry group for Australia's upstream sector – the Australia Petroleum Production and Exploration Association.
Santos also said today it will defer any hybrid debt-equity issue until market conditions improve, having said on 26 November that it had considered a potential European hybrid issue. "Since that date, the oil market has experienced considerable volatility following Opec's announcement that it would maintain existing production levels," Seaton said. It has about A$2bn in available funds, the company said.
km/rjd
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