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COVID-19 causes Santos impairments

Santos has announced a non-cash impairment charge of around US$700-800 million ($982 million-$1.12 billion) resulting from the coronavirus pandemic and oil price crisis.

The company said it expects to recognise the impairment charge in the 2020 half-year results – which are to be released on 20 August 2020 – caused by the oil price assumptions made due to the COVID-19 affects.

Santos will recognise non-cash impairments of GLNG of US$640-700 million ($842-982 million) as well as exploration assets, primarily in the Cooper and Amadeus Basins, of US$60-100 million ($84-140 million); however, the company said there has been no impact on any of its reserves.

Santos said it sets its long-term price assumptions by referencing the average oil price assumptions of several independent energy analysts as a guide.

By using this approach, Santos has reduced its long-term price assumption by more than 10 per cent while also forecasting a slow recovery in the closer term.

Santos Managing Director and CEO Kevin Gallagher said since 2016, Santos has implemented a disciplined operating model focused on generating free cash flow through the oil price cycle.

“In response to COVID-19 and the lower oil price environment, Santos announced in March financial measures including reductions in capital and operating expenditure, and a target 2020 free cash flow breakeven oil price of US$25 ($35) per barrel,” said Mr Gallagher.

“Our disciplined operating model combined with the proactive measures taken to reduce expenditure saw Santos generate more than US$430 million ($603 million) in free cash flow in the first half of 2020 despite significantly lower oil prices.

“Santos is well positioned to leverage our growth opportunities when business conditions improve.”

The impairment charge is a non-cash item with no impact on EBITDAX or cash flow and will be excluded from underlying earnings.

The charge is subject to finalisation of the half-year accounts, auditor processes and board approval.

For more information visit the Santos website.

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