Kevin Gallagher says the new initiatives will ensure Santos is well positioned in a lower oil price environment. Photo: Gabriel Oliveira

Santos cuts spending, MMA withdraws guidance

Santos is confident a suite of financial measures introduced today will help it withstand the impacts of COVID-19, while MMA Offshore has withdrawn its guidance as the virus crisis hits the energy sector.

Santos says the new measures will ensure the company continues operations at a low cost.

It has reduced capital expenditure for 2020 by 38 per cent, or $550 million, and cut production costs by $50 million in order to be cash flow break-even at a low oil price of $US25 per barrel.

Santos managing director Kevin Gallagher said the new initiatives would ensure Santos was well positioned in a lower oil price environment.

He said, however, the uncertain economic impact of COVID-19 coupled with a lower oil price meant the company would likely defer its decision on whether it would develop the $4.7 billion Barossa gas project in the Northern Territory.

“The current environment is a time for discipline,” Mr Gallagher said.

“All our major capital projects are yet to take final investment decisions, providing flexibility in commitment timing and our production levels from our current assets are relatively steady for the next four or five years without any new growth projects.”

Mr Gallagher noted an eventual oil market recovery would create opportunities for companies well positioned to act on them.

Santos said that, in 2016, Santos had implemented a disciplined operating model focused on maintaining a strong balance sheet and increasing flow-through improvements in productivity around capital expenditure.

The company reported it had generated $186 million in free cash flow in the first two months of 2020.

“Our strategy to leverage existing assets and infrastructure remains unchanged and we expect to pursue these exciting opportunities when conditions permit,” Mr Gallagher said.

Santos's shares closed down 4.3 per cent to $2.92.

Meanwhile, Fremantle-based MMA Offshore has withdrawn its FY20 earnings guidance.

“Given the significant uncertainty involved, MMA is unable to provide an estimate of the potential impact of COVID-19 (combined with the oil price decline) on its FY20 full year results or to provide any guidance with respect to the outlook for future financial years,” MMA told the market.

MMA says it continues to monitor the changing situation around the virus.

Shares in MMA were down 3.2 per cent to 6 cents per share at 3:50pm AEDT.

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