Santos to Set Aside $1B in Impairment Charge for Queensland's GLNG Project

Santos Ltd. reported Monday that it would set aside approximately $1.05 billion in after tax impairment charge for the GLNG (Gladstone liquefied natural gas) project in Queensland, Australia in its 2016 half year accounts, due for release Aug. 19, following a review of its key production assets.

The Australian oil and gas producer attributed the impairment to a slower ramp up of GLNG equity gas production and an increase in the price of third party gas.

The firm said that sustained low oil prices continue to constrain capital expenditure and impact GLNG. The slow increase of GLNG equity gas production during 2016 and higher third party gas prices have led Santos to adjust its upstream gas supply and third party gas pricing assumptions for GLNG.

"The expected impairment charge for GLNG is clearly disappointing but it is a consequence of the challenging environment which we now face. We have decided to adjust our long-term operating assumptions for GLNG to reflect the reality of the current oil price environment," Santos Chairman Peter Coates said in the press release.

"However, we firmly believe in the strong long-term growth of LNG consumption and demand globally. GLNG will continue to be an important part of our LNG portfolio and a key supplier of LNG to the Asian market,” he added.

Meanwhile, Santos pointed out that the impairment charge will be non-cash and will not affect the company’s debt facilities.
 
Santos Managing Director and Chief Executive Officer Kevin Gallagher said the adjustment in the firm's assumptions regarding upstream gas supply and third party gas pricing would not affect GLNG’s ability to meet its LNG off-take commitments.

"We will continue to maintain a disciplined approach to capital allocation, reducing costs and seek opportunities to optimise our asset portfolio in a manner that delivers value to shareholders," Gallagher said.

Operator Santos holds a 30 percent interest in GLNG, while Malaysia's PETRONAS, France's Total and South Korea's KOGAS own 27.5 percent, 27.5 percent and 15 percent stake in the project, respectively.

The project's GLNG Train 2 commenced operations in May, more than half a year after the start-up of GLNG Train 1 in September 2015.

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