Chief Executive of Santos steps down after falling profits
The Australian company is facing increasing debt and a takeover is on the cards
The chief executive of Santos, David Knox, has stepped down, after he revealed a crash in first-half profits. The Australian company, which is struggling with a mountain of debt totaling A$8.8bn ($6.4bn), has flagged asset sales but a takeover is also on the cards.
A new line of cashflow for the company is due to open up next month with the start of Gladstone LNG (GLNG) in Queensland, but the depressed state of the Asian gas market, where LNG prices are linked to the price of Brent crude, offers little hope of a rapid turnaround in the company’s fortunes.
Chairman Peter Coates made clear that he would “turn over every stone” in seeking to restore shareholder value – Santos stock has lost more than A$8bn this year – so even the most prized assets will be considered for sale.
Investment bank Citigroup estimated the indebted oil and gas player would need to sell between A$2bn and A$3bn of assets – or raise that amount in new equity – to bring gearing down to a more comfortable 30-35% by 2017.
Santos’ liquefied natural gas (LNG) assets in Papua New Guinea could be sold with potential suitors including project operator ExxonMobil, French major Total or compatriot Woodside, which is on the hunt for new assets. Credit Suisse values Santos’ 13.5% stake in the ExxonMobil-led scheme at just over A$4bn. As the most attractive asset on Santos’ books, its sale would “solve the balance sheet… what is left behind wouldn’t be terribly appetizing,” noted another investment bank, Credit Suisse.
But analysts at Bernstein expect a full-blooded takeover. “Under-performing exploration and production companies, which lose their key management but still have material assets, always end up getting acquired. The most obvious bidders would be Woodside or Total. Woodside seems more likely politically, although Total have some interesting synergies given their positions in GLNG and PNG,” said Neil Beveridge.
Knox headed Santos over a seven-year period during which the company spent billions of dollars transforming itself from a mainly domestic gas supplier into a big exporter of LNG to Asia. But this strategy was taken unawares by the sudden drop in the oil price.
“The Gladstone LNG (GLNG) project which is reserves deficient for a two train LNG project is the monument to the ‘growth at all costs’ strategy,” said Beveridge.
Santos’s vice-president for corporate development, James Baulderstone, will carry out a strategic review. He is seen as one of four internal candidates for the role of chief executive, the others being the head of Asia, John Anderson; new vice-president for eastern Australia, Brett Woods; and Trevor Brown, vice-president for Queensland.
Santos’ net profit fell 82% to A$37m in the six months to the end of June, compared with the same period a year earlier. Greater output was offset by a 47% fall in the average realised oil price.
Santos shares were trading at A$5.40 on 24 August, down from above A$15 a year earlier.