The buyers just keep on coming, page-93

Santos says strong interest in asset sales shows model is sound
September 21, 2015 - 5:48PM

Santos executive James Baulderstone is confident in the strength of the energy producer's assets.Photo: Philip Gostelow

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under review by Australia's competition regulator, is banking on a rebound in crude to $US90 a barrel to make the deal work while Woodside Petroleum's $11.6 billion offer for Oil Search requires a $US75 a barrel oil price to justify a transaction.

"I do believe the cycle has undershot at the moment," Mr Baulderstone said. "The Shell/BG merger and Woodside-Oil Search starts to remind people that these companies are bidding at reasonable oil prices. People are saying it's not going to be a $US40 oil price environment forever. It will come back, it's a question of when."

Santos has shown little appetite to raise fresh equity, instead launching a sales process for its assets as part of a strategic review being led by Mr Baulderstone and executive chairman Peter Coates.

"We've been very happy with the level and quality of indicative proposals we are receiving," Mr Baulderstone said.

Woodside Petroleum, rebuffed by Oil Search earlier in September, is an obvious participant while France's Total and Japan's Inpex Corporation could be other potential buyers.

Santos and Oil Search were singled out by Bernstein Research on Monday for their cost cutting initiatives with capital expenditure falling sharply as their foundation LNG projects come online.

Bernstein said an average of 30 per cent cuts across the Asia Pacific energy sector so far this year beat its expectations and was well ahead of European oil majors, which have on average only managed to trim costs by 15 per cent.

However, research consultancy Wood Mackenzie warned that many oil and gas producers would fail to meet an industry wide target of a 30 per cent cut and needed to look at structural changes to reduce costs.

"The winners, therefore, are likely to be operators with a strong pipeline of near-term projects close to sanction, which are able to take advantage of the trough in costs through 2015-16," Wood Mackenzie said in a research note.