Struggling oil and gas producer Santos has dived deeper into the red, reporting a full-year $2.7 billion loss.
That represents a 189 per cent deterioration on last year’s loss of $935 million.
The result was driven by a cumulative $2.8 billion impairment charge against the company’s key gas producing assets in the Cooper Basin, Gunnedah and its stake in the new GLNG project at Gladstone in Queensland.
The underlying result was a $50 million profit, which was still down 91 per cent on the previous year.
While production was up 7 per cent, it was swamped by the average realised price tumbling almost 50 per cent to $US54 per barrel.
Santos chairman Peter Coates attempted to put a positive spin on the result saying, while it reflected the impact of lower global oil prices, operationally the business performed well.
The production increase was driven by the commencement of the GLNG plant which has shipped out 16 cargoes to date.
“The actions the company took in 2015 to strengthen its balance sheet and lower its cost base have put Santos in a stronger position to manage through a difficult period of lower prices,” Mr Coates added.
The total impairment charge was $3.9 billion before tax and $2.8 billion after tax.
The Cooper Basin assets suffered the largest write-down of $1.5 billion, while impairments against the Gunnedah Basin and GLNG projects were $412 and $396 million respectively.
In calculating the impairment charges, Santos used an oil price of $US40 per barrel in 2016, with the expectation that it would rise to $US60 a barrel in 2017, $US70 a barrel in 2018 and recover to $US75 a barrel by 2019.
Sales revenue was down by 20 per cent to $3.2 billion, primarily due to the 48 per cent drop in oil prices, but partially offset by increased average gas prices.
Santos will pay a final 5 cent a share dividend, taking the total payout to 20 cents, a drop of more than 40 per cent on last year.
Santos shares opened 3.1 per cent lower at $3.43.
Iluka returns to profit
The world’s dominant mineral sands miner, Iluka, has bounced back to profitability after last year’s impairment hit loss.
Iluka reported a full-year net profit of $53.5 million, a significant improvement from the 2014 loss of $62.5 million.
Unlike most in the resources game, Iluka was able to boost its bottom line through higher production while suffering only a marginal drop in prices.
Revenues rose by 13 per cent to $820 million on a 5.6 per cent increase in sales volumes and support from a lower Australian dollar.
Revenue per tonne increased 10.3 per cent, while the cost of goods sold was down 9.5 per cent.
The company was able to eliminate all its debt and achieve a free cash-flow of $155 million.
Iluka remains highly exposed to the Chinese property market with its products, such as zircon, being used in making ceramics.
“Market conditions remain subdued overall, in line with lower global growth and persistent low inflation … and for some customers weak profitability and cash flow impacted on their purchasing capabilities,” the company noted.
Iluka said demand for its key product zircon remained stable at 2014 levels in its largest market of China.
There was a recovery of sales to Europe – the second largest market – driven by an increased demand for ceramics.
Iluka managing director David Robb said the business managed to achieve a balance between positioning the company conservatively and robustly against prevailing volatility in global conditions, while being prepared to invest in the potential for demand recovery and future growth.
Iluka raised its full-year dividend by 32 per cent to 25 per cents per share.
At 11:20am (AEDT) Iluka shares were up 2 per cent to $7.01.