Ready, set ... Sell Off

Central Petroleum Managing Director Richard Cottee

Central Petroleum Managing Director Richard Cottee

The starter’s gun has fired on the asset selloff race following a reporting period that saw industry giants post alarming losses and bunker down for a prolonged lower oil price.

Today, Armour Energy announced it had purchased some $10 million worth of Surat Basin assets of Origin Energy. It comes a day after it was revealed that Santos was launching a $168 million sale of its Stag oil field assets as well as others.

Both Origin and Santos revealed massive falls in profits in their June 30 statements against a backdrop that has seen energy stocks on the ASX fall 18 per cent since July 1 to its lowest point in more than a decade.

Origin hit by losses

Origin is on the lookout to replenish a statutory loss of $658 million and trim its rising debt levels, which increased 45 per cent to more than $13 billion as at the end of 2014/15, but was soon partly offset by its divestment of its 53.09 per cent stake in New Zealand’s Contact Energy. 

Origin stock has plummeted more than 30 per cent in recent weeks to a nine-year low of $8.1 a share.

Meanwhile, Santos is similarly facing a major asset selloff and a more cautious investment strategy off the back of its half-year results.

Santos’ traumatic reporting season

The company is trying to recover from what was arguably the most traumatic case during the results season.

The company’s CEO David Knox stepped down, debt levels rose to more than $9.4 billion, the company saw an 82 per cent fall in profits and its share price has recently hit $4.7 per share – its lowest point ever.

The Australian newspaper on Tuesday reported that Santos has called in Perth-company Miro Advisers to oversee the miner’s exit from the Stag oil field in the Carnavon Basin, Western Australia.

And today Central Petroleum Managing Director Richard Cottee announced the company has purchased Santos’ 50 per cent interest in the Mereenie oil and gas field in the Northern Territory’s Amadeus Basin.

Santos is also allegedly considering selling off its Norther Territory assets in the Amadeus, Bonaparte and McArthur Basins. Together, The Australian newspaper estimated the selloff could rake in about $2.5 billion for the company.

Both embattled firms are keeping a straight face in the wake of the disastrous reporting period, promoting growth and opportunities while placing emphasis on the need to reduce operational costs in the lower oil price environment.

But despite their outlook, the stage is set for smaller firms like Armour Energy, Central Petroleum or China’s Fosun Group to snap up bargains and improve their portfolios while the bigger players lick their wounds.

Last week Origin general manager of exploration and new resources, Martin Riley told a room full of industry representatives in Darwin that the company saw its Poseidon gas field project as its “short term priority.”

Mr Reiley added, however that Australia’s comparatively high cost of operations was a significant hurdle to gas industry development.

“The cost to drill a well here in Australia onshore is probably currently about 4 times the US. We will not get a commercial development unless we can deal with that.”

Also speaking in the Norther Territory only days before the selloff revelation, Santos’ general manager for WA and NT, Joe Ariyaratnam was confident the company would leverage its position in Northern Australia to maintain its c-suite position in the Australian gas market.

He said Santos is focused on brownfield expansion in Northern Australia in particular at Darwin LNG plant where the company owns an 11.5 per cent stake alongside ConocoPhillips.

“Our focus is on collaboration. We want to be able to integrate with existing resources. And industry needs to be smart in order to become cost competitive,” he reasoned.

“The LNG strategy we have been developing over the past 7 years with DLNG and PNGLNG and now through Gladstone LNG is beginning to transform the company’s revenue and cash flow. By 2020 our aim is to have 3.3 million tonnes per annum of LNG - Santos’ transformation from a domestic gas producer to a regional Asian LNG player, by 2016 more than a third of our prod will be sold into Asia markets.

“Despite market uncertainties, there remains large opportunities to meet future Asian LNG demand. But you need to be cost competitive.”

Eddie Morton is the associate editor of Gas Today:

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