Oil and gas producer Santos will book an impairment charge of $US690 million ($A877 million) in its half-year results due next week after lowering its oil price forecasts.
Most of the impairments will be in the form of a writedown on the value of its giant Gladstone LNG project in Queensland, as well as its oil and gas assets in the Cooper Basin and some assets in Indonesia.
The Santos writedown follows a similar charge by rival Origin Energy, which last week flagged a $A1.2 billion hit to its full-year results through an impairment on its Australia Pacific LNG project, following a fall in future oil price assumptions.
Santos said a number of its assumptions, including oil prices, exchange rates, discount rates, production and costs, had changed since its last carrying value assessment as of December 31, 2016.
Key among these are lower forecast US dollar oil prices.
Santos now expects Brent oil prices to average $US50 a barrel in 2017, $US55 in 2018, $US60 in 2019 and about $US70 a barrel from 2021.
As a result, it will take a $US870 million ($A1.1 billion) non-cash, after-tax impairment on the Gladstone LNG project, and a further impairment of $US150 ($A191 million) million against some non-core assets in Indonesia.
The company said its Cooper Basin assets will also be impacted, but this would be more than offset by continued cost efficiencies and performance improvements from 2016 that have allowed increased drilling activity and production.
This will lead to a positive net write-back of about $US330 million ($A420 million) on the carrying value of the Cooper Basin.
RBC Capital Markets analyst Ben Wilson said the reduction of costs by Santos and the firming east coast gas price outlook, combined with Monday’s announcement of a supply agreement with Engie’s Pelican Point power plant, point to a positive implication for the Cooper Basin reserves.
Santos shares were down five cents, or 1.5 per cent, at $3.30 at 1140 AEST, in a stronger Australian market.