Santos share price on watch after COVID-19 and oil price update

The Santos Ltd (ASX:STO) share price will be on watch following the release of an update on COVID-19 and the oil price collapse…

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The Santos Ltd (ASX: STO) share price will be on watch this morning following the release of an update.

What did Santos announce?

This morning Santos provided an update on the measures it is taking in response to COVID-19 and the current lower oil price environment.

According to the release, Santos is committed to supporting government and community efforts to limit the spread of the virus, as well as supporting business continuity.

Chief Executive Officer Kevin Gallagher advised that the company is restricting travel and meetings, implementing social distancing measures across all its sites, and making changes to field and office access arrangements.

He added: "We are confident in the business continuity and contingency plans that have been implemented and will continue to monitor and introduce additional measures in accordance with Australian Government health advice to protect our people and maintain operations. It is vitally important, in the current global and national crisis, that companies like Santos continue to provide secure energy supplies for our customers."

Oil price collapse response.

In addition to this, the company announced financial measures that are appropriate to the current environment and which will ensure the company continues as a low-cost, reliable and high performance business throughout the cycle.

This includes a $550 million (38%) reduction in 2020 capital expenditure, a $50 million reduction in 2020 cash production costs, and a target 2020 free cash flow breakeven oil price of $25 per barrel.

The company also believes that its balance sheet is strong. It had cash on hand of $1.2 billion at the end of February, with net debt of $3.1 billion.

It also has $1.9 billion in committed undrawn debt facilities with maturities predominantly ranging from two to five years.

Including the ConocoPhillips acquisition, which is still expected to go ahead, and the deferral of major growth projects, management notes that its debt covenants have sufficient headroom and are not under threat at current oil prices for a number of years.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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