From CS:
If I had to live without you (PNG LNG)…There are buyers for all Santos’ assets, just at a price. Clearly, PNG LNG is the highest quality asset in the portfolio, so intuitively could attract closer to fair value. However, everyone knows Santos is a distressed seller.
■ You’re my world, my heart, my soul. We wrote prior (link) that at US$65/bbl oil (pre project finance repayment) PNG LNG is ~65% of FCF. With that gone, and the best growth option (T3) removed, we struggle with the business left. At US$65/bbl oil in FY17 it would generate ~$385mn of FCF, pre dividend (CS ~A$300mn) and pre growth capex. On our view of sustainable growth capex (link), Santos would need to spend ~A$1.8bn a year, through cycle, to keep production flat. With no growth capex, noting that post inevitable impairments gearing is likely 25-30% or more, production ex-PLNG will halve to 25mmboe by 2025.
■ You would take away everything good in my life? If Santos gets A$6bn for its stake, our NPV falls to $5.20/sh, equivalent to raising A$3bn at ~A$3.65/sh (an 18% discount) – but, if entitlement based, TERP would be ~$4.10/sh. More than this, we can’t see the rationale for owning the residual business. It is all low quality assets, with production halving in nine years, and still only has headroom for A$2-2.5bn of cumulative growth capex over the next three years to keep FFO/debt >30% without its most attractive growth asset. GLNG would alarmingly be ~120% of group NPV, >85% of EV, and 10x bigger than any other asset.
Lol, plenty of patsies jumping in the last few days.
