Santos Ltd (ASX: STO) took a battering when the storm of low oil prices made landfall.
By the company's own admission it was unprepared for the "timing, speed and depth" of the impact, an outrageous situation for a company loaded with debt and so reliant on oil pricing for survival.
Failing to protect for a low probability event in general when you are highly leveraged to any one commodity, asset or investment is a recipe for disaster. As investing legend Joel Greenblatt would say it's "like running through a dynamite factory with a burning match. You may live, but you're still an idiot."
Well Santos is still alive, but with a new Chief Executive Officer and a new operating environment the company's management are keen to try and earn back some of the goodwill lost with investors.
Here are 3 things Santos Ltd wants you to know today:
1. New era, new company structure
Santos' current Managing Director and CEO Kevin Gallagher took over in February this year, ushering in a new era for Santos.
And with the new leadership has come an overhaul in the company structure to refresh the focus on margins in this lower oil price environment. As well as a new Executive team at the top, the company has changed its organisational structure from a geographic focus to an asset-based model.
This is likely to give greater emphasis on key projects which, given Santos' company-wide emphasis on project efficiency and low operating costs, makes sense.
2. Low oil prices are the new expectation
Santos remains hopeful the oil price will improve, but the company is digging the trenches for a sustained cycle of low oil prices.
"We are focused on developing a business that is self-sustaining in a low oil price environment and well positioned to take full advantage of rising commodity prices in the future" – Santos' CEO Kevin Gallagher
With gas flowing to the company's GLNG project, the focus now turns to maintaining strong production to allow economies of scale to bring down unit production costs.
3. Santos is playing the long-game
Yes, energy prices are languishing, but Santos wants you to know it's a marathon, not a sprint and the comany is race ready.
Santos, however, is running a long-term business. Over the past five years, our multi-billion dollar investments in PNG LNG and GLNG were made with this in mind." Santos Chairman Peter Coates.
Oil prices, like many commodities, have a historical tendency to move in cycles, so there is a probability that the current low cash returns being generated will be offset in the future under a phase of higher energy prices, especially if low costs are maintained.
