Santos to take impairment charge against AAL asset

By Romel S. Gurky

ASX-listed Santos Ltd announced on Tuesday it expects to take an impairment charge against the non-core AAL asset in Indonesia of approximately US$150 million after tax following an assessment of the impact of lower oil prices. It did not provide further details.

Santos holds a 50 percent operating interest in the Northwest Natuna PSC, in Natuna Sea, where the Ande Ande Lumut (AAL) oil project is located. The remaining 50 percent interest is held by ASX-listed AWE Ltd.

AWE announced on Wednesday it expected to impair the carrying value of the AAL oil project due to increased uncertainty.

AWE said that its share of AAL 2P Reserves has been reclassified to 2C Contingent Resources as a result of a number of factors including:
? Further delays to the FID schedule as a result of incorporating the G sand into the existing Plan of Development for the K sand;
? Forward oil price curves continuing to flatten and the spot price remaining subdued (sub- US$55/bbl); and
? The PSC operator (Santos) conducting a sale process for its 50 percent interest in the project.

?These factors have increased uncertainty in the timing of development. As a result, AWE expects to recognize a non-cash impairment of the carrying value of the AAL asset of between A$130 million to A$140 million before tax,? AWE said in the statement.

AWE said the increased uncertainty has led to the Carry being written down to nil. This will result in an impairment expense of A$90 million, but does not represent a relinquishment of the contractual right to receive the Carry which remains contingent upon the project proceeding.

Editing by Reiner Simanjuntak