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Santos flags further hit on GLNG

AAP logoAAP 14/08/2016 Prashant Mehra

Energy giant Santos will take an impairment charge of $US1.5 billion ($A2.0 billion) against the carrying value of its Gladstone liquefied natural gas project in Queensland.

The decision is expected to push the oil and gas producer to a heavy first-half loss as it continues to struggle amid a prolonged slump in oil prices.

The company on Monday said the hit follows a review of key production assets and attributed the decision to lower oil prices, a slower-than-planned ramp-up in production, and higher third party gas prices.

"The expected impairment charge for GLNG is clearly disappointing but it is a consequence of the challenging environment which we now face," Santos Chairman Peter Coates said.

"We have decided to adjust our long-term operating assumptions for GLNG to reflect the reality of the current oil price environment."

The non-cash charge will result in an after-tax impact of $US1.05 billion ($A1.37 billion) on its half -year profits, but will not affect the company's debt facilities, Santos said.

Santos in February posted a $US2.7 billion loss after cutting its oil and gas reserves and is reducing the value of its key exploration assets, following the oil price slump.

It also has faced uncertain performance from coal seam gas wells that supply its GLNG project on Queensland's Curtis Island.

The oil and gas producer started production at the $18.5 billion project in September 2015, and began production from the second train in May this year.

"At GLNG we are seeing the effects of ongoing constraints on capital expenditure and a softer LNG market," chief executive Kevin Gallagher said.

Santos is the operator and holds a 30 per cent stake in GLNG. Malaysia's Petronas, France's Total and South Korean KOGAS are the other project investors.

At 1105 AEST, Santos shares were down 0.4 per cent at $4.71 each.

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