Oil’s collapse claimed its latest victim. David Knox, chief executive officer of Australia’s Santos Ltd, is stepping down amid a rout in energy markets, stoking speculation the company could become a takeover target. The oil explorer has been approached by companies interested in “strategic opportunities” and is reviewing its options, the Adelaide-based company has said after posting an 82 per cent drop in first-half profit.
Knox (57), who has been chief executive for about seven years, will depart once a successor is named. Knox “has been burned by the oil price”, Evan Lucas, market strategist at IG Ltd in Melbourne, said. “Unfortunately the board had to act.”
Oil’s plunge has punished explorers and shaken the economies of producers from Norway to Venezuela. Falling prices for raw materials have wiped out more than $2 trillion from the shares of commodities companies since the middle of last year.
“Underperforming companies that lose their leadership are the ones that get taken out,” Neil Beveridge, an analyst at Sanford C Bernstein in Hong Kong, said. “Santos pursued an overly aggressive growth strategy, and the fall in commodity prices has left them very exposed given the high levels of debt within their business.”
Perth-based Woodside Petroleum and France’s Total are the most likely potential buyers, according to Beveridge. The commodity slide comes as Santos prepares to start its $18.5 billion liquefied natural gas project in Queensland state. LNG prices in northeast Asia have slipped about 60 per cent since climbing to a record high in February 2014, while Brent crude has lost about half its value in the past year.
Energy prices have plummeted amid sustained output from the Organization of Petroleum Exporting Countries and the US. The Australian producer has cut spending and jobs while flagging potential asset sales.
Shares fell 0.2 per cent to A$5.60 in Sydney, the lowest close since 2004, after rising earlier as much as 5.2 per cent. Santos lost 62 per cent of its value in the past year, compared with a 28 per cent decline for rival Woodside. “In light of the continuing pressure on the Santos share price in recent months and approaches from other parties concerning various assets and strategic opportunities, the board has decided to conduct a full strategic review to examine all options,” according to the company.
Santos will talk with parties that have approached the company as part of the review, and “with this announcement there may well be new expressions of interest,” Knox told analysts. Chairman Peter Coates will assume the role of executive chairman and take responsibility for conducting the strategic review with the assistance of Deutsche Bank and Lazard as advisers, Santos said.
Santos will carry out a global search for a new CEO, although Knox said that he hopes the pick comes from within the company. He declined to say how long the review could take.
