Santos Limited Harvard Case Solution & Analysis

Santos Limited

Santos Limited is an Australian based company. It was established in 1954, and it is one of the leading independent oil and gas producers in the Asia-Pacific region. Santos has been continuing to set up its business in the South East Asia, the United States and southern Australia by undertaking high exploration program and developing new projects in order to enhance the production and earnings growth (Santos Limited, 2015).

Santos Limited is an oil and Gas Company;it operates in a very high sensitive environment. Following are the inherent risks that exist in this industry: price volatility, fire, gas leaks, climate change and riskily-situated reserves. If such risks are not managed properly then it leads to serious consequences towards economic, environment, health and safety and security.

Oil and Gas reserves

Uncertainties are associated with the estimation of the recoverable oil and gas reserves. These uncertainties are inherent in the reservoir geology and well data available. The understanding of the reservoir geology is very important since it provides information for forecasting future production. If estimation of recoverable oil and gas reserves is not made properly then it would result in over or under valuation of the reserves and ultimately it would impact on the financial statements of the Santos Limited (Santos Limited, 2014).

Competitive environment

Except for new technologies and production, the oil and gas industry is heavily impacted by broader technology advancements. This advancement includes alternative power generation and electrification of the energy delivery. If the competitors use such technology advancement then Santos limited will not gain competitive advantage and it would ultimately impact on the future power generation. The competitors include AGL energy Limited, Apache Energy Limited and etc. (Anon., 2015).

 The market capitalization of the Santos limited is $8,116 million and it heavily depends on the reserves that have to be extracted. If reserves are not properly estimated then it would affect the market capitalization of the Santos Limited.Ultimately,financial statements would not give true and fair view (Santos Limited, 2014).

Product, Customer and Supplier information

The Santos’ futures long term prospects are associated with the success of efforts towards replacing the existing oil and gas reserves as they are consumed through production. The portfolio of the LNG assets plays a key role in the transforming the company and it is financed through the long term off take agreements with high quality Asian buyers and its future cash flows depend on this agreement. If failure to adhere to the covenants of the agreement, then it would have impact on the future growth of the company and ultimately financial statements will be misstated i.e. customer will not be paying and bad debts will be recognized and penalties of the breach of the contract (Santos Limited, 2015).Santos Limited Case Solution

General and Industry specific trends

Since Santos Limited has been continuing to set up its business in the different Continents, therefore it has to ensure compliance with the country specific regulations. Compliance regulation in oil and gas industry has been growing rapidly and becoming more complex and it is impacting on companies operationally and strategically. If compliance is repetitive and sustainable then it is very critical, failure to comply with regulation would result in huge penalties and ultimately it would have an impact on the financial statements (Metric Stream, n.d.).

Competition for proven reserves and political constraints will create risk in the Oil and Gas exploration and production industry. Expansion of the Government’s role will create a risk in the exploration of the proven reserves for replacing the existing oil and gas reserves. The Government can make restrictions on the exploring and producing the oil and gas, it will result in a risk of future cash flows which are dependent on the proven reserves. Ultimately, it would have an impact on the sustainability of the business as a going concern (EY, n.d.)..................................

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