Santos Announces $658 Million Full Year Profit, Overhauls Capital Management Framework – Update

By David Winning

SYDNEY-Santos Ltd. posted an annual net profit of $658 million, as it benefited from higher oil and natural gas prices and an early contribution from assets acquired through its takeover of Oil Search in December.

The result marked a turnaround from a year ago, when Santos posted a loss of $357 million after absorbing asset write-downs against resources in Papua New Guinea and Australia, including the GLNG project that transforms coal gas into liquefied natural gas for export.

Directors of the Adelaide, South Australia-based company declared a final dividend of 8.5 US cents per share, up from a payout of 5.0 US cents a year earlier.

Last month, Santos reported record annual production of 92.1 million barrels of oil equivalent, including some 1.7 million boe from Oil Search’s assets from December 11, the day after joining. into force of the takeover.

On Wednesday, Santos said it expects to produce between 100 and 110 million boe this year, thanks to higher production from Papua New Guinea following the Oil Search takeover. It forecasts sales volumes in the range of 110 to 120 million boe.

Record production in 2021 coincided with a strong recovery in oil prices, driving revenue to $4.7 billion, up 39% from a year earlier. The average price of liquefied natural gas recovered by Santos was US$9.25 per million British thermal units, up 45% from 12 months earlier, and accelerating in the fourth quarter of the financial year.

Santos’ transformational acquisition of Oil Search represents a doubling of oil and natural gas production, even as some rivals seek to move away from fossil fuels. While the deal has boosted its presence in oil-rich Papua New Guinea, it has also led some investors to question whether the company should moderate its growth ambitions.

Morgan Stanley, in a research note to clients this month, said investor feedback suggested most thought Santos’ leverage was too high and should be below 20%. The company also had the potential to revamp its dividend policy to create higher returns for shareholders.

“We will now look to further optimize the portfolio, reduce leverage and review our capital management framework, including returns to shareholders,” chief executive Kevin Gallagher said Wednesday.

Attention is increasingly focused on whether Santos will seek to sell assets to reduce debt levels, with Alaskan oil reserves in Oil Search’s portfolio attracting particular scrutiny. Santos could seek to sell part or all of the Alaska project, although Morgan Stanley noted that some investors fear there is a limited pool of potential buyers and that this will be reflected in any sale price.

Santos said Wednesday he hoped to be able to make a decision on the Pikka Phase 1 project in Alaska in the first half of 2022. This represented a slight change in language from before when Santos said he was aiming for a final decision. of investment in mid-2022.

Santos also said he wants to be ready to make a final investment decision on the first phase of the Dorado oil project in Australia by mid-2022.

“Capital expenditures for major growth projects are expected to be between $1.15 billion and $1.3 billion,” Santos said in his outlook. “A contingent amount of up to approximately US$400 million could be added if the Dorado and Pikka projects make final investment decisions.”

Santos added that he would likely be able to fund all of his growth projects from free cash flow if oil prices averaged at least $65 a barrel this year.

Write to David Winning at [email protected]