Santos dividend still an option after $1.4bn net loss

MD Kevin Gallagher says a full-year dividend is still possible after yesterday’s record statutory $US1.1bn net loss.

Santos managing director Kevin Gallagher.

Santos managing director Kevin Gallagher says the company could still pay a full-year dividend, despite electing not to make an interim payout with yesterday’s record statutory $US1.1 billion ($1.44bn) net loss and first underlying loss in more than 20 years.

The decision to pay no first-half dividend came as low oil ­prices and start-up costs at the Gladstone LNG project sent the company to an underlying loss of $US5 million, down from a profit $US25m a year ago but in line with expectations.

The record net loss came after low oil and LNG prices, high domestic gas prices and lower-than-expected coal-seam gas production forced a $US1.5bn pre-tax writedown on GLNG, which was announced earlier in the week.

“It was a tough decision not to pay a dividend and we know some shareholders will be disappointed, but the board considered it in the overall best interests of the company,” Mr Gallagher said.

In February, Santos switched from a progressive dividend policy to one of paying out a minimum of 40 per cent of underlying net earnings. That leaves the ­option of no dividends being paid on an underlying loss.

Most analysts are predicting Santos to turn a small full-year profit of less than $US100m.

“In terms of the full-year dividend, the dividend framework is still in place,” Mr Gallagher said.

If Santos does not pay a final dividend, it will be the first time in more than 20 years the board has not returned any cash to its retail-heavy share register.

Santos shares slipped 10c, or 2 per cent, to $4.85 yesterday.

Mr Gallagher was appointed in February and is on a mission to make Santos cash break-even at oil prices of $US35-$US40 a barrel by the middle of next year.

Yesterday, the company cut its forecast 2016 free cash flow break-even from $US47 to $US43.50 for 2016, indicating progress is being made.

The new chief would not comment whether an asset review he is conducting would result in assets being shed.

But said he was changing the group approach to managing the assets, which had come with a previously announced slimming down of his direct reports.

“We have taken the approach of managing the business on a portfolio basis, with a centralised portfolio planning group,” Mr Gallagher said.

“We will continually be reviewing our portfolio to ensure that it reflects our strategy, it reflects market conditions and monitoring opportunities to optimise the mix.”

Mr Gallagher would not give details on timing or assets that might be sold, but stressed the company was under no pressure to sell and that there were no current sales processes under way.

He said finding growth opportunities in the portfolio had been a “pleasant surprise”.

An asset that is a candidate for development, and potential selldown, is the Sole gas field in Victoria’s offshore Gippsland Basin.