Santos lifts energy dividend

INVESTORS in Australia’s energy sector have endured years of uncertainty as companies toiled to build multi-million-dollar gas-export projects to tap Asian demand for cleaner-burning fuel.

Their patience is finally being rewarded as owners of liquefied natural gas projects begin cranking up their dividend payments.

Santos yesterday became the latest sizeable producer to usher in a more bountiful era. The company lifted its dividend payment for the first time in four years after a decade investing in two major natural gas developments, one of which recently was completed.

Santos said it would pay 20c a share as its first-half dividend — up from 15c a year earlier.

Companies including Santos, Woodside Petroleum, Oil Search and Origin Energy have bet more than $US70 billion ($75m) on hopes that Asian countries will need more LNG delivered from places like Australia and Papua New Guinea.

But building LNG terminals has proved painful for most companies, which have faced delays and budget overruns caused by everything from labour shortages to trouble perfecting new drilling techniques. The setbacks have tested the faith of investors and jolted stock prices.

Santos’s shares have been stuck in a holding pattern since the company began building its $19.8bn GLNG joint venture with Total in Queensland four years ago.

Santos is also a shareholder in the PNG LNG project in Papua New Guinea led by Exxon Mobil. While experiencing some currency-related cost overruns, PNG LNG has been among the region’s most successful new developments. Construction work at the site ended in May, three months ahead of schedule.

“PNG LNG is producing at full capacity, and GLNG is more than 85 per cent complete and on track to start up next year, within budget,” said David Knox, Santos’s chief executive.

The Adelaide-based company, which also reported 3 per cent higher underlying half-year profit, said it would review its dividend again after GLNG begins producing. Still, companies such as Santos are finding that payout decisions aren’t easy. The dilemma is whether to reward shareholders with higher dividends immediately or conserve capital to help fund more ventures — and carry out exploration — with an eye on future growth.

Woodside has paid out as much as 80 per cent of its profit to shareholders since its Pluto LNG project in Western Australia came online two years ago. However, Australia’s largest oil-and-gas producer behind BHP Billiton has also struggled to find the right acquisition to take its business forward — prompting concern over its ability to maintain significant profit growth.

“Finding the balance between higher payouts and growth spending is going to be the challenge,” said Andrew Williams, an analyst at RBC Capital Markets. “Certainly, a Woodside strategy of 80 per cent payout is simply not a sustainable way to go.”

Rival Oil Search, which also has a stake in PNG LNG, earlier this week left its 2c-a-share dividend unchanged, but pledged to lift payouts after it completes a strategic review this year. Along with Exxon, the company is contemplating investing more in Papua New Guinea.

Origin Energy also forecast a higher payout as it nears completion of a $24.7bn project with ConocoPhillips, which is due to start shipping cargoes around the middle of next year.

For LNG projects still under construction, including those of Santos and Origin, the risk of further cost overruns remains. Credit Suisse has said five of the seven LNG projects started globally since 2005 fell behind schedule by a year on average.

DOW JONES NEWSWIRES