Santos defers $3bn WA oil project amid focus on shareholder returns
A deferred decision whether to proceed with the Dorado oil development in WA is likely to please shareholders who have pushed for Santos to trim capital expenditure.
Santos has deferred a decision on whether to proceed with the $3bn-plus Dorado oil development in Western Australia as the company moves to prioritise shareholder returns.
The decision will please frustrated shareholders who have pushed for Santos to trim capital expenditure, though it risks capping growth opportunities through a renewed focus on fiscal discipline.
Santos CEO Kevin Gallagher last year tweaked the dividend policy of the company and indicated two soon-to-be-completed large-capex projects would be the last for a while, a move welcomed by shareholders.
A spokeswoman for the company said the Dorado decision came despite Santos’s confidence in the project. She said Santos would prioritise its local Barossa project and the Pikka project in Alaska.
“Santos is focused this year on delivering Barossa and Pikka, and continues to have confidence in the Dorado and Bedout Basin assets and is committed to extracting maximum value from them for our shareholders and joint venture partners,” the spokeswoman said.
“After a detailed assessment of all relevant factors, Santos recommended to the joint venture that the development concept for Dorado be revisited after further evaluation of Bedout Basin resources. As always, Santos’ focus is on disciplined capital allocation, implementing our disciplined low-cost operating model and sticking to our strategy to deliver superior value for our shareholders.”
The decision underscores the balancing act Santos faces as it prioritises shareholder returns.
Mr Gallagher last year said Santos would return at least 60 per cent of free cashflow to investors from 2026 – up from the previous target of 40 per cent.
The changed pleased some investors, particularly retail shareholders who desire franked dividends. But by returning more to investors, the company risks disappointing others who worry about the capacity of the company to invest in longer-term projects.
The decision is a hammer blow to the ASX-listed Carnarvon Energy, which owns 10 per cent of the project. Shares in Carnarvon fell more than 22 per cent after the announcement as the market fretted about future returns for the resource developer. “Despite this setback, the joint venture expresses confidence in the Dorado and Bedout Basin assets, planning further exploration in 2026. Carnarvon remains financially strong with substantial cash reserves and development cost support,” the company said in a statement.
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