Santos launches $US250m share buyback, dividend boost
Santos will launch a $US250m ($338m) share buyback in May with high oil prices set to boost investor returns after the company rebooted its capital management model.
Santos will launch a $US250m ($338m) share buyback in May with high oil prices set to boost investor returns after the company rebooted its capital management model.
The Adelaide-based oil and gas producer said the buyback is part of a new framework that sets out a capital structure balancing investment in the business, strategic growth and clean energy projects, and sustainable returns to shareholders at higher commodity prices.
Brent oil is trading above $US107 a barrel and has soared by 50 per cent so far this year amid geopolitical tensions following Russia‘s invasion of Ukraine, boosting the coffers of Australian energy producers including Santos and Woodside Petroleum.
Santos’ tweaked capital structure has three main features: a dividend policy of 10-30 per cent payout of free cash flow, excluding major growth, at an average Brent oil price up to $US65 per barrel. It also features additional shareholder returns of at least 40 per cent of free cash flow, excluding major growth, up from 10-30 per cent in extra dividends or share buybacks at the same oil price and a target debt to equity gearing range of 15-25 per cent.
“We are now in a position to target higher shareholder returns through our new capital management framework and are pleased to announce an initial on-market share buyback of up to $US250 million because we believe the current share price undervalues the company,” Santos chief executive Kevin Gallagher said.
Barrenjoey said Santos had made a “prudent” call to change its capital model. “We see Santos’s announced incremental capital returns during a period of high oil prices as a prudent decision, and evidence of disciplined capital management. We now forecast Santos trading on a 7 per cent dividend yield in the 2022 calendar year/2023,” Barrenjoey analysts said.
Santos first quarter revenues could soar up to 39 per cent to $US2.13bn when it releases its quarterly production report on Thursday, according to RBC, noting both surging Brent oil and LNG prices over the first three months of the year.
“Santos will benefit from higher realised oil, condensate and LNG pricing over 1Q. We also forecast Santos strong oil-inked PNG LNG contractual LNG pricing to increase in 1Q. High north east Asian spot LNG pricing should also positively impact Santos LNG sales revenue, but its capture is dependent on the timing and amount of spot LNG sales made,” RBC analyst Gordon Ramsay said.
The Santos chief is now working through a raft of asset sales as it looks to trim its funding exposure for a pipeline of projects.
Santos hired investment bank Moelis to garner interest in its Pikka oilfield in Alaska, seen as ripe for a partial or full sale given funding barriers for the development. It’s also expected to sell down its 42.5 per cent stake in PNG LNG and will consider trimming its 80 per cent stake in the Dorado oil project in Western Australia.
Santos in March boosted its climate targets and introduced a new pledge requiring emissions to be offset before it signs off on new offshore greenfield energy projects while maintaining new gas supply is needed to meet surging demand.
Santos fell 1.1 per cent to $8.23 on Wednesday.
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