Santos shareholders rewarded on dividend as weak prices push profit lower
Santos’s boss says the company’s emerging projects will provide transformational cash flow in coming years, following a record full year dividend being declared.
Santos’s growth projects will “transform’’ its cash flows in the next couple of years, managing director Kevin Gallagher says, following the energy company announcing a record final dividend on a sharply lower profit.
Santos upped its final dividend by 16 per cent, despite lower oil and gas prices and lower production sending its underlying annual profit 42 per cent lower to $US1.42bn ($2.17bn).
Revenue fell 24 per cent to $US5.9bn, while Santos declared a final dividend of US17.5c a share, up 16 per cent, to be paid on March 27.
The underlying result was slightly below consensus analyst estimates of $US1.48bn, while the dividend is also slightly lower than consensus estimates of $US17.7c.
Analysts are still bullish on the stock however, with Bernstein having a price target of $8.20 and UBS $9.15.
UBS said “all major growth projects are on track and progressively being derisked’’.
Santos shares closed down 0.8 per cent at $7.34, in line with the broader market, and the stock is well down on the $7.97 it was trading at before merger discussions with Woodside Energy were called off on February 7.
Managing director Kevin Gallagher said on Wednesday the company had delivered record cash returns as a result of its high-performance culture, disciplined low-cost operating model and strong focus on safety.
“Today’s results demonstrate the capability of Santos to generate strong cash flow, develop major projects and deliver sustainable shareholder returns,” Mr Gallagher said.
Speaking to The Australian after the results were announced, Mr Gallagher said during his time in the top job, Santos had focused on running a tight ship, paying down debt so that it could then leverage up to make major acquisitions such as Quadrant Energy, the ConocoPhillips stake in the Barossa liquefied natural gas (LNG) project and the merger with Oil Search.
Mr Gallagher said the strategy was “to continually improve the strength of the company, to drive down our average production cost across the portfolio, to improve the quality of the asset base and the diversification of the asset base’’.
“And that’s led to growth opportunities that are organic, versus those inorganic ones we did in the past – the acquisitions,’’ Mr Gallagher said.
“And so now we’ve got the Barossa project coming online Q3 next year, we’ve got Pikka coming online early 2026 — they will transform the cash flows from this company.’’
Mr Gallagher said Santos will have paid down all of the project debt on PNG LNG in the first half of 2026, “and that’s averaging $US600m to $US700m a year … so the cashflow liberation across this business over the next two years is quite transformational’’.
Santos told the ASX on Wednesday its Barossa gas project north of Darwin was now 67 per cent complete, with first gas expected in the third quarter of 2025.
“At full production rates, Barossa is expected to add 1.8Mtpa to Santos’s expanding LNG portfolio,” the company said.
“Phase one of the Moomba Carbon Capture and Storage (CCS) project remains on track for first injection mid-2024.
“Moomba CCS phase one will be one of the lowest-cost CCS projects in the world and will have capacity to store up to 1.7 million tonnes of carbon dioxide per year.
“This is equivalent to around 28 per cent of the total annual emissions reduction from Australia’s electricity sector, making Moomba CCS very significant in Australia’s journey to net-zero emissions.”
Santos said is Pikka oil project in Alaska was now more than 40 per cent complete, with first oil expected in the first half of 2026.
“The drilling program is progressing, with the sixth well spudded in December,” Santos said.
“Two well flow backs have been completed and results are in line with prognosis.
“Construction of associated infrastructure is also progressing well. Pikka is a low carbon-intensity project that will be net-zero scope one and two emissions from first production.”
Mr Gallagher’s realised remuneration for 2023 came in at $6.4m, down from $7.1m the previous year.
The company’s guidance for 2024 remains unchanged.
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