Santos’ Barossa gas on track, pumps $1.3b back to investors

Resources giant Santos’ decision to pump $1.3 billion into investors’ pockets after a profit slump has been labelled an “unsustainable” approach reliant on selling assets and increasing debt.

Adelaide-based Santos said oil and gas production, revenues and underlying profits fell sharply over the full year to December as energy markets finally rebalanced following a two-year period in which global supply was squeezed by the war in Ukraine, driving prices and profits for fossil fuel producers to historic highs.

Chief executive Kevin Gallagher cited Santos’ high-performance culture and low operating costs – but some analysts are sceptical. Credit: Emily Macinnes

Santos’ underlying profit slumped more than $US1 billion on the previous year to $US1.423 billion ($2.172 billion), but that didn’t deter the oil and gas major from setting an unfranked half-year dividend of US17.5¢ per share, giving investors a record total cash return for the full year of $US852 million ($1.3 billion).

Chief executive Kevin Gallagher said the cash return to investors resulted from Santos’ high-performance culture, disciplined low-cost operating model and strong focus on safety.

Santos’ policy is to pay investors 40 per cent of its free cash flow from its operations to investors, excluding revenue from disposals. However, MST Financial energy analyst Saul Kavonic told clients Santos had used $US350 million ($533 million) from selling equity in its PNG gas project to meet the 40 per cent benchmark.

“It raises questions if Santos needs to sell down assets in order to meet its own dividend/buyback policy, which is unsustainable,” Kavonic said.

Gallagher told investment analysts the board decided the dividend was large enough without also diverting proceeds from the PNG sale to shareholders.

Brynn O’Brien, executive director at the Australasian Centre for Corporate Responsibility, also labelled the dividend unsustainable, relying on increased gearing, with the $US852 million return to shareholders coinciding with a $US814 million jump in net debt.

Last week, the centre called for shareholders not to re-elect Santos chair, Keith Spence, holding him responsible for what it regards as a growth strategy without returns and excessive bonuses to chief executive Kevin Gallagher.

Santos received an average of $US87.6 per barrel of oil in 2023, well below 2022’s $US110.1. Its production of 91.7 million barrels of oil equivalent per day was down from the previous year but on par with production during 2021.

“These results reflect lower oil and LNG [liquid natural gas] prices and lower production compared to the corresponding period,” Gallagher said.

The average price per barrel of oil fetched by Santos last year, at $US87.6, was well blow 2022’s $US110.1.Credit: Bloomberg

Santos reported its troubled Barossa gas project in the Timor Sea is nearly two-thirds complete, and its Moomba carbon capture and storage project is on track for its first injection of carbon midway through this year.

Santos ran into difficulty last year when it was forced to re-consult traditional owners after key approvals for its troubled Barossa field were revoked.

The company reported on Wednesday that the project is now 67 per cent complete, with the first gas expected in the third quarter of 2025. Half the pipeline from the gasfield to Darwin LNG is laid, with the first well complete and the second underway, it said.

The fossil fuel producer, which was in merger talks with rival Woodside before they were shelved earlier this month, claims its Moomba Carbon Capture and Storage (CCS) will be one of the lowest-cost in the world. The viability of CCS as a technology is still unproven.

Rival Chevron, which is pumping waste carbon underground at its Gorgon gas export project, managed to inject just 34 per cent of the five million tonnes of carbon dioxide it captured in the 12 months to June last year.

Fossil fuel companies see CCS as a viable means to dispose of CO₂ from their gas fields, but they face the difficulty of using offshore reservoirs deep under the ocean.

The Albanese government passed legislation in November that will enable Santos to move CO₂ from the Barossa project it is constructing north of Darwin to a near-empty gas field in Timor-Leste waters where it can store it in perpetuity. CCS is crucial to the $5.6 billion Barossa’s viability.

The company said its guidance forecast for 2024 remains unchanged. Its share price was down 1.2 per cent to $7.31 a share in late trading on Wednesday.

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