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Santos Flags Return To "Sustainable" Dividends

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Santos is moving closer to resuming paying dividends to shareholders.

Qantas and Metcash have done it (and Retail Food Group as well) - that is halted dividend payments to shareholders while the company restructures itself and cuts costs to meet tough market conditions. In the case of Qantas and Metcash, dividends have been resumed (as Metcash showed on Monday with a final of 7 cents a share) Retail Food Group is a long way off as it starts its restructuring.

Santos though is another company to have gone down the suspension route and is now looking to return to payouts after having fought off a multi billion dollars takeover offer from private equity.

Yesterday it revealed a new dividend policy with the suggestion that a resumption in payments might be a month or two away.

In a statement to the ASX Santos said the board will consider a payout at its interim results in August as part of a new “sustainable” dividend policy.

The new policy will see Santos look to pay ordinary dividends throughout the oil price cycle, targeting a 10% to 30% payout of free cash flow every year.

Additional returns to shareholders beyond that will be considered “when business conditions permit,” Santos added, to make sure the possibility of extra payouts would be possible when oil and gas prices are high (as they are now, compared with a year or two ago

“Santos’ strategy has been to establish a low cost operating model that is designed to deliver strong cash flows through the oil price cycle.

"Since 2016, Santos has successfully executed the Transform phase of the strategy to simplify the company to focus on five core long-life natural gas assets, reduce costs and increase efficiencies to become Australia’s lowest cost onshore operator, and position the balance sheet for growth by significantly reducing net debt. During this period, dividends remained suspended as the company prioritised debt repayment.

"Santos is on track to achieve its net debt reduction target in the second half of 2018, more than a year ahead of schedule and now has a significantly stronger balance sheet to support the company’s growth strategy. This positions the company to return to sustainable dividend payments to shareholders.

"In determining the appropriate dividend payment, the Santos Board will consider the company’s growth profile, cash flow and funding requirements, balance sheet strength, capital structure, and franking credit balance. The declaration and amount of any dividend payment remains at the discretion of the Board.

“Should market conditions remain supportive and the company continues to make good progress to its debt reduction target ahead of plan, the Board will look to restore dividends to shareholders when it considers the 2018 half-year financial results in August,” Santos said in its statement.

It defined “free cash flow” as “operating cash flow less investing cash flow (including all sustaining capital expenditure, exploration spend and interest payments).”

Last year that figure was $US618 million, up from $US206 million in 2016 and after whacking great losses of $US739 million and $US1.519 billion in 2015 and 2014 respectively as the company was shit by the collapse in global oil prices from mid 2014 onwards. Santos said its Board “will have the discretion to adjust free cash flow for individually material items, including major growth spend (for example, capital expenditure associated with the proposed Barossa development and PNG LNG expansion projects), and asset acquisitions and disposals."

Santos yesterday shares rose 2.6% to $6.28 as global oil prices hit new post 2014 highs. That is still well under the $6.25 Harbour Energy offered in its final bid.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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