Santos Shifts Closer To Dividend Payout
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Santos has moved closer to resuming dividend payouts to the company’s loyal and long suffering shareholders following a solid second quarter.
Such a move would reward shareholders (the small ones anyway) who supported the company as it fought off the unwanted $A14.6 billion takeover battle from US private equity group, Harbour Energy.
Thanks to higher oil prices, the company said it had cut debt by a further 4% in the first weeks of the current quarter, a development that seems to have advanced the cause of resuming payouts to shareholders.
Santos said in the quarterly report yesterday that its board would consider a dividend payout in August (when the interim results will be announced), which would be the first since early 2016, reflecting a policy adopted late last month to target a payout of between 10% and 30% of annual free cash flow as ordinary dividends.
“Given the cyclical nature of the industry, the Board will also consider additional returns to shareholders above the ordinary dividend when business conditions permit,” the company said yesterday.
The prospects of a resumption of dividend payments came in spite of a 3.4% fall in second quarter production to 14.2 million barrels of oil equivalent (mmboe).
Santos said its average realised oil price in the second quarter rose 48% to $US78.60 per barrel from the June quarter last year and helping quarterly revenue rise 15.2% to $US886 million despite the fall in production caused by the impact of the PNG earthquake in February.
That saw first half sales revenue jump 16% to $US1.68 billion from $US1.453 billion in the first half of 2017.
The company in April narrowed its 2018 production forecast range to 55-58 mmboe from 55-60 mmboe after the quake caused an outage at the Exxon Mobil-run PNG LNG operation in which it holds a small stake.
CEO Kevin Gallagher said in yesterday’s report; “Our second quarter results demonstrate the strength of our diversified portfolio of core assets underpinned by a disciplined operating model and significantly stronger balance sheet.”
“In the Cooper Basin, we delivered production growth due to strong performance from recently connected wells, including the highest quarterly oil production in four years and the highest daily oil rate in a decade. We also had exploration success with the wildcat gas exploration wells Mountain Goat and Hobgoblin.”
“Our onshore development team continues to drive excellent results, including the fastest ever gas well drilled in the Cooper. This level of performance gives us confidence we can commercialise more of the vast discovered resource that remains undeveloped within the producing fields of the Cooper Basin, as well as the expanding prospective resource base across the Cooper.”
“In our Western Australia gas business, higher customer demand and commencement of two new sales contracts drove production up 10% compared to the prior quarter.”
“The PNG Highlands earthquake in February was a major disruptive event for the people of PNG and we were deeply saddened by the loss of life and personal injuries suffered by our local communities. Our PNG LNG expertise and resources were deployed to assist in humanitarian relief and Santos provided funds for the relief effort.”
“Production was safely re-started within two months of the first earthquake and full rates were achieved by the end of April.”
“The PNG LNG shutdown, combined with planned maintenance at our facilities in Moomba and Bayu Undan/Darwin LNG, reduced first half production by about 2 mmboe. Excluding these shutdowns, we would have delivered production growth from our core assets in the first half.”
“We remain on track to achieve our net debt reduction target in the second half of 2018, more than a year ahead of schedule, and we now have a significantly stronger balance sheet and cash flows to support our growth strategy.”
“This positions the company to return to sustainable dividend payments to shareholders.”
As at June 30 Santos said it had cash and cash equivalents of $US1.5 billion and total debt of $US3.9 billion (now 4% lower). Santos shares 1.6% to $6.06.
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.