Santos shares jumped to a three-year high yesterday as hinted at a return to paying dividends after closing in on its 2019 debt target well ahead of time.
The company’s shares initially fell as its trimmed its 2018 production guidance due to February’s earthquake in Papua New Guinea (as did Oil Search earlier this week).
But they rebounded to $6.01 for the first time since mid-2015 – more than double its $2.90 share price last July – before ending up 2 cents at $6.
For that we can blame the rise in global oil prices to their highest levels since late 2014 and the mooted takeover offer for Santos from bottom fisher, Harbour Energy.
Santos has made reducing its debt a majority priority in the past two years as it battled to remain afloat amid doubts about its future, share raids and takeover offers.
The company revealed in the March quarter report that it had trimmed its debt by 8% in the first three months of the year to a point where it is now nearly half the $US5 billion plus millstone it was in 2016 when the company was staggering towards possible collapse or takeover.
Now net debt is sitting at around $US2.5 billion ($3.2 billion) and the company believes it is on track to meet its target of $US2 billion in net debt by 2019 more than a year ahead of schedule if oil prices stay around current levels.
Achieving its debt target early would allow the company to look at providing a dividend to shareholder, according to newish CEO, Kevin Gallagher. Santos last paid a dividend on March 30, 2016.
"We’re starting to think about returning cash to the shareholders. No doubt getting to the debt reduction target early means we can talk about a dividend sooner,” Mr Gallagher said, according to Fairfax Media.
The shutdown of its LNG assets in PNG following the 7.5 magnitude earthquake in February didn’t affect Santos to the same extent as joint venture partner Oil Search, whose production was slashed by a third, according to that company’s March quarter report earlier in the week..
However, combined with planned maintenance at Moomba in South Australia and in Queensland, it reported an 8% dip in production in the March quarter.
"The temporary PNG LNG shutdown, combined with planned maintenance at our facilities in Moomba and Queensland, reduced first-quarter production by 1.2 million barrels of oil equivalent (MMboe) to 13.8 MMboe," Mr Gallagher said. "Excluding these shutdowns, production would have been in line with the prior quarter."
Santos trimmed its 2018 production guidance to 55 to 58 MMboe, down from the previous range of 55 to 60 MMboe. Sales volume guidance was cut from a range of 72 to 78 MMboe to 72 to 76 MMboe.
