Santos Reports Record Free Cash Flow & Underlying Earnings, Higher Final Dividend

Source: 2/16/2022, Location: Not categorized

Santos announced its full-year results for 2021, reporting record free cash flow of US$1.5 billion and underlying profit of US$946 million. The results reflect significantly higher oil and LNG prices compared to the corresponding period due to the recovery in global energy demand combined with supply constraints across the industry due to lower capital investment through the pandemic, and three weeks contribution from the Oil Search assets.

The results also reflect Santos’ disciplined, low-cost operating model which delivered a free cash flow breakeven of US$21 per barrel in 2021.2

The reported net profit after tax of US$658 million includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments, and is significantly higher than the corresponding period mainly due to impairments included in the previous year.

The Board has resolved to pay a final dividend of US8.5 cents per share, 70 per cent higher than the previous final dividend. The dividend equates to 20 per cent of full-year proforma free cash flow for the merged entity less dividends paid in the first half by both companies, in-line with Santos’ sustainable dividend policy which targets a range of 10 per cent to 30 per cent payout of free cash flow.

The final dividend is franked to 70 per cent and substantially distributes the company’s remaining franking credits to shareholders. Based on the company’s carry-forward tax losses, Santos does not expect to generate franking credits for the next several years.

Santos Managing Director and Chief Executive Officer Kevin Gallagher said Santos delivered record production, free cash flow and underlying earnings in 2021, as strong base business performance positioned the company to benefit from higher commodity prices.

“The highlight of the year was the completion of our merger with Oil Search. The merger delivers increased scale and capacity to drive our disciplined, low-cost operating model and unrivalled growth opportunities over the next decade – all with a vision of becoming a global leader in the energy transition,” Mr Gallagher said.

“The financial results we are announcing today include only three weeks of the merged company. Had the merger been in place for all of 2021, the combined asset portfolio would have generated more than US$2.3 billion in free cash flow for the year.

“We will now seek to further optimise the portfolio, reduce gearing and conduct a review of our capital management framework including returns to shareholders.

“2021 brought global energy security into the spotlight with higher prices and a supply crunch in the wake of rapidly recovering demand and a lack of investment in new supply.

“It is vitally important that investment in new supply occurs and in a sustainable way. At Santos, we are focussed on supplying critical fuels more sustainably to meet society’s demand.”

2022 Guidance
2022 production is expected to increase to a range of 100 to 110 million barrels of oil equivalent (mmboe) primarily due to higher production from PNG following the Oil Search merger. This is expected to be offset by a lower share of Bayu-Undan production, which is expected to be approximately 10 mmboe less than 2021, due to a lower average working interest following the 25 per cent sell-down to SK E&S in 2021, lower gross production as the field approaches end of field life and lower net entitlement under the Production Sharing Contract due to higher forecast LNG prices. Sales volumes in 2022 are expected to be in the range of 110 to 120 mmboe.

Sustaining capital expenditure is expected to be approximately US$900 million and restoration expenditure is expected to be approximately US$200 million. Sustaining and restoration expenditure is self-funded within the disciplined operating model and is included in the 2022 forecast free cash flow breakeven oil price of less than US$25 per barrel.

Major growth projects capital expenditure is expected to be in the range of US$1.15 billion to US$1.3 billion. A contingent amount of up to approximately US$400 million could be added should the Dorado and Pikka projects take final investment decisions. Guidance assumes current Santos interest in all projects.

At an average oil price of approximately US$65 per barrel in 2022, it is expected sufficient free cash flow would be generated to fund forecast major growth projects capital expenditure, including the contingent amount.3

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