Santos, Origin Earnings Slump As Virus Smashes Energy Prices

As forecast, two more oil and gas players have revealed massive slides in earnings – Origin Energy (full year) and Santos (half-year).

Santos will still pay a small interim dividend despite a big half-year loss driven by weak LNG prices and big asset write-downs.

Santos told the ASX on Thursday that shareholders will receive a 2.1 US cents a share interim dividend for the six months to June.

That’s a massive 65% cut on the payout for the first half of 2019.

While that is at the lower end of its payout range of 10%-30% it is a way of the company keeping faith with its owners at the halfway mark of what is a miserable year thanks to COVID-19.

The board of course blamed the economic uncertainty and the lower oil and gas prices, courtesy of COVID-19, and the lockdowns and left open the option for a final dividend to be paid for the year to December.

Directors said they would review the level of payout for the final dividend in February when the full-year results are being determined ahead of release.

In the six months to June Santos reported a half-year loss of $US289 million ($A400 million) thanks to the lower prices and impairments of $1.1 billion announced last month.

Stripping out one-off impairments and other costs, underlying profit fell 48% to $US212 million for the half-year to June 30.

Revenue fell 16% to $1.668 billion in the half.

Santos CEO Kevin Gallagher said the business had delivered record production volumes and strong free cash flow over the half-year, despite the significantly lower oil prices.

“These results again demonstrate the resilience of our cash-generative operating model in a lower oil price environment and strong operational performance across our diversified asset portfolio,” he said.

The company is not alone – it joins Oil Search and Woodside in having its June half-year figures smacked by the slump in oil and gas prices and asset impairments.

Still, the interim dividend did set it apart.

Santos shares fell 5.2% to $5.57 on a day when most major share prices fell.

Meanwhile, Origin Energy just missed the red ink when it reported a 93% plunge in earnings for the year to June thanks to the impact of COVID-19 on demand and prices and the higher cost of supporting distressed customers.

Origin said net profit had fallen from $1.21 billion to $83 million in the year to June.

A big part of that was the $770 million impairment of its stake in its big Queensland LNG project.

Despite the slump in earnings, the company is still paying a final dividend of 10 cents a share to go with the interim of 15 cents paid in March.

The final is down from 15 cents paid a year ago.

Chairman Gordon Cairns said this was due to the “considerable economic uncertainty”.

“We have taken a prudent decision to pay a full-year dividend marginally below our targeted range of 30-50 percent of free cash flow,” he said.

Stripping out the impact of COVID-19 and the lockdowns Origin’s underlying profit, stripping out one-off costs, was largely unchanged from the previous year at $1.02 billion.

Origin CEO Frank Calabria said it had been a year of significant challenges including bushfires, drought, and now the COVID-19 crisis, but its underlying business had seen improved performance across the year, driving growth in free cash flow.

“Throughout, our focus has been on maintaining reliable energy supply, keeping our people safe, supporting our customers who have been financially impacted, as well as supporting the broader community,” he said on Thursday.

Like all power providers, Origin is facing falling wholesale energy prices following an influx of cheap renewable energy into the grid and a slump in power demand caused by offices, small businesses, and factories temporarily closing down due to COVID-19 restrictions.

However, increases in energy usage with more people staying indoors have residential bills higher, adding to the financial pressures on households affected by the economic downturn and raising the risk of bad and doubtful debts by customers unable to pay. The company has provided $35 million for higher customer costs in this area.

Origin said its full-year result had also been hit by the sharp falls in oil and liquefied natural gas (LNG) prices, which caused a write-down of $770 million to the value of its Asia Pacific LNG joint venture in Queensland.

The shares fell 6.2% to $5.54.

Glenn Dyer

About 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.

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