Santos Triples Profit on Back of Oil Price Run

Oil and gas producer and exporter Santos more than tripled full-year profit in the 2021 financial year as it rode the surge in global prices (up more than 50%) thanks to the European and Chinese energy crises during the year and the tensions from the late December push from President Putin around Ukraine.

Santos reported a net profit after tax of $US658 million ($A920 million), compared with a loss of $US357 million in 2020, when oil and gas prices slumped at one stage to all-time lows because the economic slowdown driven by the onset of Covid-linked lockdowns destroyed demand.

Naturally with earnings soaring the company declared a final dividend of 8.5 US cents per share, up 70% from the final for 2020 of 5 US cents.

There’s no strict comparison because of the impact of the Oil Search takeover towards the end of the year and changes to the company’s dividend policy.

As Santos explained “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.”

With the company unable to pay franked dividends, Santos shares are not going to be as attractive to investors as they might seem for the next few years.

Santos CEO Kevin Gallagher said the business had delivered record production, free cash flow and underlying earnings across 2021.

“Strong base business performance positioned the company to benefit from higher commodity prices,” he said.

Analysts felt the net profit was a bit weaker than forecasts, but the company’s underlying profit also more than tripled to $946 million, topping forecasts.

Mr Gallagher said the full-year results reflected only three weeks contribution from Oil Search.

“Had the merger been in place for all of 2021, the combined asset portfolio would have generated more than $US2.3 billion in free cash flow for the year,” he said in Wednesday’s statement.

For all the bullishness of the report and the comments from the company and the CEO, investors preferred to watch the dip in world oil prices when tensions around Ukraine seemed to ease a touch on Tuesday night.

That saw oil prices coming off closer to $US91 a barrel for US type crude. Santos shares eased by around 2.8% to $71.19.

Santos’ larger rival Woodside is due to report its 2021 financial results Thursday.


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.

View more articles by Glenn Dyer →