Gas giant Santos accused of eroding shareholder value

Marion Rae |

Santos chief Kevin Gallagher says work has resumed on Barossa after legal challenges.
Santos chief Kevin Gallagher says work has resumed on Barossa after legal challenges.

Gas giant Santos insists it’s looking at options to reward shareholders after terminating merger talks and reporting a sharply lower annual profit amid lower commodity prices and inflation pressures.

Shares in Santos eased five cents to $7.35 in afternoon trade on Wednesday, trimming earlier losses after it revealed a 42 per cent slide in underlying profit for 2023.

The Adelaide-based company also surprised the market by continuing a suspension of share buybacks, instead opting for a record dividend payout.

Net profit was $US1.4 billion, down 33 per cent, as 2023 revenue fell by almost a quarter to $US5.9 billion, and free cash flow fell 42 per cent to $US2.1 billion.

Brynn O’Brien, executive director at the Australasian Centre for Corporate Responsibility, said the results reinforced “concerns” with the performance of the Santos board and its chair Keith Spence. 

“Santos likely hoped this dividend would distract shareholders from the fact there is no reported progress on its review of strategic options since the collapse of merger talks with Woodside,” Mr O’Brien said.

Amid talk of a spin-off of its LNG assets, chief executive Kevin Gallagher told an investor webcast that Santos would continue to pursue “other opportunities” after merger talks with Woodside Energy were terminated in February.

But he failed to provide details when quizzed by analysts, saying the company continued to work with advisers on ideas to unlock or create shareholder value.

“We are more than willing and open to considering other opportunities if and when they become available,” he said. 

Mr Gallagher said work on the Barossa gas project resumed in January after legal challenges and had been fast-tracked with first gas to be delivered in 18 months.

Traditional owners took legal action against the Barossa gas project
Mr Gallagher said work on the Barossa gas project had been fast tracked after legal challenges. (James Ross/AAP PHOTOS)

The pipeline to deliver gas from the offshore field is 68 per cent complete and the second well was under way, the company said.

At full production, Barossa is expected to add 1.8 million tonnes a year to Santos’ expanding LNG portfolio.

“Demand for our products remains strong,” Mr Gallagher said.

“Today’s results demonstrate the capability of Santos to generate strong cash flow, develop major projects and deliver sustainable shareholder returns,” he said.

Saranga Ranasinghe, senior analyst at Moody’s Investors Service, said the resumption of drilling in the Barossa project added certainty around future production capacity and near-term spending requirements.

Although earnings and cash flow declined due to lower production and weaker oil and gas prices, Santos’ credit profile remained strong and liquidity was excellent, she said.

The major emitter is relying on carbon, capture and storage (CCS) at its Moomba project in South Australia to offset greenhouse gases, with the project on track to generate carbon credits within the next 12 months.

Santos said the project will be able to store up to 1.7 million tonnes of carbon dioxide per year, making Moomba “very significant” for Australia-wide emissions reduction.

The company also released its sustainability and climate report that details progress towards its net zero emissions by 2040 target.

Santos says its three-hub CCS strategy, adding sea floor hubs off the coast of Western Australia and the Northern Territory to Moomba, will provide more than 30 million tonnes of carbon storage per year by 2040.

Storage of emissions from other fossil fuel companies will provide an alternative income stream, according to Santos, with a deal already signed to import up to 20 million tonnes of carbon from Japan.

Concepts for expanding CCS to upstream operations in Papua New Guinea and Alaska are also in the pipeline, Santos says in the climate report.

Santos declared a final dividend of US 17.5 cents, bringing the total shareholder return to a record US 26.2 cents.

Earnings guidance for the 2024 calendar year was unchanged.