Santos hands more profits to investors as oil, gas prices surge
Santos, one of Australia’s largest oil and gas producers, has doubled the size of its share buyback program to more than $1 billion and outlined a new plan to increase returns for investors as surging commodity prices boost the company’s cash flow and outlook.
Like other fossil fuel giants worldwide, Adelaide-based Santos has reported booming revenue this year due to the fallout from Russia’s invasion of Ukraine deepening a global energy crunch and pushing oil and natural gas prices sharply higher.
It’s boom times for Santos as the global energy crunch is pushing oil and gas prices higher.Credit:AP
Crude oil prices traded at an average level above $US100 barrel in the first nine months of the year, up from $US70 a barrel last year. Meanwhile, uncontracted Australian cargoes of liquefied natural gas (LNG) in North Asia have been selling at elevated prices around $US30 per million British thermal units, more than triple the same time last year.
Santos chairman Keith Spence said the company would double its existing $US350 million share buyback to $US700 million ($1.05 billion), and introduce a policy of returning at least 40 per cent of free cash flow to shareholders each year.
“In addition, the board shall give consideration to additional shareholder returns from any net proceeds derived from asset divestments through portfolio optimisation once those divestments reach completion and proceeds have been received,” Spence said.
After COVID-19 drove multibillion-dollar writedowns across the energy industry in 2020, record earnings this year are delivering a windfall for investors, but have also been targeted by political leaders amid public anger over the impact of higher commodity prices driving up domestic power and gas bills.
US President Joe Biden has said oil and gas companies shouldn’t be launching buybacks and increasing dividends to return record profits to shareholders while the war continued to rage in Ukraine.
Victorian Premier Daniel Andrews last week stepped up his attacks on gas producers, accusing them of “profiteering off misery in Europe” and “gouging in its purest form”.
“The ideal outcome in terms of gas is that Victorians, indeed Australians, are not expected to pay European prices for something that comes out of the ground here,” Andrews said.
Most Australian customers have faced double-digit price rises of up to 20 per cent for electricity and 15 per cent for gas during the financial year. By 2024, according to federal Treasury, power bills are forecast to climb another 56 per cent and gas prices a further 44 per cent.
State and federal ministers are due to meet on Friday to discuss potential market interventions to tame soaring bills and halt the worst of the price rises. Treasurer Jim Chalmers has indicated his preferred market intervention is to impose caps on the prices that coal and gas producers can charge local buyers, such as power stations, in an effort to reduce wholesale costs. Governments are also considering tougher regulations for Australia’s east-coast LNG exporters.
Santos has described this year’s east-coast price shocks as the consequence of “more than a decade of policy failure” and onshore drilling moratoriums that had prevented the energy industry from developing more local gas reserves to increase supplies in states like New South Wales and Victoria,
The company says the situation underlines the importance of new gas developments such as its proposed coal-seam gas project at Narrabri, which could supply half of NSW’s gas needs, but has been at the front line of a years-long struggle between the gas industry and Australians worried about the impact of drilling on the environment and the climate. Santos has spent $1.5 billion and faced years of delays to approve the project amid thousands of objections over its feared impact on the Pilliga state forest and its contribution to global warming.
Gordon Ramsay, an analyst with the Royal Bank of Canada, said Santos’s new capital management program unveiled on Wednesday was a positive for investors, providing the potential for “further upside in returns”.
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