Santos Reports 33% Drop in Annual Profit Amid Challenges
Australian energy company Santos has revealed a significant decline in annual profit, as lower production and sales revenue took a toll on its financial performance. The company reported a 33% fall in net profit for the 12 months through December, with figures dropping from US$2.11 billion to US$1.42 billion compared to the previous year.
This decline in profit was reflected in underlying profit as well, which fell by 42% to US$1.42 billion. Annual sales revenue also took a hit, dropping by 24% to US$5.89 billion, primarily due to reduced prices for liquefied natural gas (LNG) and crude oil. Despite these challenges, Santos managed to generate US$2.1 billion in free cash flow. In a show of confidence, directors decided to declare a final dividend of 17.5 US cents per share, an increase from the 15.1 US cents paid out the previous year.
To counter the profitability decline and enhance shareholder value, Santos is exploring various options. These include the possibility of selling more interest in the PNG LNG facility, as well as separating its LNG assets from its Australian oil business. Chief Executive Kevin Gallagher emphasized the company’s impressive cash flow generation, major project development, and ability to deliver sustainable returns.
One notable setback for Santos was the unsuccessful merger talks with Woodside Energy. The proposed merger, which could have created a global gas giant worth $57 billion, was called off due to insufficient benefits for Santos shareholders. While the merger could have been a game-changer for the company, Santos opted to protect the interests of its stakeholders.
Another challenge faced by Santos was the legal dispute surrounding its Barossa growth project. Delayed by a legal challenge launched by an indigenous leader, the development of the Barossa natural-gas field off the coast of Australia’s northern region had a negative impact on Santos’s stock. However, following the acceptance of a revised environmental plan, drilling has resumed. The delay has resulted in a higher estimated cost for the project, now projected to be between US$4.5 billion and US$4.6 billion, up to US$300 million more than originally anticipated. The company now expects first gas output from the project in the third quarter of 2025.
Looking ahead, Santos anticipates a decrease in production and sales volumes for the current year. The company projects a production range of 84 million to 90 million barrels of oil equivalent (BOE), down from 91.7 million BOE in 2022. Sales volumes are also expected to decrease, with a forecast of 87 million to 93 million BOE, compared to 96.4 million BOE the previous year. Santos will need to carefully navigate these challenges to drive growth and ensure shareholder value in the coming months.
Analyst comment
Negative news. Santos reported a significant decline in annual profit due to lower production and sales revenue. They plan to counter the decline by exploring options such as selling more interest in the PNG LNG facility and separating LNG assets. However, they anticipate a decrease in production and sales volumes for the current year, which may pose challenges for driving growth and ensuring shareholder value.
