Santos plays Santa
capital management
need to know
Buyback increased by US$350m, total now US$700m
Capital Management Framework improved
Additional returns from selldowns to be ‘considered’
STO has increased its share buyback program by a further US$350m. This extends the previous buyback of US$350m which is now 98% complete.
The company has also simplified and improved its capital management framework. The policy is now to distribute at least 40% of free cashflow from operations (excluding major growth) each year. Shareholder returns will either be dividends and/or buybacks, subject to market conditions.
The company has maintained its target gearing range of 15-25%.
The previous capital management framework targeted 10-30% of FCF at Brent oil prices up to US$65/bbl, then additional returns of at least 40% of incremental FCF above that oil price.
INvestment view
The new simplified policy is clearer and more generous. At the mid-point of the old framework, this amounts to a 20% increase in FCF between US$25-US$65/bbl. Pre the 5% PNG LNG selldown, the FCF of US$1.8bn implies an extra US$360m pa of capital return to shareholders.
The nod towards distributing additional returns to shareholders for any net proceeds of selldowns is further encouragement.
Beyond that, STO said it would increase shareholder returns to at least 50% once the Barossa and Pikka Phase 1 projects commence production.
STO could potentially return a minimum of 150% of its current market capitalisation over the next eight years at US$100/bbl, or 100% at US$65/bbl. (Figure 1).
Figure 1: ~US$16-27bn forecast cash surplus to 2030
Stock overview
Share Price
Company overview
Santos is an Australian-based oil and gas producer with assets in the Cooper Basin, PNG LNG (42.5%), Papua LNG (22.8%), Bayu-Undan and Darwin LNG projects (43.5%), Barossa (62.5% reducing to 50% on partial sale to JERA), Gladstone LNG (30%) and the Pikka Unit in Alaska (51%).
Disclaimers and Disclosures
Issuer
The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").
Reliance
Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.
General Advice
Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs.
General Disclosures
This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au.
Currency of Research
The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.
Access and Use
Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.
Equities Research Methodology
Please click here for information about MST equities research methodology.
Related Reports
Not so refined
Asian refining margins (a proxy for the ALD refining margin) have slipped below US$10/bbl after a brief period of recuperation following Ampol’s unplanned outage at the Lytton Refinery in 1H23.
Soft result, acquires Alinta Pilbara assets
AEP consists of 7 operating assets and 2 development assets, the portfolio has a mixture of energy generation, storage, and distribution to mining customers in Pilbara (WA).
Transition Pain
APA is a defensive asset with a strong and proven ability to deliver growth in cash flows.