Santos back in black, making acquisitions and paying dividends
Santos has moved back into the black, paying out its first dividend in two years as it gears up for a major acquisition with the $US2.15 billion ($2.92 billion) purchase of Quadrant Energy.
The oil and gas producer posted a first-half net profit of $US104 million, a massive turnaround for a company which saw a $US506 million loss this time last year. Its share price shot up in early trading, lifting 10 per cent from Wednesday's closing price to hit a four-year high of $6.90.
This was driven by higher oil prices that translated to a 16 per cent lift in revenues to $US1.7 billion. Profit was also supported by the sell-off of its Asian non-core assets for $US221 million.
The oil and gas company is paying a fully franked dividend of US3.5¢, payable on 27 September.
Santos chief executive Kevin Gallagher said the company’s cost-cutting strategy has led it out of the half-billion-dollar black hole Santos found itself in last year.
“Our strategy has been to establish a low-cost operating model that delivers strong cash flows through the oil price cycle,” Mr Gallagher said.
He said the company’s strong cash flows, up 22 per cent to $US637 million, allowed the company to reduce net debt to $US2.4 billion and pay shareholders the first dividend since 2016.
“We will shortly achieve our net debt reduction target, more than a year ahead of schedule, and therefore have a significantly stronger balance sheet to support our growth strategy,” he said.
This growth strategy was stepped up this week as Santos on Wednesday announced the acquisition of West Australian-based Quadrant Energy for $US2.15 billion in cash.
The takeover will give Santos access to the coveted Dorado oil well, one of the most prospective discoveries in Australia in years with around 171 million barrels of oil.
Analysts supported the acquisition, saying Santos had now quashed any doubts whether it made the right decision when it rejected US private equity firm Harbour Energy’s $14.5 billion takeover bid earlier this year.
“While the prima facie case for an acquisition of Quadrant was strong - willing sellers and significant asset crossovers creating associated synergies - the question of would [Santos] bid for the assets was clouded by its balance sheet crunch in the oil market collapse and the more recent rejection of Harbour Energy’s takeover bid,” RBC Capital Markets analyst Ben Wilson said.
“By acquiring Quadrant without reverting to fresh equity funding we feel Santos has addressed the issue of undertaking a major acquisition so soon after rejecting a takeover offer.
“We are positive on this acquisition with our initial assessment of deal metrics," Wilson said, saying Santos hadn't overpaid for the assets.
Quadrant’s partner in Dorado, Carnarvon, has also backed the takeover.
“Carnarvon welcomes news of the potential acquisition and the incoming joint venture partner Santos,” the company said.