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Santos losses blow out to $2.7 billion

Donald Miralle/Getty Images

Energy giant Santos has cut its dividends and tied future payouts to underlying profit after posting a full year loss of $2.7 billion.

The loss includes impairments of $3.924 billion before tax ($2.761 billion after tax), mainly relating to Cooper Basin gas producing assets, GLNG assets and Gunnedah Basin assets.

Underlying net profit was 91% lower than the previous year at $50 million. Sales revenue decreased by 20% to $3.2 billion, primarily due to a 48% drop in the average realised oil price in 2015.

As expected, Santos has started on the road to lower dividends.

The fully franked dividend of 5 cents per share declared today is down two thirds from the 15 cents of the year before.

The full year payout is 20 cents, down from 35 cents. And the company has a new dividend framework which sets a payout ratio, expected to be a minimum of 40%, against underlying profit.

Other big miners have signalled to shareholders that payouts won’t be as generous.

Rio Tinto last week maintained its dividend, at 215 US cents steady on last year, but abandoned its progressive dividend policy, meaning it is unlikely to keep payouts at that level.

Instead, it will set a rate at the end each financial period taking into account the results for the year, the outlook for major commodities, the long-term growth prospects and the company’s objective of maintaining a strong balance sheet.

The dividend policy of Rio Tinto and its main competitor, BHP Billiton, have made the stocks attractive to investors seeking revenue, rather than capital gains.

Santos, like most resources companies, has been cutting costs, trying to catch commodity prices as they keep falling and make up the shortfall by producing more.

The company has raised $3.5 billion to reduce debt, increased production to 57.7 mmboe (million barrels of oil equivalent), its highest production since 2007, reduced capital expenditure by 54% to $1.7 billion, lowered production costs per barrel by 10% to $14.4 and saved $160 million by cutting 825 jobs.

The new CEO, Kevin Gallagher, who started work on February 1 after heading engineering services group Clough, says his priority is to put in place the right strategy to make Santos sustainable in a low oil price environment while positioning the company to take advantage when commodity prices eventually rise.

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