Reuters are reporting that Santos Ltd reported a more-than-fivefold rise in annual underlying profit on 21 February, and flagged it may soon be in a position to revive its dividend and embark on growth.
Two years of deep cost cuts and a rebound in oil and gas prices have helped Santos escape from a massive debt overhang and put it in a better position to fend off predators, like private equity-backed Harbour Energy.
Chief Executive Kevin Gallagher said the company has had no further contact with Harbour since it rebuffed a AUS$9.5 billion offer last year, and noted that its share price was now above the tentative AUS$4.55 a share offer.
Santos is also looking to beef up ties with its top shareholder, China’s ENN Group, and is in talks to set up a trading joint venture to sell LNG to China, the world’s fastest growing gas market.
Santos is hoping to use its relationship with ENN to tap other end users in China, which last year overtook South Korea to become the world’s no. 2 LNG importer.
Santos’ underlying profit for 2017 rose to US$336 million from US$63 million a year earlier, thanks to cost cuts, higher sales volumes and higher oil and gas prices.
The result was below analysts’ forecasts around US$349 million that analysts. UBS put the miss down to bigger than expected foreign exchange losses.
Santos shares fell 2.2% to AUS$5.065, underperforming a small gain in the broader market.
Tribeca Investment Partners analyst James Eginton said the fall was due partly to the earnings miss and possibly because Gallagher said there had been no contact with Harbour.
For predators eyeing Santos, the big prize would be its stake in the PNG LNG project, run by ExxonMobil Corp, in Papua New Guinea, which is set to double exports under a plan broadly agreed by the project partners.
Gallagher said Santos is looking to buy into one of the gas fields, P‘nyang, that is set to supply the PNG LNG expansion to match its 13.5% equity stake in the project.
Santos could also revive its dividend this year, given net debt is on track to fall below US$2 billion by end-2018, a year ahead of target, but the company would stay disciplined.
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