Santos Ltd (ASX: STO) is an Australian petroleum company. The five main petroleum assets that Santos has an interest in are located the Copper Basin, Queensland, Papua New Guinea, Northern Australia and Western Australia. Santos has a market capitalisation of A$12.2 billion.
What are the key features of the HY20 (2020 calendar year) result for Santos?
Santos’ underlying profit for HY21 is US$317 million, up 48% from HY20, and the net profit after tax for HY21 is US$354 million compared to a US$298 million loss in HY20. Product sales for HY21 were US$2,040 million, up 22% from HY20. Santos will pay an interim dividend of US .5 cents per share, up 162% from HY20.
The rebound in Santos’ profitability is due to two factors. First, production rose 23% in HY21 compared with HY20 mainly due to rising LNG production associated with Santos’ increased ownership of the Bayu-Undan project. Second, the results reflect higher oil prices compared to the corresponding period due to recovery in demand but this was partly offset by lower average LNG prices due to lagged oil-linked pricing in long-term LNG offtake contracts.
What is the outlook for Santos?
The medium to longer term outlook for Santos is positive for a number of reasons. The first is the proposed merger with Oil Search Ltd (ASX: OSH). The merger of Santos and Oil Search creates a diversified portfolio of high quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America with significant growth optionality and substantial potential combination synergies.
The second is the development of the Barossa gas field in the Northern Territory and the Dorado oil discovery located offshore Western Australia as well as the likely extension of the life of the life of Bayu-Undan project. These projects will add to Santos’ production profile over the next 5 to 10 years.
Finally, Santos’ Moomba carbon capture and storage (CCS) project is ready to make a final incestment decision, subject to eligibility for Australian Carbon Credit Units, which is expected in the fourth quarter. Santos is also assessing the feasibility of creating a CCS hub at Bayu-Undan with the capacity of approximately 10 million tonnes per annum of CO2 and providing a cost-effective solution for Barossa reservoir emissions. This is part of Santos’ plan to move to net-zero emissions by 2040.
What is the market reaction to the HY20 result?
The market reaction to Santo’s HY21 result is broadly neutral. Santos share price has be moving down and is currently trading at A$6.06 (19 August 2020). Santos is trading at a forward P/E ratio in the mid-teens and has an annual dividend yield of around 3% (fully franked).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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