Santos in good stead

Santos reported lower production costs and reduced exploration spending that helped offset lost production after asset sales, lifting underlying net profit for the June half to $236 million from $210 million a year earlier. Including gains related to its stake in the Gladstone project, reported net profit rose to a record $504 million for the half.

Gains from Santos halving to a 30% equity stake in the $15 billion Gladstone liquefied natural gas project contributed significantly to the half's results and helped push reported net profit to $504 million.

Santos cut its interim dividend to 15 cents a share from 22 cents a share. The reduced interim dividend is payable on September 30.

Santos' directors flagged there will be no rise in the dividend until at least 2015, citing large capital demands from the group's spending program.

Earnings per share rose substantially in the half, increasing to 57.4 from 23.7, reflecting the stronger profitability reported for the period.

Analysts were broadly positive: Nomura Australia analyst Xavier Grunauer said the results came in ahead of expectations and suggested Santos is likely to have a strong second half. Nomura has a 'buy' recommendation on the shares with a $16.10 valuation.

According to Nomura, Santos has a number of near-term projects that can maintain investor interest, in contrast to peers such as Woodside and Oil Search, which have larger projects that take several years to come on stream.

Everyday investors should note that Santos improved underlying profit through lower costs and reduced exploration spend, and that one-off gains from its Gladstone stake boosted reported profit and EPS. However, the company is prioritising a large spending program, which led to a smaller interim dividend and a director warning that dividends are unlikely to rise before 2015. Analysts like Nomura remain positive on the outlook, highlighting near-term projects and issuing a buy rating.