Santos slashes dividend to fund expansion and new acquisitions
LOWER production costs and exploration spending helped offset the impact of lost production following asset sales, enabling Santos to lift the June half underlying net profit to $236 million from $210 million a year earlier.
LOWER production costs and exploration spending helped offset the impact of lost production following asset sales, enabling Santos to lift the June half underlying net profit to $236 million from $210 million a year earlier.Analysts had forecast a steady first-half profit of around $210 million. Adding in gains from the halving to 30 per cent of its equity in the $15 billion Gladstone liquefied natural gas project helped to push the net profit to a record $504 million for the half, lifting the earnings per share to 57.4? from 23.7?.Despite the prosperity, the group's large spending program prompted a cut in the interim dividend to 15? a share from 22?, which is payable on September 30. Directors flagged no rise in the dividend until at least 2015 due to its large capital demands.Santos recently launched a takeover of NSW coal seam methane group Eastern Star Gas, which will cost around $750 million, as it targets the Gunnedah basin to feed forecast gas demand in that state.Santos also flagged its ambitions for the Zola and Finucane South/ Fletcher prospects in Western Australia, with an underwritten dividend reinvestment plan to raise $270 million over the next two years to fund further appraisal and development work there.The final decision to develop the Finucane South/Fletcher find is due early next year, with the first production likely by the end of 2013. The promising Zola prospect needs further appraisal work, to get a better idea of its potential.Additionally, $500 million is to be spent in the Gunnedah Basin, although earlier ambitions that this project could tap into the export market are likely to be shelved.Nomura Australia analyst Xavier Grunauer said the results came in ahead of expectations, and the company would likely have a strong second half as well. "Unlike Woodside and Oil Search, which have large projects which take several years to come on stream, Santos has a number of near-term projects to maintain interest in the stock," he said.Nomura has a "buy" recommendation on the shares, with a $16.10 valuation.Santos will benefit from the start-up of the Chim Sao project in Vietnam (31.875 per cent Santos), Reindeer (45 per cent) in Australia and the Wortel project in Indonesia (45 per cent) in the next six months.