Summary
Significant progress on the Santos turnaround: Record production and sales volumes, free cash flow breakeven US$36.50 per barrel and net debt reduced to US$3.5 billion.
Significant progress on the Santos turnaround: Record production and sales volumes, free cash flow breakeven US$36.50 per barrel and net debt reduced to US$3.5 billion.
Underlying profit US$63 million. Net loss of US$1,047 million including US$1.1 billion GLNG after-tax impairment recorded at half-year.
Managing Director and Chief Executive Officer Kevin Gallagher said: “In 2016, the Santos leadership team took tough and decisive action to stabilise the business and build the foundations for future growth. We restructured the business, removed substantial costs, all while maintaining safety and delivering record production and sales volumes.”
“As a result our turnaround strategy is starting to deliver. In 2016, Santos was free cash flow positive at US$36.50 per barrel and generated US$370 million in free cash flow over the last eight months of the year.(1) This is pleasing progress but there is still more to be done.”
Santos recorded a net loss of US$1,047 million, impacted significantly by the US$1.1 billion after tax impairment charge on GLNG taken at the half-year results in August, and lower oil prices compared to the prior year.
Excluding impairments and other significant items, the company recorded an underlying profit of
US$63 million.
Mr Gallagher said: “Our aim is to transform Santos into a low cost, reliable and high performance business that delivers sustainable shareholder value.”
“At the heart of our strategy is portfolio simplification and focussed growth across five core, long-life natural gas assets: Cooper Basin, GLNG, PNG, Northern Australia, and Western Australia Gas. Each asset has significant upside potential.”
“We will continue to focus on the exploration, development, production and sale of natural gas, which has a significant role to play in securing Australia and Asia’s energy future.
“The raising of A$1.24 billion through the successful institutional placement and Share Purchase Plan has strengthened our balance sheet and provides Santos with the financial flexibility to refinance debt maturities and pursue growth opportunities aligned with our core business.”
“In 2017, we will further refine our operating model to drive costs down, improve cash flow and reduce debt. We now have the strategy, assets, people and growth options to deliver on our future success and provide sustainable shareholder value.” Mr Gallagher said.
Production and sales volume guidance remains unchanged at 55-60 mmboe and 73-80 mmboe respectively.
The company’s dividend framework provides for the setting of dividends as a payout ratio of underlying earnings, subject to business conditions.
Consistent with the company’s immediate focus to strengthen the balance sheet and reduce net debt, the Board has decided not to pay a final dividend. With the strong progress being made in reducing costs and improving free cash flow, the Board is confident in the company’s ability to return to paying dividends and will next review this position at the 2017 half-year results.
(1) Free cash flow breakeven is the average annual oil price in 2016 at which cash flows from operating activities equals cash flows from investing activities. Forecast methodology uses corporate assumptions. Excludes one-off restructuring and redundancy costs and asset divestitures.
