The Santos Ltd
(ASX: STO) share price is up despite the large oil producer announcing a big drop in its FY20 profit.
Santos is one of the largest oil and gas businesses in the country.
Santos’ FY20 result
The big resources business said that its full year product sales revenue fell by 16% to US$3.4 billion, after record annual production of 89 million barrels of oil equivalent (MMboe). There was a significant decline of oil and LNG prices compared to last year due to the impact of the COVID-19 pandemic on global energy demand.
Santos reported that its EBITDAX (EBITDA explained
– the X stands for depletion, exploration, evaluation and impairment) dropped by 23% to US$1.9 billion.
Despite the difficult conditions, Santos was able to make $287 million of underlying profit, which was a decline of 60% compared to 2019.
However, the reported net loss was $357 million. That includes previously announced impairments, primarily due to lower oil price assumptions.
Santos managed to generate US$740 million of free cashflow, which was a decline of 35%. The oil business said that this result demonstrated the resilience of its cash-generative base business in a lower oil price environment and strong operational performance across its diversified asset portfolio.
The company said that the average realised oil price of US$47 per barrel generated more than three times the free cashflow as the company generated in 2016 at a similar average oil price.
Santos dividend
Despite the large profit decline, the Santos board decided to declare a final dividend of 5 cents per share, the same as last year.
The company ended the period with net debt of US$3.66 billion, up from US$3.3 billion. Its cash balance increased from $1.08 billion to US$1.3 billion.
Summary thoughts
In 2021 it’s expecting production of 84 MMboe to 91 MMboe.
I think that the Santos Managing Director and CEO Kevin Gallagher described the past year and the 2021 outlook well when he said:
“2020 saw us ride through the bottom of the cycle while still generating free cash flow under a sustainable and disciplined operating model. As prices and demand recover, our projects are much better placed than those of our competitor countries. Living by our disciplined approach to cost and capital allocation, and remaining cash flow positive through 2020 means we are well positioned for further efficiency gains and growth initiatives in 2021.”
Santos is a price-taker, in an industry that is expected to see long term decline as the world shifts to renewable energy. I’m not attracted to buy Santos shares when taking those factors into account. It did well to keep making solid free cashflow in 2020 though.
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