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Santos Ltd (ASX:STO) just flagged a return to “sustainable dividend payments”

The Santos Ltd (ASX: STO) share price is rising after the release of the first quarterly update since the company turned down a $14.6 billion takeover bid from Harbour Energy in May. At the time of writing, the stock was up 2% to $6.06.

During takeover talks, Santos’s results gave the impression of a healthy business, supported by buoyant oil prices.

Today’s release seems to confirm that impression.

Santos’s production and sales were only marginally above the previous quarter, but a 10% increase in the average realised oil price to US$78.60 a barrel contributed to a lift in revenues by 12% to US$886 million.

In the three months to June 30, the price for Santos’s oil was nearly 50% higher than last year.

The company has a net debt of US$2.4 billion and seems well on its way to achieve its end-2019 net debt target of US$2 billion by the second half of 2018.

According to Santos’s CEO Kevin Gallagher, “this positions the company to return to sustainable dividend payments”.

Santos will target a range of 10% to 30% payout of free cash flow per annum, considering additional distributions when the business cycle permits. The company hasn’t paid dividends since 2016.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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