Oil and gas company Santos Ltd (ASX: STO) reported a half-year underlying profit of US$217 million today – almost double that of the previous corresponding period and reflecting the run of oil and gas prices over the timeframe.
Santos announced its EBITDAX rose 23% to US$883 million with free cash flow up 22% and product sales jumping 6%.
Shareholders will be relieved to see the reinstatement of Santos' interim dividend of US3.5c per share – the first dividend to be paid since March 2016 – a move Santos says "reflects the Board's confidence" in Santos' future prospects.
Santos shares are up 8.3% to $6.79 at the time of writing.
Santos yesterday announced it would acquire 100% of Quadrant Energy for US$2.15 billion plus royalty payments related to future Bedout Basin project revenue – funded via new debt facilities and cash resources.
Quadrant is owned by several notable shareholders, including Macquarie Capital, with a 21% stake, a 13.2% stake by Wesfarmers Ltd (ASX: WES) and 48% by Brookfield Asset Management and partners.
Quadrant's natural gas assets include significant portfolio overlap with Santos, giving the company the chance to "realise material combination synergies" estimated at between US$30 million to $US$50 million.
While the acquisition will considerably strengthen Santos' West Australian natural gas assets and offshore operating capability – it's interesting the likes of Macquarie and Wesfarmers decided to offload their share at this juncture – but there was a solid profit to be collected.
The Quadrant transaction comes soon after Santos rejected a takeover bid from Harbour Energy for $14 billion.
Santos Managing Director and CEO Kevin Gallagher said strong free-cash flow has enabled the company to reduce net debt by 17% and reinstate dividends, but some investors will undoubtedly be concerned about Santos' remaining net debt of US$2.4 billion as the Quadrant deal factors in.
The newly-committed debt facilities comprise a US$600 million bank term loan facility over five years and a $US600 million two-year bridge facility which will be refinanced on acquisition completion.
But Gallagher said Santos is ahead of targets for its net debt reduction strategy which will give the company a "significantly stronger balance sheet to support our growth strategy".
Santos Half-year Highlights ($USD)
Underlying profit $217 million Up 99%
EBITDAX $883 million Up 23%
Free cash flow $367 million Up 22%
Interim dividend 3.5cps Up 3.5cps
Net debt $2.4 billion Down 17%
Elsewhere in the oil and gas space today shares in Oil Search Limited (ASX: OSH) are almost 1% in the red at the time of writing, down to $8.93, two days after its own half-year results presentation revealed total production and sales fell 31% with revenue slipping 18% and NPAT tumbling 39%.
Beach Energy Ltd (ASX: BPT) shares have also been on the decline since the release of its results on August 20 which revealed underlying NPAT was up 86% to $301.5 million with a 90% surge in revenue attributed in part to its Lattice Energy asset integration.
