Growing oil and gas producer Santos Ltd (ASX: STO) today reported a surge in revenue for first half of the 2019 financial year supported by a significant increase in production, which has seen the Santos share price rise by as much as 4% in morning trade.
Net profit after tax (NPAT) for the half year jumped to $388 million, up 2.7 times on the same period in 2018, supported by a 32% jump in production and lower production costs. Here are the numbers you need to know:
|
Santos Ltd |
H1 19 |
% Change |
|
Production |
37 mmboe |
+32% |
|
Total sales revenue |
US$2.0 bn |
+18% |
|
Net profit after tax |
US$388m |
273% |
|
Net debt |
US$3.4 bn |
+38% |
So what?
One of the most important features of today's result is the significant jump in Santos' operating cash flows, which rocketed from US$644 million in the first half of FY18 to US$1.05 billion this year.
The cash is eagerly needed to help support the company's capital expenditure program, which chewed through almost $450 million in the first half of the year.
Santos is a company which has hefty capital requirements and a fondness for debt which has steadily been creeping up over the last 12 months. This is an area I watch closely given the company's blemished history with leverage.
Back in 2014, Santos stacked up billions in interest bearing liabilities as it invested in big LNG projects and got caught out as the price of oil plummeted in 2015. The company had to slash capital expenditure, lay off staff, sell assets and raise equity to stabilise its balance sheet.
Dividend raised
In spite of the rising debt, Santos declared a fully franked dividend of US$0.06 per share, which takes the dividend for the last 12 months to US$0.122 per share (fully franked). At the current share price and exchange rate the dividend yields 2.5%.
The dividend is in line with Santos' 'sustainable Dividend Policy', which aims to pay-out 10% to 30% of free cash flow generated each year.
Is it time to buy Santos Ltd?
Although I am cautious of the company's inflating debt position, which adds risk if the price of oil falls, Santos is investing to quickly ramp-up production to more than 100 mmboe per year by 2025.
If the big energy producer can continue to keep unit production costs down and maintain moderate gearing (debt), it does feel like it has a lot of upside potential if the price of oil rises and more moderate risk on the downside if it falls.
