The Santos Ltd (ASX: STO) share price slumped as much as 4.8% in early trading today as the company revealed the heavy toll whipsawing oil prices has taken on first half earnings.
Oil and gas producers have battled through an especially rough 6 months as the COVID-19 pandemic exploded. Lower demand for land and air transport sent West Texas Intermediate (WTI) crude plunging from US$61 per barrel at the start of January, to an unprecedented -US$40 per barrel in April as investors panicked and dumped oil options. Since then WTI has crawled its way back to US$42 per barrel in August, but the damage to Santos has been clear.
How did Santos perform in the first half of 2020?
Santos announced it generated sales revenue of US$1.7 billion in the first half of 2020, 16% lower than the same period last year.
It was an especially disappointing outcome for investors given record production of oil and gas to 38.5 million barrels of oil equivalent (mmboe), a 4% increase on the same time last year.
Significantly lower oil and LNG prices meant that the average realised oil price Santos received was down -34% to US$48 per barrel, while the average realised LNG price dropped 14% to US$8.57 per million British Thermal Units (mmBtu).
Disappointingly, after massively writing down the value of some of its oil and gas assets to the tune of over US$750 million, Santos reported a loss of US$289 million for the 6 months.
Will Santos still pay a dividend?
Yes, Santos will still pay a dividend, but it will be a big drop on the same time last year. Santos announced it will pay a fully franked interim dividend of US 2.1 cents per share, down 65% on the far more enticing US 6.0 cents per share dividend paid last year.
This is in keeping with the company's 'sustainable' dividend policy, which targets a range of 10% to 30% payout of free cash flow.
If you've been watching Santos shares for its dividend, you'll need to move quick! Shares go ex-dividend on 25 August 2020. This is the date when shares start selling without the value of its dividend payment.
What's the outlook for Santos for the rest of 2020?
For the second half of the financial year Santos is turning up the heat on production. The company is estimating production of between 44.5 million and 49.5 million barrels of oil equivalent in the second half, which suggests a total of up to 88 mmboe. Year-on-year this would be production growth of up to 16.5%.
This is good news for investors as it sneaks in above the guidance Santos provided in their 2019 annual report of producing 79–87 mmboe in 2019.
Still, it will take a strong, sustained recovery in energy prices for Santos investors to have a result to really cheer about in the second half of the year.
At the time of writing, the Santos share price is down 3.57% to $5.67 per share.
