Santos (ASX:STO) share price slumps following half-year results

The company posted record production and revenue for the period.

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The Santos Ltd (ASX: STO) share price is edging lower this morning. That’s after the oil and gas giant released its results for the 6-months ending 30 June 2021.

At the time of writing, the Santos share price is trading $6.17, down 0.64%.

Let’s take a closer look at today’s results.

Santos share price in focus after 222% increase in net profits

  • Net profit after tax of US $354 million, up from US $289 million loss in prior corresponding period (pcp).
  • Revenue increased 22% to US $2 billion
  • Earnings before interest, taxes, depreciation, amortisation, and exploration (EBITDAX) of US $1.2 billion – up 24% on the pcp.
  • Free cash flow of US $572 million, which is up 33% on the pcp.
  • Interim dividend up 162% of US 5.5 cents per share.

What happened in the first 6 months of 2021 for Santos?

Fluctuating oil prices have had a disproportionate effect on the Santos share price during this reporting period. When oil prices were rising, Santos shares were rising. When Texas tea was on the downward slope, so were Santos shares.

One particular moment of the period was the blockage in the Suez canal. Internet comedians had a field day with memes, but Santos’ shareholders were enjoying it too. As the majority of the world’s oil supply goes through the strait that bisects Egypt, it sent oil prices higher. This in turn had the effect of boosting the Santos share price.

Finally, there were significant updates relating to the company’s pay arrangements with the CEO, investment decisions over a new natural gas project, and concerns were raised over the increasing divestment from fossil fuels.

Management commentary

Santos Managing Director and CEO, Kevin Gallagher, said Santos delivered record production and sales volumes in the first half of 2021, and strong free cash flow of US$572 million despite lower average LNG prices.

These results again demonstrate the resilience of our cash-generative base business and strong operational performance across our diversified asset portfolio.

Consistent application of our low-cost disciplined operating model continues to deliver cost reductions and efficiencies despite cost challenges across the industry and COVID-related cost impacts in the base business.

What’s next for Santos?

Santos’ immediate term goal is to successfully complete its proposed merger with Oil Search Ltd (ASX: OSH). Santos is proposing to provide 0.6275 Santos shares for every one share in Oil Search. When this news was announced, the Santos share price appreciated.

Mr Gallagher touched on this proposed deal in today’s comments.

The proposed merger is a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets.

The merged company would have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns.

The merger would also build on our industry-leading approach to ESG through the combination of Santos’ net-zero 2040 pathway, including its sector-leading CCS projects, and Oil Search’s unique social programs in PNG, underpinned by a strong balance sheet to fund the transition to a lower-carbon future.

Santos share price snapshot

Over the previous 12 months, the Santos share price has increased 7.81%. The ASX 200, meanwhile, has jumped 24.62% over the same time. Year-to-date Santos shares are 3.42% lower.

Santos has a market capitalisation of $12.9 billion.

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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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