Profit surge fails to boost Santos (ASX:STO) share price today

Oil and gas prices have been rising to multi-year highs.

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Key points

  • Santos share price sinks in early trading
  • Record underlying earnings in 2021
  • Final dividend leaps 70%

The Santos Ltd (ASX: STO) share price is sliding in early trade, down 3%.

Santos closed at $7.40 per share yesterday and is currently trading for $7.18.

Below we look at the highlights from the ASX 200 energy company's 2021 full year financial results.

Note that this is the first time Santos is releasing results since its merger with former competitor Oil Search was completed in December.

Santos share price slides despite record free cash flow

  • Product sales revenue of US$4.71 billion, up 39% year-on-year
  • EBITDAX (earnings before interest, tax, depreciation, depletion, exploration, evaluation and impairment) of US$2.81 billion, up 48% from US$1.90 billion in 2020.
  • Underlying profit increased 230% to US$946 million
  • Final dividend 5 US cents per share (cps), 70% franked, up from 5.0 cps in 2020

What else happened during the year?

In 2021, Santos produced 92.1 million barrels of oil equivalent (mmboe), up 3% from the prior year.

Sales volume slipped however, down 3% to 104.2 mmboe from 107.1 mmboe the prior year.

2021 saw Santos deliver a net profit after tax (NPAT) of US$658 million, up 284% year-on-year. The company said 2021 NPAT includes losses incurred on commodity hedging and costs associated with acquisitions and one-off tax adjustments. It attributed the NPAT leap to significant impairment that were included in its 2020 reporting.

Santos also saw its free cash flow hit a record high, surging by 103% year-on-year to US$1.50 billion.

It credited the growth in overall results to higher oil and LNG prices over the year along with the 3 weeks contribution from the Oil Search assets during the final stretch of 2021.

What did management say?

Commenting on the results, Santos CEO Kevin Gallagher said:

The highlight of the year was the completion of our merger with Oil Search. The merger delivers increased scale and capacity to drive our disciplined, low-cost operating model and unrivalled growth opportunities over the next decade – all with a vision of becoming a global leader in the energy transition…

2021 brought global energy security into the spotlight with higher prices and a supply crunch in the wake of rapidly recovering demand and a lack of investment in new supply.

It is vitally important that investment in new supply occurs and in a sustainable way. At Santos, we are focussed on supplying critical fuels more sustainably to meet society's demand.

What's next?

Santos forecasts that 2022 production will increase to 100–110 mmboe. It expects sales volumes in the range of 110–120 mmboe.

The ASX 200 energy giant forecasts spending on major growth projects to be around US$1.15–US$1.3 billion. Working off an average oil price of US$65 per barrel in 2022, it expects to generate enough free cash flow to fund that growth.

While this year's final dividend carried 70% franking credits, Santos said that based on its carry-forward tax losses, it is unlikely to generate franking credits for the next several years.

Santos share price snapshot

The Santos share price has gained 9% so far in 2022, compared to a loss of 5% posted by the S&P/ASX 200 Index (ASX: XJO).

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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