The Santos Ltd (ASX: STO) share price is edging lower in mid-morning trade on Wednesday.
This comes despite the company releasing an announcement regarding a new capital management framework including an initial on-market share buyback.
At the time of writing, the energy giant's shares are swapping hands for $8.27 each, down 0.6%.
Santos shakes up its capital management framework
In today's statement, Santos outlined its new capital management framework and the on-market share buy-back of up to US$250 million (A$330 million).
Management noted that the company strategy involves maintaining a disciplined, low-cost operating model that can deliver strong cash flows.
As such, the new capital management framework looks to support the business in enabling a balanced allocation of capital. This includes investments in the company, strategic growth and clean energy projects, and sustainable returns to shareholders at higher commodity prices.
The new capital management framework is outlined below:
- A dividend policy of 10% to 30% payout of free cash flow (excluding major growth) generated per annum at an average Brent oil price up to US$65 per barrel.
- Additional shareholder returns of at least 40% of the incremental free cash flow (excluding major growth) in the form of additional dividends and/or share buybacks at the board's discretion at Brent oil price outcomes above US$65 per barrel.
- A target gearing range of 15% to 25%.
In addition, given the strong free cash flow being generated at current oil prices, Santos intends to conduct an on-market share buyback.
This is expected to commence next month and run throughout the remainder of 2022.
However, the exact timing and number of shares purchased under the buyback will depend on a number of things. This revolves around prevailing market conditions, the share price, and other relevant factors.
Santos managing director and CEO Kevin Gallagher briefly commented:
We are now in a position to target higher shareholder returns through our new capital management framework and are pleased to announce an initial on-market share buyback of up to US$250 million because we believe the current share price undervalues the company.
Santos share price snapshot
It's been a solid 2022 for Santos shares, registering gains of 31% following a surge in oil and gas prices.
When looking at the same time last year, the company's share price is up almost 20%.
Santos commands a market capitalisation of about $28 billion as one of the premier energy companies on the ASX.
