Santos share price on watch after 300% first half profit growth

Booming oil prices have given Santos' profits a major boost…

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Key points

  • Santos has released its half year results for FY 2022
  • The energy producer has delivered huge profit growth during the half
  • Booming oil prices and its merger with Oil Search have underpinned this impressive six months 

The Santos Ltd (ASX: STO) share price will be one to watch on Wednesday.

This follows the release of the energy producer's half year results for FY 2022.

Santos share price on watch amid huge profit growth

  • Revenue up 85% to US$3,766 million
  • EBITDAX up 12% to US$2,731 million
  • Underlying net profit after tax up 300% to US$1,267 million
  • Free cash flow tripled to US$1,708 million
  • Interim dividend up 38% to 7.6 US cents

What happened during the first half?

For the six months ended 30 June, Santos delivered an 85% increase in revenue to US$3,766 million and a massive 300% jump in its underlying net profit after tax to US$1,267 million.

This was driven by record production, a big increase in the price of oil and LNG, and the merger with Oil Search.

Speaking of its merger, management advised that its annual merger integration synergies target has now increased to US$110 million to US$125 million.

Another positive was Santos' free cash flow generation. It reported the tripling of its free cash flow to a record US$1,708 million for the six months.

In light of its strong free cash flow generation, the Santos board declared an interim dividend of 7.6 US cents. This is up 38% compared to the same period last year.

Combined with its previously announced US$350 million on-market share buyback, this means Santos will be returning a total of US$605 million of 18 US cents per share to shareholders.

How does this compare to expectations?

As strong as this result was, it appears to have come in a touch short of expectations.

For example, according to a note out of Citi, its analysts were expecting a net profit after tax of US$1,333 million.

This could potentially weigh on the Santos share price today. Particularly given that energy shares were already likely to come under pressure after a pullback in oil prices overnight.

Management commentary

Santos' managing director and chief executive officer, Kevin Gallagher, was pleased with the half. He said:

Demand for our products has remained strong in both Australia and internationally, due to increased demand and shortages of supply from producing nations due global underinvestment in new supply.

We are seeing these issues play out in the significant shift in global energy policy towards energy security as a key priority. Our critical fuels not only play a key role in the energy security of Australia and Asia, but they also provide affordable and reliable alternatives to switch from higher emitting fuels.

Today's results demonstrate the strength of Santos, with strong diversified cashflows and capacity to provide sustainable shareholder returns, fund new developments and the transition to a lower carbon future.

Outlook

Looking ahead, management continues to target production of 102-107 mmboe and costs of US$7.90 to US$8.30 per barrel of oil equivalents for FY 2022. It also held firm with its sustaining capex at ~US$1,100 million.

It has, however, reduced its 2022 major capex guidance to ~US$1,400 to US$1,500 million, including Pikka Phase 1 final investment decision.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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