In morning trade, the Santos Ltd (ASX: STO) share price is edging lower.
At the time of writing, the energy producer's shares are down 0.7% to $7.20.
While disappointing, this compares favourably to other energy shares which are falling heavily after oil prices sank overnight.
Why is the Santos share price outperforming peers?
The Santos share price is faring better than peers such as Beach Energy Ltd (ASX: BPT) today thanks to the release of a positive announcement which has partially offset the oil price weakness.
According to the release, Santos has announced a simplified capital management framework targeting higher shareholder returns. This includes a minimum annual return of at least 40% of free cash flow.
Santos notes that its strategy is to maintain a disciplined, low-cost operating model that is designed to deliver strong cash flows through the commodity price cycle.
This revised capital management framework seeks to maintain an appropriate capital structure that enables Santos to balance the allocation of capital between investment in the business to develop backfill projects, decarbonisation projects, the development of strategic growth and clean fuels projects, and the provision of sustainable returns to shareholders based on the generation of free cash flow.
What is the capital management framework?
Santos' capital management framework is as follows:
- A policy of at least 40% payout of free cash flow from operations (excluding major growth) generated per annum.
- Shareholder returns by way of cash dividends and/or share buybacks, subject to market conditions and board discretion.
- An unchanged target gearing range of 15% to 25%.
Share buyback boost
Also lending some support to the Santos share price today is news that the company is boosting its share buyback.
Santos has announced a further US$350 million increase in its on-market share buyback. This amount is in addition to the US$350 million announced in August 2022, which is approximately 98% complete, and brings the total on-market share buyback amount to US$700 million for 2022.
Santos' Chair, Keith Spence, revealed that this may not be the end of shareholder returns and that 40% of free cash flow may not be its payout ratio minimum for long. He said:
In addition, the Board shall give consideration to additional shareholder returns from any net proceeds derived from asset divestments through portfolio optimisation once those divestments reach completion and proceeds have been received.
Once the Barossa and Pikka Phase 1 projects commence production, the Board's intention is to consider increasing shareholder returns to at least 50 per cent of free cash flow generated per annum.
