Today is a big day for Santos Ltd (ASX: STO) shares.
Not because shares in the S&P/ASX 200 Index (ASX: XJO) energy stock are up 2.4% and trading for $6.98 apiece. Though that will come as welcome news to shareholders.
Rather the reason Santos shares are making news is that the company is hosting its annual Investor Day in Sydney.
Here's what management had to say.
Santos shares in focus amid Investor Day
Among the highlights of the morning, and potentially offering long-term support for Santos shares, CEO Kevin Gallagher announced an updated capital allocation framework.
Santos has been investing heavily in bringing significant new production online from its Barossa and Pikka projects. Under the new capital allocation framework, Santos will target returns to shareholders of at least 60% of all-in free cash flow from 2026 as the capex on these projects winds down.
Gallagher said Santos will prioritise shareholder returns when new production comes online. The new projects will also help support the global energy transition while generating new revenue streams.
"Santos has been unrelenting in sticking to its strategy and implementing its disciplined operating model," Gallagher said.
The Barossa project is 84% complete, with first gas expected in the third quarter of 2025. Pikka is 70% complete, with first oil expected in the first half of 2026.
Also potentially impacting Santos shares longer term, the company announced a carbon storage growth target to build and operate a commercial carbon storage business.
The company expects this could permanently store 14 million tonnes of third-party CO2 per year by 2040. That was reported to be equivalent to around 50% of Santos' 2023 equity Scope 3 emissions from the combustion and use of its products.
In an early success, last month Santos announced the startup of its 1.7 million tonnes per year Moomba Carbon Capture and Storage (CCS) project.
Commenting on the resilience of Santos' LNG portfolio, Gallagher said:
The proximity of our projects to Asian markets provides a significant shipping cost and emissions advantage compared to supply from east coast US and Middle East suppliers.
We are delivering on our strategy to develop upstream production to backfill and sustain our leading infrastructure position, decarbonise our operations and build a commercial carbon management services and low-carbon fuels business to meet future demand.
With Barossa and Pikka coming online, Santos' production is expected to increase by more than 30% by 2027 compared to 2024, significantly lowering unit production cost which will support strong free cash flow generation throughout the commodity price cycle.
Now what?
Looking to what could impact Santos shares in the year and years ahead, Gallagher said, "The market outlook for LNG into Asia, domestic gas in Australia and liquids remains strong out to 2040 and beyond."
He added:
2024 is set to be another peak consumption year for hydrocarbon fuels globally, making it increasingly clear that decarbonisation of their production and use is critical to the world's net zero goals…
With a strong balance sheet, line of sight to long-term, cash-generative production and a healthy portfolio of sustainable backfill and expansion options, I am confident Santos can continue to deliver superior value for shareholders over the long term.
Santos left its 2024 production, unit cost and capital expenditure guidance unchanged. The company said it will provide 2025 guidance with its 2024 fourth-quarter report in January.
Santos shares are down 1% over 12 months.
