2021 annual results | Santos
Santos Announces Record Free Cash Flow and Underlying Earnings, and Higher Final Dividend
|Full year (millions of US dollars)||2021||2020||Change|
|Sales volume (mmboe)||104.2||107.1||-3%|
|Product sales revenue||4,713||3,387||39%|
|Underlying profit ||946||287||230%|
|Net profit/(loss) after tax||658||(357)||284%|
|Free movement of capital ||1,504||740||103%|
|Final dividend (UScps)||8.5||5.0||70%|
Santos today announced its full-year results for 2021, reporting record free cash flow of
US$1.5 billion and underlying profit of US$946 million. The results reflect significantly higher oil and LNG prices compared to the corresponding period due to the recovery in global energy demand combined with supply constraints in the industry due to lower investments in capital during the pandemic and the three-week contribution of Oil Search assets.
The results also reflect Santos’ disciplined, low-cost operating model, which generated a breakeven free cash flow of $21 per barrel in 2021.2
Reported after-tax net income of US$658 million includes losses on commodity hedges and costs associated with acquisitions and one-time tax adjustments, and was significantly higher than the corresponding period, primarily due to included impairments the previous year.
The Board of Directors has decided to pay a final dividend of 8.5 US cents per share, which is 70% more than the previous final dividend. The dividend is equal to 20% of the pro forma free cash flow for the full year for the merged entity less the dividends paid in the first half by the two companies, in accordance with Santos’ sustainable dividend policy which aims range of 10% to 30% payment of one cent of free cash flow.
The final dividend is 70% franked and distributes the bulk of the company’s remaining franking credits to shareholders. Based on the company’s tax losses carried forward, Santos does not expect to generate franking credits for the next several years.
Santos Managing Director and Chief Executive Kevin Gallagher said Santos delivered record production, free cash flow and underlying earnings in 2021 as strong core business performance positioned the company to benefit from rising commodity prices.
“The highlight of the year was the completion of our merger with Oil Search. The merger provides increased scale and capacity to drive our disciplined, low-cost operating model and unparalleled growth opportunities over the next decade – all with a vision to become a global leader in the energy transition,” said Mr. Gallagher.
“The financial results we are announcing today only include three weeks of the combined company. If the merger had been in place for all of 2021, the combined portfolio of assets would have generated more than $2.3 billion in free cash flow for the year.
“We will now look to further optimize the portfolio, reduce leverage and review our capital management framework, including returns to shareholders.
“2021 has brought global energy security into the limelight with higher prices and a shortage of supply following a rapid recovery in demand and a lack of investment in new supplies.
“It is vitally important that investment in new supplies happens and in a sustainable way. At Santos, we are focused on delivering critical fuels in a more sustainable way to meet society’s demand. »
2022 production is expected to increase to a range of 100-110 million barrels of oil equivalent (mmboe), mainly due to increased production from PNG following the Oil Search merger. This should be offset by a lower share of production from Bayu-Undan, which is expected to be around 10 mboe lower than in 2021, due to a lower average working interest following the sale of 25% to SK E&S in 2021, gross production as the field approaches the end of its life and decrease in net tolls under the Production Sharing Agreement due to higher expected LNG prices. Sales volumes in 2022 are expected to be between 110 and 120 Mboe.
Sustaining capital expenditures are expected to be approximately US$900 million and restoration expenditures approximately US$200 million. Sustaining and restoration expenses are self-funded under the disciplined operating model and are included in the forecast 2022 free cash flow breakeven oil price of less than $25 per barrel.
Capital expenditures for major growth projects are expected to be between US$1.15 billion and US$1.3 billion. A contingent amount of up to approximately US$400 million could be added should the Dorado and Pikka projects make final investment decisions. Orientation assumes current Santos interest in all projects.
At an average oil price of approximately USD 65 per barrel in 2022, it is expected that sufficient free cash flow will be generated to fund planned capital expenditures for major growth projects, including the amount possible.3
2022 Annual General Meeting
The 2022 Annual General Meeting will be held on Tuesday, May 3, 2022. The deadline for receipt of nominations from individuals wishing to be considered for election as a director is Thursday, February 24, 2022.
A video presentation of the 2021 annual results is available on the Santos website. A live Q&A webcast for analysts and investors will take place today at 11:30 a.m. AEDT.
To access the live webcast, register on the Santos website at www.santos.com.
 EBITDAX (earnings before interest, taxes, amortization, depletion, exploration, evaluation and impairment), underlying earnings and free cash flow (cash flow from operations less investing cash flow net of acquisitions and disposals and major growth capital expenditures, less lease liability payments) are non-IFRS measures that are presented to provide an understanding of the performance of Santos’ operations. Operating income excludes the impact of costs related to acquisitions, disposals and impairment of assets, hedges and items subject to significant variability from one period to another. Non-IFRS financial information is unaudited, but figures have been extracted from audited financial statements. A reconciliation between net profit after tax and underlying profit is provided in the appendix to the 2021 annual results presentation published on the ASX on February 16, 2022.
 Free cash flow equilibrium is the average annual oil price at which cash flow from operating activities (before hedging) equals cash flow from investing activities. Excludes one-time restructuring and redundancy costs, costs associated with asset disposals and acquisitions, major growth capital expenditures and lease debt payments.
 Projected free cash flow of approximately US$1.8 billion at an average oil price of US$65 per barrel based on a sensitivity of approximately US$450 million of free cash flow for each tranche of $10/bbl above expected breakeven point of
Watch the 2021 annual results presentation video