Santos Limited explores for, develops, produces, transports, and markets hydrocarbons in Australia and Papua New Guinea.
Santos Ltd (ASX:STO), a holding within the ASX Blue Chip portfolio, reported a 14% decline in full-year net profit, missing analyst expectations as lower oil and gas prices weighed on performance. Net income fell to $1.22 billion, below the $1.3 billion consensus forecast, while underlying profit dropped 16% to $1.2 billion. Revenue declined 9% to $5.38 billion, reflecting weaker commodity prices and lower sales volumes. The company’s free cash flow also declined by 11% to $1.89 billion, while net debt rose 15% to $4.89 billion.
Despite the weaker financial result, Santos reaffirmed its commitment to delivering shareholder returns while investing in key growth projects. The final dividend was cut sharply to $0.103 per share, down from $0.175 last year. The full-year dividend payout of $0.233 represents 40% of free cash flow, in line with the company’s policy. From 2026, Santos plans to prioritise shareholder returns by distributing at least 60% of all-in free cash flow, increasing to 100% when the company is below its target gearing range.
Operationally, EBITDA across its major assets was mixed. The Cooper Basin reported a modest 2.4% increase to $300 million, while Queensland and NSW EBITDA rose slightly by 0.5% to $799 million. However, PNG and Western Australia saw significant declines of 13% and 16%, respectively, as weaker production and pricing impacted earnings. Unit production costs stood at $7.85 per barrel of oil equivalent, with a temporary elevation expected in early 2025 before declining in the second half as the Barossa gas project comes online.
Santos remains focused on two major growth initiatives—the Barossa LNG project in the Timor Sea, which is 91% complete and on track for first gas in Q3 2025, and the Pikka oil project in Alaska, which remains on schedule for mid-2026. Management is targeting $100 million to $150 million in annual cost savings over the next one to two years, reinforcing its low-cost operating model.
The company has faced investor pressure to boost shareholder returns, leading to the suspension of a $3.2 billion oil and gas project in Western Australia. However, Santos continues to evaluate large-scale opportunities, including a potential second production unit at its Darwin LNG plant, leveraging gas from the Beetaloo Basin in the Northern Territory.
Looking ahead, Santos has maintained its FY25 guidance, with production expected to increase to 90-97 million barrels of oil equivalent, up from 87.1 million in 2024. While lower energy prices remain a challenge, the successful execution of key projects and disciplined cost management will be critical in restoring earnings momentum.
While the share price is reacting negatively today, down -2.83%, STO’s dividend yield remains strong at 6.9%, and therefore likely to remain in the ASX Blue Chip portfolio for some time. As a reminder, the ASX Blue Chip portfolio focuses on beaten down stocks with high dividend yields, typically taking a contrarian approach buying stocks which are out of favour.
