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UPDATE 1-Australia's Santos posts profit on cost cuts; holds off on payout
August 23, 2017 / 11:55 PM / 3 months ago

UPDATE 1-Australia's Santos posts profit on cost cuts; holds off on payout

(Adds CEO comments, background on GLNG project)

Aug 24 (Reuters) - Santos Ltd swung to a first-half underlying profit on Thursday, beating analyst estimates, helped by strong oil and gas prices and lower production costs, but held off on reinstating a dividend as it focuses on paying down debt.

Australia’s second-largest independent oil and gas producer reported underlying profit of $156 million for the six months to June, its biggest since the first half of 2014, up from a loss of $5 million a year ago.

The profit was better than analysts’ forecasts of around $130.25 million, according to Thomson Reuters I/B/E/S.

At the bottom line, the company reported a net loss of $506 million, hurt by a new impairment charge of $690 million it flagged last week mostly on its Gladstone liquefied natural gas (GLNG) project.

“Our focus on more efficient, lower cost operations has delivered significant improvements in earnings and cash flow,” said Chief Executive Kevin Gallagher.

However Santos decided not to revive its dividend despite cutting net debt in the first half to $2.9 billion from $3.5 billion at the end of 2016, and said it would continue to focus on reducing debt further.

Santos, whose biggest shareholder is China’s ENN Ecological Holdings Co with private equity partner Hony Capital, has been racing to boost gas sales into the local market this year to fend off potential curbs on its liquefied natural gas exports.

Australia has put in place new rules to restrict exports of LNG to ease rising energy prices for local manufacturers, at a time when the country is on track to become the world’s largest LNG exporter by 2019.

GLNG, in which Santos has a 30 percent interest, is the most vulnerable to the export restrictions as the rules target any east coast LNG project that is taking gas from the domestic market to help meet its export contracts.

“In the coming months, Santos expects to announce further domestic supply contracts to support the Federal government’s efforts to deliver affordable and reliable energy to households and industry,” Gallagher said.

The company upgraded its sales volume guidance range for 2017 to 77-82 million barrels of oil equivalent (mmboe) from 75-80 mmboe. (Reporting by Chris Thomas; Editing by Sonali Paul and Richard Pullin)

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