By David Winning

SYDNEY--Santos Ltd. reported an annual net profit of US$658 million as it benefited from higher prices of oil and natural gas and an early contribution from assets acquired via its takeover of Oil Search in December.

The result marked a turnaround from a year ago when Santos made a loss of US$357 million after abosrbing asset impairments against resources in Papua New Guinea and Australia, including the GLNG project that turns coal seam gas into liquefied natural gas for export.

Directors of the Adelaide, South Australia-based company declared a final dividend of 8.5 U.S. cents a share, up from a payout of 5.0 U.S. cents a year earlier.

Santos last month reported record annual production of 92.1 million barrels of oil equivalent, including some 1.7 million BOE from Oil Search assets from December 11, which represented the day after the takeover became effective.

Record output coincided with a sharp recovery in oil prices, helping sales revenue for the 12 months through December to total US$4.7 billion, up 39% on the previous year. The average price of liquefied natural gas fetched by Santos was US$9.25 per million British thermal units, up 45% on 12 months earlier, and accelerating in the fourth quarter of the fiscal year.

Santos's transformational acquisition of Oil Search represents a doubling down on production of oil and natural gas even as some rivals seek to transition away from fossil fuels. While the deal has strengthened its presence in hydrocarbon-rich Papua New Guinea, it has also led some investors to question whether the company needs to moderate its growth ambitions.

Morgan Stanley, in a research note to clients this month, said feedback from investors suggested most think Santos's leverage is too high and should be below 20%. The company also had potential to rethink its dividend policy to create higher returns for shareholders.

"We will now seek to further optimize the portfolio, reduce gearing and conduct a review of our capital management framework including returns to shareholders," said Chief Executive Kevin Gallagher.

Attention is increasingly focused on whether Santos will look to sell assets to bring debt levels down, with the Alaska oil reserves in Oil Search's portfolio attracting particular scrutiny. Santos could look to sell part or all of the Alaska project, although Morgan Stanley noted some investors worry there is a limited pool of potential buyers and this would be reflected in any sale price.


Write to David Winning at david.winning@wsj.com


(END) Dow Jones Newswires

02-15-22 1658ET