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 absorbing 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.

On Wednesday, Santos said it expected to produce between 100 million and 110 million BOE this year, driven by higher output from Papua New Guinea following the Oil Search takeover. It forecast sales volumes in a range of 110 million-120 million BOE.

Record output in 2021 coincided with a sharp recovery in oil prices, helping sales revenue 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," Chief Executive Kevin Gallagher said on Wednesday.

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.

Santos said Wednesday that it hoped to be in a position to make a decision on the Pikka Phase 1 project in Alaska in the first half of 2022. That represented a slight shift in language from before when Santos said it was targeting a final investment decision in mid-2022.

Santos also said it wanted to be ready to make a final investment decision on the first phase of the Dorado oil project in Australia by the middle of 2022.

"Major growth projects capital expenditure is expected to be in the range of US$1.15 billion to US$1.3 billion," Santos said in its outlook. "A contingent amount of up to approximately US$400 million could be added should the Dorado and Pikka projects take final investment decisions."

Santos added that it would likely be able to fund all its growth projects from free cash flow if oil prices average at least US$65 a barrel this year.


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


(END) Dow Jones Newswires

02-15-22 1732ET