Gas giant Santos to axe 10% of staff, consider asset sales

Santos, the second-largest Australian oil and gas producer, is planning to cull one in 10 jobs and may sell some of its assets after a year of lower fossil fuel prices contributed to a steeper-than-expected profit fall.

The Adelaide-based energy giant, which is under pressure to lift shareholder returns following the abrupt collapse of a $30 billion takeover offer from an Abu Dhabi-led consortium last year, on Wednesday revealed its net profit had declined by a third to $818 million in the 12 months to December, a weaker result than analysts had been forecasting.

Managing director Kevin Gallagher told investors Santos now intended to target a headcount reduction of “around 10 per cent”, a move he said would “rightsize” the business as it moved out of a period of high capital expenditure on growth projects in the Timor Sea and Alaska and focused on cutting costs.

With a workforce of around 4000 employees, a 10 per cent headcount reduction at Santos could equal as many as 400 jobs.

Santos, which extracts and processes gas in Australia for domestic energy use and for shipping overseas as liquefied natural gas (LNG), on Wednesday also said it would carry out a “strategic review” of its Australian operations. Investment analysts said this suggested the possible sale of some assets outside its huge LNG export businesses in Queensland and the Northern Territory, including projects spanning the Cooper Basin and Western Australia, and the proposed $3.6 billion Narrabri gas project in northern NSW.

Santos last year faced calls to investigate asset sales or a break-up of its business following the breakdown of takeover talks with a bidding group led by the Abu Dhabi state oil company, just 48 hours before the blockbuster deal was due to be finalised. The deal, if it had proceeded, would have been the biggest all-cash takeover in Australian corporate history and among the biggest ever in the global energy industry.

Gallagher on Wednesday said the review would assess whether some of its domestic projects would be able to compete for capital against the top-tier assets in the company’s portfolio as two large growth projects – the Barossa gas project off Darwin and the Pikka oil project in Alaska – begin production.

“We are doing a strategic review to see what does and doesn’t compete on a go-forward basis,” he said.

However, he said the outcome of the review would not be known until it was completed. “Everyone is speculating,” he said. “We will revert in early May.”

Santos is betting heavily that demand for cargoes of LNG will continue growing in the coming years despite growing questions about its role in the clean energy shift and warnings that the market is poised to flip into oversupply as huge new projects start up in the US and Qatar. Like other major gas exporters, Santos believes Asian population growth and rising living standards will underpin an increase in demand over the next decade. The company argues the fuel will be needed as a critical energy source that burns more cleanly than coal but can still provide reliable power to back up renewables.

The company’s full-year results, released on Wednesday, included $1.8 billion in free cash flow from operations and the announcement of total dividends of US23.7¢ a share, which Gallagher said demonstrated the “strength of our base business, built through the continued commitment to the disciplined low-cost operating model”. It was also revealed that Gallagher, who has led Santos for the past 10 years, had been awarded 90 per cent of his $6 million CEO growth incentive awarded in 2021.

Saul Kavonic, an analyst at MST Financial, suggested Gallagher was being “paid for not delivering”, pointing out that he had overseen delays and cost blowouts at key projects. Gallagher and the board have also come under heightened scrutiny amid questions about the company’s culture following a string of high-profile executive departures.

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