$23.80 billion oil and gas company Santos Ltd [ASX:STO] today declared an extra US$350 million increase for its on-market share buyback.
STO shares were flat on the release of this news, its shares sitting around $7.19 each earlier today.
Santos announced a previous US$350 million offer in August, bringing the entire buyback total this year to US$700 million with today’s increase.
The latest buyback scheme is expected to begin this month, with its previous one now 98% complete.
Santos’ share price has decreased by 10% this month; however, in the year so far, it has risen by 14%.
STO is down 30% in comparison with its industry average.
Source: TradingView
Santos doubles its share buyback in capital framework
Reporting from Sydney this morning, the oil and gas explorer and producer said it would be doubling its share buyback scheme a further US$350 million on top of the existing US$350 million — chalking up the shareholder gain to US$700 million.
This announcement came within a simplified capital management framework aimed at targeting higher shareholder returns and including an annual return of at least 40% — minimum — free cash flow.
The latest scheme is expected to kick off this month.
Shareholder returns that are announced with respect to the company’s 2022 full-year results in February 2023 will be inclusive of the buyback increase.
Chair of Santos Keith Spence said:
‘In addition, the Board shall give consideration to additional shareholder returns from any net proceeds derived from asset divestments through portfolio optimisation once those divestments reach completion and proceeds have been received.
‘Once the Barossa and Pikka Phase 1 projects commence production, the Board’s intention is to consider increasing shareholder returns to at least 50 per cent of free cash flow generated per annum.’
The simplified capital management framework
Santos explained that its key strategy is maintaining a ‘disciplined, low-cost operating model to deliver strong cash flows through the commodity price cycle’.
The changes to its capital framework include the increased share buyback today, which is said to target a suitable capital structure and allows the company to strike a balance in capital allocation between various business investments.
Such investments include its backfill projects, decarbonisation projects, developments in growth and clean fuel projects, and, as already stated today, allowing sustainable returns to shareholders based on its free cash flow.
STO’s simplified capital management framework includes the policy of at least a 40% payout to shareholders based on its annual generated cash flow, which could soon be upped to 50%.
It also includes cash dividends or buybacks to shareholders based on market conditions and Board discretion and its existing target gearing range of 15–25%.
Mr Spence believes Santos is currently creating healthy cash flow with present commodity prices, and the Santos Board is reinforcing his confidence by agreeing to raise shareholder returns.
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