UPDATE 1-Australia's Santos surprises with 33 pct dividend hike

Thu Aug 21, 2014 7:57pm EDT

Related Topics

* Underlying profit up 3 pct, beats forecasts

* Dividend up 33 pct to 20 cts a share v forecasts for 15 cts

* Santos expects stronger H2 (Recasts with dividend surprise, adds analyst comment)

MELBOURNE, Aug 22 (Reuters) - Australian oil and gas producer Santos Ltd beat forecasts with a 3 percent rise in first-half core profit and rewarded shareholders with a 33 percent dividend hike as it flagged an expected stronger second half.

Some analysts had thought Santos might unveil a cash return to investors who have raised concerns about the outlook for its $18.5 billion Gladstone liquefied natural gas (LNG) project, but it opted instead to step up its dividend.

"I think it's a clever way to achieve a bit of goodwill from the market," said Mark Samter, an analyst at Credit Suisse, who said the company still faces the challenge of proving the GLNG project can generate a good return.

Santos said Gladstone LNG was on track to start producing in 2015, on budget.

Underlying profit rose to A$258 million for the six months to June from A$251 million a year earlier, beating an average forecast from four analysts of A$222 million.

The result was stronger than expected as tax and royalty payments were lower than some analysts had tipped.

"We have set the foundation for a stronger second half," Santos CEO David Knox said in a statement.

Net profit fell 24 percent to A$206 million, hit by writedowns of A$70 million mostly related to its Indonesian coal seam methane business. The writedowns had been flagged to investors.

Santos shares have slipped 0.3 percent this year, underperforming a 5.4 percent rise in the broader market . The stock was poised to open higher on Friday after the dividend surprise.

(Reporting by Sonali Paul; Editing by Edwina Gibbs and Richard Pullin)

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