(Reuters) – Australia’s Santos Ltd (STO.AX) announced an on-market share buyback worth up to $250 million on Wednesday as part of a new capital framework targeting higher shareholder returns amid surging commodity prices.
The new capital framework also includes a dividend policy of 10% to 30% of free cash flow, additional shareholder returns of at least 40% of incremental free cash flow in the form of additional share buybacks or dividends, the gas producer said.Oil and gas prices, already at strong levels at the start of the year, surged sharply in the March quarter after Russia’s invasion of Ukraine resulted in supply disruptions amid strong demand.
Santos will release its quarterly sales and production report on Thursday, which is expected to show a big jump in revenue from the previous quarter and a year ago, partly due to its takeover of Oil Search and soaring crude prices.
The Adelaide-based company, which booked record annual sales revenue in January and expects to reap big gains following its $6.2 billion takeover of Oil Search, is experiencing strong cash flow generation, it said in a statement on Wednesday.
“We are now in a position to target higher shareholder returns through our new capital management framework,” Santos Chief Executive Officer Kevin Gallagher said, adding he believes “the current share price undervalues the company”.
Shares of the gas producer closed at a two-year high of A$8.32 on Tuesday, and have jumped 31.9% so far this year, compared with a meagre 0.6% gain last year.
The share buyback is expected to start next month, and will be conducted during the year.