Shares of Santos Ltd closed lower on Friday, shedding 0.9% to settle at A$6.94, as the market digested the company's announcement of a significant long-term gas supply arrangement. The energy producer confirmed it has finalized key terms with the South Australian government for a decade-long agreement to supply gas to the Whyalla Steelworks, commencing in 2030.
Details of the Whyalla Agreement
The binding term sheet outlines the supply of 200 petajoules (PJ) of gas over ten years, starting from 2030. This volume is equivalent to approximately 30% of Santos's current gas output from its Cooper Basin operations. The parties are working towards executing a full supply agreement by June 30 of this year. The gas is intended to support the steelworks' transition to lower-emission production, specifically through the adoption of direct reduced iron technology, which is projected to cut emissions by around 50% compared to traditional coal-powered blast furnaces.
Chief Executive Kevin Gallagher emphasized the deal's role in facilitating industrial decarbonization. However, the 2030 start date introduces uncertainty, with investors and analysts questioning how to value the contract today amid potential shifts in gas policy, project timelines, and volatile commodity markets.
Financial Performance and Strategic Moves
The gas deal news arrives during a pivotal week for Santos, which recently reported its 2025 financial results. The company posted an underlying net profit after tax of $898 million, with revenue reaching $4.9 billion and free cash flow of $1.8 billion. Concurrently, Santos has intensified its focus on cost management, targeting a reduction in its workforce by roughly 10%.
Analysts have viewed the planned headcount cuts favorably, interpreting them as a signal that operating expenses are poised to decrease. The company is also progressing key projects, targeting the first cargo from its Barossa LNG development and the Darwin LNG life extension project for early 2026.
Portfolio Review and Market Valuation
Pressure is mounting on Santos to provide more clarity on its portfolio of undeveloped assets. Following the announcement of a strategic review of its Australian integrated oil and gas portfolio, analysts noted that the market currently assigns minimal value to these holdings. "The market is currently putting zero value on these assets," remarked Dale Koenders, head of energy research at Barrenjoey.
This strategic repositioning comes as Santos prepares for a board change, with director Yasmin Allen set to step down on February 21 after a decade-long tenure, most recently serving as chair of the people, remuneration and culture committee.
Dividend and Immediate Market Context
Investors are now turning their attention to the company's final dividend. Santos has declared a payout of US$0.103 per share. The ex-dividend date is set for February 23, with the record date following on February 24. The payment will be made on March 25, and the Australian dollar equivalent will be confirmed on March 3.
The broader Australian market showed little movement on Friday, with the S&P/ASX 200 index dipping a marginal 4.8 points to close at 9,081.4. The energy sector outperformed slightly, with Woodside Energy gaining 1.2% during the session. In commodity markets, oil prices held firm; Brent crude advanced 0.4% to $71.91 per barrel, while U.S. West Texas Intermediate (WTI) rose 0.5% to $66.74, supported by geopolitical tensions involving the U.S. and Iran.
As trading resumes next week, market participants will watch to see if Santos's share price can stabilize ahead of the ex-dividend date. Further broker commentary and any additional statements from management regarding the cost-cutting initiative and portfolio review will be closely monitored for their impact on investor sentiment.
