Snowcap partner Chris Kinnersley said Santos boss Kevin Gallagher needs to return to the capital discipline that he used to turn the company around after he joined in 2016. Santos’ “aggressive ramp-up in upstream growth spending has undone much of that good work,” Kinnersley said in a statement.
Santos CEO Kevin Gallagher and his board could be spilled at the April AGM if there is a strong vote against the remuneration report.Roy Van Der Vegt
Despite the global energy transformation to green power,Santos has embarked on a $US7.2 billion ($10.9 billion) spending spree on major new oil and gas projects from 2021 to 2025,the activist investor pointed out. That contrasts with just $US150 million spent in the first five years of Gallagher’s tenure as CEO.
Two projects – the Barossa liquefied natural gas field north of Darwin and the Pikka oil project on the North Slope of Alaska in the US – are already underway. Santos is expected to commit to three more major projects in 2024 – the Dorado oil and gas offshore project in WA,the Narrabri gas project in the Gunnedah Basin,NSW,and the Papua LNG project in Papua New Guinea.
Seeking to put a halt to those projects,Snowcap launched a “Reform Santos” campaign on Thursday.
The activist investment firm – founded by twin brothers Henry and Chris Kinnersley,who a year ago pushed for AGL to abandon its demerger and bring forward the closure of coal-fired power plants – wants the oil giant to only invest in high-return,low-emissions projects,and sell down its interest in the Barossa and Pikka projects to free up cash for shareholders.
It claims the percentage of operating cash flow returned to Santos shareholders in the past five years is half that enjoyed by Woodside shareholders.
Credit Suisse energy analyst Saul Kavonic said Snowcap was right in highlighting Santos’ lagging share price and environmental,social and governance concerns,but solutions were more complex than those offered in Snowcap’s proposal.
With the Papua LNG and Dorado projects already baked into the share price,Santos’ stock was likely to suffer if they were shelved and the company may have to write down its investments,Kavonic warned in a note to clients.
The broker said balance sheet constraints had kept Santos from increasing shareholder returns,and while asset sales would help,they were not a sustainable solution.
Snowcap also fired a blast at a $6 million growth projects bonus offered to CEO Gallagher in 2021,when the board thought he might get poached by Woodside. The bonus was “fundamentally flawed” as it was an incentive to go ahead with the nominated projects even if the predicted returns deteriorate,or more attractive alternatives are identified,the investor said. Instead,bonuses should be linked to financial targets and emissions reduction targets.
The activist investor also criticised Santos for its safety record,which it said was the worst of 48 companies reporting to the International Association of Oil and Gas Producers,with its total number of incidents per hours worked five times higher than the industry average. In the past two years,Santos had at its operation off the WA coast alone.
Environmental activist group Market Forces,meanwhile,urged shareholders to vote against Santos’ remuneration report at the company’s April 6 annual general meeting. Market Forces executive director Will van de Pol said Santos’ executive remuneration was inconsistent with its support for the climate goals of the Paris Agreement.
“Santos’ rampant pursuit of new fossil fuel production,sanctioned by the board and incentivised with big executive bonuses,represents an abject failure of corporate governance,” he said.
Santos received a first strike against its remuneration report last year. If the company receives a shareholder ‘no’ vote of 25 per cent or more again in April,investors will get the opportunity to vote on spilling the board.
Santos declined to comment.
Santos shares were up 0.9 per cent to $7.38 in late afternoon trading in Sydney.
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