SYDNEY - Australian oil and gas producer Santos reported a steeper-than-expected drop in annual profit and slashed its dividend by 41% on Wednesday, but remained confident it was reaching an "inflection point" as major growth projects neared completion.

Santos said its underlying profit was $1.22-billion for the 12 months to December 2024, below the Visible Alpha consensus of $1.32-billion. It declared a final dividend of 10.3 cents per share, down from 17.5 cents a year earlier.

Santos shares fell 2.98% to A$6.68 ($4.24) by midday while the benchmark S&P/ASX 200 was also down 0.3%.

The company attributed the earnings to lower oil and gas prices, supply chain disruptions from geopolitical events, and slowing demand in China.

Lower gas output in Western Australia and declining volumes from the Bayu-Undan field in the Timor Sea also weighed on production, which totalled 87.1-million barrels for the year.

However, CEO Kevin Gallagher and chair Keith Spence told investors that Santos would see returns from its Barossa gas and Pikka oil projects after a heavy investment cycle.

“2024 delivered strong operational performance from the base business, providing reliable production and cash flows,” Gallagher and Spence said in a statement.

“As Santos reaches an inflection point in 2025, with new production to come online, we will remain focused on driving our low cost disciplined operating model to deliver free cash flow to drive shareholder returns.”

Santos said its $4.3-billion Barossa project, long-delayed due to concerns over its impact on Indigenous communities, was now 91% complete and on track to deliver first gas in the September quarter of this fiscal year.

The Adelaide-based company also said it was seeing "strong progress" at the Pikka phase one project in Alaska, with first oil on track for mid-2026. An early start-up was also possible subject to weather and logistics, it said.

Gallagher told investors that annual production would be boosted by over 30% in two years with Barossa and Pikka coming online.

The projects, alongside a $100-million to $150-million cost-cutting plan, would also “put the company in a great position to generate cash and return value to shareholders”, Gallagher said.

Santos has said it will distribute 60% of free cash flow to shareholders from 2026, instead of reinvesting in oil and gas expansion, up from its previous dividend policy of returning 40%.