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Trading Tidbits: STO, BOQ

Updates Thursday from energy major Santos (ASX:STO), whose revenue is headed the wrong way, and Bank of Queensland (ASX:BOQ), who confirmed they are in the regulator’s sights.


The Russian boost to global oil and gas prices vanished for Santos (ASX:STO) in the three months to March with the country’s second-ranked energy giant revealing a 13% slide in revenue.

Global oil and gas prices have lost all the gains that Putin’s invasion of Ukraine in late February, 20222 generated, along with the little bump a month ago from the production cut imposed by the OPEC+ group (mostly Russia).

Adelaide-based Santos revealed on Thursday said it had had revenue of $US1.6 billion ($A2.4 billion) for the three months to March 31, down from $US1.9 billion in the first quarter of 2022 while production volumes slumped 14.6% to 22.2 million barrels of oil equivalent from 26 MMboe a year earlier.

Sales volumes were also weak, falling 12% to 23.8 MMboe.

The company blamed the falls on a slowdown in production and softening of oil and gas fuel prices from last year’s highs driven by the Russian invasion.

The falls were mostly close to market forecasts, which is why the shares lost just 0.4% to $7.09.

Santos CEO Kevin Gallagher said the company had continued to perform strongly in the face of mounting “regulatory and economic uncertainty”.

Santos and other east-coast gas producers are under mounting pressure from a range of government measures to cool soaring energy costs, including regulations capping domestic gas sales at $12 a gigajoule for 12 months, and reforms that give the government the more regular ability to divert exports to the domestic market to head off potential shortages.

As well the Albanese government is looking at changes to the ineffective Petroleum Resource Rent tax to boost collections from the sector. Income from that tax will fall from $2.6 billion last year to around $2 billion in the next year.

Santos’s average LNG price slid from $US16.92 per million British thermal units (MMBtus) in the final three months of 2022 to $US14.46 in the March quarter. Its average crude oil price fell from $US94.71 a barrel to $US87.59.

Since March 31, the prices of the global indicator, Brent, have dipped to around $US82 a barrel while the US indicator, West Texas Intermediate, is now just over $US78 a barrel. LNG prices in northern Asia (the so-called JKM market) are around $US12.45 a MMBtu and more than half their levels in early January.

Despite the weak opening quarter, Santos maintained its 2023 production guidance of 86 to 96 mmboe.

Larger rival Woodside is due to release its first quarter report on Friday.


Six days after shocking the investors with news of $260 million in impairments and provisions for a new updated risk management system and lower earnings and a reduced interim dividend, the Bank of Queensland (ASX:BOQ) has warned that it faces action from regulators.

BoQ confirmed in its first-half results on Thursday that this action could include penalties or enforcement action after scrutiny of its anti-money laundering programs.

That was not mentioned in any of the commentary or outlook statements in the various releases from the bank, except on Page 33 of the ASX filing in The Directors report where this appeared:

“In the half year ended 28 February 2023, a number of internal and external reviews identified a material uplift is required in BOQ’s operational resilience, risk culture and governance and BOQ’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program and compliance. BOQ is engaging proactively with regulators in relation to the scope and governance of the Integrated Risk Program, with external subject matter experts engaged to assist. The Integrated Risk Program will be independently assured.

“There remains a risk that BOQ will be subject to penalties, sanctions or other enforcement action in respect of these matters.”

That surely deserves more explanation and explains the shock news last Friday of the $60 million provision for an enhanced risk management system and the company’s sensitivity to regulatory interest in its affairs.

There was in fact a hint of regulatory interest from the key watchdog, AUSTRAC in last Friday’s statements from the bank and the abrupt way an analyst conference was ended by bank chair, Patrick Allaway when a questioner asked about regulatory interest.

While cash earnings fell 4% to $256 million, statutory profit fell 98% to just $4 million for the six months to the end of February because of the $260 million in provisions and impairments.

This was due to a $200 million goodwill impairment relating to the acquisition of the Home Building Society in Perth back in 2007, and a $42 million after tax provision ($60 million cost) for costs relating to a new “integrated risk program”.

The Board also confirmed an interim dividend of 20 cents per share, down 2 cents a share from the year ago period. The Bank of Queensland tried to spin the payout level in Thursday’s statement, saying that on “the reported cash earnings result, the dividend payout ratio is 51%. The dividend represents a 61% payout after the one-off provision for the Integrated Risk Program is included.”

But it failed to mention the impact of the $200 million goodwill impairment, meaning the ratio was off the charts.

Temporary CEO Patrick Allaway said in Thursday’s statement “BOQ is in a strong financial position as we enter this more challenging economic cycle. We are well positioned to continue to invest in our transformation to deliver a stronger and simpler low-cost digitally enabled bank.

“We have made significant progress since announcing our strategy in 2020 across digitisation; improving our strategic position through the ME bank acquisition, achieving growth across our brands and strengthening our financial resilience.”

But not a whisper from him about the possible regulatory action.

If the bank is the target of regulatory action over money laundering, it will join a list of rivals in Westpac and the Commonwealth Bank as well as casino groups, Crown, Star and Sky City.

All have been paid or face the prospect (in the case of Star and Sky City) of very large fines – in the hundreds of millions of dollars if the penalties levied against Westpac, the CBA and Crown are any guide.

The market didn’t worry about the warning and sent the shares up more than 1% to $6.36.