The logo of Australian oil and gas exploration and production company Santos is displayed during the LNG 2023 energy trade show in Vancouver, British Columbia, Canada, July 12, 2023. REUTERS/Chris Helgren/File Photo Purchase Licensing Rights

Australian oil and gas producer Santos (STO.AX), opens new tab reported a 42% drop in its annual underlying profit on Wednesday on the back of persistent weakness in commodity prices and lower production.

Oil prices have fallen from the elevated levels seen in 2022 after the Russia-Ukraine war, while demand for liquefied natural gas (LNG) remains pressured by weak global industrial production and a slow economic recovery in China, which reclaimed the title of the world's top LNG buyer in 2023 from Japan.

Santos, which earlier ceased talks of a potential $52-billion merger with larger rival Woodside Energy (WDS.AX), opens new tab, reported an underlying profit of $1.42 billion for the year ended Dec. 31, compared with $2.46 billion a year earlier.

That missed a consensus estimate of $1.49 billion, according to Jarden Research.

The Adelaide-based company declared a final dividend of 17.5 cents per share, compared to 15.1 cents apiece declared a year ago.

Santos raised its dividend to meet its 40% of operating cashflow payout policy, but failed to deliver extra returns to shareholders to account for the selldown of the PNG LNG project, said Saul Kavonic, energy analyst at MST Marquee.

This "raises the question if Santos needs to sell down its jewel assets in order to meet shareholder dividend expectations," Kavonic added.

Santos said its Barossa gas project, where construction of an undersea pipeline was ruled in favour of the company by a court in January, is now 67% complete with first gas now expected in the third quarter of 2025.

At full production rates, Barossa is expected to add 1.8 million tonnes per annum to Santos's LNG portfolio, it said.