Santos 'oversold'

SANTOS’ LNG exposure gives it critical leverage into the Asian growth story that continues apace, analyst says, defying the bashing that has become commonplace since its stock has plummeted 37.6% in the past six months.
Santos 'oversold' Santos 'oversold' Santos 'oversold' Santos 'oversold' Santos 'oversold'


Anthony Barich

The South Australian company has been in the eye of a storm lately. In January Credit Suisse said Santos’ stock was “worthless” if low oil prices continued indefinitely, and speculation was rife among analysts that the company was a cheap takeover target – a cause particularly popular since Royal Dutch Shell’s $90 billion bid for rival BG Group.

Yet Santos has come back 11% so far in April.

Motley Fool analyst Tim McArthur, formerly of New York firm Davids Funds, said Santos’ recent price bounce suggests that at least some in the market believe the stock has been oversold and reached a point where the rewards outweigh the risks with the upside greater than the downside.

Being one of the leading oil and gas producers in the Asia Pacific region and holding one of the largest exploration and production acreages in Australia is certainly in Santos’ favour.

Thanks to its long-term, 20-year offtake agreements with Asian buyers, Santos’ portfolio of LNG assets – namely Darwin LNG, PNG LNG and Gladstone LNG – will also provide strong cash flow for decades to come.

For the year ending December 2014, Santos reported a solid increase in sales volumes, record sales revenue and production volumes at their highest level in five years.

To combat the lower oil price, Santos recently announced a 44% reduction in its capital expenditure program to $2 billion in 2015.

McArthur pointed out that global population growth was forecast to add 1.1 billion people to the world in the next 15 years, thereby increasing the total population to 8.4 billion.

“Much of this population growth will be concentrated in Asia – a market Santos is well placed to serve as its demand for energy rises,” he said.

Santos’ first quarter production figures showed a 15% increase in production and included a positive update on the progress of GLNG, with the project on budget and first production expected around the end of the third quarter.

The company also managed to reduce capital expenditure by 40% and said it had made “solid inroads towards reducing production costs per barrel across the business”