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Santos Ltd. rides high on strong LNG pricing

with interests in all Australian hydrocarbon provinces, Indonesia, and Papua New Guinea. Santos is now one of Australia’s largest coal seam gas producers and continues to prove additional reserves. It is the country’s largest domestic gas supplier. Santos boasts some of Australia’s largest and highest-quality coal seam gas reserves. East-coast LNG attracts export pricing and indirectly drives domestic prices in the direction of export parity.

Coal seam gas purchases increased reserves, and partial sell-downs generated cash profits, putting Santos on solid ground to improve performance. Group proven and probable, or 2P, reserves doubled to 1,400 mmboe, primarily East Australian coal seam gas. Coal seam gas has grown to represent more than 40% of group 2P reserves, despite partial equity sell-downs. 

Financial Strength:

The fair value of Santos Ltd. is 10.20 which is mainly driven by time value of money and near-term energy price strength.

At end-June 2021 Santos had net debt of USD 2.8 billion, gearing (ND/(ND+E)) at 28% and annualised first-half net debt/EBITDA conservative at just 1.2. Santos’ debt covenants have adequate headroom and are not under threat at current oil prices. The weighted average term to maturity is around 5.5 years. Capital efficient development and fast up-front cash flows from Dorado’s oil should combine to ensure Santos’ leverage ratios continue to decline from current levels despite outgoings.

Bulls Say:

  • Santos is a beneficiary of continued global economic growth and increased demand for energy. Aside from coal, gas has been the fastest-growing primary energy segment globally. The traded gas segment is expanding faster still. 
  • Santos is in a strong position, with 0.9 billion barrels of oil equivalent proven and probable reserves, predominantly gas, conveniently located on the doorstep of key Asian markets. 
  • Gas has about half the carbon intensity of coal, and stands to gain market share in the generation segment and elsewhere as carbon taxes are rolled out.

Company Profile:

Santos was founded in 1954. The company’s name is an acronym for South Australia Northern Territory Oil Search. The first Cooper Basin gas discovery came in 1963, with initial supplies in 1969. Santos became a major enterprise, though over-reliance on the Cooper Basin, along with the Moomba field’s inexorable decline, saw it struggle to maintain relevance in the first decade of the 21st century. However, the stage has been set for a renaissance via conversion of coal seam gas into LNG in Queensland and conventional gas to LNG in PNG.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.