STO 0.87% $6.98 santos limited

santos yet to show it can replicate cooper basin

  1. 2,629 Posts.
    I am not convinced just yet that Santos has the steam to continue to move up from here based on the fundamentals mentioned in the article below and there seems to be mixed T/A leading indicators ATM.

    I will stay short ATM and wait and see what tomorrow brings.

    Everyone please do your own DD & Research. This is not financial advice.

    ********************************
    From the article below:
    "//But the outlook for Santos is less robust. "Santos, conversely, appears (at approximately $13 a share) to be fully priced and indicates the magnitude of the expectations built in for Jeruk success," Mr Willimas said.//"
    ********************************
    Santos yet to show it can replicate Cooper Basin
    Author: Ian Howarth

    Date: 06/09/2005

    Publication: The Financial Review
    Section: Market Wrap
    Page: 21

    There is good news everywhere for most oil and gas producing companies as high crude prices and strong demand for energy provides the strongest industry backdrop in years.

    But production remains the key to corporate fortunes and while Santos has dramatically improved its production profile in the past few years, much remains to be done to secure its long-term future.

    Hurricane Katrina has shut most of the US oil industry's Gulf of Mexico production, putting a strong floor under prices for the next couple of months, giving many companies room to accumulate cash and start exploration programs. Santos is focused on both.

    Credit Suisse First Boston oil analyst Andrew Williams summed up the impact of Katrina on local stocks. He said in a note that the hurricane had pushed the (crude oil) forward curve (FC) up by nearly 10 per cent in the past week, affecting spot oil prices, particularly TAPIS (the benchmark Asian crude). The storm had shut down more than 91 per cent of the Gulf's oil production.

    The disruption to global oil supplies caused by the closure of most of the Gulf of Mexico was too much for the market to bear, he said. "On a FC/spot basis, our Woodside valuation is more than $48 a share, while Oil Search is valued around $4.80 a share indicating, for these stocks, the market has not fully embraced the upside potential of a stronger crude outlook."

    But the outlook for Santos is less robust. "Santos, conversely, appears (at approximately $13 a share) to be fully priced and indicates the magnitude of the expectations built in for Jeruk success," Mr Willimas said.

    Deutsche Bank analyst John Hirjee also harbours doubts about Santos's future performance despite its strong first half.

    "While there is reasonable growth in Santos's near-term production, there are lingering questions on how it replicates its legacy asset, the Cooper Basin," he wrote after Santos posted a record first-half profit of $289.5 million.

    Santos raised its oil and gas production forecast sharply to 55 million barrels of oil equivalent in 2005, 17 per cent more than it expected at the start of the year.

    Santos could lift output even further if it proceeds with a mooted expansion of the Darwin Liquefied Natural Gas plant, which is nearing completion and expected to produce its first liquid gas early next year.

    Mr Hirjee said that "like its peers, Santos is enjoying the benefits of high oil prices" but "our forecasts indicate 2005 is the peak earnings year unless our oil price forecasts are upgraded. There is a reasonable risk of this. However, self-help is needed in exploration success or acquisitions".

    ABN Amro Equities oil analyst Aiden Bradley wrote that Santos's first-half results were largely due to strong output from the Mutineer/Exeter oil field. He emphasised the importance of a successful appraisal of the Jeruk oil discovery in Indonesia, saying that while the outlook for production and profitability in the next 12 months remained robust, the market was likely to continue to focus on the second-half drilling program.
 
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