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Santos to grow production, FVE increased

Emma Rapaport  |  03 Oct 2018Text size  Decrease  Increase  |  
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Oil and gas major Santos has a bright future ahead, according to Morningstar senior equities analyst Mark Taylor, who has increased his fair value estimate amid a forecast boost in output.

Taylor has used his latest note to increase Santos’s (ASX: STO) midcycle production forecast to around 90 million barrels of oil equivalent, or mmboe, by 2025, 13 per cent above the previous 80 mmboe forecast.

Morningstar has increased its fair value estimate for no-moat Santos by 12 per cent to $7.85.

Santos darwin ing project

 

Morningstar's Mark Taylor says he is waiting for "greater clarity" on several projects

Taylor's 90 mmboe forecast is more conservative than Santos' 100 mmboe growth target announced last week.

At a presentation to investors on Wednesday, chief executive Kevin Gallagher outlined plans to almost double current levels of production, achieved substantially from its existing portfolio, including its latest US$2.1 billion acquisition Quadrant Energy, Western Australian’s biggest gas supplier.

This Quadrant deal saw Santos grab what may be the biggest oil find off Western Australia in more than 20 years. The acquisition is still subject to regulatory approval, but Taylor foresees no road-blocks.

Since last Wednesday's announcement, shares are up 1.24 per cent to $7.34, making shares marginally undervalued.

Increased production figures can be attributed to east-coast coal seam gas to liquid gas, Papua New Guinea, Gladstone LNG projects, Taylor says.

Santos has flagged other growth projects, which include the tie-back of the Barossa gas project off the north coast of Australia, and its plan to more than double its equity share of Darwin LNG production. A tie-back refers to the act of connecting a new oil and gas discovery to an existing production facility.

Santos is also banking on the devleopment of the Dorado oil prospect which comes with Quadrant, and increments elsewhere in the existing portfolio. These include the Cooper Basin, where costs are down 50 per cent since 2015, and Queensland's coal seams, where drilling activity increased to 300 wells in 2018, with a fourth rig added.

However, Taylor is waiting for "greater clarity" on projects including the recent oil discovery at Dorado off the coast of Western Australia, before crediting full value.

"Though CEO Gallagher is proving a leader not to be underestimated," Taylor says.

Taylor notes that near-term debt concerns have abated, with capital injections and cost control having reduced net debt to US$2.4 billion – from mid-2015's US$6.7 billion peak.

 

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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

 

is an editor for Morningstar.com.au

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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