$15.17 Target - Citi Research

The report is attached, make of it what you will but don't shoot the messenger
I have a report which has recommendations from $9 - $15.17 (Ommitted for Copyright, sorry)

Report is a good (long) read but here are some highlights.

Santos Ltd (STO.AX)

Santos positioned for $75/bbl oil

 Santos reduces CY15 capex by 25% to A$2bn — STO has reduced growth capex
by A$0.5bn to A$1.4bn and sustaining capex by A$0.2bn to A$600m to better
position the balance sheet. We view this more so as capex deferral and expect it to
be spent post-GLNG and/or if oil prices rise. STO reiterated they did not intend to
raise equity. Production guidance was maintained at 57-64mmboe.

 Discretionary capex cut not associated with producing assets — Most of the
savings are likely coming from non-producing assets. We think Cooper
Unconventional and Narrabri CSM wear the brunt of the cuts and expenditure has
been delayed. We expect frontier basin exploration to be cut (seismic) but the
drilling schedule to be maintained. Lower oil prices have led to reduced service
costs delivering modest GLNG and Cooper capex savings.

 Asset divestments “under consideration” — We think now is not the right time to
divest assets given limited appetite for M&A globally. STO are unlikely to divest
producing assets given EBITDA underpins credit metrics. We list a number of
divestment candidates in the note, including GLNG pipeline and NSW CSM
farmdown.

 Credit metrics under pressure at US$75/bbl in CY17 — Assuming a €1000m
hybrid is secured in 1H15, we think STO can maintain investment grade rating
provided the oil price assumed by credit agencies is greater than US$77/bbl
nominal CY17 at 80c FX. Citi forecast US$95/bbl.

 Maintain Buy, Target Price raised to A$15.17/shr — We value STO using a long
term Brent oil price of US$90/bbl (real CY15). We think the market has priced in a
lower long term oil price in response to the recent oil price movement and the
possibility of an equity raising. We don’t think an equity raise is necessary if they
can raise the hybrid and they can still underwrite the dividend.

GLTAH