Ferrets Stock to Watch: SANTOS LIMITED 09:37, Tuesday, 12 December 2006
A MAJOR ENERGY COMPANY THAT NEEDS TO REPAIR ITS MARKET IMAGE
Sydney - Tuesday - December 12: (RWE Aust Business News) ********************************************************
OVERVIEW ********
Santos Ltd (ASX:STO) is going through a purple patch and nothing it touches seems to work out.
But a radical change in strategy announced yesterday might help the company regain some of its image in the market place.
Santos aims to rebalance its exploration and production portfolio by divesting all of its interests in the United States, and continue to refocus its exploration activities into Australia, Asia and the Middle East.
But a series of adverse events has put Santos's shares on the rack over the last couple of months.
They were too much for the market on Friday and sent Santos shares reeling to $9.82 on Friday, a near-30 per cent fall from their record high of $13.68 reached in February.
The old adage in the market is that when things are at their worst, it's often a good time to buy.
As it happened the company's plan to grab The Australian Gas Light Company and move into the retailer energy sector was stymied by Alinta.
Santos didn't have a look in on the Queensland's Government's sale of Sun Retail which was snapped up by Origin Energy (ASX:ORG) for $1.2 billion.
AGL Energy (ASX:AGK) made short work of Sun Gas and is expected to pick up a second Queensland business, Powerdirect.
But yesterday Santos announced it had extended its offer for Queensland Gas Company (ASX:QGC) to January 31, which appears to be a forlorn hope for success because the horse has already bolted.
AGL Energy has already taken a 30 per cent stake in QGC which seems to block any full bid from Santos.
In addition AGL Energy has signed long-term contracts to buy gas for the next 20 years or more.
AGL Energy's move to put a cap on the Queensland gas price is firstly to ensure continuity of supply which it believed Santos couldn't achieve or would not confirm, and secondly to keep the price of gas extremely competitive in that state while it moved into the retail market.
On Friday Santos took another mauling over the mud flow disaster at Banjar Panji in Indonesia in which the company is a non-operating partner.
A Goldman Sachs analyst dropped the bucket on the company, suggesting that without further guidance on costs, he estimated Santos's exposure is about $US1.1 billion, along with a remediation share of $US264 million and no insurance cover.
The original operator estimate was $US180 million.
In another proposed acquisition, Santos was beaten to the punch by Beach Petroleum (ASX:BPT) for Delhi Petroleum.
Santos remains a major player in the Cooper Basin gas fields and may be able to persuade the South Australian Government to lift its 15 per cent ownership cap which has deterred equity investors from making a full bid.
Santos has also been caught napping by newcomer Westside Corporation which has done a deal with BHP Billiton to tap all of its coal seams for methane gas which could anything from 500bcf to 1 trillion.
An IPO is in the pipeline to develop the project with SAAD and Indo BOOMI Coal taking a 10.4 per cent and 10 per cent stake respectively.
SHARE PRICE MOVEMENTS *********************
Shares of Santos yesterday closed unchanged at $9.82. Rolling high for the year is $13.68 and low $9.72. Dividend is a handsome 40c to yield 4.09 per cent. Earnings per shares is 137c and p/e ratio 7.15. The company has 598.2 million shares on issue with a market cap of $5.8 billion.
Yesterday the company announced that following a strategic review, it intends to sell all of its exploration and production activities in the United States.
Santos said continued high demand for energy in the US has resulted in a strong market for assets in Santos's US business areas, making it a good time to bring this portfolio to the market.
While Santos has a long history of involvement in the US upstream oil and gas sector, the company believes that it will be better placed to meet its strategic objectives by re-deploying capital into its other business activities in Australia, Asia and the Middle East.
Santos's US operations produced 2.1 million barrels of oil equivalent during 2005 and include ongoing exploration and development activities over more than 180,000 gross acres in the onshore and offshore Gulf Coast of Texas, as well as western Colorado.
Santos has appointed Scotia Waterous to provide advice on the sales process.
Since the start of 2006, Santos has grown its focus areas in Asia by adding acreage in Vietnam to its exploration position in Kyrgyzstan and its extensive exploration, appraisal and production activities in Indonesia.
Santos will continue with its active exploration and new ventures program, as it continues to seek opportunities to consolidate its position as one of south east Asia's leading energy companies.
BACKGROUND **********
Santos joined the Australian Stock Exchange list as long ago as June 30, 1970.
The company is a major Australian oil and gas exploration and production company with interests and operations in every major Australian petroleum province and in the United States, Indonesia, Papua New Guinea, Vietnam, Kyrgyzstan and Egypt.
Santos is one of Australia's largest gas producers, supplying sales gas to all mainland states and territories, ethane to Sydney, and oil and liquids to domestic and international customers.
The Cooper Basin, which Santos and its joint venture partners have developed, is Australia's largest onshore resources project.
In Australia, Santos has one of the largest exploration portfolios by area of any company and has assembled a large, well-situated acreage position in Indonesia and the United States.
The company is also pursuing new venture opportunities in North Africa, the Middle East, and Central and Southeast Asia.
Santos is positioning itself to perform alongside the top quartile of the world's oil and gas companies - rapidly expanding its exploration interests and delivering production growth through an exciting suite of development projects.
Significant development projects contributing to Santos's growth include the Bayou-Mundane Liquids and LING projects in the Australia Timor-Leste Joint Petroleum Development Area, the Mutineer-Exeter oil fields and John Brookes gas field developments in the Carnarvon Basin offshore Western Australia, the Oyong oil and gas field and Maleo gas field offshore East Java, and the Casino gas development offshore Victoria.
At the end of 2005, Santos had a total market capitalisation of approximately $7.9 billion, making it one of Australia's Top 40 companies.
(20min delay)