The Santos Ltd (ASX: STO) share price has been one of the biggest movers on the market today.
In morning trade the oil and gas giant's shares are up 7% to $3.24.
What happened?
This morning Santos released its second-quarter update. Whilst it revealed a slight drop in production, its reduction in costs appears to have really caught the eye of the market.
During the quarter Santos produced 14.7 million barrels of oil equivalents (mmboe), compared to 14.8 mmboe during the first-quarter.
This means that year-to-date production is now 5% lower than the prior corresponding period.
But investors don't seem to mind too much considering its positive free cash flow breakeven forecast for FY 2017.
According to today's release, Santos has reduced its free cash flow breakeven forecast to US$33 per barrel. This compares to US$47 per barrel at the beginning of 2016.
This was thanks to full-year production cost guidance being reduced to US$8-8.25 per barrel of oil equivalents.
Management believes this demonstrates the company's ongoing transformation into a low-cost, reliable and high performance business.
Should you invest?
With the Brent crude oil price rising to a six-week high of US$49.68 overnight, this new low-cost Santos is certainly in a great position to generate high levels of free cash flow this year.
So I can't say I'm surprised by the strong gain its shares have made today.
If oil prices do remain at these levels for the foreseeable future then Santos could prove to be a great option for investors looking for exposure to the resources sector.
But that is of course a big if.
