What Santos's new exploration investment means for investors

Santos keeping growth prospects alive with $100 million investment.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Two of the country's top energy producers, Woodside Petroleum (ASX: WPL) and Santos (ASX: STO) have taken new steps in the last week to up their investment in exploration to sniff out new oil and gas sources across Australia.

That's great news for investors at a time when almost $150 billion worth of energy and mining projects have been delayed or cancelled in the last year, according to the Bureau of Resources and Energy Economics (BREE).

Santos has plans to invest $100 million in a new phase of oil and gas exploration in central Australia over the next 12 months targeting the Mereenie field in the Amadeus Basin, 250 km west of Alice Springs. Santos already has 57 production wells in the area and will consider further investment if the exploration is successful.

Figures from the Australian Oil and Gas expo website show investments in the Mereenie field to date have been fruitful ones; the areas has produced more than 16 million barrels of oil and condensate, and over 240 billion cubic feet of gas since 1984.

For investors the Santos investment is a sign (albeit a small one) that the oil and gas industry is not being stung as heavily as the mining sector where falling commodity prices and rising costs have forced companies to scrap any aspirations they had for growth to a focus on protecting profit margins.

Big miners including BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Newcrest Mining (ASX: NCM) have in the last year cut back heavily on new investment, closing or selling off mines, laying off staff and closing offices.

Even though the $100 million represents just a fraction of the forecast $4 billion Santos will invest in projects in 2013, it is an optimistic sign. It is also a prudent move given the company already has facilities in the areas, so any finds will require less future investment to develop.

Woodside is also making tentative steps towards new exploration. The company last week beat five other bidders to win a new permit to explore a block known as WA-483-P in the northern Exmouth sub-basin.

Foolish takeaway

Spending on exploration for energy companies is the equivalent of research and development spending for tech or healthcare companies. The initial cost can be huge, but it is a necessary evil if the company wants to continue to grow and unlock new revenue streams for shareholders.

In the market for high yielding ASX shares? Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »