Why Santos shares are up 31% in 12 months

Shares in oil and gas producer Santos (ASX: STO) have hit their highest level in just over two years this week as investors pick up on the sunny outlook for the company’s future.

Shares in Santos closed yesterday at $15.33 and the company has risen 31% in the last 12 months. The strong performance is well up on the 19.7% gain of the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the same period.

The share price has been edging up on both the brighter investment climate and the decreasing time until Santos’ two big LNG investments start production. The PNG LNG joint venture in which Santos has a 13.5% stake is on track to deliver its first cargo of LNG next year, while its 30% holding in GLNG is due to be online in 2015.

The closer to completion the projects get, the lower the risk of delays and cost over-runs which may require additional capital. The two projects have already got contracted buyers for the LNG produced that extend into 2034 for PNG LNG and 2035 for GLNG. Santos is already looking at plans to expand on its PNG LNG investment and capitalize on the investment in infrastructure.

The last 12 months have seen many other positive developments for the company, which is helping to push up investor confidence. Another of Santos’ projects, the Fletcher Finucane project which targets oil production in the Carnarvon Basin, was delivered in just 16 months, ahead of schedule and 4% under budget at $470 million.

Santos’s share growth compares favourably to Australia’s other big energy producers. Woodside Petroleum (ASX: WPL) is up 15% in the last 12 months, while PNG LNG joint venture partner Oil Search (ASX: OSH) is up just under 14%.

Foolish takeaway

Santos’s strategy to focus on the Asia Pacific over the last 18 months has been aggressive and well managed. The result will be steadily increasing cash flows over a long period. The rise in share price over the last 12 months suggests investors have come to appreciate the company’s efforts.

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Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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