Kick Off: Origin Energy Limited v Santos Ltd

Coal seam gas and oil versus coal seam gas and power retailing – which is the better combo?

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Facing off in the oil and gas pool, the Australian oil and gas producer, Santos Ltd (ASX: STO) goes head to head with Origin Energy Limited (ASX: ORG) in the ASX World Cup.

Pre-match commentary and stats

Santos is a large oil and gas producer that has been recently hitting its stride, taking full advantage of high oil prices and strong production results. Santos has two major projects coming to fruition in the near term including plans to liquefy and then export coal seam gas in eastern Australia.

Origin Energy is also in the coal seam gas game, but in addition is both a retailer and a generator for Australia’s electricity market. Incidentally, though the teams are competitors, they have been known to work well together in joint ventures.

Santos Origin
Market Capitalisation $13.92 billion $16.12 billion
Forecast FY 14 P/E ratio 23.1 21.64
Forecast FY 14 Yield 2.36% fully franked 3.4% unfranked
Price to Book Value 1.36 1.21

 Notes: Thompson Consensus Forecasts, based on last FY reports.

GAME ON

When it comes to price, neither team looks threatening. Both are priced for vigorous growth due to their well-publicised plans to expose the Australian economy to international gas prices. Both companies are priced on high forward P/E ratios and, after taking into account franking credits there is little difference between dividends. In any event, price to book value ratios are similar and neither side can score a goal.

The score is locked at 0 – 0 at half time.

When it comes to growth Santos takes control. Whereas Origin is locked into a declining electricity generation and retailing business, Santos is free to focus on hydrocarbons – which are in very high demand. Furthermore, Santos has more diversity in its reserves, both geographically and in terms of the actual product (Santos is a significant oil producer, as well as gas).

A solid shot by Santos looks to be saved by the Origin Energy goalkeeper, CEO Grant King. However, he is distracted by his mission to water down the renewable energy target – he fumbles, and lets in a goal!

1 – 0 to Santos! The teams slug on for another 20 minutes but with such a similar style neither team looks like getting ahead.

However, right in injury time Santos commits a foul in the penalty box when it is found by the EPA to have contaminated an aquifer with unsafe levels of uranium.

However, the Origin Energy striker has been too focussed on a PR campaign that likens electricity generation to baking bread “fresh” every day. He pushes the shot wide as a result– a lucky escape for Santos.

The game ends 1 – 0 to Santos! 

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Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of  the companies mentioned in this article.

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