Does good news mean you should buy Santos Ltd?

What: There was a  dose of good news this morning for shareholders in oil and gas producer Santos Ltd (ASX: STO).

The energy company has updated the market with an announcement that it has secured an addition three-year, $1 billion bilateral bank loan facility with the Australia and New Zealand Banking Group (ASX: ANZ).

So what: It’s a timely occurrence for the group which has seen its share price plunge nearly 44% in the past three months, partially in response to funding concerns. As the company noted, the new facility significantly enhances Santos’ liquidity profile and financial flexibility at attractive funding costs.

In an attempt to ease the market’s concerns regarding funding, Chief Financial Officer Andrew Seaton commented that: “This facility provides a substantial buffer over and above the company’s funding needs in the current uncertain oil price environment.”

Given the concerns of investors about Santos’ exposure to lower oil prices which remain below US$60 a barrel, today’s announcement is certainly welcome relief.

Now what: Despite ongoing weakness in the oil price, Santos’ shares are trading higher today with a gain of 2.5% by lunchtime. In fact, most oil producers have rallied today with Beach Energy Ltd (ASX: BPT) up nearly 6% and Woodside Petroleum Limited (ASX: WPL) adding around 2%.

It’s a tricky time for investors who are enticed by the prospect of buying into oil stocks which have suffered major price falls. It could be that a bottom has been reached – even if further falls in the oil price occur – however it’s also possible that this will turn out to be a short rally before another leg down occurs.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.


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