Why the Santos share price jumped today

Santos Ltd (ASX: STO) has seen its share price gain more than 5% today, to trade around $3.46 in late afternoon trading.

The oil and gas producer has been under the pump all this year and was forced to raise $3.5 billion recently through a capital raising and some asset sales to shore up its balance sheet.

The Santos share price has halved so far this year, falling from above $8 in early January and from above $15 in September 2014, as oil prices tumbled.

Santos share price chart

Source: Yahoo Finance

The benchmark Brent Crude Oil price has plunged from consistently above US$100 a barrel, to trade below US$40 a barrel, although it regained 2.5% overnight to US$38.86 a barrel.

Despite today’s gain, Santos shares are still down more than 18% for the week, according to Google Finance. Investors who tipped in more cash to buy shares in the $2.5 billion rights issue are already under water, with shares issued at $3.85.

Unfortunately, the company’s shares are still a high-risk proposition with more than $6 billion of debt on its books. Further assets sales or another capital raising could be on the cards, with the oil and gas producer likely to fall well short of its goal of becoming free cash flow positive from 2016. As I outlined earlier this month, Santos could miss its forecast by $737 million.

Buyer beware…

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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