Can the Santos Ltd share price recover from its plunge?

Credit: rabiem22

Santos Ltd (ASX: STO) is one of Australia’s most widely-held energy producers.

It has a market value of roughly $5 billion and had around 150,000 individual shareholders this time last year, although that number may have fallen over the last 12 months as investors dissociated themselves from the plummeting share price.

Indeed, its shares have fallen 7.8% today alone to $2.82, while they’re down 60% over the last 12 months and 79% since September 2014. They also hit their lowest price in more than two decades last month at just $2.42.

Source: ASX website - Santos 5yr share price

Source: ASX website – Santos 5yr share price

Certainly, it’s been a horrendous run for Santos shareholders, together with shareholders in various other energy companies which have also been impacted by plunging oil prices.

Shares of Woodside Petroleum Limited (ASX: WPL) and BHP Billiton Limited (ASX: BHP) have also been hit hard, as have Oil Search Limited (ASX: OSH) and Origin Energy Ltd (ASX: ORG), to name a few.

Oil prices have crashed over the last 18 months or so, plummeting from around US$110 a barrel to US$27 earlier this year. They soon rebounded to around US$36, but are again in a downwards spiral with one barrel fetching just US$30 again. Some experts believe oil could fall to just US$20 a barrel before prices finally begin to rebound.

If that happens, you can expect further declines in Santos’ share price. Margins will be squeezed, asset values will likely be written down, and overall earnings could well decline even further. As an addition, its credit rating could also be downgraded if the company is deemed to be at a greater risk of defaulting on its pile of loans.

Given that global stockpiles of crude oil continue to grow, it seems there could be more pain for energy producers at least in the near-term. Santos could make for a decent long-term investment if oil prices do rebound soon, but it certainly seems like an unnecessary risk to take right now.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

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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