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Here’s why the Santos share price is rising today

Credit: commons.wikipedia.org

What: The share price of oil and gas major Santos Ltd (ASX: STO) has buck the negative lead from overseas markets today, rallying more than 2% in afternoon trading.

That’s despite the oil price continuing to slump overnight with Brent crude falling US$1.25 to US$40.53 a barrel and as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) lost a further 1.1% on Thursday.

So What: The cause of the rally in Santos’ share price would appear to be an announcement that a large private distributor of gas into China, ENN Group, is set to acquire 11.7% of the company for an estimated US$750 million. That’s roughly $4.85 a share – around 24% higher than Santos’ last closing price.

The shares to be purchased are currently controlled by private equity firm Hony Capital which subscribed for shares in Santos’ capital raising late last year.

Now What: The movements in Santos’ share register are a reminder that some overseas investors see strategic value in Australia’s energy assets. The wakeup call seems to have had a flow on effect to Origin Energy Ltd (ASX: ORG) with its shares also up 2%.

Having bounced off of its recent lows, the oil price now appears to be consolidating around the US$40 a barrel level, as we discussed a couple of weeks ago.

This is drawing out contrarian investors keen to pick the bottom of the cycle. Likewise, Asian-based investors with long-term horizons appear to see value at current price levels. For many investors however, the uncertainty of the situation makes the oil and gas sector one to continue to avoid.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. 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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