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Is Santos Ltd a buy at this share price?

The share price of Santos Ltd (ASX: STO) has soared 88% since it hit a 52-week low of $2.46 in January of this year.

While some investors are worried that the oil price could once again head south, long-term investors are focussing on the fundamental value of oil stocks.

Last week’s release of Santos’ First Quarter Activities Report could arguably provide some optimism that further gains lie ahead.

Here’s Why

  • First quarter production rose 11% [compared with the prior corresponding period (pcp)] to 15.6 million barrels of oil equivalents (mmboe)
  • First quarter sales revenue was $835 million compared with $825 million in the pcp and $828 million in the December 2015 quarter
  • The average realised oil price decreased 28% on the pcp to $51 (US$37) per barrel
  • Santos successfully reduced its upstream production costs (compared to the pcp) by 13% to $11.90 per barrel, excluding LNG plant costs
  • The Gladstone LNG (GLNG) train 1 produced 958,000 tonnes of LNG and shipped 16 cargoes
  • Santos received cash proceeds of $520 million in early March from the sale of its Kipper gas asset to Mitsui E&P Australia

What’s Next?

Management took the opportunity at the quarterly update to reaffirm guidance for 2016. Here’s a recap of those forecasts:

  • Production between 57 mmboe and 63 mmboe
  • Sales of between 76 mmboe and 83 mmboe
  • Upstream production costs (excluding LNG plant costs) of between $13.50 and $14 per barrel of oil produced
  • Capital expenditure of $1.1 billion

But is it a buy?

Santos offers shareholders exposure to an attractive portfolio of energy assets. Those assets include GLNG, PNG LNG, Darwin LNG, Cooper Basin and Carnarvon.

The combination of higher oil prices in the long term, an attractive portfolio of energy assets and the start-up of a second GLNG train could all provide positive momentum for Santos and improve investor sentiment towards the stock.

Long-term investors will be inputting these factors, along with the opposing risk factors into their analysis to determine the underlying value of Santos.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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