The Santos Ltd (ASX: STO) share price has climbed 2% to $3.53 in morning trade after the oil and gas producer released its half-year results.
Key takeaways from the release include:
- Revenue of US$1,496 million, up 24% on the prior corresponding period.
- Earnings before interest, tax, depreciation, depletion, exploration, evaluation and impairment (EBITDAX) up 46% to US$718 million.
- Net impairment loss of US$920 million.
- Loss before interest and tax of US$603 million.
- Underlying profit of US$156 million.
- Net debt reduced 35% to US$2.9 billion.
- Average realised oil price of US$54.8 per barrel.
- Free cash flow breakeven reduced to US$33 per barrel.
- Outlook: 2017 sales volume guidance is upgraded to 77 to 82 million barrels of oil equivalent.
All in all, I felt this was a strong result from Santos and goes some way to justifying the 16% gain its shares have made since the middle of July.
Whilst the net impairment loss of US$920 million has taken some of the shine away from these results, I believe shareholders should take heart from the fact that Santos has transformed itself into a low-cost producer with a free cash flow breakeven cost of just US$33 per barrel.
With oil prices hovering around the US$50 per barrel mark, this means Santos is now generating high levels of free cash flow which ultimately may find its way into the pockets of shareholders in the future.
Although Santos is not paying a dividend at the moment, once its debt has been reduced sufficiently I expect the company will begin to reward shareholders once again.
Should you invest?
I'm a big fan of this new low-cost Santos and believe that it is a great option in the resources sector if oil prices remain favourable.
If you are confident that oil prices will continue to improve, or at least stabilise, then I would suggest you snap up shares in Santos ahead of peers Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL).
