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The Santos Ltd share price pushes higher on market update

The Santos Ltd (ASX: STO) share price has pushed higher again on Tuesday and is up almost 2.5% to $5.32.

This has extended the energy company’s 12-month return to a market-beating 33%.

Why are its shares higher today?

Investors have responded very positively to Santos’ fourth-quarter activities statement released this morning.

According to the release, Santos ended the quarter with net debt of US$2.7 billion, down from US$3.5 billion at the end of FY 2016.

Furthermore, it finished the year with upstream unit production costs down 5% to US$8.07 per barrel of oil equivalent and capital expenditure of US$682 million for the year. Pleasingly, this means that its costs were at the low-end of its guidance range and capital expenditure was lower than its previous guidance.

Combined, this has helped reduce its free cash flow breakeven price by 12% to US$32 per barrel from US$36.50 per barrel in FY 2016.

The company also impressed with its production and sales. Production of 59.5 mmboe was at the upper end of guidance and sales volumes of 83.4 mmboe was above the upper end of guidance.

This included record annual LNG sales volumes of 3.1 million tonnes, driving LNG sales revenues up 33% to US$1.2 billion and ultimately helping lift total sales revenue 20% higher year-on-year to US$3.1 billion.

Should you invest?

I think management’s aim of turning Santos into a low-cost, reliable and high performance business has been a huge success and the strong share price gain over the last 12 months has been entirely justified.

Especially given how management believes Santos is now a stronger, more resilient company with the capacity to execute and bring on-line growth opportunities across its core long-life natural gas assets.

If oil and LNG prices remain favourable over the coming 12 months then I think Santos has a good chance of beating the market again in 2018. While I would choose a diversified miner like BHP Billiton Limited (ASX: BHP) ahead of it, I still think it could be worth considering as an investment today.

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Motley Fool contributor James Mickleboro has no position in any of the 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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