Shares in Santos Ltd trade at $6: Will it get a better takeover bid?

Shares in oil and gas company Santos Ltd (ASX: STO) were up 0.25% to $6.00 on Thursday after the release of the company’s quarterly update, and shares are up an impressive 63% over the past 12 months.

Clearly, Harbour Energy’s recent takeover bid, that prices Santos at $6.50 a share, contributed to the stock’s performance – but Santos’ last quarterly report proves that the company is in better shape now than it was one year ago.

The company sold its oil at an average realised price of US$71.6 a barrel in the March 2018 quarter, nearly twice as much as breakeven price and up 24% on the March 2017 quarter. The prices for Santos’ liquefied natural gas (LNG) and domestic sale gas also increased 16% and 9% respectively over the same interval.

Santos took advantage of high commodity prices to continue strengthening its balance sheet. The company’s net debt of US$2.5 billion is 8% lower since the start of 2018 and 47% lower since the start of 2016. If prices stand strong, the company will achieve its end-2019 net debt target of $2 billion by the second half of 2018.

Price improvements overshadowed the temporary decline in production volumes experienced during the quarter, due to planned maintenance work and the earthquake in Papua New Guinea that caused a temporary shutdown of Santos’ LNG projects in February.

Santos produced 13.8 million barrels of oil equivalent (boe), 8% less than in the previous quarter, and revised the upper end of its FY2018 production guidance from 60 million boe to 58 million boe, leaving the lower end unchanged at 55 million boe.

As for Harbour’s takeover bid, Santos remarked that the proposal is at this stage still indicative, and it is not sure whether it will result in an offer recommended by the board.

Foolish takeaway

The latest takeover proposal from Harbour comes at a 28% premium on the stock’s price at March 29, the last day of trade before the offer was announced. Despite the prudent declarations from the quarterly report, I’d be surprised to see the offer rejected.

However, the company is doing so well that its share price could grow even if the acquisition failed.

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Motley Fool contributor Tommaso Autorino 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 Scott Phillips.

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