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How the Santos share price could gain from COVID-19 stimulus

Oil and gas producer Santos Ltd‘s (ASX: STO) share price is still well down for the year. From its 15 January 2020 high of $9.00 per share, the Santos share price crashed 69% to its low on 19 March. It had the COVID-19 panic selling, which hammered most shares on the ASX, to thank for that.

That’s a steep hill to climb back up. Although the company has come a long way, gaining 110% since the 19 March trough, year-to-date, the Santos share price still remains down 30%. That gives the company a current market cap of $12 billion.

Santos trades at a price to earnings (P/E) ratio of 12.9 times. However, both its share price and its earnings could be in for a boost.

What does Santos do?

Headquartered in Adelaide, Santos Ltd is a leading independent oil and gas producer in the Asia-Pacific region.

With its origins in the Cooper Basin, Santos has one of the largest exploration and production acreages in Australia and extensive infrastructure. It supplies natural gas to Australian, Indonesian and other Asian markets, and develops oil and liquids businesses in Australia, Indonesia and Vietnam. Santos also focuses on liquefied natural gas (LNG) strategy. It has interests in four LNG projects in Australia.

Santos shares have been trading on the ASX since 1970. Today it’s one of the top 200 companies by market cap in Australia, and listed on the S&P/ASX 200 Index (ASX: XJO).

How can COVID-19 lift Santos share price?

The share price hasn’t been helped by falling energy prices, as the pandemic forced border closures and lockdowns, resulting in a huge drop in the demand for oil.

But this same pandemic could offer a welcome boost for Santos’ shareholders. That is if the Australian Government goes through with a proposal to underwrite new gas pipelines and the supporting infrastructure to reduce the cost of energy for Aussie companies and households.

This is the recommendation made by the appropriately named Nev Power. Power is the National COVID-19 Co-ordination Commission chair. And, as the Australian Financial Review reports, he’s also a leading advocate for a gas-led economic recovery.

Santos’ plan to tap coal seam gas deposits in Pilliga State Forest, New South Wales is one of the projects the manufacturing taskforce is recommending for government support.

None of this has passed through legislation yet. But if it does, the Santos share price could enjoy a nice run higher.

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Motley Fool contributor Bernd Struben 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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