Santos (ASX:STO) share price slides following possible cleanup levy

Shares in the oil and gas producer are facing downward pressure as the market digests reports of the levy.

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Santos Ltd (ASX: STO) shares are edging lower on Wednesday. In late afternoon trade, the Santos share price is trading 1.11% lower at $7.13.

This comes following a report published by last night’s The Australian which highlights an Australian Government proposal to mandate a cleanup levy of 48 cents per barrel of oil equivalent (BoE) on offshore petroleum production.

Under the government proposal, originally released on 24 June, all entities with an ownership interest in a petroleum production license issued under the Offshore Petroleum and Greenhouse Gas Storage Act (2006) will be liable for the levy.

As Santos’ operations fall under this umbrella, it would be liable to pay the rate of 48 cents per BoE, shared among a string of other international and Australian oil producers such as BHP Group Ltd (ASX: BHP), Origin Energy Ltd (ASX: ORG) and Woodside Petroleum Limited (ASX: WPL). According to The Australian, it is estimated that Santos’ share of the cleanup bill would amount to around $8 million.

The impost has an expected cost of over $360 million per year for the sector, and with a total cost of up to $1 billion, many of Australia’s largest oil producers and suppliers may be up called upon for payment over the next 3 years.

At the time of writing, the Woodside share price is down by 0.22%, while Origin Energy shares are in the red by 2.59%. The BHP share price is currently trading 1.66% higher for the day so far.

Why the cleanup levy?

The Australian Government has been left footing the bill for offshore oilfield cleanups in the past.

For instance, the government absorbed the cleanup costs of the Northern Endeavour floating production storage and offtake facility and the associated Laminaria-Corallina oilfields last year. This came after the former owner, Northern Oil and Gas Australia, went into liquidation.

According to the government’s discussion paper, the initial purpose of the levy would be to fund decommissioning and remediation works in the Laminaria-Corallina oilfields. If given the go-ahead, the levy would become effective on 1 July.

The Australian reports that our biggest producers are attempting to fight the proposal with “furious lobbying between the oil and gas sector and Canberra”.

Santos share price snapshot

Including today’s slide, the Santos share price has fallen by 2.33% over the past five trading sessions.

At the current share price, Santos has a market capitalisation of around $15.02 billion and trades at a price-to-earnings ratio (P/E) of 12.84.

The Santos share price has climbed around 13% year to date, with a 12 month return of approximately 34%.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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