Own Santos (ASX:STO) shares? What to look out for this reporting season

Here’s what’s on the radar for the oil and gas producer.

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Santos Ltd (ASX: STO) shares have had a choppy year to date, posting a return of 4% since January 1.

It’s certainly been interesting times for the oil and gas giant of late.

This earnings season, there are several key inflection points Santos shareholders might consider examining in a bit closer detail.

What could impact Santos shares during reporting season?

We discuss three of the key points below:

Oil Search merger

On 20 July, Santos confirmed that it had submitted a $23 billion merger proposal to the Oil Search Ltd (ASX: OSH) board in late June.

The proposal originally implied a transaction price of $4.25 per Oil Search share, which represented a 12.3% premium at the time.

According to Santos, merging the 2 oil and gas giants “is a logistical combination of two industry leaders to create an unrivalled regional champion of size and scale”.

Oil Search pushed back and claimed the proposal “did not offer appropriate value for Oil Search shareholders or as a basis on which discussions should be progressed”.

Since this time, Oil Search has again stipulated the offer must be in favour of its shareholders in order to close the transaction.

Santos’ proposal now stands at a ~7.6% premium to Oil Search’s share price at close yesterday. It also stands to reason Oil Search will continue to fight for a better deal for its shareholders.

Oil Search interim chief executive Peter Fredricson recently said of the Santos offer:

It’s a little bit like someone wants to gets engaged and give you a diamond ring but we gave the diamond ring back and said no thanks. They need to come back with a couple more carats in the diamond ring.

The saga continues in the merger narrative for these two entities.

Record production rates at new well

Santos reported on 26 July it had produced the “highest initial rate from an individual well in field history” at its production well at the Van Gogh Phase 2 development in Western Australia.

The well produced a peak rate of 23,000 barrels of oil per day, “well ahead of expectations” according to Santos.

Santos has the majority 52.5% interest at Van Gogh, with the remainder owned by Inpex Corp.

High oil prices driving revenue

Santos recognised record revenue in 1H 2021, reaching quarterly sales revenue of $1.5 billion that led to a record $2.76 billion for the half.

The crude oil obtained at Van Gogh is set to return a premium above Brent Crude, enabling “further value to be realised beyond the current oil price”, according to Santos chief executive Kevin Gallagher.

Gallagher explained in the report that high commodity prices in the oil and gas spot markets had been a key catalyst to Santos’ revenue this year.

Santos also upgraded its guidance on full-year production, bumping estimates up to a range of 87 – 91 million barrels of oil for the year.

Foolish takeaway

The Santos share price has had an interesting walk through 2021 so far.

Perhaps the talking point on everyone’s lips is the ongoing merger saga with Oil Search.

In addition to this, investors may also want to consider the pricing impacts of the oil and gas markets on Santos’ share price.

Despite the recent event-driven momentum, Santos shares are down almost 10% over the last month.

Investors can expect Santos’ audited results to be released on Tuesday, 17 August.

Should you invest $1,000 in Santos right now?

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Zach Bristow has no position in any of the stocks mentioned. 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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