The Santos Ltd (ASX: STO) share price has been going nowhere fast over the past 12 months.
Despite the oil and gas company's net earnings swinging back into profit for its half-year results at the end of June, the market has seen little reason to bid up the Santos share price this year. As a result, shareholders are sitting roughly where they started at the beginning of the year — plus 14 cents per share worth of dividends.
However, a lot has changed in recent weeks for one of Australia's largest energy companies. For starters, it's gotten a whole lot bigger after gobbling up formerly listed Oil Search Ltd.
So, what could be on the cards for this energy giant in 2022?
Image source: Getty Images
Merging with the times
After pitching a mega-merger with Oil Search in September, Santos announced that the deal was officially implemented today. From here, the new Santos shares (accounting for the integration of Oil Search) are expected to commence trading on Monday 20 December.
Following the implementation, Santos will likely spend some time fully integrating Oil Search's operations. As part of this process, the company will seek to realise pre-tax synergies of between US$90 million and US$115 million. If the company can deliver on these synergies, it could benefit the Santos share price.
The consolidation reflects added pressure within the oil and gas industry as environmental, social, and corporate governance (ESG) considerations begin to weigh more heavily.
Santos is not alone in its efforts to reinforce itself through a merger and acquisition approach. This week Woodside Petroleum Limited (ASX: WPL) received a green light from the Australian Competition and Consumer Commission to acquire BHP Group Ltd's (ASX: BHP) petroleum division.
While Santos remains focused on its gas developments in Papua New Guinea, investors might see a green shoot from the company. In its original release to shareholders regarding the Oil Search deal, Santos' CEO Kevin Gallagher said:
The merger will create a company with a balance sheet and strong cash flows necessary to successfully navigate the transition to a lower-carbon future with the combination of Santos' leading CCS capability combining with Oil Search's ESG programs in PNG and Alaska to provide a strong foundation.
What do brokers think of the Santos share price?
Despite a year of underperformance, Ord Minnett thinks Santos has what it takes to deliver for shareholders in 2022. According to the broker, the newly merged entity could be a positive catalyst for the company's valuation.
For this reason, Ord Minnett has put an $8.45 price target on the oil and gas company. This would suggest there could be a further ~32% upside to the Santos share price.
