Here's why Macquarie just upgraded the Santos (ASX:STO) share price

Rocketing energy prices and a significant new oil discovery are putting the ASX 200 energy share in the spotlight.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published March 28, 2022 10:29 am AEDT

The Santos Ltd (ASX: STO) share price is up 0.5% in early trade despite a retrace in oil prices overnight.

Santos shares closed on Friday at $7.94 and are currently trading for $7.98.

While that already represents a 20% gain year-to-date, on the back of soaring oil and gas prices, Macquarie just upgraded its Santos share price target well beyond the current level.

Female oil rig worker wearing high vis vest, red gloves and hardhat smiles at camera with a green painted oil rig in the background — Image source: Getty Images

Why is Macquarie bullish on the ASX 200 energy giant?

It's not rocketing oil prices that has Macquarie upping its target for the Santos share price. Rather it's the significant oil discovery announced last week at the company's Bedout Basin project in Western Australia.

Santos holds the project in a joint venture with Carnarvon Energy Ltd (ASX: CVN). Prior to last week's new discovery, the Bedout Basin already held proven reserves of some 200 million barrels of liquids and 1.1 trillion cubic feet of gas, according to data from Carnarvon.

Commenting on the new discovery, Santos CEO, Kevin Gallagher said, "With the global oil and gas markets seeing increased volatility, low-CO2 oil and gas resources at Dorado and Pavo add significantly to Australia's national energy security. It is also very encouraging for the next exploration well in the current campaign."

Macquarie analysts say the discovery increases the value of the joint venture Dorado project.

As reported by The Australian, "Macquarie factors an increase of 2-5% in earning per share for Santos on increased near-term production."

Macquarie has an outperform rating on the ASX 200 energy stock, increasing its target for the Santos share price from $7.89 to $10.50.

That's 32% above the current level.

Santos share price snapshot

The Santos share price has been a clear beneficiary of soaring oil and gas prices.

Though Brent crude oil slipped 2.8% overnight to US$117 per barrel, it's still up 50% from the US$78 per barrel it was worth on 1 January this year.

That's helped propel the Santos share price 26% higher year-to-date with shares up 11% over the past month.

But comparison, the S&P/ASX 200 Index (ASX: XJO) is down 2% in the new year.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.