The Santos Ltd (ASX: STO) share price is on the nose today as speculation of a potential share buyback wasn't enough to offset the fall in the oil price.
The Brent crude price tumbled 3.7% to US$90.65 a barrel on renewed worries of a recession hurting demand.
If there was a silver lining for Santos shareholders, it's the prediction by Macquarie Group Ltd (ASX: MQG) that it will launch an extra US$500 million ($747 million) share buyback.
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Santos share price slips on oil slide
But buyers are scarce on Friday following falls on Wall Street and the drop in oil prices. The Santos share price lost 2% to $7.80 when the S&P/ASX 200 Index (ASX: XJO) fell 0.8% in early trade.
Other ASX energy shares are also under pressure. The Woodside Energy Group Ltd (ASX: WDS) share price and Beach Energy Ltd (ASX: BPT) share price have lost around 2% as well, at the time of writing.
At least Santos is flush with cash from the sale of its 5% stake in the PNG LNG project. The broker estimates that the company could reap US$1.3 billion from the transaction.
Santos' current share buyback running out of puff
The cash will come in handy as Santos' current on-market share buyback could be close to running out of steam.
Macquarie noted:
STO has now bought back ~US$80m of its shares on market since 30-Aug (post its result 17-Aug), representing 45% of the remaining buyback program that was outlined at the results (and 72% of the overall enlarged US$350m buyback).
On certain days post-result, STO has purchased as many as 2.5m shares (~A$20m) — even assuming a slower pace, the program could be exhausted within weeks.
Santos share buyback a balancing act
If Santos doesn't undertake a new buyback or some other capital return, pro-forma gearing could fall to under 10% by year end, according to the broker. Gearing was 22.5% at the August result.
But Santos will need to keep some of its powder dry. It will need to cough up some serious cash for its growth projects. These include Alaska, Barossa/Darwin and Moomba CCS, which could add up to around US$3 billion, said Macquarie.
Of course, volatile energy prices also pose another risk to the Santos share price. It should be noted though that Santos is more exposed to gas than oil and the outlook for gas is brighter due to the Russia-Ukraine war.
Share price snapshot
The Santos share price has rallied around 22% over the past 12 months when the ASX 200 fell 9%.
Despite the outperformance of Santos, Macquarie rates the shares as outperform (meaning a buy). The broker's 12-month price target on Santos is $10.60 a share.
The sale of a 5% interest in PNG LNG will lower Santos' stake in the project to around 45%. Exxon Mobil Corp operates PNG LNG on behalf of five co-venture partners and supplies gas to Asian customers.
