CEO says Santos share price is going 'cheap' amid delayed projects

The Santos CEO says the company's shares are going cheap amid legal disputes that are delaying projects.

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The Santos Ltd (ASX: STO) share price is down 0.77% to $7.07 on Thursday, and management says the stock is going cheap amid a difficult regulatory environment that is leading to project delays.

According to the Australian Financial Review (AFR), Santos CEO Kevin Gallagher commented at yesterday's Investor Day that unless the Federal Government takes action, the current regulatory environment in Australia threatens to dissuade future investment in offshore oil and gas projects.

"Nothing will drive investment away from Australia faster than this environment," said Gallagher.

He said the industry needed a "a regulatory regime that we can rely on".

By contrast, he discussed the strong backing of regulators and indigenous communities in Alaska for the Pikka Phase I project.

What about the Santos share price?

As for the Santos share price, Gallagher did not mince words, stating:

The share price is very frustrating. It's cheap.

It's stalled. And we need to un-stall it.

We're looking at every avenue to unlock shareholder value.

Potential 'structural solutions' do not include company break-up

Gallagher said Santos was open to looking at "structural solutions" to support the share price.

However, it was better to keep the company intact as lenders prefer businesses with a full suite of assets.

As we recently covered, a group of fundies sent a letter to the Santos board arguing for a restructure last month.

The fundies said splitting the company in two would deliver a 35% increase in valuation (based on the value of the Santos share price at the time).

Regulatory challenges causing headaches for Santos

Last week, Santos issued a statement reiterating it was committed to delivering its $5.8 billion Barossa gas project pipeline in the Timor Sea.

This followed the latest federal court ruling in relation to environmental objections raised by Tiwi Island elders.

Gallagher said uncertainty around the Barossa project was a drag on the Santos share price:

I think that is weighing very, very heavily on our share price.

Barossa is a big overhang on the company right now.

He added that Barossa was a low-cost project, but "it doesn't feel like that right now".

According to a presentation delivered to investors yesterday, it appears another project is facing delays.

Narrabri gas project FID on ice til 2025

It looks like Santos will be delaying its final investment decision (FID) on its Narrabri gas project in NSW until 2025.

In the company's half-year report released in August, the FID-ready date was set for 2024.

This was subject to securing pipeline approvals and Native Title Determination, which Santos anticipated by the end of this year. But yesterday's presentation had the FID date scheduled for 2025.

Santos describes the Narrabri project as a "100% domestic gas option into [a] supply constrained market".

The company told investors that an annual demand shortfall in the East Coast gas market is forecast to begin later this decade amid limited new supply.

Santos says the Narrabri project can support southern regions of Australia — namely NSW & ACT, Victoria, South Australia and Tasmania, which are forecast to be in shortfall without LNG imports.

In cash flow modelling within the presentation, Narrabri is assumed to be operational in FY28.

The Australian today points out that the apparent FID delay follows the NSW Government cancelling plans to designate Narrabri a 'special activation precinct'.

This would have created artificial demand for gas.

What's happening with ASX 200 energy shares today?

ASX 200 energy shares are in the red on Thursday amid news that the Organization of the Petroleum Exporting Countries (OPEC+) has delayed its next meeting.

OPEC+ had scheduled the meeting for 26 November but will now hold it on 30 November.

As my colleague Bernd reports, the market was expecting the 23-nation group to cut production again to strengthen the oil price amid high supply from the United States and lower demand from the struggling Chinese economy.

The wealthier countries are apparently keen to cut production, but the poorer countries are not so enthusiastic. So, they've delayed the next meeting to enable discussions to continue.

The S&P/ASX 200 Energy Index (ASX: XEJ) is down 0.52% on Thursday afternoon.

The Beach Energy Ltd (ASX: BPT) share price is down 0.32% to $1.54.

The Woodside Energy Group Ltd (ASX: WDS) share price is down 0.91% to $31.75.

Motley Fool contributor Bronwyn Allen has positions in Woodside Energy Group. 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 Scott Phillips.

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