The Santos Ltd (ASX: STO) share price is sliding today.
Shares in the S&P/ASX 200 Index (ASX: XJO) energy company are trading for $7.33 apiece, down 1.1% as we head into the Thursday lunch hour.
This comes on the heels of yesterday's 5.8% tumble.
ASX 200 investors pressured the Santos share price on Wednesday after news broke that discussion of a potential merger with Woodside Energy Group Ltd (ASX: WDS) did not result in a transaction.
By comparison, the Woodside share price closed up 0.5% yesterday. Woodside shares are down 0.5% today.
With the Santos share price now down 7.2% since last Friday's close, I believe ASX 200 investors are overreacting. In fact, I believe Santos has the potential to surge in 2024.
Here's why.
The end of the Woodside merger and the Santos share price
Commenting on the end of the merger talks with Woodside, Santos CEO Kevin Gallagher said (quoted by The Australian), "Santos has a very strong future as an independent entity, our base business is strong, and our strategy has significant upside over and above where the company is currently trading."
Indeed, the company owns a portfolio of high-quality energy assets across much of the globe.
And a series of recent court wins, which helped boost the Santos share price at the time, have paved the way for the company to continue laying the pipeline and complete the other required works at its $5.7 billion offshore Barossa gas project.
Some analysts are concerned that the legal delays could lead to increased costs and later production than planned. But Santos maintains that its Barossa project will be delivered on time and within budget.
The ASX 200 energy company is targeting first production in 2025, amid expectations of ongoing global demand growth for LNG.
"We are continuing to work to the budget and schedule as per guidance," a Santos spokeswoman said in January.
Atop from the strong LNG market, with gas bringing in some 63% of the company's fourth-quarter revenue, the outlook for oil prices in the first half of 2024 is also looking strong. This should offer some solid tailwinds for the Santos share price over the coming months.
The United States Energy Information Administration (EIA) forecasts a drop in the recent record levels of US oil output will continue, with US producers not returning to new peak levels until 2025.
With the slowdown in US production (the US is the world's top oil producer) coming alongside the extended and increased production cuts from OPEC+, the EIA expects Brent crude to trade for around US$85 per barrel. And the agency noted oil prices could rise higher than its forecast with "ongoing risks of supply disruptions in the Middle East".
With Brent crude currently trading for US$79 per barrel, an 8% or more lift from today's prices should help boost the Santos share price.
New merger potentials
Atop its strong potential as an independent company, the Santos share price could see a big boost if the stock attracts new buyout interest, as a number of analysts are speculating.
That might come in the form of a proposal for a full acquisition. Or it could see an offer for part of Santos' business, with its LNG assets in focus as a potential takeover target that could boost the company's value.
According to Ben Cleary, investment manager of Tribeca Global Natural Resources (quoted by The Australian):
Regardless of Woodside walking, Santos seems to now be in play, the company trades on a lower price to net present value to most of the global peer group given their strong project pipeline in LNG and I would assume others will emerge for some or all of the company.
"We expect Santos will still try and drum up interest for some of its portfolio," E&P Capital analyst Adam Martin added.
