3 reasons to be excited by Santos Limited’s falling share price

Shares in oil and gas producer Santos Limited (STO.AX) were down 1.5% yesterday, as part of a wider market sell-off of th e S&P / ASX 200 Index (^AXJO) (ASX:XJO), although this is disappointing for current investors, it provides an exciting opportunity to buy the quality company at a lower price.

Shares in Santos were as high as $15.66 in September last year and have fallen back by 15% to $13.30, the same price the shares were trading at two years ago. Santos is about  to embark on an extended period of strong cash flow growth and there are several big reasons to be excited.

Smashing records

Santos announced a record sales revenue result of $1.1 billion for the December quarter in 2013, driven by higher oil production and strong prices. This trumped the record revenue set in the September quarter of $1 billion and was a 20% increase year-on-year - a massive result.

More records to come

Santos' two major projects are nearing completion and will help to drive an annual compounded growth rate of 6% until 2020. Papua New Guinea LNG is over 90% complete and on track to deliver first LNG in the second half of 2014, while the Gladstone LNG project is over 72% complete and on track for first LNG delivery in 2015.

The result of both will be surging cash flows which, combined with lower capital expenditure, will likely lead to increased payouts to investors and a growing dividend.

Smart expansion

As well as having one of the cheapest pools of energy reserves around, Santos has been quick to sign new deals to further enhance the return from its long-term assets. A great example is the work the company is doing in the Cooper Basin where Santos owns 66% of the key Moomba processing plant.

In July last year the company formalised a joint venture with Drillsearch Energy Limited (DLS.AX) worth up to $120 million which will give Santos a 60% interest in the Western Cooper Wet Gas Project and involves a Gas Sales Agreement for the project's production, which Santos can potentially run through the plant.

Foolish takeaway

Santos is a smart company with some big production and revenue numbers brewing for later in 2014. The numbers should drive new records for investors and set cash flows on an upward trajectory.

The drop in share price offers these future cash flows for a discounted price, and wily investors should add the company to their watchlist in case it falls further.

Every oil investor must read this!

Limited oil supply and growing demand mean oil prices are likely to rise over time. Position yourself to profit from this trend now, with The Motley Fool's brand-new FREE research report, "3 Oil Stocks to Send Your Portfolio Gushing Higher".

More reading

Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Market Data

  • Currencies
    NamePriceChange% Chg