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Santos share price: what’s the outlook following Covid-19 update?

'The current environment is a time for discipline,' said Kevin Gallagher, the Santos CEO.

Santos share price and Covid-19 Source: Bloomberg

Price wars, uncertainty & volatility

As the coronavirus (Covid-19) crisis drives uncertainty on a global scale – oil prices have continued to move in a volatile fashion.

And ultimately, with no end in sight to Saudi Arabia and Russia’s winner-takes-all oil price war – the outlook for oil as well as global stability as a whole remains deeply uncertain.

In response to all of this, Santos (ASX: STO) – the $6.35 billion Australian energy giant – today released a business update as well as the company's current Covid-19 response plan.

Though the company tried to use this release to reassure its shareholders – potential and current – its stock was still bid as much as 8.52% lower today, to an intraday low of $2.79 per share.

Over the last month the Santos share price has declined over 60%.

The plan of attack

First and foremost, looking at the measures Santos is currently taking to protect the health and wellbeing of its employees, the energy giant’s CEO, Kevin Gallagher said:

‘We have implemented a series of measures to protect the health and safety of our people, including restricting travel and meetings, implementing social distancing measures across all of our sites and making changes to field and office access arrangements.'

Besides those plans, more financially-focused measures that Santos is set to implement in response to the current operating environment include: a $550 million reduction in FY20 CapEx (split between a $200 million reduction in base business expenditures and a $350 million reduction in growth project expenditures); a $50 million reduction in FY20 production costs, and 'a target 2020 free cash flow breakeven oil price of $25 per barrel.'

Positively at least, the firm noted that during January and February, Santos generated $186 million in free cash flow (FCF); and pointed out that the company has ‘6.2 million barrels of oil production hedged in 2020 at a floor price of US$54 per barrel.’

Santos share price: where next?

Speaking of the broader outlook for the energy giant, Santos CEO Kevin Gallagher said:

'Whilst the current oil price dynamic is challenging; the eventual recovery will create opportunities for companies positioned to act on them. Our strategy to leverage existing assets and infrastructure remains unchanged and we expect to pursue these exciting opportunities when conditions permit.'

'In the short term, we will remain focused on the health and safety of our people and delivering our production target for 2020,’ the company also noted.

Amidst this chaos Macquarie Wealth Management remains bullish on STO, hitting the stock with an outperform rating and a 12-month price target of $4.29 per share.

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