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Third quarter output of 14 million barrels of oil equivalent (MMboe) was the company’s highest production read in seven years, with sales revenue reaching A$1.06 billion. This represents a 14% increase on the corresponding quarter despite the slide in world oil prices.
The company has maintained its current output guidance at 52 to 57 MMboe. The capex forecast was maintained at A$3.5 billion, along with output costs of A$820 to A$880 million.
There are three reasons Santos remains a key pick for me:
Firstly, the PNG LNG project has significantly increased STO’s capacity and, with Gladstone LNG now 90% complete and on budget, the company is on track to deliver its first train in early 2015.
Secondly, the quality of its assets and the growth profile they provide, as well as the Cooper and Carnarvon Basins – plus the Northern Territory and Browse projects – provide a quality mix of incomes and a robust pipeline structure.
Finally, organic earnings growth. With so many projects coming online in the next 18 months, the top and bottom lines will significantly expand, capex will fall and capital returns will grow. This makes STO a very attractive growth opportunity.
Technically, it looks well and truly oversold. STO is trading two standard deviations from its 20-day moving average and has a RSI below 20. At below $13, it looks like a very attractive buying opportunity in the medium term.