Three Stocks in Resources Sector that are worth looking at

Santos Limited

STO Details
Strong performance in LNG sales: Santos Limited (ASX: STO), an independent oil and gas producer with a portfolio of oil assets, pipeline gas and onshore and offshore LNG projects, recently released its fourth quarter 2016 activities report, which is quite robust. Production, sales and revenues for 2016 have topped their respective guidance estimates. In addition, the company has cut down on its production costs and reduced debts significantly on the balance sheets. STO reported that its annual sales volumes rose 31 per cent and above the upper end of guidance. There has been an increase of 7 per cent in annual production and towards the upper end of guidance. Strong performance in LNG sales witnessed a rise of 89 per cent leading to sales revenues of US$887 million for the year. Production costs in upstream units were cut down by 18 per cent compared to the previous year. Production cost of crude oil reduced to US$38 per barrel from US$47 per barrel earlier in the year. There was a sharp decline in annual capital expenditure, down 51 per cent to US$625 million and below guidance. Further, net debt of the company as on December 31, 2016 reduced to US$3.5 billion. STO also successfully completed its institutional placement and gave an opportunity to shareholders to participate in the Share Purchase Plan Offer.

Sales volumes and revenues (Source: Company Reports)
 
The company expects 2017 sales volumes to be in the range of 73-80 mmboe and production in the range of 55-60 mmboe. STO stock has rallied 7.77 per cent in last three months (as at January 23, 2017). We give a ‘BUY’ recommendation on the stock at the current price of $ 4.00

 
STO Daily Chart (Source: Thomson Reuters) 

Woodside Petroleum Limited

WPL Details
Record LNG production: Woodside Petroleum Limited (ASX: WPL), Australia’s largest independent oil & gas company, announced its fourth quarter results for the period ending December 2016 that entailed annual production of hydrocarbons rising to 94.9 MMboe, which is a 3 per cent growth over previous year. This came at the back of an all-time record production in LNG. Capital expenditure for the full- year stood at US$1.4 billion and sales revenues for the quarter registered a quarter-on-quarter growth. Peter Coleman, the CEO of Woodside Petroleum, said that the company has put up an excellent show on the result front. Woodside is said to have started 2017 in a strong position. The business margins have improved through 2016 and 2017 budget is free cash flow neutral at US$35 per barrel. Production performance by the group has been outstanding. Further, LNG production system reliability has now exceeded ninety-nine per cent for a second consecutive quarter. According to the company, the Q4 2016 numbers are an indicative guide and are subject to external audit processes and Woodside Board approval. The Preliminary Financial Report and the associated investor briefing presentation will be made available on the company website in February 2017. 

2017 Production Guidance (Source: Company Reports)
 
2017 production guidance seems to be driven by LNG business while there is lower equity share of lower priced NWS pipeline gas (reduction from 50 per cent to 16.67 per cent). The stock has rallied 10.9 per cent in last three months (as at January 23, 2017). We maintain our ‘Buy’ recommendation on the stock at the current price of $ 31.96

 
WPL Daily Chart (Source: Thomson Reuters) 

South32 Limited

S32 Details
Riding at the back of improving sector-driven sentiments and commodity prices: South32 (ASX: S32), a metals and mining company and the largest producer of manganese ore in the world with leading ferronickel operations, had announced second quarter 2017 results (ending December 31, 2016). The stronger commodity prices and significant operating leverage led the company strengthen its financial position. S32 is performing in line to achieve production guidance on most major operations. The company undertook investments to the tune of US$8.2M in exploration in the 2H 2016. Manganese ore production was also increased to full capacity at the GEMCO plant in South Africa. S32 now expects silver and lead grades to increase significantly in the half year ending June 2017. A record production at Brazil Alumina during the December 2016 quarter was noted down. S32 expects an Illawarra Metallurgical Coal of 8.1Mt driven by full capacity at Appin Area 7. Further, acquisition of a 16.67 per cent stake in Peabody Metropolitan Colliery’s interest in the Port Kembla Coal Terminal is expected to be complete by March 2017.
 

Production Update (Source: Company Reports)
 
It is also noteworthy that Standard & Poor’s and Moody’s have reaffirmed company’s credit ratings of BBB+ and Baa1, respectively. The stock has rallied 6.25 per cent on January 24, 2017 at the back of improving sector-driven sentiments and commodity prices. We give a ‘Hold’ recommendation at the current price of $ 2.72

 
S32 Daily Chart (Source: Thomson Reuters)

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