In today’s daily we have covered stock research on Santos (BUY).











 
The S&P 500 was up by 2.99points or 0.14%on Wednesday to 2070.00 points. U.S. stocks were little changed at the open on Wednesday as gains in defensive, high-yielding sectors were offset by declines in energy stocks. Phone companies climbed 0.8 percent, while technology stocks gained as Hewlett-Packard Co. rose to the highest level since May 2011. Consumer confidence climbed to a more than seven-year high in November as Americans’ views of their financial well-being improved heading into the holiday shopping season.

Across the Atlantic, the FTSE Eurofirst 300 ended a fraction higher, while the Nikkei 225 in Tokyo fell 0.1 per cent. There was plenty of US economic data for the markets to digest, but the overriding reaction was one of disappointment. Downward pressure on the dollar increased in the wake of the data. The US currency was down 0.3 per cent against a basket of its peers, leaving it 0.9 per cent below a four-year high hit on Monday. The euro was up 0.3 per cent at $1.2511 while the dollar was 0.2 per cent softer versus the yen at Y117.76.



S&P 500 Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 61.4 points or 1.15%on Wednesday and closed at 5396.2 points. Medibank Private, on its second day of trading fell 1.9 per cent to $2.10. Retail investors bought shares for $2 as part of the health insurer’s initial public offering, while institutional investors paid $2.15. Webjet shares slipped 1.3 per cent to $3.10 after the travel company warned that the domestic travel market is likely to remain flat for the rest of the current financial year.

Resolute Mining shares posted the biggest gains among the top 200, rising 19.6 per cent to 28¢. Ore with 62 per cent content delivered to Qingdao in China declined 1.6 per cent to $US68.49 a dry ton, the lowest since June 2009. The Australian dollar was at US85.37¢ at about 6.39am AEDT, recovering from a plunge to as low as US84.80¢ in European trading.  Ausdrill shares plunged 10.9 per cent to 45¢ after the drilling company announced it would lose $28 million in revenue.
 

Resolute Mining Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Santos (BUY)

Santos (STO) in its latest investor report stated that its portfolio has been transformed from domestic gas producer to leading Australian and Asian E&P, and regional LNG player.


Portfolio Transformation (Source – Company Reports)

The Company in its Q3 ending 30 September 2014 announced the highest quarterly production in seven years with production of 14.0 mmboe (up by 9% from previous quarter) and sales revenue of $1,060 million which rose by 9% on the previous quarter.

1H14 Financials (Source – Company Reports)
There has been a significant exposure to rising gas prices. Company’s 50% of production is to be sold to Asian markets by 2016 in view of Asian energy demand and Asian energy prices.


GLNG Project Tanks (Source – Company Reports)

The Company possesses a strong project delivery position for growth, and higher shareholder returns. With successful project delivery with regards to GLNG (90% completion), Cooper gas growth, Cooper unconventional, PNG LNG, Peluang, Chim Sáo / Dua, Fletcher Finucane, Reindeer / Devil Creek, and Spar, STO’s strong technical capabilities are reflected. With regards to growth, the Company is targeting 80 to 90 mmboe production by 2020 while focusing on growing margins and sustainable cash flow. It is emphasizing to build a portfolio of high quality assets across Australia and South-East Asia. With regards to shareholders returns, the Company aims to maintain or increase dividend as earnings and cash flows increase. It further possesses capital discipline focus.


Global LNG Demand and Supply Outlook (Source – Company Reports)

For the GLNG Project delivery, over 600 wells have been drilled since FID and hub construction is complete. STO portfolio and third party gas is estimated to provide 410-570 TJ/day in 2016 while the underground storage delivery rate be 75 TJ/day. The gas transmission pipeline is complete and gassed-up to Curtis Island. Surface reinstatement work is also complete. QGC interconnects are also complete and pre-commissioned. Then, all T1 and T2 modules are set with regards to the LNG plant and port. LNG tanks have been hydro-tested. First commissioning gas to LNG plant is expected in December 2014. The GLNG project is thus on track for first LNG in 2H15 within US$18.5b budget. Train 1 first LNG is expected in 2H15 and LNG production is expected to ramp-up over 3-6 months. Train 2 ready for start-up is expected by end-2015 and LNG production is expected to ramp-up over 2-3 years.

As per the business outlook, the production growth looks appealing and operating cash flow increase is expected to be of the order of ~100% by 2016 at US$100/bbl and ~65% at US$90/bbl (consensus). STO expects to have noteworthy reduction in capex as LNG projects are completed. The focus would now be on operating efficiency. The Company intends to have a healthy balance sheet and funding position.


Production Guidance (Source – Company Reports)

The Company reported that 2014 production guidance has been narrowed to 53-55 mmboe. It further expects to have 2015 production guidance of 57-64 mmboe wherein growth will be driven by PNG LNG at plateau and GLNG start-up. There will be major scheduled maintenance entailing Moomba gas plant planned maintenance in Q1 2015 and a 45-day shutdown of Fletcher-Finucane/Mutineer Exeter for FPSO dry-dock planned for Q1 2015. STO also stated that the Capex is decreasing as LNG projects are completed. 2015 Capex guidance has been given as $2.7 billion while 2014 guidance is unchanged at $3.5 billion.


Debt Maturity Profile (Source – Company Reports)

The Company has $2.1 billion in cash and undrawn debt facilities as at 30 September 2014. Peak gearing of ~40% ND/(ND+E) is expected in 2015.
Fairview well performance continues to exceed expectations with gross field well capacity expected to be ~500 TJ/day by the end of 2014.


Fairview Well Performance as at October 2014 (Source – Company Reports)

Roma well performance showcases 76 development wells to be online and dewatering, supporting average individual well capacity of 0.5 TJ/day.


Roma Hub 2 (Source – Company Reports)

Incremental gas supply and infrastructure projects including Comet Ridge to Wallumbilla pipeline loop, 71 new wells at Fairview eastern flank and the like are on or before schedule and on budget.

STO is a leading low cost explorer which is pursuing potential rocks and leveraging infrastructure positions. Lasseter and Crown are its largest operated discoveries which have enhanced STO’s browse resource position. McArthur Basin shale play opener also elucidates great potential.


Exploration Portfolio (Source – Company Reports)

Other attributes such as GLNG drilling and completions wherein multi-well pads steer efficiency; use of next generation rigs (Ensign rigs 970 and 971) in the Cooper Basin; Narrabri Gas Project Progress; Asia Pacific portfolio of high-margin and long-life projects and so forth, underscore a potential position for STO.


2014 Projects Highlights (Source – Company Reports)

Recent announcements such as partnership with OzHarvest to bring the food rescue group to Western Australia, and 5-year extension of ethane gas supply to Qenos from STO and its joint venture partner Origin Energy, are other feathers in the cap.

A few factors to consider include GLNG upstream drilling of wells which has been decelerating a little, weak oil price forecast and declining third-party oil sales.

Nonetheless, STO appears to illustrate immense potential to overcome external hurdles. Accordingly, we put a BUY recommendation for this stock at the current price of $11.98.
 


 
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