Santos' Asian rush

WOODSIDE boss Peter Coleman's call that the "world is more interesting post-BG" is ringing true in a developing analyst consensus that Santos' lock on to fast-developing Asian markets via its three LNG projects across northern Australia and PNG means it could be "set to run hot" into 2016.
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Santos, as an LNG and oil explorer and producer, suffered some of the heaviest share price falls as a result of the cratering oil price around the turn of the year, as investors feared it would have to raise capital to support its balance sheet.

Yet its LNG projects - Gladstone LNG in Queensland, PNG LNG with operator ExxonMobil and Bayu-Undan/Darwin LNG with operator ConocoPhillips, are shaping up as the saving grace for the company due to the dynamic growth of their customers.

However, those fears appear to have dissipated somewhat as Brent oil futures have firmed up above $US65/barrel and West Texas Intermediate futures edge up towards $60 - a long way off from what Motley Fool analyst Tom Richardson said were "some of the dubious predictions" that oil might slide toward $30 a barrel later in the year.

However, while it's generally a mistake to look backward when making investment decisions, Richardson said the long-term history of the oil price demonstrated how it tends to recover after unexpected price shocks. In this instance it appears as though tapered supply will act as a catalyst to support firmer prices.

"Global demand for energy in different forms is unlikely to decline over the medium term and Santos will deliver much of its LNG to fast-developing Asian markets," Richardson, a former fund manager, said.

"The recent $A90 billion mega-merger of LNG giants Royal Dutch Shell and BG Group is another indication that LNG fuel assets are likely to be attractive into the future.

"Santos says it has $2.6 billion in liquidity to meet the company's current operating and growth commitments, although it has also slashed costs and capex in response to the tanking oil price. Capex is down 44% this financial year, alongside a 10% reduction in production costs.

"However, its overall financial health is linked to the price it takes on selling its products just like others such as Woodside Petroleum, Oil Search or Senex Energy - all of which might still be at attractive prices for those who think oil and LNG prices will climb higher out to 2016."