Santos Share Price Drops 3% as Oil Price Goes Down (ASX:STO)

Gold is having a great year. So is iron ore.

Can’t say the same for oil though…

Oil has taken a hit from the pandemic as demand collapsed earlier this year due to the lockdowns.

Since oil has been trading at around US$40 a barrel, a far cry from the US$70 at the beginning of the year.

And with cases of the virus in Europe and the US increasing, and the prospect of more lockdowns and more economic slowdown, oil prices have been heading down again this week.

So far West Texas Intermediate and Brent have lost about 5% this week. At time of writing WTI is trading at US$38.28 and Brent is going for US$40.54. Barring some kind of unforeseen event, it’s very unlikely we will see higher oil prices any time soon.

 

It’s hitting oil and gas producers hard

Like Aussie company Santos Ltd [ASX:STO].

Santos’ share price has dropped over 41% since the beginning of the year. They registered a US$289 million loss after tax for the first half of this year and had to slash their interim dividend.

Demand for oil is weak. Renewables are also becoming cheaper and increasing their global market share.

So much so that traditional oil and gas producers know it. They are writing down their assets.

Santos has had to write down US$756 million with the largest portion from their Santos’ Gladstone LNG project in Queensland.

And some of the major oil and gas producers like BP, Shell, and even Santos are starting to turn to renewables.

The future of energy is very much in debate here in Australia, and whether gas should be part of that. The Australian government has said they want gas to lead this recovery. Gas is one of Australia’s top exports.

Santos was very much at the centre of that debate this week

Santos has been eyeing the Narrabri area in New South Wales to build a gas project. You can get an idea on how the project could look like below:

ASX STO - Santos Gas Project Narrabri

Source: Santos

The project will have 850 coal seam gas wells and cost around $3.6 billion. Santos said the Narrabri gas project could supply up to half of NSW’s natural gas demand.

On Wednesday, Santos got qualified approval from the New South Wales independent planning commission. They still need other approvals for the project to go ahead, including that of the Federal Minister for the Environment.

While it should have been good news for Santos, their share price dropped close to 4%. It’s down again today 3.13% following oil’s fall in price overnight. At time of writing, Santos’ share price is trading at $4.79.

With the perspective of more lockdowns, a slowdown in global growth, and a shift towards a low carbon economy, we think there are better dividend investments out there.

Check out editor Greg Canavan’s free report ‘Five Dividend Stocks Set to Thrive in the Post-Pandemic Era’ . You can access it here.

Best,

Selva Freigedo,
For The Rum Rebellion


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Port Phillip Publishing’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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