What Happened to Santo Ltd’s Share Price?
Shares in oil and gas producer Santos Ltd [ASX:STO] were a notable winner on Friday’s dreadful day of trading on the Aussie share market. The stock rose 0.4% on a day when the rest of the market lost nearly 1.2%. Santos has enjoyed a good run this month — its share price is up nearly 15% since April Fool’s’ Day.
Why Did This Happen to the Santos Share Price?
Today Santos revealed its revenue in the first quarter of 2015 was $US825 million ($1.06 billion). That’s 24% less than the previous quarter, and 10% lower than the first quarter of 2014.
Investors are looking past the weakness in revenue. They knew the oil price was lousy in the first three months of this year. They’re more interested in the other tricks Santos can pull to boost earnings. That’s why this comment from CEO David Knox drew close attention:
‘First quarter capital expenditure was 40% lower than (the first quarter of) last year, and we continue to make solid inroads towards reducing production costs per barrel across the business.’
Lower costs mean higher profits — and that explains investors bidding up the Santos share price.
What Now for Santos Ltd?
The low oil price environment has piled intense pressure on Santos. It remains a high-risk investment. But investors are starting to tip that this firm has weathered the worst of the storm.
If the recent positive price action in the oil markets continues, we could see a huge rally in the Santos share price. But until we that trend strengthens, owning this stock is only for the brave.
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Cheers, Tim Dohrmann
Small-Cap Analyst, Australian Small-Cap Investigator