Santos' share price under-performance raises M&A queries - E&P Financial

STO

03/05/2023 02:11

** E&P Financial says investors enquired on M&A appetite for
Australian gas producer Santos Ltd  STO.AX  owing to its
underperformance among energy peers over the past 18 months
    ** Stock's performance decline driven by dwindling volumes
from Darwin LNG project, uncertainty around approvals for
Barossa Gas project and continued Federal Government
interference in gas markets
    ** Says STO's underlying free cash yield slightly lower than
international peers until 2027 - making an acquisition difficult
to justify on a free cash basis in the shorter term
    ** Broker says European energy firm BP Plc  BP.L  and U.S.
oil producer ConocoPhillips  COP.N  stand out as prospective
acquirers, given their asset overlap and balance sheet capacity
    ** Says U.S. independent energy producers are also a
possibility albeit the current regulatory uncertainty in
Australia could be less attractive
    ** Believes primary attraction for an international buyer is
exposure to Santos' LNG position - key global transition fuel
    ** However, energy transition trends are limiting appetite
for more oil and gas, and is likely to reduce the "buyer pool" -
E&P
    ** STO shares down as much as 2.9% to A$6.94 vs a decline in
broader energy sub-index  .AXEJ  of 2.2%
    ** Stock flat so far this year, as of last close 

     ($1 = 1.4663 Australian dollars)

 (Reporting by Savyata Mishra in Bengaluru)
 ((Savyata.Mishra@thomsonreuters.com))