Morning Report Thursday 29th October 2015
Overview Santos (STO) has been in the news regularly during 2015, mostly due to its plunge from around $14 in late 2014 to sub $4 recently in September - a 70% fall! - see chart 1. Clearly, it has been one of the big underperformers in the energy sector with its position being exacerbated as it is weighed down by a debt mountain close to $9bn. One of the clear concerns for STO is the combination of lower energy prices and the increasing cost of debt to energy companies through higher credit /risk margins due to the Crude Oil price collapse - see chart 3. The press is touting 3 potential scenarios for STO from their current position of weakness: 1. Sell off some assets to reduce debt - The obvious problem is here people want to buy the quality assets not the rubbish and because they know STO is a distressed seller the offers are likely to be ‘fair’ at best. Karoon Gas is said to be a bidder for STO's Victoria assets plus STO has received a formal bid from a Macquarie Group-backed entity for its West Australian Assets.
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