Santos shares (ASX: STO) are continuing to stretch their highs this week, adding a further 2.11% to $8.73 today, hitting an intraday, and five year high at $8.81. The move puts the stock at levels not seen this side of 2020, as oil remains above $100, and the company increasingly looks to be valued as an emerging cash generator.
Recent momentum has followed Santos’ two big growth projects, the Barossa LNG development and the Pikka oil project in Alaska, moving from construction to production at the same time. Barossa is progressing through commissioning toward steady-state output, with gas flowing at around 550 million standard cubic feet per day and a target of roughly 600 by the end of the quarter. Cargoes are now leaving Darwin LNG at a cadence of about one every eight days. Pikka, which delivered first oil in May and lifted its first crude cargo in August, is already producing around 40,000 barrels per day, with management guiding to a gross plateau near 80,000 late in the third quarter.
Recent Financials Supportive
That operational momentum underpinned the company’s half-year results in August, which showed production up 3% to 45.6 million barrels of oil equivalent, sales revenue of US$2.6 billion and free cash flow from operations of US$378 million. Management has guided to second-half production 20% to 30% above the first half, arguing that commissioning drags and cargo timing effects that weighed on the interim numbers should unwind.
The board backed that confidence by declaring an unfranked interim dividend of US 11.6 cents per share, effectively paying out the period’s free cash flow. With gearing in the low 20s, liquidity of roughly US$3.8 billion and no debt maturities until late 2027, the balance sheet gives the equity story room to run on execution rather than funding risk.
Can The Rally Continue?
Looking to analysts, and the valuation debate is where the story gets tighter, with the average price target on Santos at $9.05, only about 3% above today’s price.
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The technical setup tells a similar story of strength with stretch. The price is trading above its upper Bollinger band at $8.68, with moderate band width, a pattern consistent with momentum running ahead of the recent trading range. The moving-average structure is bullish, with Santos’ share price above its 50-day average of $7.90, which itself sits above the 200-day at $7.22, while the 20-day EMA holds above the 50-day.
An ADX reading near 31 and rising points to genuine trend strength rather than a fading drift higher, whilst the RSI has cooled off a little to 67.64.
What happens next rests on a small number of large assets, alongside the path for oil prices. With the shares at their highest levels in years, the margin for error has narrowed, and momentum that has seen bulls add 41.95% since the start of the year can be unforgiving in the event of a reversal. Bulls will be eyeing up a A$9 handle, whilst bears will want to see the stock back under A$8.50, leaving plenty to consider into the final days of the week.
