Santos Ltd (ASX:STO) share price soars higher on Quadrant Energy acquisition

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Beach Energy

Oil and gas producer Santos Ltd’s (ASX: STO) share price has jumped 8.37% to $6.80 after releasing its first-half results on the back of an acquisition announcement.

Quadrant Energy Acquisition

Santos announced late on Wednesday that it has agreed to buy Quadrant Energy for at least $US2.15 billion ($A2.92 billion), expanding in Western Australia and grabbing a potentially big new oil find.

It had rejected a $US10.8 billion takeover offer from private equity-backed Harbour Energy just three months earlier.

Santos shares jumped on the results and the Quadrant deal, which was backed by analysts.

“On a very preliminary basis, the acquisition price looks good to us,” Royal Bank of Canada (RBC) analysts said in a note.

1H 2018 Results Highlights

Santos reported net profit of $US104 million for the half-year ended June 30, from a $US506 million net loss a year earlier.

Underlying profit rose to $US217 million from $US109 million a year earlier, even after first-half output was hit by an outage at the Papua New Guinea LNG plant following an earthquake.

The company declared an interim dividend of 3.5 cents a share.

It had suspended dividends in 2016, diverting cash to pay down debt which peaked for the construction of its Gladstone LNG project just as oil prices collapsed.

“We will shortly achieve our net debt reduction target, more than a year ahead of schedule, and therefore have a significantly stronger balance sheet to support our growth strategy,” Chief Executive Kevin Gallagher said in a statement.

Santos cut net debt to $US2.44 billion by the end of June, and said it was on course to reduce this to below $US2 billion before the end of 2018, thanks to sharp cost-cutting and a rebound in oil and gas prices.

Outlook

The company still expects 2018 production of 55-58 million barrels of oil equivalent (mmboe) on growing output from its Cooper Basin assets and maintained its sales volume guidance of 72-76 mmboe.

The Quadrant acquisition is expected to boost Santos’ free cash flow by around 17% in 2019, assuming oil prices of $US65 a barrel.

Santos said the cash generated from Quadrant, the biggest gas supplier to the domestic market in Western Australia, will help fund expansions in northern Australia and PNG and service the $US1.2 billion in debt it is taking on for the deal.

Since the beginning of 2018, the Santos Ltd share price has climbed 25.14%, compared to the S&P/ASX 200 Index, which has gained 3.2% in the period.

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