'A bit shaky': Oil price rise unlikely to give Santos reprieve

THE gains in oil prices from the January lows have been raising hopes of profits for Curtis Island's liquefied natural gas plants.

But some analysts have signalled out Santos and its Gladstone Liquefied Natural Gas plant, citing uncertainty around its gas supply as a concern.

Analysts have downgraded Santos stock to "underperform" despite oil prices at a four-month-high.

A lot of the conjecture is focussed on Santos' supply to GLNG with chief executive officer Kevin Gallagher stating there were concerns around performance of the Roma field gas wells.

Santos declined to comment on the grading and gas wells but associate professor Dr John Steen at The University of Queensland said the company was still well structured to profit from GLNG in the future.

"The commentary about Santos is that it is looking a bit shaky but it is a long-term game," he said.

"My view is that the concerns have been overplayed because Santos has forward plans to do drilling and that can be accelerated or slowed down as the case may be."

The Santos GLNG site on Curtis Island in October 2014.
The Santos GLNG site on Curtis Island in October 2014. Santos

He said the concern about not meeting customers supply contracts was hard to equate.

"The details of the contracts aren't well-known, they are commercial-in-confidence," he said.

"The problem is it is a very expensive way to get gas. Don't forget this is the first industry in the world to do this, all the majors had a look at it, from ConocoPhilips to BG Group."

He said Santos had heavily invested in GLNG and there was no chance the company would just close down the plant.

"When everyone was looking about US$30 a barrel it wasn't good but they still wouldn't shut down the plant and walk away then," he said.

"And if we believe what is happening with Russia, it is encouraging, agreeing to stabilising the oil price, probably into $100 a barrel, all those factors are promising."

He also said despite the recent fluctuations in the price of Santos shares, he believed in Santos' long-term future.

"It is still a very well-managed company with a good future and good assets.

"It has good investments in New Guinea.

"The share price just got ahead of itself when the oil price went up."

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