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A leading investment bank says Santos shares are worthless if current oil prices and exchange rates continued indefinitely.


Undertaking a hypothetical analysis at oil prices of $US55.20 a barrel and an exchange rate at 80.6 US cents, the Credit Suisse analysts found that Santos has a negative net present value of -13 cents.


Credit Suisse director and energy analyst Mark Samter told the ABC that he does not expect oil prices to remain at current lows over the long term, but his research predicts that Santos and Origin are likely to be under significant financial pressure even if low oil prices persist in the short to medium term.


The report finds that two or three years of oil around these levels would leave Santos below investment grade by 2016 as far as debt ratings agencies are concerned.


Origin would also be left with a dangerously high debt-to-income ratio if oil prices remained around current levels.


Both firms have spent billions of dollars to build large LNG export facilities on Curtis Island off Gladstone in Queensland.


Oil prices have fallen several dollars more from levels earlier this week when the research was written, with West Texas crude now at $US47.93 a barrel, but even at the higher price it used Credit Suisse found all the major Australian energy companies are still overvalued.


At $US55.20 a barrel, Origin should be worth around $7.60, Woodside between $18.74 and $22.54 (depending if currently unsanctioned projects go ahead) and Oil Search between $3.70 and $5.66.


At 1:00pm (AEDT) Origin was worth $11.10, Woodside $35.93, Oil Search $7.13 and Santos $7.43.


The high quality names are not oversold enough to make them screamingly cheap, whilst the lower quality stocks have large balance sheet concerns that could see materially further downside.

Credit Suisse

On Monday, Credit Suisse estimated that, at the currency exchange rate, it would take oil prices of $US70 a barrel for Oil Search to be worth its present market value, $US81 for Woodside, $US83 for Santos and $US84 for Origin.


However, all companies have seen their share prices slide further since the research was written, following further steep drops in oil.


If the Australian dollar was to fall further against the greenback, that would relieve some of the financial pressure on the firms by increasing their earnings in local currency.


Credit Suisse recommends that investors remain wary of the oil and gas sector, even after recent price falls.


"The high quality names are not oversold enough to make them screamingly cheap, whilst the lower quality stocks have large balance sheet concerns that could see materially further downside," the report warned.


"With perhaps the greater risk that oil prices don't bounce as quickly as we and consensus forecast, risks remain to the downside for the sector."


Credit Suisse added that Oil Search remained its "clear top pick" amongst the group of Australian energy firms.


Might take what profit I have left in STO and run away.


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Hi balance, Santos in real trouble. will /have cancelled their big gas project and will scap millions and millions of work done so far. Debt is about the current value of shares. Get out if you hold is my worthless opinion



Sigh, who do we believe?

From the ABC


When the panic sets in, the real smart guys start looking for bargains, have we already forgotten the GFC?


Long term do we all really believe the POO will go much much lower and stay there?


Surely aren't we witnessing a massive oil power play between OPEC and oil blocs like Russia?


We've all seen cycles over the last 30 years, bet this is just another cycle where the cashed up oilers are talking seriously to other oil companies that might want out, so IMO right now opportunity knocks.


US shale is another matter entirely, talking about mainstream crude producers /prospectors only


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You are choosing to disregard the debt burden that some large commodity companies carry.Santos and FMG come into this category.Your many posts on 'China the Monster' etc demonstrate a belief that Commodity prices must go up.Wrong.If prices do stay lowÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦a possibility as there is no shortage of supply and demand is weakÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..the high debt crowd will be in the sticky stuff.

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Imo oil prices would have to stay down around here for several years before Santos hit the wall and everyone seems to be forgetting that STO is well positioned in terms of its domestic gas business which will not be impacted by the current oil price rout. Local gas prices will still go to $8 gj because of the csg to LNG plants sucking up all available gas. With most of the LNG output locked into contracts with JV partners it is extremely unlikely the LNG plants will be mothballed. Further to this STO is cushioned a bit by a sinking AUD.


As for the company being worthless...they have something like 1.3 billion barrels in 2p reserves and value their producing reserves and

production infrastructure assets at $16 billion which seems reasonable given they turnover about $3.5 billion, nearly half of which is nat. gas LNG related revenue sold on forward contracts. Recent wet gas discoveries offshore W.A and results from the first well in the MacArthur shale play are worth looking into imo as they will add materially to STO's reserves when brought to maturity.

I've been buying a few in the mid 7's as I don't see oil staying in a downtrend when the ECB comes out swinging in a couple of weeks. Not intending to hold on however if the oil price keeps sinking.

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