STO - Santos Limited

[Gringotts Bank]

What are the chances of a take over, at these prices, some must be running their ruler over them.

The gas reserves plus the infrastructure assets, are a long term play, as oil prices must recover IMO, OPEC will be hurting as much as anyone else.

It is obvious that O/S companies are eyeing off Australian assets, as has been seen with the Toll and Asciano take overs.

Well done.

 

[luutzu]

Well done.

Yes well done Sptrawler.

Can I also gloat too? Though not as sweet since jumping in too early at $7.45 (before the bottom fell out).. .though got some at $6, then some at $4.45, then some at $3.97. Would have been a lot richer if could afford that holiday


Now the "experts" all seem to think it's undervalued at $6.88, and this guy Bloomberg quoted now think anything below $10 will considered low by the Board. Not that I'm complaining.

 

[notting]

Tip -
When you hear commentators and oil men making exasperating comments about a take over like the WPL offer for OSH and they included involuntary and off the cuff type comments like, 'they would be better to have a crack at STO and why don't they buy STO." It is a good time to load up on the one they are exasperating over - STO - when the sector falls again after the initial excitement of a consolidation bid like the WPL 4 OSH.

The WPL OSH bid, by the way, isn't nearly as opportunistic as people are pretending, given that WPL shares are relatively subdued even more than OSH's. WPL would be smarter to make a slightly higher all cash bid, now, making the market think that's better when it certainly isn't by a long shot, unless oil never recovers!
At that point WPL would get hit a bit and that would be a great time to buy WPL!

 

[qldfrog]

I thought about adding Santos yesterday and had no time, in any case, my bet would have been small:
My view is that Santos as is is bankrupt at current oil price so:
either they get bought back underprice: good buy for the purchaser, a sucker for the long term holders who have paid the assets and will get zip in return;
or the Santos management sell some assets themselves: less loss for Australia but in effect a loss for long term holders as well;
Overall bad deal except for traders..I have no grudge, I made some nice money trading origin as a side activity to the STO news

 

[sptrawler]

Yes well done Sptrawler.

Can I also gloat too? Though not as sweet since jumping in too early at $7.45 (before the bottom fell out).. .though got some at $6, then some at $4.45, then some at $3.97. Would have been a lot richer if could afford that holiday


Now the "experts" all seem to think it's undervalued at $6.88, and this guy Bloomberg quoted now think anything below $10 will considered low by the Board. Not that I'm complaining.

Don't worry, I'm in the same boat, dollar cost average $5.50.

I still think there will be a lot more price movement, the Gladstone gas plant has started exporting and Santos has plenty of assetts to sell if required.

My guess is, there will be a few take over offers, time will tell.

 

[UMike]

Capital raising.

Surprise Surprise.

From the STO media release:
Strategic Review completed: $3.5 billion capital initiatives strengthen balance sheet
Key Points
● $3.5 billion reduction of net debt through:
o $520 million from sale of interest in Kipper gas field to Mitsui E&P Australia Pty Ltd
o $500 million private placement at a 15% premium to last close to an affiliate of the China-based international private equity firm, Hony Capital
o $2.5 billion fully underwritten accelerated pro-rata renounceable Entitlement Offer with retail entitlements trading
● Significant liquidity position increasing to over $5 billion in cash and undrawn facilities
● New dividend framework
● Future operating strategy to be driven by priority for improved return on capital performance
.....

Placement to Hony, $500 million
Santos has entered into a binding Share Subscription Agreement with an affiliate of Hony Capital (“Hony”), a major global financial investor. Under the terms of the agreement, Hony will subscribe for 73,529,412 fully paid ordinary shares in Santos, at a price of $6.80 per share.
.....This reflects a premium of 15% to the company’s last closing price of $5.91 on 6 November 2015 and a 76.6% premium to the offer price of $3.85 per new share under the Entitlement Offer.


......to strengthen the Santos balance sheet through a $2.5 billion fully underwritten, 1 for 1.7 accelerated pro rata renounceable Entitlement Offer launched today.......
The Offer Price of $3.85 per share represents a 34.9% discount to Santos’ closing price of $5.91 on the ASX on Friday, 6 November 2015 and a 25.2% discount to the theoretical ex-entitlement price (TERP) of $5.15.

 

[oldblue]

A pretty savage discount to the SP for the entitlement offer. Easy to be wise after the event but there were many commentators urging that action some months ago when the SP was higher and a lesser discount price would have been feasible.

I hold a few.

 

[luutzu]

A pretty savage discount to the SP for the entitlement offer. Easy to be wise after the event but there were many commentators urging that action some months ago when the SP was higher and a lesser discount price would have been feasible.

I hold a few.

How much will the rights go for you reckon? $1, $1.5? Maybe $2?

Will probably sell the rights... too large a holding for the portfolio, and running out of cash. But not a bad return so far though... Once oil picks up and with GLNG putting in $1B in cash next FY... might end up doing OK with this one.

 

[luutzu]

Don't worry, I'm in the same boat, dollar cost average $5.50.

I still think there will be a lot more price movement, the Gladstone gas plant has started exporting and Santos has plenty of assetts to sell if required.

My guess is, there will be a few take over offers, time will tell.

On the large account my avg around $6.38... so dam it. But the divvy so far and other much smaller account at much lower purchase price might prove a decent return. Maybe could take the family to a beach side rental this Xmas.

Maybe Scepter might come back, or another offer from some other player... Santos' own plan might not go as they planned. But either way I'm fine with it... yea, it's all about me and what I want

 

[luutzu]

Tip -
When you hear commentators and oil men making exasperating comments about a take over like the WPL offer for OSH and they included involuntary and off the cuff type comments like, 'they would be better to have a crack at STO and why don't they buy STO." It is a good time to load up on the one they are exasperating over - STO - when the sector falls again after the initial excitement of a consolidation bid like the WPL 4 OSH.

The WPL OSH bid, by the way, isn't nearly as opportunistic as people are pretending, given that WPL shares are relatively subdued even more than OSH's. WPL would be smarter to make a slightly higher all cash bid, now, making the market think that's better when it certainly isn't by a long shot, unless oil never recovers!
At that point WPL would get hit a bit and that would be a great time to buy WPL!

Good point there about WPL and OSH... I haven't looked at the industry or its players beside STO so can't comment. But yea, saw another opportunity in the sector and let see how it turns out - so far not a good sign with the few I bought.

 

[skc]

This from Credit Suisse

Hony, I shrunk the share price

In the 1989 film Honey, I shrunk the kids, Rick Moranis' device inadvertently shrunk three unwitting children to the size of ants. An unfortunate confluence of poor capital deployment, overly zealous assumptions, and a fall in the oil price has seen Santos' share price (and valuations) shrink all too much. Today's $2.5bn equity raising, $520mn sale of
Kipper and $500mn placement to Hony Capital is Santos' attempt to stop the ship shrinking (and sinking). We certainly welcome a more pragmatic approach to the balance sheet.

 

[SilverRanger]

The institution component has a shortfall of 38 million shares, or $148 million, vs $112 million of ORG.

Let's see what the bookbuild is like tomorrow.

http://www.afr.com/street-talk/santos-brokers-seek-bids-for-150m-worth-of-shares-20151110-gkvcub

 

[notting]

This from Credit Suisse

We certainly welcome a more pragmatic approach to the balance sheet.

Do we. Is that what we do. Really?

I bought some before the take over offer which is probably a stooge to fatten up the price for the raising and I sold on the day the after the offer came in, so I'm fine but this? Credit Suisse? Comments add up to this -
'We welcome a capital raising at the absolute miserable bottom to destroy any holder who has bought in over the last 10 years. Credit Suisse are a joke. If oil and gas kick up in the next 2 years this will prove to be one of the worst moves ever. These people have no balls.

 

[luutzu]

Do we. Is that what we do. Really?

I bought some before the take over offer which is probably a stooge to fatten up the price for the raising and I sold on the day the after the offer came in, so I'm fine but this? Credit Suisse? Comments add up to this -
'We welcome a capital raising at the absolute miserable bottom to destroy any holder who has bought in over the last 10 years. Credit Suisse are a joke. If oil and gas kick up in the next 2 years this will prove to be one of the worst moves ever. These people have no balls.

Come to think of it, yea the whole asset sales, everything on the table was probably a ploy to fatten up the price for a raising - Sceptre was the goose that fall for it. Hindsight being what it is I guess.

But then those royals are not going to take it in the face like that, so let's hope their pride will make little old me a bit happier. Don't mind either way actually... when oil recover in next couple of years say, with GLNG and PNGLNG online and full steam ahead, might work out very well. But the rights should ease the pain until then.

 

[drsmith]

Relative to the retail shareholders at $3.85, it looks like the instos at $4.60 got flogged on the entitlement bookbuild.

http://www.asx.com.au/asxpdf/20151112/pdf/432xkzjr9dfk5c.pdf

That's a far cry from the 90's when I remember the Westfield entities raising capital in a way that favoured the instos relative to the retails.

They at that time though were raising capital for expansion and not salvation which makes it even more interesting.

Santos closed today XR at $4.30.

 

[sptrawler]

Well it is certainly a strange move, one hopes the paying down of debt, gets them on a stable footing. I have gone from being really happy, to really confused, with them.
Fortunately with the entitlements, my average goes down to about $5, hope they get back to there.

 

[shouldaindex]

11th-December-2014

Reached the first support level much sooner than I thought today, and given the trajectory and how long left there is to play out, I've had to add further support levels and think the bottom one is not only in play after today, but has become the most likely.

STO $7.10, OIL $60
STO $5.80, OIL $55
STO $3.80, OIL $40

Happy to help.

So for Part 2:

Keeping it simple, Santos is FCF positive @ >$60 Oil. Oil is not this price. Santos will be losing money, Santos will need more money. Play it out, reach a conclusion in reality.

 

[sptrawler]

Happy to help.

So for Part 2:

Keeping it simple, Santos is FCF positive @ >$60 Oil. Oil is not this price. Santos will be losing money, Santos will need more money. Play it out, reach a conclusion in reality.

If you are correct, why the hell did the Arabs make a takeover offer, they would know the status with the ex CEO fronting their offer.
If they are losing money hand over fist, the Arabs just need to wait, it will be interesting.

 

[shouldaindex]

http://www.businessspectator.com.au...energy/six-santos-directors-buy-company-stock

Same reason another ex-CEO and board were buying stock at $7, the same month I forecast $3.80.

Same reason they denied a capital raise for an entire year.

People involved with a company have more biases than someone who looks clinically at the information.

Regardless, if a company is not profitable or cash flow positive, that's pretty much it for the foreseeable future.

 

[luutzu]

http://www.businessspectator.com.au...energy/six-santos-directors-buy-company-stock

Same reason another ex-CEO and board were buying stock at $7, the same month I forecast $3.80.

Same reason they denied a capital raise for an entire year.

People involved with a company have more biases than someone who looks clinically at the information.

Regardless, if a company is not profitable or cash flow positive, that's pretty much it for the foreseeable future.

This is why we can't have nice things.

Gas and Oil exploration and production is a capital intensive business, particularly in the initial exploration and development stage. In production it will then make money hand over fist.

Problem is you can't get the cash, and you probably can't make a business case, for new ventures and acquisition when the market is down. Oil too low into the foreseeable future to be convincing; lenders and shareholders and investors don't want to make investment when the future isn't bright etc...

So you can only raise cash and make a case for spending in a booming environment... with major, company transformative projects like GLNG, it take half a decade to get online... a lot could, and has, happen over that period.

Bad luck for Knox and shareholders who think of investing as a long term business... CEO got removed, gets the blame; shareholders who held on get burnt; traders get to make money.

That's why management now learn and instead of investing for the future or make bold moves... they buy back shares, pay high dividends; don't make investments in a market downturn when prices are cheap... They might even strip and sell assets to make the number looks good. Then get rewarded for it, until later when all these short term and job security measure comes back to haunt the company.

----

What Coates and Santos is doing is quite clever. A bit shifty if we're cynical about it, what with playing Sceptre. Yes the new equity raising will dilute and is going for cheap.. but if shareholders (taken as a whole) were to "lend" extra cash in tough times, the holdings is pretty much theirs and they themselves get to buy assets on the cheap instead of some other investors and vultures.

GLNG along, from memory, will bring in $1 Billion in additional revenue per year starting January 2016. This is at current low oil prices.

A good manager and investor would be insane to sell the entire company for $7 or $8B... Just think two to three years ahead; not a few weeks or months.


Sceptre are not fools; Santos own executives didn't buy it to hold up the stock price either.