Why Woodside (WPL) and Santos (STO) continue to climb?

Posted: 13 April 2022 12:56 pm

Shares in the 2 top oil & gas firms have climbed 14–31% over the last 12 months, continuing to grow during this morning's trading.

Shares in Woodside (ASX: WPL) and Santos (ASX: STO) are among the best performers on the ASX on Wednesday. The 2 stocks were up 1.3% and 1.5% respectively in early trading.

Why are the Woodside and Santos stock prices lifting?

The fresh lift in Woodside and Santos shares comes on the back of a sharp rebound in global oil prices on news of lockdowns easing in China's financial hub Shanghai and on declining Russian oil and gas production.

Benchmark Brent crude jumped 6.3% to $US104.64 a barrel overnight, just a day after tumbling over concerns that a spreading COVID-19 outbreak will cut demand in China and the release of strategic oil reserves by many countries to ease inflation.

But Shanghai has announced many areas are being reopened after being classified as lower-risk because no new infections were reported for 14 days, easing concerns.

At the same time, Russian oil and gas condensate production fell below 10 million barrels per day on Monday to its lowest since July 2020, as sanctions and logistical constraints hampered trade.

Most Western nations have banned Russian oil imports and imposed a raft of tough sanctions over its invasion of Ukraine. Russia is the world's second biggest energy exporter, supplying around 7 million barrels a day of oil and refined products, or 7% of global supply.

The restrictions have raised fears of a supply shortfall in the near term, lifting prices.

Earnings outlook

Woodside and Santos are set to benefit from the ongoing spike in oil prices, as the 2 Australian producers realise better prices and also cash in on the global shortfall in LNG supply.

Analysts estimate earnings at the 2 companies could more than double if oil prices stay above US$100 a barrel – as they have for nearly 6 weeks now.

Meanwhile, Woodside is also seeing a boost from its ongoing US$42 billion merger with BHP's petroleum unit, which both companies say is on track to be completed by 1 June.

The deal was deemed fair and reasonable by KPMG in its independent expert report on Friday, with the combined company valued at between $26.25 to $29.81 a share, strengthening Woodside's case to its shareholders to vote in favour of the deal at its 19 May annual meeting.

Last week, Woodside also secured the last of its major approvals for its $16.5 billion Scarborough LNG project off Western Australia. It can now build and operate a pipeline linking its offshore gas fields to facilities at its Pluto processing plant, as well as develop plans allowing the company to tap the project's major fields.

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