Santos will acquire ConocoPhillips’ northern Australian assets for $1.39bn. The transaction will be funded from free cash flow and $750m in new debt facilities as well as a 25% equity sell-down of Bayu-Undan and Darwin LNG.
The transaction increases forecast production by 12% and UBS estimates the acquisition will deliver 9% upside to operating earnings (EBITDA) in 2020. Neutral rating maintained. Target rises to $8.10 from $7.20.
Target price is $8.10.Current Price is $7.76. Difference: $0.34 – (brackets indicate current price is over target). If STO meets the UBS target it will return approximately 4% (excluding dividends, fees and charges – negative figures indicate an expected loss).