No-Moat Santos Rides Through 2020, Generating Material Free Cashflow Despite Pricing

We make no change to our AUD 10.30 fair value estimate for no-moat Santos. The company reported a modest 1.0% increase in fourth-quarter production to 25.4 million barrels of oil equivalent, or mmboe, close to expectations. We increase our 2020 EPS forecast to AUD 0.30 from AUD 0.28 due to a strengthening in hydrocarbon prices that occurred toward the back end of the final quarter. Brent crude increased to over USD 50 per barrel by year’s end, from nearer USD 40 halfway through fourth quarter. And in a surprise move the Saudis appear determined to lock in the gains, with a unilateral cut to their production of 1.0 million barrels per day starting in February 2021. Brent crude has averaged closer to USD 55 since that announcement on Jan. 5, 2021.