Not to be Underestimated.

Oil and gas major Santos has a bright future ahead, according to Morningstar senior equities analyst Mark Taylor, who has increased his fair value estimate amid a forecast boost in output.
Taylor has used his latest note to increase Santos’s (ASX: STO) midcycle production forecast to around 90 million barrels of oil equivalent, or mmboe, by 2025, 13 per cent above the previous 80 mmboe forecast.
Morningstar has increased its fair value estimate for no-moat Santos by 12 per cent to $7.85.


Morningstar's Mark Taylor says he is waiting for "greater clarity" on several projects
Taylor's 90 mmboe forecast is more conservative than Santos' 100 mmboe growth target announced last week.
At a presentation to investors on Wednesday, chief executive Kevin Gallagher outlined plans to almost double current levels of production, achieved substantially from its existing portfolio, including its latest US$2.1 billion acquisition Quadrant Energy, Western Australian’s biggest gas supplier.
This Quadrant deal saw Santos grab what may be the biggest oil find off Western Australia in more than 20 years. The acquisition is still subject to regulatory approval, but Taylor foresees no road-blocks.
Since last Wednesday's announcement, shares are up 1.24 per cent to $7.34, making shares marginally undervalued.
Increased production figures can be attributed to east-coast coal seam gas to liquid gas, Papua New Guinea, Gladstone LNG projects, Taylor says.
Santos has flagged other growth projects, which include the tie-back of the Barossa gas project off the north coast of Australia, and its plan to more than double its equity share of Darwin LNG production. A tie-back refers to the act of connecting a new oil and gas discovery to an existing production facility.
Santos is also banking on the devleopment of the Dorado oil prospect which comes with Quadrant, and increments elsewhere in the existing portfolio. These include the Cooper Basin, where costs are down 50 per cent since 2015, and Queensland's coal seams, where drilling activity increased to 300 wells in 2018, with a fourth rig added.
However, Taylor is waiting for "greater clarity" on projects including the recent oil discovery at Dorado off the coast of Western Australia, before crediting full value.
"Though CEO Gallagher is proving a leader not to be underestimated," Taylor says.
Taylor notes that near-term debt concerns have abated, with capital injections and cost control having reduced net debt to US$2.4 billion – from mid-2015's US$6.7 billion peak.