Woodside and Santos set for a bumper 2022: Morgans

Wed 02 Feb 22, 12:47pm (AEDT)

Key Points

  • Local energy stocks are underperforming both international peers and oil prices
  • Morgans reiterates an Add rating for both Woodside and Santos
  • Both companies are expected to benefit from recent M&A activity

The S&P/ASX Energy Index is trading well-below pre-covid levels despite oil prices running to 7-year highs.

While local oil and gas plays have historically underperformed their global counterparts, the recent divergence is the largest we've seen since 2016.

XEJ 2022-02-02

ASX Energy Index vs. US Energy Index (orange) and Crude oil price (blue), TradingView

Morgans thinks 2022 could be a breakthrough year for energy heavyweights Woodside Petroleum (ASX: WPL) and Santos (ASX: STO) after a big year of M&A activity and encouraging operational performances.

Woodside “ready for a bumper 2022”

Morgans reiterated an Add rating for Woodside with a $30.55 target price (18% upside)

Woodside’s fourth quarter 2021 and 2022 guidance both came in ahead of the broker's expectations. 

The 2022 guidance was “particularly impressive”, with a 92-98m barrels of oil forecast versus Morgans’ estimates of 91m barrels. 

“Woodside is already in strong shape heading into 2022, while the combination with BHP Petroleum will materially boost the company’s fundamentals,” the report said. 

Santos “size of the prize” 

Santos was given an Add rating with a $9.15 target price (24% upside) heading into a “catalyst-heavy 2022”. 

The company’s December quarter results topped consensus expectations across revenue and production metrics. 

Morgans said it sees an opportunity to “beat market expectations on synergies in its merger with Oil Search (ASX: OSH) given the level of capital inefficiency we saw at Oil Search.” 

Santos could also be poised for growth with final investment decisions due at its Barossa project in mid-2022 and Pikka Phase 1 project in the first half of 2022.

Both Santos and Woodside report their FY21 results on 16 February 2022.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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