Why are Santos shares jumping higher today?

Santos Ltd (ASX: STO) shares pushed higher on Monday as investors cheered both stronger oil prices and a major production milestone in Alaska.

During afternoon trade, Santos shares climbed 2.5% to $8.08. The energy giant has now surged around 31% year to date and roughly 26% over the past 12 months.

That is a massive outperformance compared to the benchmark S&P/ASX 200 Index (ASX: XJO), which was down 1.2% on Monday and has gained only around 4% over the past year.

Alaskan oil production boost

Rising global oil prices amid ongoing geopolitical tensions and tighter supply expectations have been the main driver for this year’s share price rally.

But Monday’s gains received another boost for Santos shares after the company announced first oil production from the Pikka phase 1 development on Alaska’s North Slope.

For Santos, this is a major milestone. The company is one of Australia’s largest oil and gas producers, supplying LNG, natural gas, and oil across Australia, Papua New Guinea, Timor-Leste, and, increasingly, Alaska.

Its earnings move with energy prices and production growth. Major project developments can sharply shift investor sentiment.

The company revealed that oil flow has now been established through the Lease Automated Custody Transfer (LACT) meter into the Pikka sales oil line. Santos operates the project and holds a 51% interest in the Pikka Unit, while partner Repsol SA (BMEX: REP) owns the remaining 49%.

Major production ramp-up

Importantly, this is only the beginning of the production ramp-up. Pikka phase 1 has officially started production. At first oil, 28 development wells were already drilled. 21 had been stimulated and flowed back as expected.

Output is now ramping toward 20,000 barrels per day over the coming weeks as key systems progressively come online. Production will remain intermittent during commissioning before stabilising for around one month once the Seawater Treatment Plant begins water injection.

The company then expects output to accelerate sharply, targeting a production plateau of 80,000 barrels per day during the third quarter. First sales revenue should start flowing within three months. Santos and Repsol will alternate tanker shipments from the Port of Valdez.

What did Santos management say?

Management clearly views Pikka as a transformational long-term asset.

Santos Managing Director and Chief Executive Officer Kevin Gallagher said:

Alaska has a huge runway ahead of it which will underpin value-accretive production growth for Santos for the long term. When the Pikka Field was discovered, the Nanushuk formation was recognised as a new generation play in an established global super basin and we are proud to be at the forefront of unlocking its resource potential. The Pikka phase 1 project has demonstrated Santos’ capability to develop this world-class resource safely, responsibly and efficiently. We are already implementing technical drilling improvements that save time and cost, and we will continue to drive improved performance into the future.

What next for Santos shares?

For investors, the announcement reinforces Santos’ strategy. It is expanding long-life, cash-generating energy assets. It is also benefiting from a stronger oil price environment.

With Pikka now producing first oil, momentum is building. The market is growing more confident that Santos still has meaningful production growth ahead.

The post Why are Santos shares jumping higher today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Marc Van Dinther has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.