The Santos Ltd (ASX: STO) share price is down after revealing there has been a major share sale by its biggest shareholder.
What did Santos announce?
The oil business reported that it has been advised by ENN Group that it has sold approximately 107.1 million shares representing a 5.14% interest in Santos at $7.33 per share.
Santos said that the sale process was oversubscribed and received strong support from existing and new institutional shareholders.
The oil business said that ENN has advised Santos that it remains fully supportive of Santos’ strategy and future direction and is expected to remain Santos’ largest individual shareholder with a 9.97% stake.
As a result of this reduced shareholding the 2017 strategic relationship agreement with ENN regarding board representation and other matters is no longer effective. The ENN-nominated director Mr Eugene Shi will resign from the Santos Board following completion of the sale.
Is the Santos share price a buy?
The oil industry has been through a lot over the last year. There was a slump a year ago when oil usage and demand sank like a stone as COVID-19 spread throughout the world.
Things have been looking better in recent months as the world learned of the efficacy of the COVID-19 vaccines.
However, whilst there has been a short term improvement, there is a long term expectation that the world will steadily transition away from oil and towards other energy sources such as renewables and perhaps hydrogen.
It’s certainly possible that Santos could deliver good shareholder returns in the medium term if oil demand remains good and if Santos keeps paying good dividends to shareholders.
There are risks with different commodities. Iron ore requires continuing high levels of buying from China. The lithium sector is a very interesting idea, but it’s hard to say what the lithium price will do in the coming years.
Summary thoughts
I’m not a big fan of investing in commodity businesses because they’re price takers. They also require a lot of investing in the next mine or other resource. Over the long term I just think that other sectors may be able to deliver more consistent and better long term returns.
