The Santos Ltd (ASX: STO) share price is up 0.41% in afternoon trade on Wednesday.
Shares in the S&P/ASX 200 Index (ASX: XJO) oil and gas stock are currently trading for $7.28 apiece.
That puts the Santos share price up 2.75% in 2023, although it has lost 10% over the last 12 months.
Here's why I think the company has significant upside potential ahead.
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Is the Santos share price undervalued?
There are numerous factors that will influence the longer-term trajectory of the Santos share price.
Among them, investors will be watching how the development of the company's multi-billion dollar offshore Barossa Gas Project progresses.
But a key driver will be what happens with oil and gas prices in 2023 and into 2024.
One factor that's pushed the Santos share price down over the past 12 months is a 14% retrace in the price of Brent crude oil. Brent is currently trading for US$74.29 per barrel.
Now, I think that crude oil and gas prices are both likely to head higher over the coming months.
On the gas front, last month at the G7 Summit in Japan, the group of seven wealthy nations came out in strong support of increasing the global supply of liquefied natural gas (LNG).
The G7 released a statement saying:
We stress the important role that increased deliveries of LNG can play, and acknowledge that investment in the sector can be appropriate in response to the current crisis and to address potential gas market shortfalls provoked by the crisis.
And Germany even acknowledged the need for new gas-fired power stations.
Strong global demand for gas should support LNG prices and offer some tailwinds for the Santos share price.
On the oil front, I'm largely in agreement with the revised price forecast put out by Goldman Sachs.
Although Goldman revised its oil price forecast downwards, the broker still expects crude oil to trade at a significantly higher price than today.
With slowing global growth in mind, Goldman is now forecasting Brent crude oil to trade for US$86 per barrel in December. That's almost 16% above today's price.
Bearing in mind that the Chinese government appears poised to unleash some significant stimulus measures, I believe Brent could even retest US$90 per barrel this year.
If so, that could see the Santos share price move significantly higher amid juicier profits.
What are the experts forecasting for the Santos share price?
I'm not alone in my bullish outlook for this ASX 200 energy stock.
In May, Citi's analysts named the company as their preferred oil exposure. Citi has a neutral rating and $7.75 target for the Santos share price. That's more than 6% above today's price.
Morgans has an even more bullish take, with an add rating on Santos shares and an $8.75 price target. That represents a potential upside of 20%.
According to Morgans:
The resilience of STO's growth profile and diversified earnings base see it well placed to outperform against the backdrop of a broader sector recovery. While pre-FEED, we see Dorado as likely to provide attractive growth for STO, while its recent acquisition increasing its stake in Darwin LNG has increased our confidence in Barossa's development.
Don't forget the dividends!
Atop potential gains in the Santos share price, the ASX 200 energy stock also paid out an all-time high final dividend on 29 March.
That brought its full-year payout to 33 cents per share. At today's share price, that works out to a trailing yield of 4.5%.
And that handy passive income stream is likely to persist.
The analysts at Citi forecast Santos will pay out dividends of 49 cents per share in FY23 and 40 cents per share in FY24.
