Santos Ltd (STO.AX): Clear line of sight to higher returns; free option on spec growth

Research evidence excerpt

Santos Ltd (STO.AX): Clear line of sight to higher returns; free option on spec growth

Action |

23 Jul 2026 08:48:14 ET │ 15 pages

Santos Ltd (STO.AX)

Clear line of sight to higher returns; free option on spec growth

CITI'S TAKE

STO has taken another step towards de-risking its growth with Barossa

production ramping towards nameplate and concerns around ongoing

FPSO issues easing. Pikka is also progressing well, increasing our Buy

confidence that a revised capital management framework will be Price (23 Jul 26 16:00) A$7.85

announced with the February result. Improving visibility on production

Target price A$8.30growth (Figure 1), cash flow and shareholder returns should support a re-

rating towards peers. STO currently discounts US$59/bbl and trades at a Expected share price return 5.7%

discount on an EV/EBITDA basis despite major growth projects coming Expected dividend yield 6.1%

online. With an average CY27E FCF yield of 12% (Figure 2), supporting a

Expected total return 11.8%dividend yield of 7%, we see scope for the valuation gap to narrow as project

execution continues to de-risk and capital returns increase. Market Cap A$25,495M

US$17,840M

Growth de-risking key to a re-rating — Barossa loaded 4 cargoes in the JunQ, with

the most recent cargoes averaging ~11 days between loadings according to port data

(including 2 additional cargoes loaded in July). Management expects this to improve

to ~8 days as production ramps towards nameplate capacity, further de-risking the Price Performance

asset as it reaches steady-state. At Pikka, commissioning of the seawater treatment

(RIC: STO.AX, BB: STO AU)plant in the coming weeks should support the next phase of the ramp-up, with

production expected to increase from ~20kbpd to 80kbpd. We expect stronger 2H