Santos JQ26 Result: Strong project & pricing outlook overwhelms soft result

Research evidence excerpt

Santos JQ26 Result: Strong project & pricing outlook overwhelms soft result

beyond (mostly due to higher DD&A)—Figure 31H26Line-itemguidancevs.UBSe&cons outlines the new guidance v (prior)

expectations. Despite a soft update, we maintain a Buy rating & look through the EPS (UBS, diluted) (US$)

financial impact of known events over the qtr, with our focus on our expectations for a From To % ch Cons.

successful commissioning of Barossa & Pikka & a corresponding 2H step change in FCF. 12/26E 0.67 0.47 -31 0.53

12/27E 0.55 0.50 -10 0.50

12/28E 0.52 0.48 -7 0.50

Third-party purchases to meet LNG sales commitments weighed on Barossa

We est. STO purchased x7 LNG cargoes over 1H (x4 in 1Q and x3 in 2Q) that were then Tom Allen

Analystresold to make good on commitments under its mid-term LNG sales contracts to

tom.allen@ubs.com

QatarEnergy, Glencore & TotalEnergies Gas & Power Asia. The $460m of third-party

+61-3-9242 6237

purchase costs over 1H, materially impacted the $151m operating loss across Barossa

(DLNG) & Pikka combined. We estimate STO's 2026-27 LNG sales contracts are indexed Harry Glass

Associate Analystat portfolio avg slopes to Brent of 14.7% & so at prevailing 2H futures prices for Brent

harry.glass@ubs.com

($83-95/bbl) & JKM LNG ($21-22/mmbtu), combined with STO's 1.3mmboe under-lift +61-3-9242 6053

position to be recovered next half, altogether strengthens the 2H inflection in FCF.

Valuation: A$8.30/sh (unchanged); Cut EPS estimates materially on higher D&A

We cut 2026E EPS by 31% on lower prod'n, materially higher DD&A post new

accounting treatment & higher other expenses per line item guidance, partly offset by

lower tax rate due to PRRT tax credits in Barossa. We cut 2027-28E EPS by 7-10%

primarily due to higher DD&A.