Santos (ASX: STO) experienced a sharp share price drop after the failed A$36 billion takeover by a consortium led by ADNOC. While the deal’s withdrawal removed a near-term premium, it highlighted the strategic value of Santos’ LNG and gas assets. The offer implied a potential upside of ~30–35% from pre-bid levels, suggesting the market may still be underpricing the company.
At the time of writing (6/3/2026), Santos has recovered to A$7.42, reflecting renewed investor confidence and the market’s recognition of its strong fundamentals despite past volatility. The company also paid a dividend of A$0.145 on 3 March 2026, and reported a full-year underlying profit after tax of A$898 million on 18 February 2026, highlighting robust financial performance even amid lower global commodity pricing. This demonstrates the resilience of its business and capacity to generate shareholder returns.
The recovery is supported by Santos’ low operating break-even of below $35 per barrel, solid cash flows, and major projects including Barossa LNG and Pikka, which could significantly boost production and free cash flow. These developments may also support future dividends and potential share buybacks.
However, several risks remain. Commodity price volatility could pressure margins, while government regulation played a key role in blocking the $36 billion takeover, highlighting environmental and political hurdles that may influence investor sentiment. Delays or restrictions on key projects could limit growth. Debt levels, though manageable, could constrain flexibility if markets turn. Finally, competition in the LNG sector and shifts in global energy demand could impact long-term prospects.
Despite these risks, the failed takeover provides a valuation floor, and Santos continues to offer robust earnings potential. Considering the strategic interest shown by a global energy player, the company’s growth projects, and its strong recent financial performance, Santos remains an attractive investment.
Given the $36 billion offer implied ~30–35% upside from pre-bid levels, and with the share price recovering to A$7.42 alongside strong dividends and underlying profit, I believe Santos remains materially undervalued and an attractive long-term buy.
Have other thoughts on Santos?
Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.
Create NarrativeHow well do narratives help inform your perspective?
Disclaimer
The user astratov has a position in ASX:STO. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
