Last Update 11 Mar 26

Fair value Increased 5.25%

STO: Future Returns Will Reflect Low Costs And Asset Review Execution Risk

Analysts have lifted their average price target for Santos to about A$7.95, up from roughly A$7.55, citing a solid in line result, expectations for more than 25% production growth by 2027 and a supportive low cost operating model, along with updated Street views that factor in more moderate assumptions for future commodity prices.

Analyst Commentary

Bullish Takeaways

Bullish analysts point to Santos' low cost operating model as a key support for margins and cash generation potential, which they see as helping to underpin the higher A$7.30 to A$7.50 price targets.
The expectation for more than 25% production growth by 2027 versus 2024 base levels is seen as a core driver for Santos' growth profile, with higher volumes viewed as important for supporting valuation.
Assumptions that Papua LNG reaches a final investment decision around mid 2026 are factored into more optimistic views on Santos' project pipeline and future earnings mix.
Bullish analysts argue that updated targets reflect a more balanced view of future commodity prices, and their stance indicates they see current expectations as not overly pessimistic.

Bearish Takeaways

Some bearish analysts highlight that expectations for lower oil and gas prices in 2026 could cap upside if volumes or costs do not track in line with current assumptions.
There is execution risk around the timing and approval of Papua LNG, and any delay to a mid 2026 final investment decision could potentially affect growth and valuation timelines.
Reliance on a low cost operating model is viewed cautiously by some, who point out that cost inflation or operational issues could narrow the margin buffer that underpins current targets.
A few cautious views suggest that even with production growth assumptions, Santos still needs consistent delivery on project milestones for the higher price targets to remain credible.

What's in the News

Media reports suggest Santos is considering demerging a group of what are described as poorer performing Australian assets, including Western Australia and Cooper Basin assets, the Narrabri Gas Project and its 80% stake in the Dorado Project, as part of a strategic review expected to conclude around May, with options said to include an in specie distribution or a sale of the non core business (M&A Rumors and Discussions).
The potential demerger is reported to follow pressure from major shareholder L1 Capital for Santos to focus on becoming a pure play LNG business, apart from its Pikka project in Alaska that it previously tried to sell, with some market commentary suggesting this structure could renew takeover interest from past and prospective bidders such as Woodside, XRG and several global energy majors (M&A Rumors and Discussions).
Sources cited in reports indicate any non core arm could be valued in the billions. They also highlight that remediation liabilities tied to older assets may be a key issue for any demerger or sale process, including for potential buyers such as Beach Energy, which has been described as a logical acquirer of these assets (M&A Rumors and Discussions).
Santos has stated it is conducting a review of its Australian business and has flagged that it plans to update the market on the outcome at its investor day on May 26. Company sources indicate the review is still in the early stages (M&A Rumors and Discussions).
Santos has reaffirmed production and sales volume guidance for 2026 at 101 to 111 mmboe for both metrics, and has confirmed the appointment of Lachlan Harris as Chief Financial Officer, effective 19 December 2025, after he served as Acting CFO and held several senior finance roles over his 15 year tenure with the company (Corporate Guidance, Executive Changes).

Valuation Changes

Fair Value: A$7.55 to A$7.95, a modest uplift in the modelled central value for Santos shares.
Discount Rate: 6.88% to 6.85%, a slight reduction in the assumed cost of capital used in the valuation.
Revenue Growth: 10.43% to 10.92%, a small increase in the projected annual top line growth rate.
Net Profit Margin: 23.96% to 24.69%, a mild step up in assumed long term profitability.
Future P/E: 13.24x to 13.45x, a marginally higher earnings multiple applied to forward earnings estimates.

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Key Takeaways

Accelerated production growth and strong long-term LNG contracts position Santos for stable revenue, improved margins, and earnings resilience amid rising energy demand.
Advancements in carbon capture and efficiency drive ESG improvements and cost reductions, unlocking new revenue streams and boosting free cash flow potential.
Exposure to commodity cycles, regulatory and environmental risks, and rising ESG pressures threaten earnings stability, growth prospects, and access to capital for Santos.

Catalysts

About Santos

Explores, develops, produces, transports, and markets hydrocarbons in Australia and Papua New Guinea.What are the underlying business or industry changes driving this perspective?

Near-term production growth is set to accelerate with the imminent ramp-up of major projects (Barossa LNG and Pikka Phase 1), positioning Santos to benefit from structurally rising global LNG and natural gas demand, especially in emerging Asia; this should boost future revenue and operating margins.
Strong momentum in securing long-term, oil-linked LNG contracts-92% of portfolio contracted and 80% oil-linked through 2029-enhances revenue visibility and pricing power amid ongoing geopolitical-driven energy security concerns, supporting stable and growing earnings.
Santos' rapid progress and delivery in carbon capture and storage (CCS), highlighted by the Moomba CCS project already storing over 1 million tonnes of CO2e, positions the company to leverage the global transition to lower-carbon energy; this not only helps reduce emissions intensity and improve ESG credentials, but may also unlock new premium revenue streams and support higher net margins.
Company-wide focus on operational efficiency, project self-execution, and continued cost reductions (targeting sub-$7/boe unit costs) is likely to improve free cash flow generation and net margins as new projects come online and CapEx cycles moderate.
A robust pipeline of backfill, infill, and expansion projects (across PNG, Alaska, Beetaloo, and Western Australia) integrated with existing infrastructure increases long-term growth optionality and underpins sustained production and revenue expansion, supporting higher long-term earnings resilience.

Santos Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Santos's revenue will grow by 9.6% annually over the next 3 years.
Analysts assume that profit margins will increase from 19.6% today to 23.2% in 3 years time.
Analysts expect earnings to reach $1.6 billion (and earnings per share of $0.51) by about September 2028, up from $1.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.1 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, down from 16.1x today. This future PE is lower than the current PE for the AU Oil and Gas industry at 14.9x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Santos Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Large capital expenditure requirements for major development projects like Barossa and Pikka increase exposure to commodity price cycles and project execution risk, which could negatively impact net margins and result in potential asset impairments.
Decommissioning and remediation liabilities for retiring assets, such as those arising in mature fields and demonstrated by ongoing decommissioning campaigns, require substantial future provisioning and could place downward pressure on future earnings and free cash flow.
Concentrated asset portfolio in politically and environmentally sensitive regions (such as Papua New Guinea and Northern Australia) exposes Santos to regulatory, operational, and environmental risks, potentially disrupting production and impacting revenue stability.
Growing global decarbonization policies, accelerating renewables adoption, and stricter emissions targets may erode long-term demand for LNG and gas, creating structural headwinds for Santos' core business and putting pressure on both revenue and long-term earnings growth.
Increasing scrutiny from investors and higher ESG-related expectations or requirements can raise the company's cost of capital and restrict access to funding or insurance for fossil fuel-related projects, limiting growth opportunities and putting strain on net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of A$8.511 for Santos based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$9.42, and the most bearish reporting a price target of just A$7.6.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.9 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 7.0%.
Given the current share price of A$7.83, the analyst price target of A$8.51 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) 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 price targets and estimates used are consensus data, and do 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

STO: Focus Will Shift To Project Delivery Following Takeover Withdrawal