Santos Navigates Mixed Q1 Results Amid Project Momentum

Santos Ltd (ASX:STO) delivered a cautiously optimistic set of results for the first quarter of 2025, with production rising 2% sequentially but sales volumes and revenue under pressure from pricing headwinds. While the company’s operational execution in key regions like Western Australia highlighted resilience, the path to sustained growth hinges on the timely completion of its high-priority projects, Barossa LNG and Pikka oil, and navigating an uncertain energy market.

Production Gains Offset by Sales Slump

Santos’ Q1 production of 21.9 million barrels of oil equivalent (Mmboe) marked a modest 2% increase from Q4 2024, driven by a strong performance in Western Australia. The Halyard-2 infill well, which boosted regional output by over 18% quarter-over-quarter, underscored the benefits of targeted drilling. However, sales volumes dipped 1% to 23.3 Mmboe, reflecting challenges in matching production gains with market demand.

The disconnect between production and sales highlights a broader industry challenge: global energy demand remains uneven, with Asia-Pacific LNG markets grappling with oversupply and lower domestic gas prices.

Revenue Pressures Mount

Revenue fell 8% to $1.29 billion, a direct consequence of weaker pricing for both domestic gas and oil-linked LNG. The average realized LNG price of $11.57 per mmBtu and oil price of $82.24 per barrel lagged prior quarters, squeezing margins despite cost-cutting efforts. Capital expenditures of $613 million also weighed on cash flow, though Santos remains on track to finalize its $5.2 billion Barossa project this year.

Projects Take Center Stage

The Barossa LNG project—95.2% complete—is now within striking distance of its Q3 2025 startup date. Once operational, it could add 2.2 million tonnes per annum (Mtpa) of LNG capacity, positioning Santos to capitalize on long-term supply contracts. Meanwhile, the Pikka oil project in Alaska, at 82.2% completion, signals progress despite geopolitical risks in the region.

CEO Kevin Gallagher emphasized that these projects represent a “critical inflection point” for Santos, transitioning it from a heavy capital-spending phase to one focused on returns. The company’s Smart Score of 3.6 (out of 5) reflects this cautious optimism, with a perfect “Value” score of 5 underscoring investor appeal.

Analyst Sentiment and Risks

Analysts remain divided, with 12 buy ratings, 2 holds, and 1 sell. Bulls point to Santos’ low debt levels and $1.3 billion in cash, while bears caution that energy prices could stay depressed longer than expected. The company’s 3.6% dividend yield—supported by a “Dividend” Smart Score of 4—also provides a buffer against near-term volatility.

Conclusion: A Transition Year with Long-Term Upside

Santos’ Q1 results reveal a company balancing short-term pressures with strategic ambition. While lower sales and prices clouded the quarter, the Barossa and Pikka projects remain on track to deliver ~400,000 barrels of oil equivalent per day (boepd) by 2026, potentially lifting production by over 20%. With a $14.8 billion market cap and a Price/Earnings (P/E) ratio of 12.5x (vs. industry average of 15x), the stock appears undervalued if projects meet targets.

Investors should monitor LNG price trends and project timelines closely. A successful Barossa launch could unlock Santos’ full potential, but any delays or further price declines could test its resilience. For now, the company’s disciplined execution and project momentum position it as a high-conviction play on Asia-Pacific energy infrastructure—a bet that could pay off as markets stabilize.

Disclaimer: Past performance is not indicative of future results. Always conduct your own research or consult a financial advisor before making investment decisions.