Santos (ASX:STO): Is this the ASX’s best positioned oil and gas stock?

Santos (ASX:STO) looks to the best of the Big 3 ASX oil and gas stocks (the other 2 being Woodside and Beach Energy – Santos taking silver spot). The company’s shares are down 14% in the last 12 months and would be more had it not been for hope of a takeover offer which ultimately fell through. Obviously it is vulnerable to oil price fluctuations…but is that the whole story with this company?

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Santos (ASX:STO): Building an LNG Future

Santos was founded in 1954 in South Australia, made its first significant discovery of natural gas in the Cooper Basin in 1963, has remained there to this very day and has picked up additional projects over the years. Back in 2021, it merged with Oil Search, cementing its position as one of the Top 3 petroleum companies on the ASX together with Woodside Petroleum (ASX:WPL) and Beach Energy (ASX:BPT).

Santos produces energy and sells it to energy companies that provide it to consumers. Santos sells into the domestic energy market and export markets such as South Korea, Japan and China. The company has assets across Australia (at Gladstone and Darwin), East Timor, PNG and Alaska which produced 87.1mmboe in 2024.

It has best estimate contingent resources of 3,338mmboe (millions of barrels of oil equivalent) with a further 1,559mmboe proven and probable reserves. The company has a number of assets set to come online in the years ahead with the most important being Pikka (Phase 1) in Alaska which will contribute up to 80,000 bbl per day which is 29m per year. Also important will be Barossa LNG which will produce 3.7Mtpa LNG and 2.7mmboe condensate. It hopes 2027 production will be 30% higher than 2024.

As we outlined when we looked at Woodside, the oil giants are looking to LNG as their future. LNG is perceived to be part of the solution to decarbonisation as it is less carbon intensive, and is a like-for-like replacement for traditional oil. Demand for LNG in the Asia-Pacific is expected to grow 69% over the next decade, and although it is being driven by China now, developing nations are expected to account for an ever increasing share of the market.

Can it deliver and can it standout?

How is Santos different from its competitors? Because its assets are close to key Asian markets. A typical oil tanker can reach Asia from Australia in just a week while it would take more than 2 weeks to reach it from Qatar and more than 3 weeks from North America. This provides lower emissions before nations even receive their gas.

Currently, the company has a capacity of ~7.7Mtpa right now, and this could increase as it increases production. Key customers for its Australian LNG assets (at Darwin and Gladstone) include Mitsubishi, Kogas and Petronas.

Moreover, Santos has a developing carbon capture business which could ultimately provide ~30Mtpa of storage capacity. By 2030, it is planning for Scope 1 and 2 emissions to be 30% lower and by 2040 to be net zero.

But it will all depend on oil prices

Yes, this goes without saying. Investors may regard Santos’ portfolio as superior, but prices have been subdued in the past few years, even with the Russia-Ukraine war developments leading to concerns about gas supply. Further concerns are the risk of project cost blowouts and delays.

Santos’ management has issued guidance of 89-91mmboe production and 93-95mmboe sales in 2025, previously 90-95mmboe and 92-99mmboe. It has guided to $1.3-1.3bn capex and unit production costs of $7-7.40 per boe. The company has blamed the impact of floods on Cooper Basin, among other factors, but celebrated that the first gas into the export pipeline from Darwin LNG was achieved.

We mentioned at the start of this article that shares fell in the second half of 2025 after rising due to a takeover offer. A consortium led by Abu Dhabi National Oil company made a bid but this was formally withdrawn. Although nothing was found in due diligence that caused concern, it could not secure financing.

In fairness, it was a big deal at $36.4bn, but investors are left wondering even if the suitor had no problem – perhaps the financiers did (whether with Santos as a company, and Australian oil giants or just oil…unlikely the latter given it is a National Oil Company).

Analysts covering Santos have a target price of $7.58, 23% up from its $6.14 share price. Analysts expect 2025 results to be backwards with US$5.1bn revenue, $3.4bn EBITDA and a $941m profit. But 2026 is expected to be a bounce back year, with a vengence. Analysts call for $6.1bn revenue, $4.2bn EBITDA and a  $1.3bn profit.

The company is trading at less than 11x P/E for CY25, and is not facing the risk of delays and project uncertainty to the extent Woodside (ASX:WPL) is. However, it remains to be seen how investors will react to the company’s 2025 results (due in February) and any guidance it will give.

Our conclusion on Santos

If you had to invest in an oil and gas company, you’d be less likely to go wrong with Santos compared to Woodside or Beach, but no one can control oil prices and that will be the key factor that will determine the company’s financial performance.