Santos's Takeover Approach Puts a Price on Its Long-Undervalued LNG Assets

A wild oil-price-driven rally gave way to a takeover approach that fund managers say confirms years of arguing Santos's LNG business was worth more than the market gave it credit for.

30 Sep 2026 · 5 min read

Santos has swung with almost every twist in the Iran conflict through 2026, rallying more than 30 percent in a single quarter as oil prices doubled, giving much of it back as tensions eased, and then attracting a takeover approach from an Adnoc and Carlyle consortium at around $9 a share in June that one long-time holder says finally validates a thesis it has been pushing since 2023.

Riding an oil price rollercoaster

L1 Capital detailed the scale of the March quarter move: Brent crude more than doubled from around US$61 a barrel to US$127 as conflict in Iran disrupted the Strait of Hormuz, a passage carrying roughly 20 percent of the world's oil supply. Investors Mutual Limited, Ellerston Capital and Maple-Brown Abbott all reported the stock up around 30 percent for the quarter, with Santos also delivering its first LNG cargo from the completed Barossa project during the period. The reversal came almost as quickly. Ellerston Capital said the stock fell 9 percent the following quarter, reversing most of the conflict-driven gains, and exited the position, while Firetrail Investments described Santos as remaining hostage to the on-again, off-again nature of the conflict, rallying and retreating in step with Strait of Hormuz disruption headlines. Collins St Asset Management took a similar view, trimming its holding as valuations appeared to overshoot the near-term geopolitical developments and redeploying the proceeds into CSL.

A takeover bid validates a long-held thesis

The bigger news landed in June, when an Adnoc and Carlyle consortium approached Santos at around $9 a share. L1 Capital, which said it had proposed merging Santos's LNG business as far back as late 2023 because it viewed those assets as the jewel in the company's portfolio, described the bid as clear validation of a disconnect it had long argued existed between Santos's share price and its intrinsic value, since the consortium was effectively bidding for the LNG assets that make up the majority of the company's worth, at a premium.

The Adnoc and Carlyle consortium bid at circa $9 per share is a clear validation of the strategic value of Santos' assets and the confirmation of the disconnect that we've long seen between the Santos share price and its intrinsic value.

— L1 Capital, Presentation, July 2026

L1 argued that regardless of how the takeover approach unfolds, Santos is well positioned over the following twelve months given the Barossa project was about to come online with the Alaskan Pikka project to follow the year after, describing the combination as bringing the company to a major earnings and cash flow inflection point. It also noted the price offered looked reasonable given the prevailing geopolitical backdrop and oil price, and that it reflects value about to be unlocked across the portfolio.

The long-term bull case beyond the bid

Several managers made the same underlying case well before the takeover approach. Greencape Capital said the Alaska portfolio, about to come online, carries strategic value not reflected in the share price, and that the LNG portfolio's exposure to multi-year global supply tightening had drawn materially positive feedback on asset values from US counterparties. Airlie Funds Management holds Santos as part of its overweight bucket of quality assets, citing the PNG LNG business as a high-returning, unique asset expected to generate strong cash flow through the cycle. Datt Capital framed the buy case around timing, arguing Santos has completed a heavy capital expenditure cycle by bringing Barossa and Pikka through their delivery phase, freeing management to focus on capital allocation decisions that can reward shareholders, with a number of further growth options still in the portfolio.

First Samuel made perhaps the most nuanced case, holding Santos despite a bearish long-term view on oil prices, arguing the appeal is not simply leverage to the oil price but a portfolio of scarce, long-life LNG, oil and gas assets moving from construction into cash generation with a clearer commitment to shareholder returns.

June's investor day and the cash flow inflection point

Pendal Group described Santos's late-May investor day as largely a reaffirmation of existing strategy, with the current chief executive's cost control track record expected to continue, both major growth projects, Barossa and Pikka, ramping toward stated capacity despite some teething issues, and forward growth options centred on expanding the Alaska development, participating in the upcoming Papua LNG final investment decision, and testing whether the Beetaloo Basin can become a further source of supply. The balance sheet sits at the high end of its leverage range but is expected to de-gear over the next two to three years while the company continues investing in high-return projects, with a high proportion of free cash flow expected to return to shareholders as that de-gearing progresses.

The ramp-up of production at its new Northern Territory and Alaska projects is seen as bringing the company to a cash flow inflection point, falling capex and rising revenue, creating scope for greater shareholder returns.

— Pendal Group, Monthly Report, July 2026

Pendal said it now prefers Santos over Woodside within the energy sector on a more favourable free cash flow outlook. What fund managers say they are watching next is whether the Adnoc and Carlyle approach progresses into a formal offer or lapses, how quickly Barossa and Pikka, whose first Alaskan oil sales were expected in August, reach full stated capacity, and whether the promised shift from heavy capital spending to shareholder returns actually materialises as the balance sheet de-gears.