Fund Manager Summary
The fund managers believe that Santos Ltd presents a compelling investment opportunity, particularly given its strong portfolio of quality long-life assets and attractive valuation in the current elevated oil price environment. In their opinion, despite the company’s lagging share price relative to peers, the underlying fundamentals remain robust, with a strong EBITDA growth outlook. They argue that a structural separation of Santos’ LNG assets could unlock significant value, estimating a potential valuation of over A$10.50 per share, representing a 43% uplift from current prices. The fund managers emphasize the need for a strategic review to enhance management focus and capital allocation, which could lead to improved project execution and market sentiment. They see both LNGCo and DemergeCo as having strong standalone equity stories that would attract different investor bases, ultimately benefiting shareholders.
Source: Trading View
Commentary From The Managers
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L1 Capital
16 Oct 2025
$6.38
Summary
- L1 Capital notes that a consortium of Adnok and Carlyle previously submitted a non-binding cash offer for Santos at an implied price of $8.89 per share, reflecting a 28% premium.
- The offer withdrawal in mid-September was due to inability to agree on key commercial terms, including potential capital gains tax disclosures.
- As a result, Santos' shares lost the partial takeover premium but were already trading at a discount due to perceived regulatory risks.
- Despite the loss of the takeover potential, Santos' future cash flows are now materially de-risked.
- The BROSSA project is online, and the PICA project is set to come online six months early in early 2026.
- L1 Capital believes Santos still offers material future share price upside due to its high-quality LNG assets and development pipeline.
- This positions Santos for a healthier capital return and dividend profile, supporting potential share price increases.
- With a clearer capital allocation framework, Santos is poised to deliver attractive returns compared to the broader market and its peers.
- L1 Capital suggests that while a takeover should be considered, it is not necessary at this time.
- Now is an opportune moment for Santos management to focus on optimizing their asset portfolio.
- There is a continued belief in the separation of LNG assets to simplify and strengthen equity in listed markets, reducing future M&A complexity.
- Overall, Santos is positioned to deliver strong returns without pursuing a deal.
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Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
Commentary From The Managers
L1 Capital
16 Oct 2025
$6.38
- L1 Capital notes that a consortium of Adnok and Carlyle previously submitted a non-binding cash offer for Santos at an implied price of $8.89 per share, reflecting a 28% premium.
- The offer withdrawal in mid-September was due to inability to agree on key commercial terms, including potential capital gains tax disclosures.
- As a result, Santos' shares lost the partial takeover premium but were already trading at a discount due to perceived regulatory risks.
- Despite the loss of the takeover potential, Santos' future cash flows are now materially de-risked.
- The BROSSA project is online, and the PICA project is set to come online six months early in early 2026.
- L1 Capital believes Santos still offers material future share price upside due to its high-quality LNG assets and development pipeline.
- This positions Santos for a healthier capital return and dividend profile, supporting potential share price increases.
- With a clearer capital allocation framework, Santos is poised to deliver attractive returns compared to the broader market and its peers.
- L1 Capital suggests that while a takeover should be considered, it is not necessary at this time.
- Now is an opportune moment for Santos management to focus on optimizing their asset portfolio.
- There is a continued belief in the separation of LNG assets to simplify and strengthen equity in listed markets, reducing future M&A complexity.
- Overall, Santos is positioned to deliver strong returns without pursuing a deal.
Summary
Pendal Group
30 Sept 2025
$6.73
- Pendal Group notes a recent decline in Santos following the failed takeover attempt by the ADNOC consortium due to unresolved terms.
- Despite this setback, Pendal Group maintains a positive outlook for Santos (STO).
- The first gas flows from the Barossa field in September are expected to enhance cash flow.
- A reduction in capital expenditure (capex) is anticipated to provide greater scope for capital return.
- The underweight position in Woodside Energy has helped mitigate the negative impact of holding Santos.
Summary
Ten Cap
30 Sept 2025
$6.73
- Ten Cap has shifted its position on Santos Ltd from neutral to overweight.
- This change follows the collapse of ADNOC’s proposed acquisition.
- Ten Cap believes Santos has a materially stronger free cash flow growth profile compared to peers like Woodside (WDS).
- Santos currently trades at an attractive ~15% free cash flow yield.
- This yield enhances its appeal in a capital-disciplined environment.
Summary
L1 Capital
30 Sept 2025
$6.73
- Santos' share price declined in the September quarter due to the ADNOC-Carlyle consortium withdrawing its takeover offer.
- Negotiations failed over key commercial terms, including risk allocation for regulatory approvals and tax liabilities related to Papua New Guinea assets.
- The takeover proposal had an indicative premium of 28% (A$8.89/sh) compared to Santos' share price before the offer.
- Despite the failed takeover, L1 Capital believes Santos is an attractive stand-alone investment at the current share price.
- Santos is making significant progress on key growth initiatives, including completion of the Barossa project and the Pikka project, which is over 91% complete.
- First oil production from the Pikka project is expected to accelerate to Q1 2026.
- The completion of these projects marks an inflection point for earnings and dividends moving forward.
- Over the next 12 months, Santos is expected to experience a material uplift in earnings and a significant reduction in capital expenditure.
- This situation creates potential for a healthier capital return and dividend profile, supporting a possible re-rate in share price.
- With a high-quality LNG portfolio and a clearer capital allocation framework, Santos is positioned to deliver attractive returns compared to the broader market and its peers.
Summary
Ellerston Capital
30 Sept 2025
$6.73
- Santos Ltd (STO) shares faced pressure following the withdrawal of Abu Dhabi's XRG-led consortium's US$5.76 per share cash offer.
- Disagreements arose over the Scheme Implementation Agreement terms, with STO asserting that XRG wouldn't agree to acceptable risk allocation or shareholder protections.
- Conflicting reports indicated that STO demanded the consortium cover potential PNG CGT and withholding tax liabilities.
- Concerns emerged regarding the timing of the transaction, with Abu Dhabi's approval and multiple regulatory processes potentially lengthening the timeframe.
- It became clear that the deal consideration was poorly structured, as all dividends were to be deducted from the cash offer price.
- FIRB had not yet assessed the situation, but formal processes were expected to be embedded in the scheme agreement.
- XRG's initial willingness to undertake long-term domestic commitments may have waned, leading to disagreements on what was considered reasonable.
- Ellerston Capital continues to monitor developments closely as the situation evolves.
Summary
Harvest Lane Asset Management
31 Aug 2025
$8.00
- Harvest Lane Asset Management notes that larger deals often carry greater risks despite perceptions of safety in big companies.
- The recent buyout of Madpaws by Rover illustrates the complexities and perceived risks in larger transactions.
- Smaller deals typically involve less regulatory and stakeholder risk, making them more attractive.
- The ADNOC consortium’s bid for Santos was deemed too risky due to regulatory hurdles and conditionality.
- The recent 16% drop in Santos’s stock price serves as a cautionary signal for investors betting on the success of the bid.
Summary
Firetrail Investments
31 Aug 2025
$8.00
- Santos underperformed slightly against a strong equity market.
- The company announced that the XRG bidding consortium wasn’t able to make a binding bid within the initial time frame.
- On a positive note, XRG continues to work towards a binding offer.
- There have been no issues found in due diligence so far.
- Firetrail Investments continues to hold because of the ongoing progress with XRG.
Summary
L1 Capital
31 July 2025
$7.87
- Santos (Long +15%) performed well during the quarter, driven by a non-binding, indicative cash takeover proposal from a consortium led by ADNOC.
- The proposal values Santos at US$5.76/sh (A$8.89/sh), representing a 28% premium to the share price prior to the offer.
- The offer comes amid significant volatility in oil prices, which declined 12% during the quarter, despite temporary increases due to conflict in Iran.
- The takeover proposal reinforces L1 Capital's thesis that Santos’ asset base is materially undervalued by the market.
- Santos is making significant progress on key growth initiatives, with the Barossa project over 95% complete and on track for first production in 2025.
- The Pikka project is also more than 82% complete.
- Completion of these projects marks an inflection point for earnings and cashflows, concluding a multi-year period of elevated capex spend.
- Regardless of the outcome of the takeover proposal, L1 Capital believes Santos remains well positioned to deliver attractive returns for investors.
Summary
L1 Capital
3 July 2025
$7.70
- AdNoc and Carlyle's $7.9 per share takeover offer validates L1 Capital’s view on the strategic value of Santos’ LNG assets.
- The bid confirms a disconnect between Santos’ intrinsic value and its share price.
- Santos is nearing a major earnings and cash flow inflection point with the Barossa project coming online and Pikka expected next year.
- L1 publicly supported the deal to counter regulatory skepticism.
- They highlighted ADIA’s existing Australian infrastructure ownership and a recent UAE-Australia free trade agreement.
- Carlyle’s longstanding investment track record was also emphasized.
- L1 noted that AdNoc’s lower cost of capital could accelerate domestic gas supply, benefiting Australians.
- They reiterated that value unlocking through activism is a long game built on persistent engagement.
Summary
Firetrail Investments
30 June 2025
$7.66
- Santos received a takeover approach from XRG, a consortium including ADNOC and Carlyle.
- Firetrail Investments has long believed that Santos possesses unique LNG assets in the Asia Pacific basin.
- The takeover bid of $8.89 per share indicates a 28% premium to the prior day's price and a 44% premium to the 3-month average price.
- The bid is cash-based and from a credible buyer, but requires approval from the FIRB and the Australian Treasurer.
- As of month-end, Santos stock is trading at a 15% discount to the bid price, suggesting a likely 9-month timeline for approval.
- Firetrail Investments believes the risk-reward remains attractive despite the approval risks.
Summary
L1 Capital
30 June 2025
$7.66
- L1 Capital advocates for a structural separation of Santos' LNG assets.
- Belief that these assets could attract corporate interest amid global energy sector consolidation.
- Santos' share price rose 15% in the June quarter, despite a ~9% decline in oil prices.
- Performance driven by a non-binding takeover proposal from ADNOC and Carlyle, valuing Santos at US$5.76/share.
- Proposal represents a 28% premium to the last undisturbed trading price.
- Support for the transaction publicly stated by L1 Capital, citing reasonable offer given geopolitical events.
- Proposal includes a six-week due diligence period with exclusivity granted for four weeks.
- Santos shares trading at ~18% discount to the offer price, reflecting market uncertainty.
- Potential FIRB approval viewed as likely due to factors including asset footprint and consortium composition.
- Significant portion of Santos' asset value located offshore, particularly in PNG and Alaska.
- Proposal backed by strategic partners ADNOC and Carlyle, aligning with Australia’s economic policy objectives.
- Existing UAE investments in Australian infrastructure set a positive precedent for FIRB approval.
- Successful acquisition may expedite new domestic supply, benefiting Australian consumers.
- Santos prioritizing shareholder returns over new growth projects, influencing the pace of domestic investments.
- Completion of Barossa and Pikka projects marks a shift towards free cash flow and potential capital returns.
- Santos positioned to deliver sector-leading returns globally post-2026, regardless of takeover outcome.
- L1 Capital continues to engage with Santos’ Board and Management for optimal shareholder outcomes.
Summary
Maple-Brown Abbott
30 June 2025
$7.66
- Maple-Brown Abbott views Santos Limited (STO) as an out of favour energy stock in their portfolio.
- The company received a non-binding indicative offer from a consortium, including the Abu Dhabi National Oil Company.
- The offer is approximately $30bn, marking the largest all cash bid in Australian corporate history.
- The bid is set at a 28% premium to the latest traded price.
- Conditional approval from the board has been granted, but the offer is subject to final due diligence and other conditions.
- Market commentary indicates that this bid recognizes much of the latent value inherent in Santos.
- However, from a longer-term perspective, the offer price is only about 10% higher than the stock's trading price a year ago.
- The premium is perceived as a recovery in the share price of a deeply discounted energy company.
- This recovery occurred during a period when oil prices were under pressure.
Summary
Prime Value Asset Management
30 June 2025
$7.66
- Prime Value Asset Management categorizes oil and gas companies like Santos as Valuation companies.
- Santos’ outlook is brighter than market perceptions suggest, driven by key projects nearing completion.
- Projects in Western Australia and North America are expected to reduce capital expenditure and enhance cash flows.
- These developments may lead to improved shareholder returns.
- Santos is viewed as more than just a proxy for oil or gas prices.
- Prime Value Asset Management believes in the management’s ability to build growth potential assets.
- The recent announcement of a non-binding cash offer to acquire 100% of Santos shares indicates strong interest in the company.
- The offer is priced at US$5.76/share, implying approximately A$8.89/share.
Summary
Milford Asset Management
30 June 2025
$7.66
- Milford Asset Management continues to hold Santos Ltd as a core energy holding.
- Santos (+16.2%) was a top contributor during the month.
- The company was targeted in a bid by a consortium including UAE oil company ADNOC and US investment firm Carlyle.
- This bid aims to take Santos private.
- Milford welcomes the bid, indicating the embedded value seen in Santos's portfolio.
Summary
Pendal Group
30 June 2025
$7.66
- Pendal Group maintains an overweight position in Santos (STO, +16.2%).
- Santos has received a takeover offer from Abu Dhabi National Oil Company (ADNOC) and Carlyle.
- The offer represents a ~30% premium to Santos’s previous price.
- The transaction is subject to satisfactory completion of confirmatory due diligence.
- STO is currently trading at a large discount to the proposed transaction price.
- This discount is attributed to uncertainty around regulatory approval and due diligence.
- The entire process is expected to take 9 – 12 months.
- The Board of Santos appears favourable to the transaction.
Summary
L1 Capital
30 Apr 2025
$6.01
- Santos (Long -10%) underperformed due to a significant decline in oil prices.
- Brent crude prices fell 21% from US$77/bbl to US$61/bbl.
- Key drivers included U.S. tariff announcements raising concerns over global economic activity and lower oil demand.
- OPEC+ announced a faster than anticipated partial end of voluntary supply cuts.
- Even at ~US$60/bbl, Santos’ asset base is materially undervalued.
- Santos continues to make significant progress on key growth initiatives.
- The Barossa project is 95% complete and on track for first production in 2025.
- The Pikka project is more than 80% complete.
- Completion of these projects will mark an inflection point for cash flow and potential shareholder returns.
Summary
Tyndall Asset Management
30 Apr 2025
$6.01
- Tyndall Asset Management continues to hold an overweight position in Santos (STO).
- The recent decline in share price is attributed to softer energy complex futures.
- This decline is driven by weaker global demand expectations.
- Expectations were impacted by recent tariff announcements.
Summary
Oracle Advisory Group
30 Sept 2024
$7.02
- Santos (sold) has been a value trap for some time.
- There is uncertainty regarding the construction of long-tail LNG projects.
- The transition to net zero is impacting the value realization.
- The ESG investing trend poses a challenge for Santos’ P/E multiples.
- Oil/Gas stocks are viewed as the biggest ESG bête noire.
- Volatility in commodity prices adds to the investment risk.
- The decision to exit was made as the stock approached $8.00.
Summary
L1 Capital
31 Mar 2024
$7.84
- L1 Capital emphasizes the structural separation of Santos’ LNG assets to enhance shareholder value.
- Energy market fundamentals remain robust, supporting this strategic approach.
- Engagement with senior management and institutional shareholders indicates wider support for a review of structural solutions.
- Encouraging communications from CEO Kevin Gallagher signal ongoing examination of options.
- Resolution of Barossa legal challenges has derisked the LNG project, enhancing its viability.
- Significant global M&A activity in the sector suggests Santos’ LNG portfolio is an attractive target.
- The failed merger discussions with Woodside highlight opportunities for better outcomes, favoring a structural solution over a low-premium merger.
- L1 Capital believes Santos has multiple catalysts driving potential shareholder value appreciation.
- Analysis suggests substantial upside based on a sum-of-the-parts valuation.
Summary
Wilson Asset Management
28 Feb 2024
$7.09
- Santos’ headline results came in slightly below market expectations due to other costs.
- Full-year guidance was reiterated, and the company declared outsized dividends ahead of expectations.
- Santos is committed to reducing the value gap to the underlying asset base.
- The company aims to return incremental cash flow to shareholders.
- Wilson Asset Management remains constructive on Santos, citing catalyst-rich opportunities.
- Potential strategic structural changes and successful project executions in Barossa and Alaska are expected to de-lever the balance sheet.
- These developments will further improve free cash flow performance.
Summary
L1 Capital
28 Feb 2024
$7.09
- Santos (Long -10%) underperformed after preliminary merger discussions with Woodside ended without a deal.
- The company reinforced its commitment to reviewing options to unlock shareholder value.
- L1 Capital sees Santos’ asset base as materially undervalued by the market.
- Attractive structural options to unlock value exist, independent of any third-party transactions.
- Progress on key growth initiatives includes the Barossa project, nearly 70% complete, on track for first production in 2025.
- The Pikka project is also progressing well, currently nearly 40% complete.
- Santos is anticipated to possess one of the most attractive cash flow profiles globally in the sector by 2026, coinciding with the completion of both major projects.
Summary
L1 Capital
31 Dec 2023
$7.68
- Santos (Long +10%) outperformed despite a weak oil price environment (WTI -5.7% in December).
- Announcement of preliminary discussions regarding a potential merger with Woodside.
- Reviewing a range of alternative structural options to unlock value in Santos.
- Recent developments reflect L1 Capital’s core investment thesis that the company's asset base is materially undervalued by the market.
- Structural options such as demerger and asset sales should be explored to close the valuation gap.
- Details of these options were discussed in L1 Capital's September 2023 quarterly report.
Summary
L1 Capital
30 Sept 2023
$7.87
- L1 Capital continues to hold its investment in Santos due to a portfolio of quality long-life assets and attractive valuation in an elevated oil price environment.
- Santos’ share price has lagged behind its peers despite strong operational execution by CEO Kevin Gallagher.
- Over the last three years, Santos’ total shareholder return has been the lowest among its peer group.
- This poor performance is attributed to regulatory overhangs, smaller capital returns, a disparate growth strategy, and an under-appreciated LNG-focused equity story.
- L1 Capital believes a structural separation of Santos’ LNG assets would unlock inherent value and create significant outcomes for shareholders.
- Proposes a demerger of Santos’ Australian oil and gas assets and Alaskan oil assets to create an LNG-focused company.
- Estimates a sum-of-the-parts valuation of more than A$10.50 per share, indicating a potential ~43% upside from the current share price of A$7.35.
- Santos trades at a discounted valuation despite strong EBITDA growth outlook and high-quality growth profiles of projects like Pikka and Barossa.
- Rationale for the structural separation:
- Unlock valuation discount, potentially exceeding the current market capitalization.
- Enhanced management focus on project execution and governance.
- Improved capital allocation tailored to asset characteristics.
- Attractive standalone equity stories for diverse investor bases.
- Significant strategic appeal with assets that support strong valuation.
- Potential tax advantages and eligibility for ASX 100 index inclusion post-demerger.
- The proposed LNG company (LNGCo) to be a leading global LNG pure-play, expected to generate substantial cash flow.
- LNGCo's growth profile bolstered by projects like Barossa and improving market conditions for LNG.
- DemergerCo positioned as an Australian domestic gas champion with growth opportunities in tightening markets.
- Demonstrates a strong free cash flow yield potential, particularly post-Pikka project commencement in 2026.
- Conservative balance sheet positioning for growth with a focus on debt capacity to fund projects.
Summary
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
ANALYST INSIGHT
Equity Research Analyst
"Unlocking value appears to be the name of the game; a strategic demerger could transform Santos into a pure-play LNG powerhouse, potentially delivering a 43% uplift. The market seems to underestimate the strength of its assets, setting the stage for a significant turnaround."
Last Updated: 16 Oct 2025
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Frequently Asked Questions
Who is investing in Santos Ltd (ASX:STO)?
Fund managers including L1 Capital, Oracle Advisory Group, Firetrail Investments , Pendal Group, Milford Asset Management, Prime Value Asset Management, Maple-Brown Abbott, Wilson Asset Management, Tyndall Asset Management, Harvest Lane Asset Management, Ellerston Capital and Ten Cap have invested in Santos Ltd (ASX:STO).
Why do fund managers invest in Santos Ltd?
Fund managers invest in Santos Ltd due to its strong portfolio of long-life assets and attractive valuation amidst a high oil price environment, despite recent share price underperformance compared to peers. They see potential in separating Santos' LNG assets to unlock value, enhance management focus, and tailor capital allocation. The LNG segment is expected to thrive in a tightening market, while the domestic gas business offers robust growth opportunities. Overall, fund managers believe Santos is undervalued, with significant upside potential through strategic restructuring.
What happened to Santos Ltd (ASX:STO)?
Fund managers are investing in Santos Ltd due to its strong growth potential and undervalued asset base, despite recent volatility and the withdrawal of a takeover bid. Key projects like Barossa and Pikka are nearing completion, promising increased cash flows and reduced capital expenditure. This positions Santos for significant earnings growth and attractive returns for shareholders, making it an appealing investment even without a successful acquisition.