A Rally the Stock Refuses to Fully Join

Oil has surged through the middle of 2026 as tensions around the Strait of Hormuz — renewed US-Iran hostilities, a reported strike on a Kuwaiti oil facility and a collapsed ceasefire — pushed Brent crude back toward US$90 a barrel by late July. For a Brent-linked producer such as Santos, that ought to be unambiguously good news. Yet the ASX-listed energy major has spent much of the year lagging the very rally that should be lifting it, trading in a broad A$7.00 to A$7.80 band well beneath the level a foreign suitor was willing to pay barely a year ago.

The instinct to blame “project delays” for that underperformance does not survive contact with the company’s own disclosures. Santos’s two marquee growth projects have moved into production, not slipped behind schedule. The more accurate explanation for the stock’s relative weakness lies in corporate rather than operational disappointment.

From Takeover Target to Standalone Producer

Santos is one of Australia’s largest oil and gas producers, with LNG, domestic gas and, increasingly, oil operations spanning Australia, Papua New Guinea, Timor-Leste and the United States. For much of 2025, though, it was better known as a takeover target. A consortium led by XRG, the international investment arm of Abu Dhabi National Oil Company (ADNOC), alongside private-equity group Carlyle, tabled an indicative proposal in June 2025 to acquire the company at US$5.76 per share — roughly A$8.80 at prevailing exchange rates and about a 28% premium — valuing Santos at some US$18.7 billion to US$19 billion.

That approach collapsed on 17 September 2025, when the consortium confirmed it would not proceed, citing unresolved commercial and regulatory issues that reportedly included differences over valuation, tax treatment and risk allocation. Santos shares fell sharply as the premium evaporated, and the company has traded as an independent business ever since, with no live binding offer on the table. The unwinding of that bid premium, more than anything happening at its wellheads, explains why the stock sits so far below where a buyer once valued it.

Barossa and Pikka: Delivery, Not Delay

Far from stalling, Santos’s flagship projects reached long-awaited milestones in 2026. The Barossa gas project offshore the Northern Territory, which backfills the ageing Darwin LNG plant, achieved first gas and by the second quarter was running at about 97% of planned rates, with its ramp-up all but complete. On 27 July the company sold and lifted its first Barossa condensate cargo, a tangible marker of the field’s transition from construction to cash generation.

In Alaska, the Pikka Phase 1 oil project — in which Santos holds a 51% stake — delivered first oil in May and moved to continuous production in June. Management is targeting gross plateau output of around 80,000 barrels a day during the third quarter, with the first sales revenue expected in August. Both developments add oil-weighted, Brent-linked volumes precisely as crude prices climb, which is why the “delays” framing understates what is, operationally, a delivery story.

The Numbers Behind a Softer Quarter

The nuance sits in the latest results. In its second-quarter report, released on 23 July 2026, Santos posted revenue of about US$1.35 billion, short of the roughly US$1.57 billion analysts had expected, on production of 23.1 million barrels of oil equivalent. The company pointed partly to weather disruption from Tropical Cyclone Narelle, after which affected facilities resumed operations.

Alongside the miss, Santos trimmed its full-year 2026 production guidance to 99 to 105 million barrels of oil equivalent, from a previous 101 to 111 mmboe. The downgrade is modest, and the top of the new range still implies growth as Barossa and Pikka ramp up, but a guidance cut in the same quarter as a revenue miss handed the market a reason to look past the oil-price tailwind.

Why the Oil Surge Hasn’t Lifted the Shares

Santos’s growing oil exposure cuts both ways. As Pikka moves toward plateau, the company estimates that each US$10 move in the oil price shifts annualised gross revenue by roughly US$149 million at full rates — leverage that should reward it in a rising market. On individual days when Hormuz fears spiked, the shares did climb with crude, and brokers have largely kept “buy”-equivalent ratings with average price targets comfortably above the current price.

Over the year as a whole, however, Santos has underperformed both its energy peers and the broader S&P/ASX 200. The absent takeover premium is the clearest structural drag: with the shares no longer anchored near a bid price, they trade on fundamentals that, while solid, still carry the memory of a deal that got away. Sharp swings in Brent on supply-risk headlines have added volatility rather than a clean directional lift.

Risks and What Investors Are Watching

Several uncertainties remain. The durability of the oil rally is the obvious one: much of the recent strength rests on geopolitical risk premia that can deflate as quickly as they inflate, and an OPEC+ supply response could cap prices. Execution risk has not vanished either — Pikka must still reach and hold plateau, and Barossa’s ramp needs to prove stable through its first full year of operation.

Investors will be watching the first sales revenue from Pikka, confirmation that Barossa is running reliably, and whether Santos can convert higher volumes and firmer prices into stronger second-half cash flow and debt reduction. The half-year results, due later in August, should offer the first clean read on how the two ramping projects flow through to earnings and dividends. Any renewed corporate interest — a fresh approach or asset sales — would also reset the narrative, though nothing binding is currently in prospect.

A Balanced Read

The headline instinct to blame project delays gets the story backwards. Santos’s projects are largely doing what they were designed to do; it is the collapse of a near-A$8.80-per-share takeover, compounded by a softer quarter, that has left the shares lagging a buoyant oil market. For patient investors, the gap between an improving operational base and a deflated share price is either an opportunity or a warning, depending on one’s view of oil and of Santos’s ability to keep delivering. Either way, the next few quarters — not last year’s failed deal — will decide which reading proves correct.