Highlights

  • STO closed at $7.87 on 9 June 2026, up 0.64%; Macquarie maintains Outperform with a $9.15 price target — implying approximately 16% upside.
  • Q1 2026 production reached 22.5 mmboe, up 3% on the prior year period; sales Revenue of approximately $1.27 billion, up 3% on the prior quarter.
  • Pikka phase 1 reached mechanical completion in Q1 2026; Barossa FPSO expected to resume ramping production imminently following maintenance shutdown.

 

Santos Limited (ASX:STO) closed at $7.87 on 9 June 2026, adding $0.05 or 0.64% during the session. Despite an operational quarter that delivered production growth, meaningful project milestones, and maintained free Cash Flow, the stock continues to trade at a meaningful discount to Macquarie Outperform-rated price target of $9.15 — a gap of approximately 16%. That discount has persisted through a period in which the company has brought two major growth projects to the cusp of sustained production: Barossa LNG and Pikka oil in Alaska.

Energy stocks on the ASX have navigated a complex macro environment in 2026, with LNG spot prices moderating from prior-year highs and geopolitical uncertainty around the Middle East creating both cost and Demand uncertainty. Santos, as a diversified LNG-weighted producer with growing oil exposure via Alaska, sits at the intersection of these dynamics.

Q1 2026 Production: Incremental Growth, Maintained Guidance

Santos produced 22.5 million barrels of oil equivalent in Q1 2026, a 1% increase on the prior quarter and a 3% lift on the first quarter of 2025. The sequential improvement was largely attributable to Barossa achieving its first LNG cargoes — a significant milestone for a project that has been years in development. Sales revenue for the quarter reached approximately $1.27 billion, a 3% increase on Q4 2025, reflecting both Volume and price realisations. Free cash flow from operations was approximately $383 million, broadly in line with the prior quarter.

PNG LNG maintained high plant reliability of more than 98%, delivering an annualised run rate of approximately 8.6 million tonnes per annum. GLNG produced at an annual run rate of 5.8 Mtpa, with 24 contracted cargoes shipped during the quarter. The Roma field in Queensland achieved record daily production of 226 TJ per day. These base Assets provide the Earnings foundation against which the growth projects are being layered.

Pikka Phase 1: First Oil Imminent

The Pikka phase 1 project in Alaska reached mechanical completion early in Q1 2026 — a milestone that had been anticipated by the market for several quarters. Following fuel gas introduction and dynamic commissioning through quarter end, oil initiation for first tank and Facility Fill activities was underway at the time of the Quarterly Report. First sales oil into the pipeline network was expected in the weeks following the report release.

Twenty-seven development wells have been drilled at Pikka to date, with 20 wells stimulated and flowed back in line with pre-drill expectations. Once continuous and stable operations are achieved, the Seawater Treatment Plant will be activated to provide reservoir pressure support, enabling ramp-up toward plateau production through the second quarter and into the early third quarter of 2026. Pikka represents a material addition to Santos oil production portfolio and is expected to generate premium pricing relative to existing production given the quality of the oil.

Barossa LNG: Resuming After Maintenance

The Barossa floating storage and offloading facility experienced a shutdown period during which heat exchanger trains were flushed and cleaned, and dry gas compressor seals were replaced. At the time of the quarterly update, the FPSO was expected to commence ramping production within days, with LNG production expected to follow shortly after the facility came back online. Barossa first cargoes in Q1 2026 marked the beginning of the revenue ramp for the project, which has been a key driver of Santos growth thesis.

The Quokka-1 appraisal well in Alaska delivered an additional positive data point, confirming a high-quality Nanushuk reservoir with approximately 143 feet of net oil play, 19% average porosity, and an initial flow rate of 2,190 barrels of oil per day. Located approximately ten kilometres from the Mitquq-1 discovery, Quokka strengthens the development runway in Alaska and supports improved Economics relative to Pikka oil.

Strategic Developments and Domestic Gas

Santos secured a 10-year, 200 petajoule conditional gas sales agreement with the South Australian Government, with a pre-payment arrangement that supports the company Investment in the Moomba Central Optimisation project. The Moomba project targets more than $600 million in Capital and operating cost savings (net Santos) over the life of the Central Fields through modern, efficient infrastructure. The final investment decision was taken in Q1 2026, with an expected internal rate of return above 15%.

The company also received authorisation of a Voluntary Indigenous Land Use Agreement by the Gomeroi people for the Hunter Gas Pipeline and Narrabri Lateral Pipeline, advancing the Narrabri Gas Project — a long-dated but strategically significant domestic gas Supply option for New South Wales. Santos supported Australian domestic fuel security during a period of global disruption by working with Viva Energy and Ampol.

Broker View and Full Year Guidance

Macquarie maintains an Outperform rating on STO with a $9.15 price target, reflecting confidence in the production ramp from Barossa and Pikka and the quality of the underlying base asset portfolio. Full year 2026 guidance remains unchanged from prior disclosure. The stock discount to Macquarie target — approximately 16% at the current price of $7.87 — reflects market caution around the timing and pace of the production ramp from the two major growth projects, LNG price sensitivity, and broader concerns about global energy demand.

Conclusion

Santos enters the second half of 2026 at an operationally significant juncture. Both Barossa LNG and Pikka oil are transitioning from development to production, base assets are performing reliably, and the domestic gas portfolio is being extended and optimised. The operational story is becoming clearer, yet the share price has not kept pace with the project execution milestones. Macquarie Outperform rating and $9.15 target price suggest the market has room to recalibrate as sustained production from the growth projects becomes visible in reported financials from H2 2026 onward.