Santos stock dips despite Barossa and Pikka milestones as FY25 guidance tightens

Why has Santos Limited revised its 2025 outlook despite solid free cash flow and operational milestones?

Santos Limited (ASX: STO) closed at A$6.34 on October 17, 2025, down 0.63% for the day and nearly 9% lower over the past year. Despite delivering approximately $300 million in free cash flow in Q3 2025 and $1.4 billion year-to-date, the stock’s performance reflects persistent investor caution over production delays and a narrowed guidance outlook. The energy major’s update confirms that while large-scale projects like Barossa LNG and Pikka phase 1 are progressing toward operational readiness, near-term volume risks and macro headwinds continue to weigh on sentiment.

ASX: STO | Sector rank: 3/176 | Market cap: $20.59 billion | Dividend yield: 5.77% | PE ratio: 13.02 | 1-year return: -8.91%

Production for the third quarter stood at 21.3 million barrels of oil equivalent (mmboe), slightly down from the previous quarter’s 22.2 mmboe. Year-to-date production was virtually flat at 65.4 mmboe, compared to 65.6 mmboe in the same period last year. Sales revenue for the third quarter reached $1.13 billion, down 12% from Q2, largely due to lower crude oil liftings and softening prices for oil-linked LNG contracts. Santos’ capital expenditure increased to $631 million in Q3 from $540 million in Q2, with a continued focus on sustaining capex and development projects.

How are the Barossa LNG and Pikka phase 1 projects tracking as they move closer to production?

The Barossa gas project is entering a critical phase. In October, Santos confirmed that the BW Opal floating production, storage and offloading (FPSO) vessel had received first gas into the facility, initiating commissioning for production operations. Five of the six production wells have been tested, with the final well expected to be tied in during the fourth quarter of 2025. The Darwin LNG plant, which underwent a life-extension project to accommodate Barossa gas, achieved Ready for Start-Up (RFSU) in August and is now primed to receive gas from the export pipeline.

Barossa LNG is still expected to ship its first cargo before the end of 2025. This is a key milestone for Santos, as it marks the first significant volume addition since the GLNG ramp-up in Queensland. Importantly, the project encountered a two-week delay in September due to software issues in the BW Opal’s safety systems, but those problems have been resolved.

Meanwhile, Pikka phase 1 in Alaska is over 95% complete. Twenty-two wells have already been drilled and completed, with the 22nd setting a company record at nearly 27,000 feet—one of the longest wells ever drilled on Alaska’s North Slope. All 120 miles of pipeline have been hydrotested and are ready for service, and the seawater treatment facility arrived at the project site in August. First oil remains on schedule for the first quarter of 2026, with ramp-up to a plateau of 80,000 barrels per day expected by mid-2026.

What production and pricing trends shaped Santos’ Q3 revenue performance?

Santos’ Q3 revenue of $1.13 billion marked a notable drop from $1.29 billion in Q2, driven largely by lower realised prices and lower crude oil volumes. LNG sales accounted for $689 million in revenue, down from $770 million in the previous quarter. Domestic gas brought in $267 million, while crude oil and condensate contributed $74 million and $85 million, respectively.

Realised LNG prices averaged US$11.05 per mmBtu in Q3, compared to US$11.57 in Q2. This decline reflected the impact of three-month lagged oil-linked contracts, particularly those indexed to Japan Customs-cleared Crude (JCC), which averaged US$74.97 per barrel for the quarter—down from US$78.86 in Q2. By contrast, JKM-indexed LNG contracts remained relatively stable. The firm shipped 45 LNG cargoes in the quarter, including four equity-marketed volumes from PNG LNG.

Crude oil prices remained consistent at around US$71 per barrel, although significantly lower than Q3 2024 levels when prices averaged over US$83 per barrel. Domestic gas pricing remained stable overall, with east coast volumes fetching US$6.29 per gigajoule and west coast volumes averaging US$5.55.

How are institutions and analysts interpreting Santos’ guidance and capital allocation?

Santos has revised its 2025 production guidance to 89–91 mmboe, down from the previous 90–95 mmboe range. Sales volume guidance was also narrowed to 93–95 mmboe. These changes reflect slower-than-expected ramp-up at Barossa and ongoing flood-related recovery in the Cooper Basin, where 155 wells remain offline. Santos has reaffirmed its capex range of $2.4–2.6 billion for the year, split evenly between sustaining and development spend.

Despite the guidance reset, institutional investors appear to remain cautiously constructive. The company’s ability to consistently generate over $1 billion in free cash flow annually, maintain gearing below 25%, and fund both project development and shareholder returns continues to earn it a premium among Australian energy equities. Its position as the third-ranked energy stock on the ASX and 34th overall by market cap also reinforces its role as a top-tier domestic energy player.

From an analyst perspective, the production setbacks are largely viewed as transitory rather than structural. Barossa and Pikka are both seen as transformational projects capable of significantly improving volume growth and cash generation into 2026–2027. Santos’ 5.77% dividend yield and low PE ratio provide further valuation support for long-term investors.

What is the broader project and operational momentum outside of Santos’ two flagship assets?

Beyond Barossa and Pikka, several other assets and projects contributed to Santos’ operational stability in Q3. PNG LNG maintained high reliability, operating at an 8.6 million tonnes per annum run rate. GLNG in Queensland achieved record upstream production from the Roma field and continues to progress a 32-well development campaign at Scotia and Fairview.

In the Cooper Basin, 50 wells were brought back online following earlier flood damage, and horizontal well Moomba-390STI performed in line with expectations. The Moomba Carbon Capture and Storage (CCS) project passed a key milestone by safely and permanently storing over 1.3 million tonnes of CO2-equivalent in its first year of operations. Issuance of Australian Carbon Credit Units is expected soon, supporting Santos’ emerging position in the regional carbon management market.

On the east coast, Santos continues to advance the Narrabri Gas Project. Three MOUs were signed this quarter with ENGIE, Orica, and the Narrabri Shire Council for potential long-term gas supply. Regulatory challenges remain, with native title and environmental review processes still underway, but investor sentiment around the project is warming as Santos reaches in-principle agreements with local Indigenous groups and key landholders.

How could Barossa commissioning, Pikka ramp-up, and regulatory hurdles shape investor sentiment through late 2025 and early 2026?

Execution will be the single most critical theme going forward. While Barossa LNG is on track to ship first cargo in Q4 and Pikka phase 1 is heading toward first oil in Q1 2026, delays in commissioning or further unplanned shutdowns could affect sentiment. Any slippage could push major revenue and volume uplift further into mid-2026, a timeline that institutional models are closely tracking.

Legal proceedings tied to Narrabri and environmental approvals could introduce headline risk in the short term, even as commercial agreements begin to stack up. Market watchers will also be keeping an eye on Santos’ hedging strategy, which remains relatively limited. The company executed over A$1.5 billion in FX forward contracts for 2026 and 2027 but did not initiate any new oil hedges in Q3, leaving it somewhat exposed to commodity volatility.

Other watchpoints include the pace of Cooper Basin flood recovery, LNG spot pricing trends, and progress on Moomba CCS Phase 2, which could open up broader decarbonization pathways and new revenue models over time.

Is Santos still a strong play for energy investors heading into 2026?

Santos remains a compelling yet cautious play in the ASX energy sector. The medium-term growth thesis—anchored by Barossa LNG, Pikka oil, and carbon storage monetisation—is intact. But in the short term, the market is looking for operational clarity and executional discipline. The company’s diversified portfolio, strong balance sheet, and free cash flow profile provide downside protection, while its ambitious project pipeline positions it for upside if timelines hold.

The share price may be lagging the broader market today, but with the right catalysts in Q4 and early 2026, Santos could be primed for a re-rating.

What are the key investor takeaways from Santos Limited’s Q3 FY25 performance and outlook?

• Stock performance:
  Santos Limited (ASX: STO) closed at A$6.34 on October 17, 2025, down 0.63% on the day and -8.91% year-to-date.
• Guidance narrowed:
  FY25 production guidance revised to 89–91 mmboe (from 90–95 mmboe) due to delays at Barossa LNG and flood impacts in the Cooper Basin.
• Free cash flow remains strong:
  Q3 free cash flow of ~$300 million; year-to-date total reaches ~$1.4 billion, supporting dividends and growth capex.
• Barossa LNG progress:
  First gas received into BW Opal FPSO. First LNG cargo remains on track for Q4 2025. Darwin LNG facility achieved RFSU in August.
• Pikka phase 1 on track:
  Over 95% complete, with 22 wells drilled. First oil expected in Q1 2026; production plateau of 80,000 bopd (gross) targeted for mid-2026.
• Q3 financials soft:
  Sales revenue dropped 12% QoQ to $1.13 billion due to lower crude volumes and weaker oil-linked LNG pricing.
• Realised LNG prices down:
  LNG averaged US$11.05/mmBtu in Q3 vs US$11.57/mmBtu in Q2, impacted by lagged JCC pricing.
• Moomba CCS milestone:
  Over 1.3 million tonnes CO₂ stored to date; first Australian Carbon Credit Unit (ACCU) issuance expected imminently.
• GLNG and PNG LNG stable:
  GLNG hit record Roma field output; PNG LNG operated at 8.6 Mtpa run rate with >98% reliability.
• Narrabri Gas Project advances:
  MOUs signed with ENGIE, Orica, and Narrabri Shire Council; legal challenges remain ongoing.
• Institutional sentiment mixed:
  Investors weigh strong free cash flow and dividend yield (5.77%) against delays and regulatory hurdles.