There are not many fans of high oil prices, but energy producers never complain … because they make more money. One of those is Santos (ASX:STO).
Last week marked the end of the third quarter of 2026.
This is notable for Santos because its Pikka Phase 1 Project in Alaska, US, is ramping up to its nameplate capacity of 80,000 barrels a day. Santos holds a 51% interest in Pikka alongside Repsol (BME:REP).
Santos told the market at its half-year results in August that its free cash flow break-even price target for Pikka is US$45–50 ($65–72) a barrel out to 2030.
The longer oil prices remain high, the better for Santos. In 2027, its recent capital spending on Pikka and the Barossa Gas Project should start to pay off.
Santos also exports liquefied natural gas (LNG) via contracts linked to the oil price. These pricing terms usually lag, so oil needs to stay high for a sustained period for Santos to maximise the current market dislocation.
There’s no doubt, however, that Santos’ prospects are much stronger now than at the start of the year.
That’s because even if the Strait of Hormuz reopens, the damage to Qatari infrastructure will take much longer to fix. Qatar previously supplied 20% of global LNG.
Two of Qatar’s LNG trains, which account for 12.8 million tonnes a year, could be offline for three to five years. Forecasts at the start of 2026 had an LNG glut forming. These have now been pushed back to around 2031.
The New York Times reports that countries in Asia are paying double what they were at this time last year. Prices could stay elevated until the end of the year because Europe is now competing for what’s available as winter approaches.
Source: Kpler
Back in July, UBS Group (NYSE:UBS) said Santos was trading on an implied oil price of US$67 a barrel. Even if oil falls to US$75 in 2027, the broker still sees it as undervalued now.
The STO share price is up about 8% over the past two months.
Santos will release its third-quarter report later this month. No doubt the market will be keen to confirm the recent production expansion is on track and to see whether LNG pricing has improved since the June quarter.
LNG and oil are international markets for Santos. It also has a significant domestic presence as Australia’s second-largest producer.
Investors will also be keen to gauge the company’s outlook as power demand forecasts for Australia rise and assess how Santos might benefit.
At the recent Livewire LIVE 2026 investment conference, EQT Partners Managing Director Sam Franklin said renewables and natural gas will remain key inputs for global energy markets, with Australia no different as coal use declines.
Santos looks well-placed to help monetise this shift as well.
Write to Callum Newman at Mining.com.au
Main image: Unsplash
