Santos Faces Cost Pressures as Pikka Nears Completion and Barossa Ramps Up
Santos Limited reported a robust fourth quarter and full-year 2025 performance, highlighted by the first LNG cargo loading from Barossa and near completion of the Pikka Phase 1 oil project. The company’s disciplined capital management and operational resilience set the stage for significant production growth in 2026.
- Free cash flow of ~$380 million in Q4, $1.8 billion for 2025
- Barossa LNG’s first cargo loading underway, ramping up gas exports
- Pikka Phase 1 nearing mechanical completion with slight cost increase
- Cooper Basin production recovered post-flood, strong drilling activity
- Raised $1 billion bond, early repayment of PNG LNG finance, divestment of non-core assets
Strong Financial and Operational Momentum
Santos Limited closed out 2025 with a solid fourth quarter, delivering free cash flow from operations of approximately $380 million, a 30% increase from the prior quarter, culminating in a full-year free cash flow of around $1.8 billion. This performance was achieved despite a relatively soft commodity price environment, underscoring the company’s focus on operational efficiency and margin optimisation.
Production volumes rose 5% in the quarter to 22.3 million barrels of oil equivalent (mmboe), with full-year production reaching 87.7 mmboe. Sales volumes and revenue also improved, with Q4 sales volumes up 15% to 24.8 mmboe and sales revenue exceeding $1.2 billion.
Barossa LNG Milestone and Project Progress
A major highlight was the commencement of the first LNG cargo loading from the Barossa project, marking a significant milestone following the Darwin LNG life extension and the successful commissioning of the BW Opal FPSO. Gas export volumes are ramping up steadily, currently at about 75% of plant capacity, supported by the completion and testing of six high-quality wells in the Barossa gas field.
Meanwhile, the Pikka Phase 1 oil development in Alaska is 98% complete and approaching mechanical completion. Despite a capital expenditure increase of approximately $200 million (less than 10% of total project costs) due to inflationary pressures and logistical challenges, the project remains on track for first oil late in Q1 2026. Notably, the 23rd well drilled achieved the highest productivity to date, with an initial rate of about 8,000 barrels per day.
Resilience in Core Operations and Growth Initiatives
Operational excellence was evident across Santos’ portfolio. The Cooper Basin recovered fully from severe flooding, with 91 wells returned to production and uninterrupted drilling activity throughout 2025. Western Australia domestic gas production increased by 19% in Q4, aided by facility upgrades and reserve additions.
The Moomba Carbon Capture and Storage (CCS) project continues to perform well, safely storing over 1.5 million tonnes of CO2 equivalent since start-up and earning nearly 908,000 Australian Carbon Credit Units in Q4. This aligns with Santos’ commitment to environmental responsibility alongside growth.
Capital Management and Strategic Moves
On the financial front, Santos strengthened its balance sheet by raising a $1 billion senior unsecured bond at 5.75% interest, maturing in 2035, and accelerating repayment of the PNG LNG project finance facility. The company also divested non-core interests in the Mahalo Gas Project and Bonaparte Basin fields, sharpening its portfolio focus.
Looking ahead, Santos provided 2026 guidance targeting production volumes between 101 and 111 mmboe and capital expenditure of approximately $1.95 to $2.15 billion, maintaining a disciplined approach to cost and investment.
Outlook
With Barossa LNG ramping up and Pikka Phase 1 poised to add significant production, Santos is well positioned to increase output by 25-30% by 2027 compared to 2024 levels. The company’s blend of operational resilience, strategic capital management, and environmental initiatives offers a compelling narrative for sustainable growth in a challenging energy market.
Bottom Line?
Santos’ 2025 momentum and project milestones set a promising stage, but execution risks and market volatility remain key watchpoints.
Questions in the middle?
- How will inflationary pressures impact Santos’ future project costs and margins?
- What is the timeline and risk profile for Barossa LNG reaching full steady-state production?
- How might the outcome of Fluor’s appeal affect Santos’ reported settlement proceeds?
