Spheria Global Opportunities Fund on Santos Limited
Thesis
Spheria views Santos as a low-cost, long-life oil and gas producer with strategically valuable LNG and upstream assets across Australia and the Asia-Pacific region. Barossa LNG and Pikka Oil are expected to increase group production while the completion of major capital projects should shift the company toward stronger free-cash-flow generation. Management targets returning at least 60% of free cash flow to shareholders from 2026, while the shares trade at roughly 7x FY26 EV/EBIT. Spheria believes the valuation becomes increasingly attractive as production ramps and capital expenditure declines.
“Santos offers a strategically valuable portfolio, growing cash generation and an undemanding valuation.”
Key risks
- Oil prices fell after easing Middle East geopolitical tensions removed part of the risk premium.
- The thesis depends on successful ramp-up of the Barossa LNG and Pikka Oil projects.
- Cash generation remains sensitive to commodity prices.