Following the federal offshore gas regulator’s acceptance of Santos's (ASX: STO) final environment plan for its production operations - clearing the way for Barossa gas project to proceed – Goldman Sachs has increased its 12 month price target to $7.85, which implies a potential upside of 40% to yesterday’s price.
One of Australia's largest oil and gas investments in a decade, the flagship $5.8 billion Barossa project involves drilling for gas under the Timor Sea, to export as LNG to overseas buyers like South Korea and Japan.
Full production within months
The Barossa project has been the target of environmental groups due to its high carbon footprint, with previous reports estimating the reservoir's 18% CO2 content could produce more carbon dioxide than LNG.
However, following the regulator’s green light yesterday, the major offshore field is now expected to begin full production within months.
During the February reporting season, the energy giant revealed that the Barossa project was 91% complete and ready to deliver gas to the Darwin facility by the end of September.
Four wells have been drilled and completed, a fifth well is suspended for later completion, and drilling of the sixth well is in progress.
Undervalued
Having run a ruler over the company's quarterly update, Goldman Sachs has urged investors to buy the stock while it remains at current levels.
Santos reported 21.9 mmboe production, 4% above the broker’s estimates on higher throughput at PNG.
Goldman was also encouraged by assurances that the growth projects Barossa and Pikka remain on schedule and within budget.
The broker believes both projects are key drivers of significant free cash flow (FCF) inflection from 2026.
“Five Barossa wells have now been drilled and flowed back where early production testing indicates reservoir properties at the higher-end of pre-drill expectations, offshore pipeline tie in to Darwin LNG is progressing alongside SURF installation awaiting FPSO hook-up for first gas in 3Q25,” the broker said.
“The BW Opal FPSO remains in Singapore for pre-commissioning activities ahead of tow away expected shortly.”
Green light
What exactly the offshore oil and gas regulator, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA), approved was a permit allowing Santos to attach its processing vessel and pipeline to the gas field, the final major milestone for the project.
“Barossa remains on track for first gas in the third quarter of 2025 and within cost guidance,” Santos said.
The six subsea wells, located in a field 285 kilometres north-west of Darwin, are expected to produce gas for 25 years.
The gas will be transported through a pipeline to the Darwin LNG plant, while the condensate will be exported via tanker.
The regulator also approved the operation and maintenance of the underwater infrastructure and export pipeline.
Santos has a market cap of $18.2 billion, making it the ASX’s 31st largest stock; the share price is down 27% in one year and down 16% year to date.
The stock’s shares appear to be in a long-term bearish trend, confirmed by multiple indicators.
Consensus is Moderate Buy.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
