Buying Santos Ltd (ASX: STO) shares?
The S&P/ASX 200 Index (ASX: XJO) energy stock is certainly grabbing plenty of attention this week.
Santos shares closed down 2.2% yesterday and are down 0.7% in intraday trade today at $7.08 apiece.
Tuesday's move lower followed news that the company has put the brakes on its joint venture, the $3.2 billion Dorado oil and gas project in Western Australia.
Here's what's going on.
Dorado project delayed
On Tuesday Carnarvon Energy Ltd (ASX: CVN) reported that Santos had decided not to purchase the Floating Production Storage and Offloading (FPSO) vessel for the Dorado Phase 1 liquids development project.
Santos owns 80% of Dorado and is the project operator. Carnarvon owns 10% of the joint venture and CPC Corporation owns the other 10%.
Carnarvon shares plunged 22.6% yesterday, far more than the 2.2% drop in Santos shares, as the smaller oil and gas explorer has a lot riding on the success of Dorado.
Carnarvon noted that Santos had also opted not to enter Front End Engineering and Design (FEED) at this stage. That will see the Final Investment Decision (FID), originally planned for 2025, deferred as well.
Commenting on the setback, Carnarvon CEO Philip Huizenga said:
Given the quality of the Dorado project, we at Carnarvon are disappointed by this latest deferral to the project. Carnarvon is fully supportive of the Joint Venture's desires to realise value for the asset and will support any initiatives for drilling as soon as possible.
A Santos spokesperson said (quoted by Reuters), "After a detailed assessment of all relevant factors, Santos recommended to the joint venture that the development concept for Dorado be revisited after further evaluation of Bedout Basin resources."
While this news is unwelcome to Carnarvon shareholders, Santos CEO Kevin Gallagher has made it clear that the company aims to maximise the value of Santos shares rather than invest in growth projects at all costs.
"Santos has been unrelenting in sticking to its strategy and implementing its disciplined operating model," Gallagher said at Santos' investor day presentation on 19 November.
The company remains focused on its Barossa and Pikka gas projects in 2025.
Gallagher noted:
With Barossa and Pikka coming online, Santos' production is expected to increase by more than 30% by 2027 compared to 2024, significantly lowering unit production cost which will support strong free cash flow generation throughout the commodity price cycle.
He added, "The simplified capital allocation framework announced today reflects our commitment to prioritise shareholder returns following the company's investment over recent years in new production from Barossa and Pikka."
For now, at least, this means that Dorado will remain on the backburner for Santos' growth ambitions.
How have Santos shares been tracking?
Santos shares are down 7.7% over the past 12 months.
So far in 2025, shares in the ASX 200 energy stock are up 4.4%.
