The S&P/ASX 200 Index (ASX: XJO) energy share Santos Ltd (ASX: STO) has certainly seen plenty of volatility over the last few years, including takeover approaches.
Volatility is part of what we should expect with energy businesses – resource prices can change quite dramatically in a short amount of time as supply and demand dynamics adjust.
When that happens, sell-offs can be opportunistic times to invest, while high prices can be helpful for shareholders deciding to take profit off the table.
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Is the Santos share price attractive?
Broker UBS certainly thinks so. Analysts from that investment institution have put a buy rating on the ASX energy share.
A price target is where analysts think the share price will be in 12 months from the time of the investment call. UBS currently has a price target of $7.80 on the business, implying a rise of more than 20% from where it is at the time of writing.
UBS is expecting Santos' earnings per share (EPS) to grow from 33.4 cents in FY25, to 42 cents in FY26 and 44.8 cents in FY27.
In a recent note, UBS reduced its Santos 2026 EPS projection by 5% to the above forecast of 42 cents.
That means it's trading at approximately 10x FY26's estimated earnings, at the time of writing, according to UBS' projection.
Santos is UBS' preferred Australian energy exposure, the valuation appears "compelling" and provides the strongest growth in free cash flow over the coming 12 months.
Even so, UBS is expecting weaker GLNG (Gladstone LNG) production in the three months to 31 December 2025 along with a modest delay to commissioning at the Barossa resulting in softer fourth quarter production compared to expectations.
The broker is expecting updates on the commissioning of Santos' Pikka oil project, with the first oil production expected in 2026, though cool weather in North Alaska could slow the commissioning of the seawater treatment plant by a month or two.
What's happening with energy prices?
UBS sees oil prices facing pressure because of a surplus and OPEC+ (a group of oil-producing countries) retaining spare capacity of 4.1 million barrels per day (excluding Iran and Venezuela). The broker's base case assumes OPEC+ unwinds the rest of the 1.65 million barrels per day of voluntary cuts this year.
The broker commented on oil prices and its expectations:
We cut our 2026 oil prices by $2/bbl to a $62/bbl average Brent, driven by a larger oil surplus now up to 1.9Mb/d in 2026, in line with 2025. However, we expect the surplus to narrow over the course of the year, driving our Brent forecast from $60/bbl in 1Q26 to $64/bbl in 4Q26. Geopolitical risks persist, and potential supply disruptions in Russia, Venezuela, and Iran could keep volatility elevated. A further 0.5 mb/d decline in supply may support Brent prices in the mid- to high-$60s.
Time will show how accurate UBS' optimistic view on the Santos share price is.
