Santos Ltd (ASX: STO) shares have lost 1.8% to $6.55 during afternoon trade.
The drop comes despite the ASX energy company reporting "strong base business performance" for the full year 2025.
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Solid overall results
The Adelaide-based oil and gas company reported in a statement on Wednesday sales revenue for FY 2026 of US$4.9 billion, about 8% down from the prior year.
Underlying net profit after tax (NPAT) was US$898 million, down roughly 30% due to softer oil and gas prices. The free cash flow was strong at US$1.8 billion, while EBITDAX for the full year 2025 ended up at US$3.4 billion.
Santos Managing Director and CEO Kevin Gallagher said the results highlight the strength of the company's base business.
Our base business has performed exceptionally well with production maintained and the best unit production costs in a decade, achieved through continued commitment to the disciplined low-cost operating model.
Flagship projects as turning point
At its heart, Santos is a high-quality energy producer with long-life assets spread across Australia, Papua New Guinea, Timor-Leste, and the US. LNG is the engine room, backed by long-term contracts, that help smooth out short-term commodity price noise.
The next few years could be a turning point for Santos shares. Flagship growth projects like Barossa LNG and Alaska's Pikka oil project are edging closer to first production.
Santos reported that it operated its core assets with high reliability and brought Barossa and Darwin LNG online early and on budget.
Mr Gallagher noted:
Barossa and Darwin LNG have been delivered within six months of the original schedule and within the original budget, without drawing on any additional contingency.
Pikka Phase 1 is set to deliver first oil in late Q1 2026 and ramp to full output in Q2.
Mr Gallagher commented on Pikka Phase 1:
The project is planned to ramp up production to full plateau rate by the end of the second quarter. Drilling results are encouraging with test rates indicating an average initial production rate of approximately 7,000 bbl/d per well, under anticipated operating conditions, supporting targeted delivery of plateau production rate.
The energy giant also tightened cost control, delivering its lowest unit production costs in a decade. Santos is pushing ahead with growth.
The company will also cut headcount by about 10% as major projects shift into the base business.
Intact 2026 guidance
Guidance for 2026 stays intact. Santos expects production and sales of 101 to 111 mmboe. Santos forecasts that unit costs will be at US$6.95 to US$7.45 per barrel of oil equivalent. It also tips capital expenditure to land between US$1.95 billion and US$2.15 billion.
What next for Santos shares?
Over the past 12 months, Santos shares have declined 4.5%. Santos is trailing the S&P/ASX 200 Index (ASX: XJO), which has risen 6% over the same period.
Wednesday afternoon's drop interrupts a solid rebound in the first weeks of 2026. However, Santos shares are still up 6.3% year to date.
