Santos Ltd

L1 Capital Long Short Fund continues to hold its position in Santos Ltd, despite recent underperformance compared to its peers. The Fund remains optimistic due to Santos’ strong operational execution, including cost management and its solid project pipeline, such as the Pikka and Barossa projects. However, the Fund believes that the company’s current valuation significantly underestimates the potential of its assets, particularly in LNG. L1 Capital Long Short Fund advocates for a strategic demerger of Santos’ LNG assets, which it believes would unlock substantial shareholder value by creating two distinct entities: LNGCo, a pure-play LNG business, and DemergeCo, which would focus on Australian oil and gas assets. This separation could enhance management focus, improve capital allocation, and unlock market value, with the Fund estimating that LNGCo alone could be worth more than Santos’ entire market capitalization. The Fund sees this structural change as a potential catalyst to close the valuation gap, particularly given the tight LNG market and Santos' strong growth profile in LNG.

L1 Capital Long Short Fund has updated its investment thesis on Santos Ltd, noting strong performance despite a weak oil price environment (WTI -5.7% in December). The stock rose following news of preliminary merger discussions with Woodside and the company’s review of alternative structural options to unlock value. L1 Capital Long Short Fund continues to hold Santos because it believes the company’s asset base remains materially undervalued by the market. The Fund sees potential in exploring structural options, such as demergers or asset sales, to close this valuation gap—an idea previously discussed in their September 2023 quarterly report. These developments reinforce the Fund’s view that Santos is undervalued and that strategic initiatives could enhance shareholder value in the medium term.

L1 Capital Long Short Fund has updated its investment thesis on Santos Ltd, noting that the company’s share price has lagged behind global peers, trading at a significant discount to U.S. counterparts despite a stronger EBITDA growth profile. The Fund continues to hold because it believes Santos’ asset base remains materially undervalued, as discussed in its September 2023 Quarterly Report. L1 Capital Long Short Fund views the exploration of structural options—such as a demerger or asset sales—as critical to closing this valuation gap. Recent developments, including Santos’ announcement of preliminary merger discussions with Woodside and the exploration of alternative structural options, reinforce the Fund’s view that the company is committed to unlocking shareholder value. The Fund welcomes this openness from Santos’ Board and remains confident in the potential for value realization through strategic initiatives.

L1 Capital Long Short Fund continues to hold its position in Santos Ltd. despite recent underperformance following the conclusion of merger discussions with Woodside without a deal. The company has reiterated its commitment to reviewing options for unlocking shareholder value. L1 Capital remains confident in Santos’ strong asset base, which it believes is undervalued by the market, and sees attractive structural opportunities to realize this value independently of any third-party transactions. The company is making significant progress on its key growth projects, with the Barossa project nearly 70% complete and on track for first production in 2025, while the Pikka project is also advancing, with 40% of work completed. L1 Capital anticipates that Santos will have one of the most attractive cash flow profiles in the global energy sector by 2026, once these major projects are completed.

L1 Capital Long Short Fund continues to hold its position in Santos Ltd., driven by increasing conviction in the company’s growth prospects and potential for shareholder value. Since their previous report, the Fund has engaged with the company and key stakeholders, finding wider support for a strategic review to unlock value. Key developments include the resolution of legal challenges related to the Barossa LNG project, which is now 70% complete with only minor delays. This derisking enhances the attractiveness of Santos' LNG assets. Furthermore, the Fund notes the rise in M&A activity within the oil and gas sector, making Santos' LNG portfolio an attractive target in a consolidating industry. The failed merger talks with Woodside in early 2024 have been viewed positively, reinforcing the strategic value of Santos’ LNG assets, and the Fund believes that a structural separation of these assets could better reflect their market value. With significant upside potential based on a sum-of-the-parts valuation, L1 Capital Long Short Fund sees substantial medium-term catalysts for growth, underpinned by Santos' strong operational position and strategic options.