Santos Shares At Highest Level In Years, As Woodside Valuation Gap Narrows

Santos shares (ASX:WTO) made a six-year high close on Friday, continuing what has been an impressive year for the stock, and one that has offered up some meaningful outperformance against larger rival Woodside Energy.

The energy sector has been right at the forefront of attention this year, with oil prices not just boosting the coffers of STO and WDS, but pushing inflation higher at the same time. With that in mind, let’s take a closer look at what this means for the two leading energy names on the ASX.

Santos Close To Highs, as Woodside Sits Further Back

Santos came into the weekend at A$8.77, a gain of 2.69% over the past week and its highest closing price in six years. The move came after shares found support at the 30 day SMA near A$8.50, a technical level that has acted as a reliable floor during the rally.

Woodside, by contrast, is sitting roughly 9.7% below its April high close, with momentum having stalled, despite a broadly supportive commodity backdrop. At A$32.32, the stock has just regained the 30 day SMA at A$32.14 ahead of the weekend, yet sit below the 50 day at A$32.35, as bulls look to re-exert themselves.

Both stocks are outperforming the broader market this year by some way, yet it is Santos that has the lead, with a 42.6% gain outpacing Woodside’s 36.6%.

A Tale of Two Valuations

On the surface, the valuation comparison between the two companies appears straightforward. Woodside trades at a trailing price-to-earnings ratio of 14 times on a market capitalisation of approximately A$61.4 billion, while Santos commands a trailing P/E of 27.1 times on a market cap of A$28.5 billion, less than half the size.

But that picture shifts when the focus is instead moved to forward earnings. Santos’ net income is expected to expand sharply through FY2026 and FY2027 as major capital projects transition from the expenditure phase into active production. On a forward basis, Santos’ P/E is estimated to compress into the 10.5 to 12 times range, broadly in line with, and potentially even cheaper than Woodside’s forward multiple of 11 to 12.5 times.

That compression, driven by earnings growth rather than share price weakness, is a key reason that markets have been willing to pay up for Santos at a premium right now.

Projects Driving Santos Higher

Looking at the forward expectations, and there are project ramp ups that are contributing to the valuation close. The Pikka Phase 1 project in Alaska has achieved continuous oil production and is ramping toward a target of 80,000 barrels per day.

Then you have the Barossa LNG project, located offshore the Northern Territory, and approaching first gas. Once online, Barossa is expected to lift Santos’ LNG sales volumes significantly and reduce unit production costs by spreading fixed overheads across a larger output base.

The next driver will come from Papua New Guinea, where Santos recently agreed to acquire an additional 3.3% equity interest in the Papua LNG project from TotalEnergies for approximately US$189 million. The deal lifts Santos’ projected LNG output from the project by around 19%, adding to what is already a substantial Pacific Basin LNG position.

Woodside Continues To Show Strength

Woodside’s case is built on different foundations, and for a significant part of the market, those foundations remain highly attractive.

The company’s 14 times trailing P/E reflects the maturity and scale of its asset base, providing balance sheet resilience and a capacity to sustain a dividend yield of approximately 4.9%, which is 100% fully franked. For Australian super funds, the franking credit component adds meaningful after-tax value that Santos’ unfranked 3.5% yield cannot match on a direct comparison.

On the project side, Woodside’s flagship Scarborough LNG development is reported to be 98% complete, representing the final stages of what has been a multi-year construction program off the Western Australian coast. Its Trion deepwater project in Mexico is approximately 64% complete, while the Louisiana LNG project in the United States sits at 28% completion. These are substantial commitments, and their combined capital requirements are weighing on near-term free cash flow generation relative to Santos, which is further along in its transition from builder to producer.

Woodside generated over US$3.0 billion in operating cash flow in the first half of the year, demonstrating the underlying strength of its existing portfolio. However, the multi-billion-dollar pipeline of ongoing construction spending has led brokers to assign a consensus hold rating on the stock, viewing it as a stable, defensive income generator rather than a near-term capital growth story.

What Next?

Broker sentiment has followed the project milestones at Santos, with analysts at Citi and UBS naming Santos as their preferred Australian energy exposure, citing its high operational leverage to crude oil and LNG prices and what they describe as low market-implied oil price assumptions embedded in the current share price. The consensus rating across major brokers sits at a strong buy.

Santos enters the week sitting four cents from a six-year intraday high, while Woodside offers a different but equally strong proposition for those that with a focus on dividend yield and income. It has been a mighty year for energy, and holders of either one of these names would have done well. At a push, STO looks to have the stronger setup on paper right now, despite that higher trailing P/E, although WDS pushing to break above the 50 day SMA could reignite some momentum.