Two Energy Penny Stocks With a Bright Outlook

Spotlight on Santos Ltd (ASX: STO) & Deep Yellow Limited (ASX: DYL)

Energy markets are at a crossroads. The push for decarbonisation is undeniable, but the reality of global energy demand still leans heavily on transitional fuels like natural gas and increasingly, on nuclear energy. Liquefied natural gas (LNG) is seen as a flexible and relatively cleaner option compared to coal, while uranium is regaining investor attention as countries double down on nuclear power for long-term, low-carbon baseload supply.

On the ASX, two relatively small-cap names stand out in this evolving story: Santos Ltd (ASX: STO) and Deep Yellow Limited (ASX: DYL). Both companies may be classified as “penny stocks” in valuation circles compared to the large global energy giants, but they are positioning themselves smartly to capture growth in LNG and uranium. For investors seeking exposure to the energy transition with strong near-term catalysts, these stocks deserve a closer look.

Santos (ASX: STO) – LNG Growth Engines Nearing Switch-On

Santos has long been a recognizable name in the Australian oil and gas landscape, but its current strategy is very much geared towards LNG expansion. The company’s HY2025 results confirmed that it is on a solid operational base while progressing towards significant growth milestones.

Key Catalysts on the Horizon

1. Barossa Project (NT): Santos’ flagship Barossa project, which will backfill Darwin LNG, is in the final stages of commissioning. With the FPSO BW Opal hooked up, pipelines installed, and five of six wells drilled, first gas is targeted for Q3 2025. Importantly, the company has maintained that the project remains within its original cost guidance.
2. Pikka Phase 1 (Alaska): Another growth engine, Pikka is slated for first oil in 1H26, further boosting Santos’ production profile.

Combined, these two projects are expected to lift Santos’ production by ~30% over the next 18 months compared to 2024, providing a material uplift in both cash flow and shareholder returns.

Financial Strength & Dividends

1. HY2025 results showed strong free cash flow generation, underpinned by disciplined capex and steady LNG output.
2. The Board declared an interim dividend, consistent with the company’s payout framework of at least 40% of free cash flow from operations (excluding major growth).
3. At current share prices, the forward annualised dividend sits around $0.36 per share, implying a 4–5% yield, with the next ex-dividend date set for 2 September 2025.

Why Santos Looks Bright

Santos is at the cusp of a multi-year production and cash flow step-up. With Barossa and Pikka both on track, the combination of higher volumes, predictable dividends, and potential share buybacks provides investors with both income and growth. For those seeking exposure to LNG as a “bridge fuel” in Asia’s decarbonisation journey, Santos is well placed.

Deep Yellow (ASX: DYL) – Building a Multi-Mine Uranium Platform

If Santos is LNG’s growth story, Deep Yellow represents uranium’s revival. Headquartered in Australia but with assets in Namibia, the company is steadily advancing one of the sector’s most advanced uranium developments.

Tumas Project – Fully Permitted & Near Decision Stage

1. The Tumas Project in Namibia is fully permitted and advancing through late-stage engineering, procurement, and financing preparations.
2. Procurement for 92% of direct capital is well advanced, with vendor data for long-lead items already secured.
3. Early site works are largely complete, and utility contracts (power and water) are in advanced discussions.

While the Final Investment Decision (FID) has been deferred into 2025–26 to align with market conditions, this is a prudent move given uranium’s cyclical pricing.

Balance Sheet Strength

1. Deep Yellow ended H1 FY25 with $158.4 million in cash, providing ample runway to complete pre-FID work and maintain strategic flexibility.
2. Importantly, this cash also supports exploration and study progress at Mulga Rock, where a recent resin mini pilot confirmed effective separation of uranium and critical mineral streams, informing a revised DFS.

Why Deep Yellow Looks Bright

Few uranium juniors can boast a permitted, late-stage project, strong balance sheet, and competitive cost base. As uranium prices have firmed in recent years—underpinned by nuclear’s role in decarbonisation—Deep Yellow is well placed to crystallise financing and offtake agreements once the market aligns. The upside from a project like Tumas moving into construction is substantial, given its scale and cost advantages.

Energy Transition Angle – Why These Two Fit Together

Both Santos and Deep Yellow are very different businesses, yet they represent the two sides of the energy transition coin:

Santos’ LNG provides Asia with flexible, reliable, and relatively cleaner energy while enabling the displacement of coal-fired power. Its ability to leverage existing infrastructure (Darwin LNG) ensures better returns on invested capital.

Deep Yellow’s uranium aligns with global momentum towards nuclear energy as countries seek zero-carbon baseload capacity. With its Namibian focus, it brings geopolitical diversification and potential scale into a tight uranium market.

Together, these companies show how Australia-based energy names can still create value even in a carbon-constrained world.

Key Risks to Watch

No investment comes without risks, and these two stocks are no exception.

Santos (STO): Execution risks around Barossa and Pikka, exposure to LNG pricing and FX volatility, and potential ESG/regulatory hurdles around new gas developments.

Deep Yellow (DYL): Uranium price volatility could delay financing, while project capex and schedule risks in Namibia must be monitored closely. Offtake agreement negotiations will also be key milestones.

The Bottom Line

Energy penny stocks often carry higher risk, but in the case of Santos and Deep Yellow, the upside is equally compelling. Santos offers investors near-term visibility on rising production, cash flow, and dividends, while Deep Yellow provides leveraged exposure to the nuclear revival through one of the most advanced uranium projects in the sector.

For investors willing to back transitional energy themes—LNG as a bridge fuel and uranium as long-term baseload—these two ASX-listed names present credible opportunities with catalysts firmly in sight.

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