Santos Limited (STO) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen, fellow shareholders. Welcome to the 2020 Annual General Meeting of Santos Limited. My name is Keith Spence. This is my third Santos AGM after a year in which the value of our company again grew significantly, and we're able to continue to pay a dividend to shareholders. However, I say this at a time when we face the challenges of the global coronavirus pandemic, combined with the collapse of oil prices. I'll have more to say about that later. This year's meeting is being conducted with the assistance of video and teleconferencing as we play our part in the social distancing that's vital as all Australians work together to slow down the spread of the coronavirus. I regret that we're unable to meet the shareholders personally today in Adelaide, and I look forward to shareholders being able to be present when we meet next year. Today, instead, we're webcasting the entire meeting live. Every effort is being made to ensure that this runs smoothly for our shareholders. However, if any technology issues do arise, a recording or a transcript of the meeting will be available on our website. Before we commence formally, I regret to inform you that for the same reason that we can't meet in person today, we're unable to conduct the annual shareholder trip to Moomba this year. The format of this meeting is also different from our previous AGMs as we've advised in recent ASX releases. The opportunity to ask questions is still available. Shareholders may ask a question via the Q&A tab at the top right of their screens. If you have a question already prepared, please submit it now so that I can answer as many questions as possible when I come to the relevant agenda item. All questions should be addressed to me as the Chair. And please start your question with the resolution number to which it relates. I ask that you keep your questions short and to the point so that as many shareholders as possible have a chance to ask a question. Each shareholder should restrict themselves to no more than 2 questions. Mr. Tom Baddeley from Santos' Government and Public Affairs Team is here with me in Perth, and he'll read out the name of the shareholder and their question. As our time is limited, it's possible not all questions will be able to be answered today. If there are unanswered questions on matters not substantially covered in today's meeting, Santos will publish responses in relation to those matters on our website. So I declare that a quorum is present by virtue of the proxies I hold as Chair, and I now formally open -- formally declare the meeting open. I'm speaking to you from Perth in Western Australia, and I begin by acknowledging the traditional owners, the Whadjuk Noongar people. I pay my respects to their elders past, present and emerging. Directors and shareholders listening in are doing so from other ancestral lands, and I also pay my respects to those aboriginal peoples and their elders. The operations of Santos take place across the nation and I wish to acknowledge the traditional owners everywhere that we operate and thank them for their involvement in our industry. Let me commence our business for today with some introductions. Members of the Santos Board joining us via teleconference today are nonexecutive directors: Yasmin Allen, Guy Cowan, Hock Goh, Yu Guan, Vanessa Guthrie, Peter Hearl and Janine McArdle. Also on the call is Jodie Hatherly, our company secretary. Yu Guan and Janine McArdle will seek election by shareholders today. I welcome Janine and Yu to their first Santos AGM. Yasmin Allen and Guy Cowan will seek reelection to the Board later in the meeting. Our Managing Director and Chief Executive Officer, Kevin Gallagher, is joining us from Adelaide. Also present on the call is Russell Curtin, representing our auditor, Ernst & Young. As previously notified to the ASX, all resolutions today will be decided on a poll based on proxies that were submitted before the meeting. I now declare the poll open, and I will now vote all directed proxies in accordance with the directions provided by shareholders. As advised in the notice of meeting, I will also vote all available undirected proxies in favor of all Board-recommended resolutions, 2(a), 2(b), 2(c), 2(d), 3 and 4; and against resolution 5(a), which was requisitioned by a group of shareholders. I've been informed that resolution 5(a) will not be passed by the 75% majority required for a special resolution. Accordingly, it's not necessary to vote on resolutions 5(b) and 5(c). However, questions in relation to those items will be allowed in the Q&A of resolution 5(a). I now declare the poll closed. The formal results of the poll will be notified to the ASX after the meeting and will be posted on the Santos website, and I'll display the voting outcome for each item of business after the online Q&A about that item. So on behalf of the Board, I'd like to acknowledge the tremendous work of all Santos' people, led by our Managing Director and CEO, Kevin Gallagher, to achieve a record financial results in 2019 for the second year running. The Santos balance sheet remained strong, allowing the Board to declare a final dividend of USD 0.05 per share fully franked. This brings the full year dividends to USD 0.11 per share fully franked or around AUD 0.17. I'm pleased to say that in U.S. dollar terms, this is a 13% increase for shareholders on the previous year. The dividend is consistent with our sustainable dividend policy to pay in the range of 10% to 30% of free cash flow generated per annum. 2019 was a very good year for Santos. And Kevin will go into this in detail, talking about the operational performance and financial results, but the headlines are worthy of emphasis. Record free cash flow for a second year running and a 7% increase in net profit after tax. These results demonstrate the strength of our strategy and our disciplined, low-cost, cash-generative operating model. We were able to achieve these results because we haven't deviated from our strategy to transform and build and grow our business around 5 core long-life natural gas assets in Australia and Papua New Guinea. As a result of maritime boundary changes, this now includes Timor-Leste, where the Bayu-Undan field that supplies gas to Darwin LNG project is also located. When I addressed you this time last year, our Barossa project offshore Northern Australia was on track for a 2020 final investment decision. In February this year, we were still on track to achieve this. However, on the 23rd of March, we acted decisively in response to the turmoil in global markets to protect our operating cash flow and our balance sheet. As a result, a final investment decision on the Barossa project, which will backfill Darwin LNG will be delayed. The ConocoPhillips acquisition is expected to complete in the first half of 2020, subject to third-party consents and regulatory approvals. Importantly, this acquisition remains consistent with our strategy to build and grow around our core natural gas assets, and it will deliver Santos operatorship and control of a high-quality portfolio of low-cost, long-life assets and strategic infrastructure, including a controlling interest in the Darwin LNG and Bayu-Undan. We've already announced the conditional agreement to sell a 25% interest in Bayu-Undan and Darwin LNG to SK for $390 million. And we're in advanced discussions with a number of parties for equity in the Barossa project, and our LNG sales discussions are progressing well. At last year's AGM, we remained hopeful of reaching agreement with our joint venture partners and the PNG Government to farm-in to P'nyang, increase upstream alignment in PNG and participate in PNG LNG expansion. While we reached agreement with our partners, we've not yet been able to agree terms with the PNG Government. Combined with the current market conditions, this will mean that any farm-in to P'nyang and PNG LNG expansion will be delayed. Last year, I advised that GLNG production was on track to deliver 6 million tonnes per annum of LNG sales by the end of 2019. I'm pleased to say, we reached this target early in October 2019 and we've increased production guidance to 6.2 million tonnes per annum for 2020. In the Cooper Basin, we drilled the most wells since 2014, and we were looking to drill a 100-well program in 2019. We exceeded that target drilling 115 wells. It was a very successful drilling and appraisal program that delivered 183% reserves replacement. I reported to you that we anticipated a decision on development consent for the Narrabri gas project later in 2019. I'm very pleased that the New South Wales Minister for Planning has, in March this year, referred the project to the Independent Planning Commission. The Minister has directed the commission to hold public hearings and make a determination within 12 weeks of receiving the assessment report in the New South Wales Department of Planning. The current public health crisis and social distancing requirements mean that the assessment report has not yet been delivered and the process of conducting the public hearings is still being settled. Nonetheless, a decision can reasonably be expected in 2020. In 2019, we released our second climate change report, setting medium-term targets towards our aspiration of net 0 emissions by 2050. This year, our third climate change report sets out progress against our targets and confirms that Santos is economically resilient under all International Energy Agency World Energy Outlook 2018 scenarios. Our first target is to increase our LNG exports to 4.5 million tonnes by 2025. Increasing LNG exports is the best thing we can do to reduce global emissions by replacing coal in household heating and cooking, industrial processes and power generation in Asia. As I said earlier, GLNG in Queensland achieved 6 million-tonne run rate in 2019. And with a capacity of 8.6 million tonnes per annum, it provides an opportunity for sales growth in the future. When conditions improve and we can refocus on growth projects like Barossa to backfill Darwin LNG and PNG LNG expansion, these will also provide new sales opportunities. In 2019, we set a target to reduce our production emissions in the Cooper Basin and Queensland by 5% by 2025. I'm pleased to say that we're well ahead of the progress needed to achieve this target and that the company's overall Scope 1 emissions intensity continues to trend lower. Importantly, we said we'd pursue a step change in emissions reductions technology. The International Energy Agency, the Asia Pacific Economic Cooperation Forum and the International Panel on Climate Change -- sorry, the Intergovernmental Panel on Climate Change, I should say, all acknowledge that carbon capture and storage, or CCS, is a critical technology to achieving the world's climate goals. In 2019, we commenced the CCS appraisal program in the Cooper Basin, drilling 2 wells, which will be followed with injectivity assessments this year. And we've now entered front-end engineering and design for a 1.7 million tonne per annum CCS project, which would capture carbon dioxide from the Moomba Gas Plant and could commence as early as 2022. Kevin will say more about this later. Last year, we expected to drill 2 exploration wells in the Northern Territory's McArthur Basin onshore shale gas province. Unfortunately, a combination of weather and rig delays meant the program could not be undertaken in 2019. And the cost-cutting measures we announced on the 23rd of March mean that those wells will now be delayed beyond 2020. We were, however, able to conduct hydraulic fracture stimulation on our Tanumbirini-1 well, and we confirmed a successful gas discovery. With the current public health crisis and the vulnerability of remote and indigenous communities, we plan to curtail further testing of this well and safely shut it in to avoid the movement of people in and out of the area to help keep these communities healthy and safe. And while I didn't comment on Western Australia last year, in 2019, we successfully integrated the Quadrant business and completed a successful appraisal program for Dorado in the Bedout Basin, derisking development options for the field. Although our growth projects that were due to take final investment decisions have been put on hold, we continue to progress our Dorado project and still expect to enter front-end engineering and design in the second quarter to make this project ready for final investment decision once conditions improve. The unrelenting focus of Kevin and his team on our strategy to transform, build and grow around our core assets, together with our disciplined, low-cost, cash-generative operating model has positioned the company well to weather the unprecedented market conditions we are currently experiencing. As I said earlier, in response to the challenges of the COVID-19, combined with low oil prices, we acted decisively on the 23rd of March to protect our cash flow and our balance sheet. We announced cost cuts in 2020 of $550 million in capital expenditure and $50 million in operating expenditure. And we'll continue to review this as we need to over the coming months. Right now, we need to keep production going to maintain our revenues and the revenues that flow to governments, so that they can fund the economic relief that's going to be required during this crisis for households and businesses across the nation. It's also vitally important that we keep employing people and buying locally to support our communities and that we maintain reliable energy supplies for our customers in both Australia and Asia. These energy supplies are essential for hospitals, power generators, manufacturers of medical supplies and food, supermarkets and all the other products and services that keep the economy and our society functioning. Santos has strong operating cash flows. Our balance sheet remains strong. And we announced -- as we announced last week, we're targeting a free cash flow breakeven price of $25 per barrel of oil in 2020. To maintain this position and support jobs at Santos and our customers, our top priority is to keep production flowing and our costs down without compromising on safety or asset integrity. I'd like to thank you, our loyal shareholders. I hope you can see your patience being rewarded by a company that sticks to its strategy and lives its purpose to provide sustainable returns to shareholders by supplying affordable, reliable and cleaner energy to improve the lives of people in Australia and Asia. I'm confident the Santos management team will steer the company successfully through the current public health and economic crisis in a way that positions us well for economic recovery and the growth opportunities that will inevitably reemerge in the future. I'll now hand over to Kevin to give you his review of operations and more details about our financial results, the challenges that we now face and our plan for the coming year. Thank you.

Thank you, Keith, and good morning, everyone. As I am joining the meeting from Adelaide, I begin by acknowledging I am on the traditional country of the Kaurna people of the Adelaide Plains, and I pay my respects to their elders past, present and emerging. As Keith said, Santos delivered another strong set of financial results in 2019. However, in just 1 month, a great year behind us has been overshadowed by the collapse of oil prices and global markets, and we now face unprecedented headwinds for the remainder of the year. Very importantly, Santos is a much more resilient company today than we were in 2015, '16 when we last faced a challenge like this, and I am confident that we will climb back again. Ours is a cyclical business which is why, over the last 4 years, we have embedded our disciplined, low-cost operating model to make Santos a sustainable business. Indeed, sustainable in the face of black swan events, such as the once-in-a-hundred-year pandemic that we are currently fighting. When oil prices and demand recover, I believe our projects will be much better placed than those of our competitors. If we remain cash flow positive and maintain a strong balance sheet until market conditions improve, we will be well positioned to refocus on growth and deliver superior value to shareholders over time. Our strategy to transform, build and grow around our core assets has been accepted by the market in recent years as a good strategy. It is still a good strategy. We have a low cash flow breakeven with a $25 oil price target for 2020, as we announced just last week. We are now in control of our capital expenditure profile over the next few years because we now operate most of our assets. We have great flexibility in our growth because all of our growth projects are yet to take final investment decisions. This means we can defer projects as required until market conditions improve. Our production levels from our current assets are relatively steady beyond 2025, even without any new growth projects. The balance sheet is stronger. We have $3 billion of liquidity available, and our covenants have headroom for several years, even in the current oil price environment. In the first couple of months of this year, we generated $186 million in free cash flow. And our fixed price gas sales contracts are expected to make up 35% of sales volumes in 2020. We have recently undertaken additional oil price hedging covering April to December this year. This means we now have almost 9 million barrels hedged, covering 30% of our remaining 2020 oil price exposure at an average floor price of $43 per barrel. We are set up to sustain the base business and remain resilient to low oil prices. It was encouraging to see Standard & Poor's recognize this last week by reaffirming Santos' BBB- credit rating with stable outlook. Standard & Poor's also noted Santos has the financial capability to undertake the acquisition of ConocoPhillips Northern Australia and Timor-Leste business which, as Keith also said, is expected to complete in the first half of 2020. Returning to our 2019 performance, our strong financial results demonstrate the strength of a disciplined cash generative operating model. Let me run through some of the highlights. We continue to drive down unit costs and deliver efficiency gains despite cost pressures seen across our industry. Sales revenue was up 10% to $4 billion. Reported net profit after tax was up 7% to $674 million. The acquisition of Quadrant Energy delivered what we promised it would and more, with synergy savings now forecast at more than $60 million per year. And we generated a record $1.1 billion in free cash flow, up 13% on 2018. You have all heard me say many times, cash is king. And now it's more important than ever. I'm also exceptionally pleased that we're able to pay a full year dividend of USD 0.11 per share, up 13% on 2018. As you know, we are very focused on free cash flow in this business. That is how we measure our performance, and I'm not going to let up on that. Back in 2016, our free cash flow breakeven was just shy of $50 a barrel. We had assets that required over $70 oil price to breakeven. Stepping forward to 2019, our free cash flow breakeven reduced to $29 and even lower if we include the effect of oil price hedging. All of our assets generate free cash flow at oil prices under $35. This is the Santos disciplined operating model in action. Our record $1.1 billion of free cash flow this year means that, over the past 4 years, we have generated $3 billion in free cash flow and we finished 2019 with a free cash flow yield of around 10%. The Santos disciplined operating model continues to drive lower cash unit production costs across our operating assets. Over the last 2 years, we have delivered reductions of 28% in Western Australia, 17% in the Cooper Basin and 5% in Queensland. I believe that this is industry-leading performance, which has been achieved despite cost pressures seen across our industry and our focus on growth over the last year or so. I was hoping to be sharing with you today our growth plans for 2020 and beyond, having last December increased our 2025 production target to 120 million barrels of oil equivalent. However, as we announced last week, much of our growth has been postponed under the current market conditions. That does not change the fact that when market conditions improve, which I am confident they will, one of the things that sets Santos apart is that we have growth opportunities across all of our assets. Our growth is not beholden to 1 product, 1 product market or even 1 region. Ours is also a brownfield upstream growth strategy, leveraging existing infrastructure to deliver superior shareholder returns. We have conventional offshore growth in Barossa and Dorado. We have onshore growth in the Cooper Basin and across Queensland. Narrabri is also now in the hands of Independent Planning Commission in New South Wales for a final decision, which is expected within months. And our reserve and resource position underpinning these growth projects is strong. We have 989 million barrels of oil equivalent in 2P reserves and 1.9 billion barrels of oil equivalent in 2C resources. That excludes the ConocoPhillips acquisition, on completion of which, we will book an additional 480 million barrels of 2C before any subsequent sell-downs. Final investment decisions on just Barossa and Dorado alone would commercialize over 300 million barrels of resources and convert them to reserves. But of course, delivering these reserves is going to be delayed for the time being until market conditions improve. I would now like to address Santos' approach to climate change. Santos operates and markets natural gas in the Asia Pacific region, the region which accounts for 40% of total global energy demand and half the world's total greenhouse gas emissions. Australia's Chief Scientist, Dr. Alan Finkel, said recently that natural gas is already making it possible for nations to transition to reliable and relatively low emissions electricity supply. Dr. Finkel referred to the U.K. where the combination of natural gas and renewables has led to a 50% reduction in emissions from electricity generation since 2009. A mature debate about climate change and emissions reduction must address technologies to make natural gas even cleaner and eventually 0 emissions. That's why Santos is investing in carbon capture and storage or CCS. Today, CCS projects store around 40 million tonnes per year of carbon dioxide, far short of the more than 2 billion tonnes of carbon dioxide the International Energy Agency forecasts that CCS projects will need to store each year by 2040. The Cooper Basin is uniquely placed for CCS with potential injection capacity of 20 million tonnes of carbon dioxide each year for 50 years. Our proposed Moomba CCS project, now in front-end engineering and design, will safely and permanently store carbon dioxide already separated at the Moomba Gas Plant, in the same reservoirs that have safely held oil and gas in place for tens of millions of years. The project is attracting considerable interest and we have entered a nonbinding agreement that could lead to BP investing AUD 20 million in support of the project. We estimate the cost of abatement at less than AUD 30 per tonne, and our aim is to drive these costs lower with scale and experience. I believe carbon capture and storage is an exciting opportunity for Santos now and into the future, with the potential to create a new wealth-generating industry for Australia, breathe new life into existing industries, such as cement and steel, and underpin the development of new energies such as hydrogen. Just as private investment in renewable energy deployment was accelerated through public policy and funding over the last 2 decades, we now need to focus on accelerating CCS in similar ways. Our revenue stream, such as from Australian carbon credit units will be a critical enabler for our Moomba CCS project. In closing, I want to acknowledge the uncertainty the world is facing as we all fight the coronavirus pandemic together. Right now, I am focused on the health, safety and well-being of Santos people and their families and on keeping production flowing. This will mean that we can keep the lights on for the country and continue to power other essential services like hospitals, schools, Australian manufacturers and the supermarkets our communities rely on. I have activated the crisis management team, which I am leading, and we have established a pandemic task force that is working with the business to implement business continuity and contingency plans that comply with government and public health requirements. So far, we have introduced self-declarations regarding personal health, heightened personal hygiene and workplace cleaning procedures, introduced temperature checks at airports and all of our workplaces, implemented social distancing, put in place travel and workplace access restrictions, adjusted field rosters and camp environments, and enhanced medical treatment and evacuation capability from the field. Our workforce has supported us in everything we are doing, and I cannot thank them enough for their cooperation and the magnificent job they are doing to keep energy supplies flowing. Our company has a critical role to play in keeping our economy and society functioning by continuing to provide energy security for our customers in Australia and across Asia. We have acted decisively and announcing financial measures that are appropriate to the current environment and which will ensure the company continues as a low-cost, reliable and high-performance business. These include reducing capital expenditure by $550 million, 38% reduction; reducing 2020 cash production costs by $50 million; and targeting 2020 free cash flow breakeven oil price of $25 per barrel. Our operating model is focused on maintaining a strong balance sheet and increasing operating cash flow through improvements in productivity and discipline around our capital expenditure. And our balance sheet is strong, with $1.2 billion in cash at the end of February and $1.9 billion in committed undrawn debt facilities. Near-term debt maturities are minimal. The ConocoPhillips acquisition is fully funded from existing cash and $750 million in committed 2-year acquisition debt. We have already announced a conditional agreement to sell our 25% interest in Bayu-Undan and Darwin LNG to SK for $390 million, and we are in advanced discussions with a number of parties for equity in Barossa. When conditions improve, our low-cost, efficient and sustainable operations, together with our diverse portfolio of long-life natural gas assets, will put Santos in the best possible position for the future to deliver superior value to shareholders over time. Finally, to all of you on today's call, please follow the public health advice of our chief medical officers around the country and stay healthy and safe. Thank you. I'll now hand back to Keith.

Thank you, Kevin. Ladies and gentlemen, we now come to the formal business of the meeting. The agenda items will be considered in turn, and I will answer shareholder questions in relation to each item. Shareholder -- we received a number of questions from shareholders prior to the meeting. Some have already been covered in Kevin's and my address, and I will answer more of them in the Q&A shortly. I'll deal with questions in relation to executive remuneration when we come to that item of business. Now let's proceed to the first item of business to receive and consider the Financial Report, Directors' Report and Auditor's Report for the year ended 31st of December 2019. This item of business gives shareholders the opportunity to ask questions about the Santos Group and its operations. We'll deal with questions that relate to remuneration, climate change and other items of business for the meeting when we come to those agenda items later. I now put before the meeting the Financial Report, the Director's Report and the Auditor's Report for the financial year ended 31st December, 2019, and will answer questions for this item of business. Shareholders may also ask questions of the auditor relevant to the conduct of the audit, the preparation and content of the Auditor's Report, the accounting policies adopted in preparing the financial statements and the auditor's independence. Tom? Do we have any questions from shareholders on this item?

Chairman, a question from [ DAV ] Superannuation Fund. Would Santos consider the payment of unfranked dividends to shareholders and treat it as a matter of urgency?

Thank you for your question. Look, Santos has a sustainable dividend policy that targets a payout of free cash flow in the range 10% to 30% -- targets a dividend payout in the range of 10% to 30% of free cash flow. And we'll provide additional returns when business conditions permit. We have around $230 million in franking credits, and we would expect to distribute these as a priority to shareholders in line with our dividend policy. Tom, is there another question?

Question from [ Michael Meredith ], Chairman. Why has net debt been reduced by only $324 million since the last financial year? Why hasn't a greater allocation of revenue being used to reduce debt?

Thank you for your question, Michael. Look, in 2019, Santos generated record free cash flow of $1.1 billion. From this cash generated, we paid a dividend to shareholders. We paid a deposit relation -- relating to the ConocoPhillips acquisition in the Northern Australia. We made an adjustment in response to the introduction of the new accounting standard that impacts how companies account for leases, and we advanced the Barossa project to backfill Darwin LNG. Our balance sheet is strong. Standard & Poor's global ratings reaffirmed recently our investment-grade credit rating of BBB-. That was very recent, 24th of March, and they noted that the company has a solid buffer to withstand the current oil prices due to its strong balance sheet, and we've built that up really, really well, I think, over the last 2 years. So thank you for your question.

Chairman, a question from [ Sasha Hardcastle ]. Does Santos think there are opportunities to invest in hydrogen?

That's a great question, Sasha. Look, you saw from Kevin's earlier discussion and what I said at the very beginning, we're looking very hard at carbon capture and storage. Part of the reason we're so excited about carbon capture and storage is it's a key element of hydrogen. If you sort of look to the future, if you want to look at production of hydrogen, it's actually about sort of splitting water, and one of the byproducts of that process is CO2. You need energy. You need a source of hydrogen. In our case, it would be methane. The product that you produce is hydrogen and the byproduct is CO2. If we have CCS in place, it's a key enabler for a future hydrogen business. So there's 2 motives here for us in terms of CCS. One is to reduce our current emissions, but another one is it provides an opportunity for us to consider things like hydrogen in the future. So yes, we're certainly thinking about those sorts of investments. Thank you for your question. Tom, do we have another question?

Question from [ Linton Wilcox ], Chairman. Please outline if and what plans there are to deliver step change improvements to energy efficiency of the company's LNG plants to deliver significant greenhouse gas emission reductions.

Thank you for your question. I think, first, let me say that our LNG projects are all modern and efficient plants, and they do use the best available technology. As an example of the sorts of things that we've been doing, I'll talk about one of the recent initiatives we've undertaken, which is a battery project in our Darwin LNG facility. And that's expected to reduce emissions from power generation by about 20% as well as cutting fuel consumption and operating costs. We also, of course, alongside that, have things like carbon offset reduction programs. We've been doing stuff in the Northern Territory with the Arnhem Land Fire Abatement project. So it provides us with emissions offsets. But it actually is very important also because it provides you employment for over 300 indigenous people per year. So we're having a number of approaches to reducing greenhouse gas emissions. Some are through technology and others are through offsets. Thank you.

Chairman, a question from [ Gary Simmons ]. Has Santos hedged against a drop in the price of oil on world markets? If so, at what price and what is the cost of this?

So Gary, we have. And I think, Kevin dealt with that in his presentation, but I'll just sort of say it again. We actually have a natural hedge in our portfolio. And some of our gas contracts are CPI-linked. They're not exposed to oil pricing at all, and that's about 35% of our revenue. In fact, at lower oil prices, it's may be significantly higher. But we've also got in place hedging on our oil products. And I think Kevin mentioned that we've put in place hedging for around 9 million barrels, and we've got a floor price on that of around $43 a barrel. So we're well and truly hedged. Thank you.

Question from the Australian Shareholders Association, Chairman. In the Board's governance report, it says in 2019, there was implementation of recommendations by a 2018 external review of the Board. Please comment on 2 or 3 of these developments which implemented those recommendations.

Thank you. So as you mentioned in your question, yes, we did a detailed external review of the Board and its functions. That came up with a sort of suite of actions. Some are administrative in nature to improve kind of the effectiveness of how the Board operates. Others were more strategic, and I'll talk about some of those. So for example, one thing we wanted to do was to improve the Board's understanding of significant strategic risks. So we've introduced a deep dive on a strategic -- a key strategic risk at every Board meeting. So basically, at those sessions, the Board allocates a considerable chunk of time to actually really exploring in-depth that particular strategic risk to understand the nature of the risk and also the nature of the mitigations that the company is putting in place to actually reduce that risk. So that's a really good example. Part of that process also is it gives us an opportunity to meet other people in the company and sort of reach deeper into the company and really reach -- extend our reach in terms of our knowledge of the organization. Another area where we've done a lot of work is on a formal Board education program where we've gone out, we've looked at the Board competency profile. We've tried to understand those areas where we have weaknesses that we can bolster through kind of education program. We've also tried to help directors because of the nature of the business being a technical business, providing some technical presentations to the Board to bring them more -- to make them more comfortable with some of the language that's often used in some of the papers. So that's, I think, quite a good example. What that's done for us is actually give us an opportunity to target young talent in the organization who could then come to the Board, and we actually get a really good understanding in -- through this process of the depth of talent in the organization, which I think is also important. And probably, the third example of that would be, in looking at our Board competency profile, we identified some areas that we really needed to strengthen. And that's resulted in the appointment of Janine McArdle, which we're very pleased about. So there's a few examples for you of the governance report. Thank you. Tom, any other questions?

Chairman, question from [ Hugh Barrett ]. The Narrabri Gas Project would require the disposal of up to 42,000 tonnes of salts per annum. According to Santos, these salts would be disposed of in a government-approved waste disposal facility. As no such facilities have anywhere near this spare capacity in total within a 150-kilometer radius, the maximum distance allowed for haulage, what is to be done with these salts? Without a satisfactory solution to this issue, can the Narrabri Gas Project proceed?

Thank you for your question, [ Hugh ]. Look, basically, your assertion is not correct. While Santos, we haven't entered into a commercial agreement with a specific waste facility at this point in time. The salt is classified as a general solid waste. And there are a substantial number of waste facilities, including government and privately owned facilities in New South Wales, that have the capacity to receive the waste. So in 2019, we provided further evidence to the Department of Planning to confirm this is the case. The department's assessment report will cover that issue when it's provided to the Independent Planning Commission, at which time, it will also be publicly available. It's then a matter for the IPC to determine whether or not the Narrabri project can proceed. Thank you. Tom, I know that you've got further questions.

Chairman, question from [ Dr. Eileen John-Lustig ]. The Narrabri Gas Project would require a pipeline to transport gas to the New South Wales domestic market. Santos has considered 2 pipeline routes. The first was withdrawn in 2012 due to community opposition, and progression of the second was halted in 2018 due to continuing opposition by a significant number of landholders. Community opposition has halted Santos' attempts to secure a pipeline at every attempt. Without access to a pipeline, isn't the Narrabri Gas Project a stranded asset? When will Santos admit the plans for the Narrabri Gas Project have failed, cut its losses and prevent further wasted expenditure on the project?

Well, thank you for your question. Look, we're confident that the Narrabri project enjoys strong support in the local Narrabri community. The vast majority of submissions that were made originally were pre-written forms opposing the project, and they came from outside the Narrabri area. Removing form submissions, the majority, 58% of submitters from the Narrabri area supported the project. More than 85% of the landowners within our proposed project area are supportive of the projects are proceeding, as are local groups, including the Narrabri Chamber of Commerce. Among the local community, there's an understanding that Narrabri needs a diversity of industry to remain a vibrant community. But the project is also tracking support from manufacturers like Perdaman, who will establish new industries and create more jobs in the region if the project is approved. So we're confident of the support that we have for the project, and we would expect it to proceed. Thank you.

Chairman, question from [ Mr. Ross Knowles ] directed to Santos' auditors. As auditors, you have signed the accounts as being true and fair. The assumptions for the oil prices that you have used are extremely optimistic. Oil prices are expected to rise from USD 64 as at balance date 2019 to USD 77.29 in 2025. The rise in oil prices assumed is nearly twice the inflation rate in an environment of declining demand due to the electrification of transport. Previous oil price assumptions in annual reports dating back to 2014 have proven to be too optimistic. My question is, how can these accounts be signed as true and fair when the auditors are meant to back test assumptions to see if they align with reality? In Santos' case, the oil price assumptions are too high and have led to a material overstatement of both assets and the reserves and resources that the company relies on to make a profit.

All right. Well, thank you for your question. We have our auditor on the line. So I'll throw now to Russell Curtin to respond to your question. Russell, over to you.

Thank you, Chairman. With reference to the question, in a general sense, accounting standards require that the company checks whether the amount that can be recovered for an asset exceeds its carrying value as recorded on the balance sheet. I draw everyone's attention to our auditor's report on Page 136 of the annual report, where we refer to the key audit matters, recovery of the carrying value of exploration and evaluation and oil and gas assets and reserves. Our report sets out the key procedures that we've performed, including those to assess management's commodity price assumptions with reference to contractual arrangements and, in particular, reference to a range of independent sources. Our report also sets out our opinion, which is that the financial report taken as a whole gives a true and fair view at 31 December, 2019. And a final matter, it's really important to understand that the financial report has been prepared based on conditions existing at 31 December, 2019. We also consider events occurring prior to signing the financial report that evidence conditions that existed at 31 December. The events leading to the decline of the oil price, including the outbreak of COVID-19, occurred after 31 December, 2019, and after signing the financial report. Therefore, it would not be appropriate to make any adjustments to the financial report as at 31 December, 2019, for these impacts. Thank you, and handing back to you, Chairman.

Thank you, Russell, for that very comprehensive response. Tom, do we have any further questions?

Chairman, question from [ Mrs. Robyn Anne Pender ]. Santos has represented to its shareholders and regulators in order to justify the Narrabri Gas Project that the 850-well project represents a viable low carbon transitional fuel source for New South Wales. Santos' claims about the 50% of coal emissions intensity of Narrabri gas would require that produced gas contains no CO2, even though the EIS assumes that the gas is composed of 10% CO2, which would make the project a high emissions fuel. A report released this week using publicly available well results shows that the average CO2 across the Narrabri project is actually 25% to 30%, with gas in some wells over 90% CO2. Is the Santos Board aware of this data, the high CO2 content at Narrabri and its implications?

Yes, we are aware of that. Clearly, the assumption of 10% CO2 in EIS is actually a conservative estimate. Typically, when you put an EIS together, you try and kind of paint fairly -- a bad case to make sure you really kind of stress test it. The actual Narrabri exploration and appraisal data from 250 gas samples that were taken across the area between 2014 and 2019 have an average CO2 content between them of just under 5%, not 10%, 5%. The areas where we would expect elevated levels of CO2, they're typically in the shallower coal seams, where we're not really interested, quite honestly. These are near the surface, and they're typically something that a coal mine might look at. So basically, we intend to develop the Narrabri project to maximize the value of the asset but minimizing carbon emissions, noting that EIS has allowed for CO2 to be removed to ensure that we meet pipeline specifications as well. Thank you for your question.

Question from [ Mr. Stephen David Maine ]. How are relations going with our 2 Chinese shareholders? Are they in a strong financial position to continue supporting the company, including if we need to make a capital raising?

Well, certainly, we're very pleased to have ENN as a long-term strategic partner, and we look forward to working with them to support the continued growth of Santos for the benefit of all shareholders. And this could include working together for opportunities in LNG. Between the 2 companies, we share a vision to increase the use of natural gas in China to displace coal and to reduce emissions and improve air quality. Clearly, it's inappropriate for me to make any comments about ENN's financial position, that's for them. But certainly, in terms of a supporter of Santos and in terms of the role they play in our Board, we're very pleased to have them there. Thank you.

Question from [ Ms. Susan Edwards ]. Thank you. My name is Graeme McLeay. I am a retired anesthetist and a Board member of Doctors for the Environment Australia. Climate change has been recognized by the Australian Medical Association, the American Medical Association, the British Medical Association and the World Health Organization as a major global health threat. Global methane, responsible for 25% of global heating, is rising. Now it's 60% higher than preindustrial levels. The evidence is now strong that fossil fuel methane is now a major source of global methane. Extraction of natural gas is a major source of fossil fuel methane, and these emissions have been underestimated by 25% to 40% from the Nature magazine. How does Santos reconcile its stated climate policy with the now clear evidence of rising fossil methane emissions related to gas extraction and deployment? On what basis does Santos claim that LNG exports lower emissions in client countries when it is known that fugitive emissions negate any advantage over coal? Thank you.

Thank you for your question. Look, the Nature study picks up all methane emissions around the world, and then it makes assumptions to allocate those emissions between customer end use, coal mining, gas production and natural geologic resources, such as seeps in mud volcanoes. The authors themselves acknowledged the oil and gas practice has substantially improved since -- particularly since the '70s and '80s. For example, reducing venting and flaring and associated gas, et cetera. But this isn't evident in the data that they produced in that article. Getting away from that, we comply with -- we use a -- we build a bottom-up inventory on our emissions. We do regular checks on our emissions. We have physical data that we measure. As we come into a new area, we are establishing baselines so that we actually understand what the natural background levels of methane are so that we can see if we are having an impact through our operations. We haven't got the evidence of that so far. So basically, we are very confident about the data that we report. We base it on evidence, not on assumptions, not on rates that were applied sort of holistically. Our reporting is audited, and we are very confident about the veracity of our data. Thank you.

Chairman, a question from Ms. Caroline Le Couteur relating to the Narrabri Gas Project. Shareholders should be aware of the lack of available environmental liability insurance products. A recent New South Wales government parliamentary inquiry found that the enhanced insurance coverage, as envisaged by the New South Wales Chief Scientist, is not available. It concluded that the risks are uninsurable. A New South Wales EPA policy paper released last month indicated that the agency would be requiring gas companies to provide evidence of adequate insurance coverage. But they doubted that such a product is even available. So far, in the Narrabri Gas Project, there have already been over 20 spills and leaks causing numerous vegetation kill zones and the proven contamination of 2 aquifers with heavy metals. Has the company estimated what scale of liability it faces with no suitable insurance products available from unexpected environmental damage from the Narrabri Gas Project?

The first thing I'd say is that we do have a long history of operating our assets safely and sustainably. And we do support the implementation of the Chief Scientist's recommendation to ensure that land and water protection is there, and remediation. Now part of those recommendations was the implementation of a 3-layered policy around security deposits, enhanced insurance coverage and an environmental rehabilitation fund. In our case, the New South Wales government would also hold a bank guarantee to cover any remediation and in the extremely unlikely event that we fail to meet our responsibilities, the bank guarantee amount is determined by the state to be sufficient to cover all and any remediation that could be required. So the combination of our safe operating practices, insurance policies held by Santos and the bank guarantee logged with the -- or lodged with the New South Wales government provides certainty that any environmental risks are appropriately managed now and into the future. Thank you for your question. Tom, any more?

Chairman, question from [ Mr. Stephen David Maine ]. If we do a capital raising, can we commit to follow the principle of doing a pro rata offer, preferably renounceable, so that nonparticipants are compensated for their rights?

But I think that's probably not something we should be speculating on at this meeting. Certainly, we've got no intention -- we've had no discussion around this sort of item at all on the Board at the moment. As Kevin has already mentioned, as I have mentioned, we have a very strong balance sheet. We have a very cash generative model. As we look forward for the next few years, we have stress tested our business. We see at the moment no need to take any action in that particular space. If the situation changes, we'll be -- people will hear about it. But for the moment, quite honestly, we are on a steady ship that is basically a business that is running strongly, performing strongly, that has a good cash generation, and we have no plans in this area. Thank you.

Chairman, there are no further questions on this resolution.

Thank you, Tom. We'll move to the next item of business, and this item is the election and reelection of directors. The details of each director's qualifications and experience have been provided to the Notice of Meeting. I note that they had hoped to address shareholders in support of their nominations today. However, given the unique circumstances of this meeting, I'll comment on the skills and the experience and performance of each director and then call for questions in relation to each resolution. Item 2(a) relates to the reelection of Mr. Guy Cowan. I can attest to Guy's absolute commitment to his role on the Santos Board. He's hardworking and dedicated. He attended all scheduled meetings of the Board in 2019 with preparation and full participation. Having reviewed Guy's performance, the Board considers that he continues to make a valuable contribution. He brings extensive commercial and financial skills and industry experience, which are particularly valuable in his role as the Chair of the Audit and Risk Committee and as a Director of Santos Finance Limited. I'll now answer questions for this item of business, and I'll start with a question we received from the Australian Shareholders' Association. The question is, in what unique way does Mr. Cowan contribute outside the Board or committee meetings? Well, Guy maintains regular communication with the Chief Financial Officer, and he's a valuable sounding board on finance-related issues. He maintains, outside of the Board meetings, ongoing interaction with the internal audit manager, and he's assisted with the recruitment of key financial personnel. Tom, do we have any other questions from shareholders on this item?

Chairman, there are no further questions on this item.

Thank you, Tom. So the results for the voting are: 86.29% for the resolution and 13.71% against the resolution. The resolution has been passed, and I now have pleasure in declaring Guy Cowan reelected as a director of the company. Item 2(b) relates to the reelection of Ms. Yasmin Allen. I can attest to Yasmin's absolute commitment to her roles on the Santos Board. She is incredibly hardworking and dedicated. She attended all scheduled meetings of the Board in 2019 with preparation and full participation. Having reviewed Yasmin's performance, the Board considers that she continues to make a valuable contribution. She brings extensive leadership, governance, finance and risk management skills, which are particularly valuable in her role as Chair of the People and Remunerations Committee and as a member of the Audit and Risk and Nominations Committee. I'll now answer questions for this item of business. As with Guy's reelection, I'll start with the same question we've received from the Australian Shareholders' Association, which is, in what unique ways does Ms. Allen contribute outside of the Board or committee meetings? Yasmin is an experienced director and a business person who brings significant constructive input around risk, finance and commerciality to the Board. Her broad experience has enabled her to contribute outside regular Board meetings in the areas of the global economy, strategic impact of technology and people issues. She's also a strong sounding board for both the CEO and the Chair across a wide range of issues, including corporate culture and finance. Tom, do we have any other questions on this item?

Chairman, there are no further questions on this resolution.

Thank you, Tom. The results of the voting are: 87.58% for the resolution and 12.42% against the resolution. The resolution has been passed, and I now have pleasure in declaring Yasmin Allen reelected as a Director of the company. We now move to the election of new directors, Yu Guan and Janine McArdle. I confirm that we undertake comprehensive background checks as required by the ASX corporate governance principles and recommendations prior to the appointment of all directors. Item 2 relates to the election of Mr. Yu Guan. The Board has reviewed Yu's performance since his appointment as a director and considers that his skills and experience will continue to enhance the Board's ability to perform its role. Yu is a diligent member of the People and Remunerations Committee of the Board. He's held roles with the China Ministry of Power; multinational companies, including Shell; and he's currently the President and Director of ENN Ecological, which is one of the largest downstream natural gas players in China. Yu, therefore, brings to the Board very deep insight into China's gas and energy markets, which is particularly valuable as China is the world's largest and fastest-growing LNG market. I'll now answer questions for this item of business. And I'll start again with a question we've received from the Australian Shareholders' Association, which is, when Mr. Guan's Board nomination was proposed to him, what study did he undertake of Santos or the Australian oil and gas market? I'll make the observation that as President and Director of ENN Ecological, Santos' largest shareholder, Yu has a deep knowledge of our company and our markets in both Australia and Asia, and he is strongly motivated to assist the Board in delivering superior value for shareholders. Tom, are there any further questions on this item?

Chairman, there are no further questions on this item.

Thank you, Tom. The results of the voting are: 95.39% for the resolution and 4.61% against the resolution. The resolution has been passed, and I now have pleasure in declaring Yu Guan elected as a director of the company. Item 2(d) relates to the election of Ms. Janine McArdle. The Board has reviewed Janine's performance since her appointment as a director and considers that her skills and experience will continue to enhance the Board's ability to perform its role. Janine has been an executive in the oil and gas industry for over 30 years with extensive experience in engineering, marketing, business development, finance and risk management. Her last corporate role was with Apache Corporation, where she was the executive officer who oversaw the marketing of all Apache's global production, including from its assets in Western Australia until their sale to Quadrant in 2015. She lives in the United States and currently consults in the traditional oil and gas sector, the power generation markets and on U.S. Gulf of Mexico LNG projects. As a result, she brings to the Board a unique international perspective, strong knowledge of global industry participants, global markets and current geopolitical risks and issues. I'll now answer questions for this item of business. The Australian Shareholders' Association has also asked of Janine. When Ms. McArdle's Board nomination was proposed to her, what study did she undertake of Santos or the Australian oil and gas market? Well, through Janine's role at Apache, which involved marketing products from Western Australia assets now owned and operated by Santos, she joined Santos with great familiarity of the Australian oil and gas markets and their regulation. Janine also brings knowledge of the Australian LNG export opportunities to Asia. She knows Santos well as a former joint venture partner and has confirmed to me that prior to joining the Board, she's reviewed Santos' ASX releases, its results, its Investor Day presentations for the last several years. Tom, are there any other questions on this item?

Chairman, there are no further questions on this item.

Thank you, Tom. The results for the voting are: 99.5% for the resolution and 0.5% against the resolution. The resolution has been passed, and I now have pleasure in declaring Janine McArdle elected as a director of the company. I now move to item 3, the remuneration report. This item of business asks shareholders to adopt the company's remuneration report. Before answering questions, I wish to make some brief comments. Management delivered a strong performance during 2019, including improved safety and environmental performance; record annual production, sales volumes and sales revenue; and record free cash flow and lower production costs. The Board approved the company scorecard result of 120% of target performance level, which is 72% of the maximum outcome. Performance against the 2016 long-term incentive awards was assessed following the end of 2019 and the awards vested in full. This followed 8 years of long-term incentive awards not vesting. We made changes to the structure of the 2019 remuneration report to improve transparency and readability, which have received good feedback. This included a detailed explanation of the CEO's realized remuneration for 2019, which largely relates to share price appreciation over the vesting period. These were valued in the remuneration report using the closing share price on the 31st of December. Now I'd like to point out that the CEO continues to hold his shares. We further strengthened the alignment of executive remuneration with the interest of shareholders by introducing a minimum shareholding requirement for the CEO and executive vice presidents, which is significant compared to typical market practice. We increased the share of executive pay, which is at risk and linked to performance. And we made long-term incentive plan performance targets more challenging for free cash flow breakeven point and for return-on-average capital employed. These changes, which apply for 2020, are described in the remuneration report. I'll now answer questions for this item of business. I'll answer any questions regarding the proposed grant of share acquisition rights to the Managing Director when we come to the next agenda item. Tom, are there any questions on this item?

Question from [ Doris Soft ]. How can you justify paying so much to the Director, Kevin Gallagher, when the company is not doing so well?

I think I've made the point already around the long-term incentive scheme. The numbers reported in the annual report were based on a share price on the 31st of December. I think if you did the calculation on today's share price, you'd see a substantially kind of different remuneration, if you like, in terms of realized remuneration for the CEO. Now we'll make the point that our remuneration is based on benchmarking. We take a lot of effort to compare our remuneration with the remuneration of other executives in similar companies, not just in our own business, but across other businesses, other types of industries. Though that remuneration is consistent with the policy that we publish every year, we aim to remunerate it around the 75th percentile. Now we undertook a very detailed benchmarking exercise late last year, and the results of that benchmarking are the remuneration that we published for -- or informed the remuneration results that we published for Kevin for 2020. We think they're appropriate. Thank you.

Question, Chairman, from [ Bruce Sterling ]. Why do you propose TSR percentile ranking of 51% to receive 50%? Ranking of 51% should be needed to keep the job and receive the base salary. No vesting should be given below 75% percentile.

Thank you for your question, Bruce. I did mention earlier that we go through a benchmarking exercise when we do all this work. We also look at what other companies are doing. So the vesting schedule for relative total shareholder return components is very consistent with the typical market practice in Australia. The progressive vesting that we have between 51% and 76% is also supported by most investors and advisory firms. So we're very comfortable with the way that's been set up. Thank you.

Question from Mr. Daniel Joseph Gocher. Given the global carbon budget, why is 20% of the company's scorecard allocated to reserves and resources, i.e., encouraging exploration for further reserves that cannot be burned in a safe climate?

I think we've -- also in answering that question, I'd say that it's quite clear that our aspiration as an operator in Australia is to have 0 emissions from our operations. That's our aspiration by 2050. So we're very committed to that aspiration. We don't see that that aspiration precludes growth. All the forecast that we see from organizations such as the International Energy Agency and many others, shows that gas has a role to play in the future. And there is something significant. I think it's in the order of $13 trillion of investment required to actually address that in the future. So clearly, there's a demand in the future. Gas has a vital role to play in the transitioning to a lower emissions future. And we see that as not a conflict at all. Growing our business, putting more gas into the market, displacing more emissions intense fuels is a very strong way to go. Thank you.

Chairman, question from [ Mr. Stephen David Maine ]. What further changes will Santos make on remuneration in light of protests by shareholders? Which proxy advisers, besides ASA, recommended against the remuneration report or the LTI grant?

The proxy reports are available publicly for people to read, I believe, but I've been through them. As far as I'm aware, ASA were the only proxy adviser to recommend against the remuneration report. But I think -- let's just go through the process here and see how the votes come in. I'm unaware of the protests that you're talking about, quite honestly. And I think knowing what the results of the voting are, that's not reflected in the results. Thank you.

Chairman, there are no further questions on this resolution.

Okay. Well, that's a good segue into the next point, which is the results of the voting. The voting are: 97.91% for the resolution and 0.209% against the resolution. The resolution has been passed, and I'll now move to the next item of business. So item 4 relates to the grant of share acquisition rights to Mr. Kevin Gallagher, and this item asks shareholders to approve the grant of share acquisition rights to the Managing Director, Mr. Kevin Gallagher. A detailed explanation of this item is set out in the Notice of Meeting. While the performance measures are consistent with last year's grant, the performance levels to achieve full vesting of free cash flow breakeven point and the return on average capital employed components have been made more challenging to better reflect the significantly improved cost base of the business. To achieve full vesting, the free cash flow breakeven point must be equal to or below $30 per barrel of oil equivalent. That's over a 4- year period. The return-on-average capital employed must be greater than or equal to 140% of the company's weighted average cost of capital. Now these adjustments reflect our continued strong focus on costing, on improvement in productivity and commitment to capital discipline over the next 4 years. If the performance targets are achieved, then the key drivers for strong and reliable shareholder returns will have been delivered. The Board is confident that the targets for the CEO's share acquisition rights are aligned with shareholder interests. I'll now answer questions for this item of business. Tom, are there any questions on this item?

Chairman, there are no questions on this item.

Thank you, Tom. The results of the voting are: 97.89% for the resolution and 2.11% against the resolution. The resolution has been passed, and I declare that the grant of share acquisition rights to Mr. Gallagher has been approved. I'll now move to item 5, being resolutions requisitioned by a group of shareholders. The first of these is item 5(a), a special resolution seeking amendment of the company's constitution. This resolution proposes to insert a new provision in the company's constitution, which would enable shareholders by ordinary resolution to express an opinion, to ask for information or make a request about the way in which the management of the business and affairs of the company has been or should be execute -- exercised. The Board's response to this item and recommendation is to vote against this, and a response is set out in the Notice of Meeting. In addition to Santos' ongoing and regular constructive engagement with shareholders, shareholders already have the right under the Corporations Act to put effective resolutions to the meeting. The power to manage the business of the company is conferred upon the Board by the constitution. And it's important that the directors are able to make decisions using their professional expertise and business judgment about the affairs of the company in the interest of shareholders as a whole. Shareholders have the ability to hold directors to account for their decisions and actions by voting on the appointment and removal of directors. The Board, therefore, considers the resolution unnecessary and not in the best interest of shareholders. I'd now like to address the related agenda items, 5(b) and 5(c), which are advisory resolutions that can only be put to the meeting if resolution 5(a) is passed. Now Kevin and I have already spoken today on the progress Santos is making on our emissions reduction targets and the actions we're taking to address climate change. The Santos Board and management fully support the objectives of limiting global temperature increase to less than 2 degrees C by 2100, and we're committed to playing a meaningful role towards achieving this goal. As I reported earlier today, we have confirmed the resilience of our business under all International Energy Agency World Energy outlook 2018 scenarios, including the Sustainable Development Scenario. And that would limit global temperature increase to well below 2 degrees Celsius. However, the proponent of these resolutions does not support our company's growth strategy on the basis that continued investment in national gas development is not in line with the Paris Agreement goals. This claim is not supported by the International Energy Agency, which even under its Sustainable Development Scenario, forecasts that $13 trillion of new investment will be required in new oil and gas development globally by 2020. It says that without investment, the world could see energy shortages. The Board considers that, accordingly, the growth measures in the company's scorecard are demonstrably appropriate. The proponent of this resolution did not acknowledge that Santos has linked climate -- our climate-related performance to remuneration outcomes for members of the Executive Committee since 2019, and we're doing so again this year. Further, the Board is of the view that the company's targets for emissions reductions are consistent with global climate aspirations as set out in our 2020 climate change report. The use of LNG in Asian markets is contributing to relatively lower emissions in those economies by replacing coal. In Australia, natural gas is providing reliability to support greater deployment of renewables as older coal-fired plants are phased out. According to the IEA, without coal to gas replacement switching in 2018, particularly in the United States and China, global greenhouse gas emissions would have been 15% higher. It's sobering, indeed, considering the world's energy-related emissions hit yet another historic high in the same year. The proponent of this resolution claims that carbon capture and storage is not currently viable, yet Santos can deliver carbon abatement in the Cooper Basin very competitively at less than AUD 30 per tonne. Santos is working closely with the Australian government on its technology road map, which could accelerate the commercialization and deployment of carbon capture and storage technology in Australia. And we're working with government to develop a methodology that could enable CCS to generate carbon credits under the existing Clean Energy Regulation (sic) [ Clean Energy Regulator ] framework. I'd now like to make some comments about Scope 3 emissions, for which the proponent considers the company should set targets. I acknowledge that some companies already agreed to do this. Scope 3 emissions reporting, as it currently stands, assumes that all products are combusted as fuels, even though a proportion of Santos' products are used as feedstock. For example, ethane produced by Santos is used as feedstock in the manufacturer of plastic. Scope 3 emissions reporting also ignores the enormous tremendous benefits of natural gas in displacing coal, without which, as I said earlier, global emissions will be much higher. It's not our intention to set Scope 3 targets. We consider it to be in shareholders' best interest to focus our resources on reducing our Scope 1 and Scope 2 emissions in a sustainable and economic manner, producing natural gas to displace higher emission fuel sources and invest in realistic offset opportunities like carbon capture and storage. Accordingly, the Board does not consider the proposed resolution 5(b) to be in the best interest of shareholders. In relation to the proposed resolution 5(e) (sic) [ 5(c) ], Santos' position in climate change and energy is publicly available, and it's the position Santos takes in all public policy advocacy, including as a member of relevant industry associations. Consistent with the need for new investment in oil and gas as forecast by the IEA, membership of industry associations, such as the Australian Petroleum Production & Exploration Association is in the interest of the company and its shareholders. Santos supports the industry climate and energy positions that ensure that the international competitiveness of Australia's emissions-intensive trade-exposed industries such as LNG. The Board considers such policies held by industry associations such as the Australian Industry Greenhouse Network and the Australian Petroleum Production & Exploration Association, respectively, to be in the interest of the company. Kevin is now the Chairman of APPEA, and he was also the driving force behind the establishment earlier this year of the CO2CRC carbon capture and storage policy forum. This forum will work with governments and industry to progress policy settings and a regulatory framework to accelerate the deployment of CCS technology in Australia, which is vital to provide large-scale permanent carbon abatement. The forum's first meeting held in Canberra was attended by senior industry leaders and included engagement with the Federal Energy Minister, a shadow climate change and energy minister and a clean energy regulator. I note that the company also makes an assessment of the business appropriateness of ongoing industry association memberships as they come up for renewal annually. Accordingly, the Board does not consider the proposed resolution to be in the best interest of shareholders. I'll now take questions on this item of business as well as resolutions 5(b) and 5(c). Tom, are there any questions on these items?

Chairman, question from Daniel Joseph Gocher. Through the federal election last year, APPEA supported the use of Kyoto carryover credits, which will effectively reduce Australia's 2030 emissions reduction target by half. Does Santos support the Australian government's use of Kyoto carryover credits?

Thanks for your question, Dan. It's a question, I think, that was asked last year as well and the answer hasn't changed. The Paris Agreement is a series of commitments made by sovereign governments to achieve economy-wide emissions reduction targets by 2030. Santos will work constructively with the government of the day to play our part in achieving Australia's Paris targets and to help implement any future international climate agreements to which Australia is a party. International climate change agreements, including matters such as the use of the Kyoto carryovers, are matters for governments of the day and for parliaments to determine for Australia, not for Santos. Thank you.

Another question from Daniel Joseph Gocher. In recent years, the Queensland Resources Council has campaigned for the development of new thermal coal mines in the Galilee Basin and called for state and federal governments to underwrite new coal-fired power stations. Given Santos' claims about gas, does Santos agree with this advocacy?

The Queensland Resources Council represents members in the mining sector as well as the oil and gas sector. Just as mining companies don't participate in advocacy on gas industry issues nor does Santos as a gas company participate in advocacy on coal industry issues.

Chairman, question from the Australasian Center for Corporate Responsibility. A sustainable development scenario to justify the expansion of gas production. Given that the scenario relies quite heavily on carbon capture and storage, CCS, can the Board confirm how much Santos will spend on proving the viability of CCS in 2020 and over the next 5 years? How does this spend compare to other planned expenditure?

Okay. So we're proceeding with CCS at a pace appropriate for the development of a project in the same way that we would approach any other project. We're going through the normal discipline that makes Santos the company that it is. So we've gone through an initial phase which was sort of appraisal. We drilled 2 wells last year. And I mentioned earlier, we'll be looking at injectivity tests this year. We're now moved into the FEED phase. And later this year, when that's completed, we'll be potentially at a point where we can make a decision about going to the next phase, which would be investment. I think the cost this year of our FEED phase is around $10 million. Well, I think we spent around $20 million last year on wells. When we come to the actual investment on a carbon capture and storage plant, we talk -- the scale of the plant is yet to be decided by the FEED work. We're actually doing design on a 1.7 million tonne per annum plant, but the initial phase may be something in the order of 300,000 tonnes per annum initially. And again, in a cautious way, that will kind of buildup. What the actual capital of that is at the moment, I can't really tell you, quite honestly, because the work has not been completed, but I suspect it will be in the hundreds of millions of dollars. But look, until that FEED work is completed, and the whole purpose of FEED is to do things like what's the design, what are the specifications, what the materials we use, et cetera, et cetera, and what are the costs and what's the schedule, all that comes out of that piece of work. And we'll be in a position to advise you on that at the end of this year. But just to reinforce, this is a really exciting opportunity for the company. We could -- in this current environment, you could have regarded some of these things as discretion. We haven't. This is a core piece of business. We see this as vital to the company's sort of future. And therefore, that work was not even considered for deferment when we were looking at cost reduction opportunities on the 23rd of March. Thanks, Tom. Any further questions?

Chairman, a question from [ Lynn Barrington ]. Why has Santos chosen to join the bandwagon of climate change believers and reject the science of many thousands of scientists worldwide who do not support anthropogenic warming claims. The climate has always changed, with or without man. Events such as the eruption of Mount Tambora, a solar minima, and variations in the output of the sun have had a far greater effect on world temperatures. Many Australians, including shareholders, consider this to be a stupendous amount of money being thrown at a problem that can't be fixed, to quote from David Bellamy, internationally renowned naturalist. Surely, there are less wasteful ways of spending funds to the financial benefit of the company.

Well, thank you for your question. Look, I mean, Santos, we're very clear that we do support the science of climate change. And we have set ourselves an aspiration of to be a net zero emitter from our operations in Australia, an aspiration to be a net zero emitter by 2050. That said, the initiatives that we are pursuing are typically kind of value-adding initiatives. With creativity in this space, we see opportunity. So CCS, for example, we see potentially as being able to generate a revenue stream for us in the future as the Cooper Basin could potentially become a hub. Kevin mentioned earlier about potentially how other industries such as cement, iron smelting, power generation may well be given opportunities then to dispose of their emissions. And this generates for us a new revenue stream. So we're approaching the whole thing as it's an opportunity rather than a burden on the business, and we're progressing with that intent. But we certainly support the science of climate change, and we believe that the sort of things we're doing -- even CCS, if we look at it at the kind of prices that we're targeting to do injection in the Cooper Basin, we think we can do it for around $30 a tonne of CO2. But with scale and with time and with Santos' disciplined operating model, we're confident we can bring that even lower, potentially down to even $20 a barrel -- $20 a tonne. And if you start to compare that with the current price of carbon in Australia, which I think is around $16, we'll compare it with the cost of carbon in Europe, which is in euros, I think, up around EUR 17, we're potentially on a business here that could add value, not be a burden on our business.

Chairman, question from [ Ms. Joanne Marie Gocher ]. The opportunity to inject CO2 at Moomba may exist and will affect the cost of gas, as this is not a cheap exercise. Has Santos costed the impact of injecting currently vended Moomba CO2 on the cost of East Coast gas supply?

Thanks. That's a good question. I think one thing that sort of sets Moomba apart as a place to start with CCS is that we actually have a source of CO2 at Moomba. So the capture elements are already in place. So we're really looking now at really transporting to the fields where we'll be storing the CO2 and injection. So it actually makes it a relatively kind of low-cost potentially project compared to one where you're looking at, say, a power plant where you have to build a carbon capture plant. We already have those sort of things in place. So that's one thing I'd say for start. Look, we don't see this as adding to the price. The price in the market is actually set by supply and demand. And that's really the sort of issue. Supply and demand balance sets market price. So we think CO2 injection at Moomba can still provide a very competitive certain carbon abatement option through the existing Clean Energy Regulation (sic) [ Clean Energy Regulator ] framework. At AUD 30 a tonne, the cost is higher than the clearing price, which I think today is $16. However, we believe with scale and with experience, we'll be able to drive that down to below -- or down to around $20 per tonne. And we're excited about the Australian government's technology road map which will look at policy options to commercialize and to accelerate deployment of CCS. Carbon prices in Europe, even at the current economic environment, are substantially higher than the cost of Moomba carbon abatement, between EUR 16 and EUR 17 per tonne. So in the future, those international markets may also offer a revenue source. Thank you.

Chairman, question from [ Dr. Diana Lynne Sainsbury. ] I understand the asset values in the financial statements are based on Santos' base case scenario, and the company's strategy and CapEx decisions also based on that same scenario. The scenario analysis disclosed in our Climate Change Report says the base case is aligned with Australia's current emissions reduction policy, which is consistent with around 3 degrees C of global warming. So if the company's asset valuations and strategy are consistent with a 3-degree C warming outcome, how does this square with Santos' policy commitment to support the objective of limiting global temperature rise to less than 2 degrees Celsius?

Well, firstly, the Paris Agreement, to which Australia is a signatory, aims to limit global temperature rise to well below 2 degrees C, above pre-industrial levels and to pursue efforts to limit temperature increase to 1.5 degrees C. So through our policy -- through our climate change policy, we recognize the science of climate change, as you said, and we support the objectives of limiting global temperature rise to less than 2 degrees C. In our Climate Change Report, we published modeling of our portfolio under the IEA's 2018 scenarios, including their Sustainable Development Scenario, where the expected temperature rise was in the order of 1.7 to 1.8 degrees by 2021 -- 2100. So basically, that's consistent with the global goal to limit temperature rise to well below 2 degrees C. So in developing our future climate change reports, we'll continue to review the latest scenarios that are publicly available, and we'll be able to update our models accordingly. But we think we're quite consistent, and we're able to pursue our agenda in that sustainable development scenario, which is consistent with the Paris objectives and beyond. Thank you.

Chairman, there are no further questions on this resolution.

Thank you, Tom. The results of the voting are: 6.8% for the resolution 5(a) and 93.32% against the resolution. The resolution has been rejected. Accordingly, items 5(b) and 5(c) will not be put to the meeting. However, in the interest of transparency, I'll now read out what the voting outcomes would have been if the proxy votes lodged in relation to items 5(b) and 5(c) had been cast. The results for item 5(b) would have been 43.39% for the resolution and 56.61% against the resolution. The results for item 5(c) would have been 46.35% for the resolution and 53.65% against the resolution. Although the resolutions would have been rejected if put to the meeting, it's clear that climate change is a very important issue for our shareholders, and it's something that's personally important to me. Our company is already taking industry-leading action towards emissions reduction, and we'll continue to engage constructively with shareholders on climate change and work towards our shared aspiration of net zero emissions by 2050 over the coming year. Ladies and gentlemen, that completes the formal items of business for the 2020 Annual General Meeting, and I now declare the meeting closed. I thank you for your time, for your questions and for your continued engagement and support in these challenging times for everyone. In closing, please follow the public health advice in relation to social distancing and hygiene. And together, I'm sure Australians will beat COVID-19. Thank you.