Santos Limited (STO) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen, fellow shareholders. Welcome to the 2021 Annual General Meeting of Santos Limited. My name is Keith Spence, and this is my fourth Santos AGM after a very challenging year faced by Santos and communities all over the globe. Despite the difficult conditions and lower commodity prices, Santos has delivered another year of strong financial results. I have more to say on that later. With COVID-19 still an ongoing health concern and the uncertainty surrounding interstate travel, this year's meeting is again being conducted with the assistance of video and teleconferencing. Today, we're webcasting the entire meeting live, and shareholders and proxy holders are able to participate online in real time. A recording of the webcast will be made available on our website after the meeting. Every effort has been made to ensure that this runs smoothly for our shareholders. If you're experiencing any difficulties, please refer to the Annual General Meeting online user guide on the AGM page of our website at www.santos.com or call the number shown on the slide. I confirm that a quorum is present, and I now formally declare this meeting open. I'm speaking to you from Adelaide in South Australia, and I'll begin by acknowledging the traditional owners of the land, the Kaurna people. I pay my respects to their elders, past, present and emerging. Others participating in the meeting 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 we operate and thank them for their involvement in our industry. Let me commence our business for today with some introductions. Firstly, members of the Santos Board joining me in the room are the Managing Director and Chief Executive Officer, Kevin Gallagher; and non-Executive Directors, Hock Goh; Yasmin Allen; Peter Hearl, Guy Cowan and Vanessa Guthrie. Joining us on the call from the U.S. is non-Executive Director, Janine McArdle. Also present is Amanda Devonish, our Company Secretary. And on the call is Russell Curtin, representing our Auditor, Ernst & Young. A number of our executives are either present in the room or on the call. James Murphy, our Manager of Media and Communications also joins me in the room and will assist with the Q&A session by reading out the questions that are submitted in writing via the Lumi platform. Now to allow everyone participating in the meeting an opportunity to vote, I open the polls in respect of all motions that shareholders will vote on today. I invite you to start submitting your votes from this point onwards in the meeting. You don't need to wait until a relevant item of business, if you wish. To ensure there's sufficient time for all votes to be cast, the polls will close 10 minutes after the conclusion of today's meeting. Please note that Resolution 6(b) will not be put to a vote because it's contingent on Resolution 6(a) being passed. It's clear from the proxy instructions received that Resolution 6(b) -- 6(a) will not be passed. Shareholders and proxy holders can vote via the Lumi platform by clicking on the bar chart icon. Select the option corresponding to the way you wish to vote. Once the option has been selected, the vote you selected will appear in blue. To change your vote, press a different option to override. Votes can be changed up until the time the polls are closed. It's not possible for shareholders and proxy holders to vote using the teleconference facility. Any shareholders and proxy holders using this facility are advised to use the Lumi platform to submit their votes. Now as advised in the notice of meeting, I will vote all available undirected proxies in favor of all Board recommended resolutions, that is 2(a), 2(b), 3, 4 and 5, and against Resolution 6(a) and 6(b), which was requisitioned by a group of shareholders. Please note that Resolution 6(c) set out in our notice of meeting was requisitioned by a group of shareholders, and those shareholders have withdrawn the resolution from the meeting, as has been previously advised to shareholders via the ASX. As such, voting will not be available on this resolution. I'll display the proxy voting outcome for each item of business after I address that item. The formal results of the poll will be notified to the ASX after the meeting and will be posted on the Santos website. I'll commence our business today with my report to you covering the results in 2020 and our priorities for 2021. Please note that the values referred to are in U.S. dollars, unless otherwise stated. On behalf of the Board, I'd like to acknowledge the strong delivery of everyone at Santos throughout 2020 under the leadership of our Managing Director and CEO, Kevin Gallagher. Before I turn to my report for 2020, I want to acknowledge the difficulties that are currently being faced by communities in Timor-Leste as a result of both the devastating floods and an increase in COVID cases that couldn't come at a worst time. Santos is providing assistance to relief efforts, and our thoughts are with our Timorese workforce and with their families as well as the broader community. Similarly, communities in Papua New Guinea are also facing an increase in COVID cases. And again, through the PNG LNG joint venture, we're providing direct support to the PNG government to assist in responding to the health crisis and to support local communities. Turning to my report on the 2020 year. Santos has achieved another strong set of financial results, as the company has navigated successfully and safely through the uncertainty and global economic impacts of a 1 in 100-year pandemic. Notwithstanding the challenging external conditions, Kevin and his team have continued to build a low-cost, reliable, high-performance business to drive shareholder value. With the balance sheet remaining strong, the Board was able to declare a final dividend of USD 0.05 per share fully franked, in line with the previous year's final dividend. This brings full year dividends to USD 0.071 per share, fully franked, representing 20% of free cash flow. Despite significantly lower oil and LNG prices compared to the previous year, Santos continued to generate strong free cash flow of $740 million in 2020. Kevin will go into the year's operational and financial performance in detail, but I'm pleased to report that a highlight of 2020 was record annual production of 89 million barrels of oil equivalent and sales volumes of 107 million barrels of oil equivalent. Our underlying profit was $287 million, and the reported net loss after tax of $357 million includes impairments that were primarily due to lower oil prices. These results once again demonstrate the strength of our strategy and the resilience of our cash generative based business at the bottom of the oil price cycle. Santos is a very robust business with no employees laid off last year due to the COVID impacts. The ability to retain our skills base and corporate knowledge throughout the price cycle, combined with the cultural traits of innovation, flexibility and adaptability that were demonstrated by our people last year is a real competitive advantage for our company. The improvements in our base business in recent years were perfectly illustrated in 2020, with an average realized oil price of $47 per barrel, generating more than 3x the free cash flow that was generated in 2016 at a similar average oil price. When I addressed you last year, we delayed a final investment decision on the Barossa gas project offshore Northern Australia, so as to protect our operating cash flow and our balance sheet, with the impact of the pandemic very much unknown and uncertain at that time. As you'll have seen, we've now sanctioned the $3.6 billion Barossa natural gas and condensate project. The Barossa final investment decision has also paved the way for the $600 million life extension of Darwin LNG for the next 20 years. This follows the successful completion of our purchase of ConocoPhillips Northern Australia and Timor-Leste business in May 2020, which enabled Santos to become the operator of the Barossa gas project and Darwin LNG. These were important milestones for Santos and will deliver long-term value for our shareholders. At last year's AGM, I announced the delay to any farm-in to P’nyang and PNG LNG expansion. While PNG is a high-performing, low-cost asset in our portfolio, it's had some short-term challenges, including government policy uncertainty and the impact of COVID over the past year. A farm-in to P’nyang is still a work in progress and would now likely backfill the existing 2 trains at PNG LNG. Nonetheless, PNG LNG continues to be a high-quality asset that achieved record production in 2020 and will deliver value for our shareholders over the long term. Last year, I advised that GLNG production was expected to reach 6.2 million tonnes per annum in 2020. While LNG production was down as a result of lower buyer nominations during the pandemic, GLNG achieved a $6 million -- sorry, 6 million tonnes of LNG production and recorded upstream production in -- record upstream production in 2020. GLNG is expected to achieve a run rate of 6.2 million tonnes per annum from 2021 onwards. In 2019, in the Cooper Basin, we drilled 115 wells and delivered 183% reserves replacement ratio. In 2020, we drilled less wells, 87, but we delivered high production, an extra 1 million barrels of oil equivalent per year, and our reserves replacement ratio continues to be positive at a rolling 3-year average of 69%. Last year, I reported to you that we expected a decision on the Narrabri Gas Project in 2020. I'm pleased in our report that the New South Wales Independent Planning Commission approved the development last September, and it was signed off by the Federal Government Minister in November. I'd like to thank the Narrabri community for their strong support for Santos right through this multiyear process. We are looking forward to be able to commence appraisal phase of the project, which will bring investment, jobs and business opportunities to the local area. However, there's still some way to go with federal government policy uncertainty and an appeal against the project approval to be heard in the New South Wales Land and Environmental Court over 3 days from the 30th of August. Last year, testing at confirmed a good gas discovery at Tanumbirini 1 in the Northern Territory's Beetaloo Basin, but we had to pause further exploration due to the pandemic. So I'm very pleased to report that we will soon be mobilizing a drilling rig to Tanumbirini station to recommence exploration, and we're hopeful that our drilling program at Tanumbirini and Inacumba well locations this year will be successful. In Western Australia, we completed appraisal of the Dorado field in the Bedout Basin. During 2020, we continue with pre-front end engineering and design activities, and we expect to make a FEED decision for Dorado development later this quarter. Seismic process confirmed 2 high-graded prospects, which could be tied back to Dorado development, Pavo and Apus, and we expect to drill these prospects late this year or early next year. The WA gas business, which supplies around 40% of the state's domestic market, performed well with higher gas production and sales volumes year-on-year. Importantly, our WA gas business also provided strong cash flows and sheltered the business from oil price volatility during the pandemic. At last year's AGM, we just released our third annual climate change report, confirming the economic resilience of our business against all international energy 2018 scenarios and good progress against our medium-term targets. In December last year, we set a higher ambition for our operations to be net 0 emissions by 2040, and our fourth annual climate change report released in February outlines a tangible plan to achieve this. We want to do this in a way that adds value to Santos, whether that be through carbon trading or through our unique advantage of having depleted oil and gas reservoirs and existing infrastructure where we can provide permanent CO2 sequestration for other emitters as well. We set a new target to reduce our Scope 1 and 2 emissions by 26% to 30% by 2030 compared to 2020, in keeping with Australia's commitment under the Paris Agreement. We also are committed to actively working with our customers to reduce their Scope 1 and 2 emissions by more than 1 million tonnes of CO2 per year by 2030. I'm pleased to report we remain ahead of the progress needed to achieve our medium-term targets, and the company's overall Scope 1 emissions intensity continues to trend lower. In 2020, we injected successfully 100 tonnes of carbon dioxide deep underground into the depleted Cooper Basin gas reservoirs as part of the final field trial for the Moomba Carbon Capture and Storage Project. Our focus on a step change in emissions reductions technology over the last few years has paid off, with our $155 million Carbon Capture and Storage Project at Moomba now ready for final investment decision. The 1.7 million tonne per annum project is waiting on a methodology to be approved under the Clean Energy Regulator's framework, so these CCS projects can generate Australian carbon credit units. We anticipate this will be in place by September this year, paving the way for what will be the second largest and lowest cost CCS project in the world. We're also looking at further CCS opportunities as well as high-quality nature based offset opportunities across the business, and I'm sure I'll have more to report on that next year. Now climate change is 1 of 7 sustainability pillars at Santos, and I'm pleased to report that yesterday, we released our 2021 Sustainability Report covering our aspirations and targets and performance across all 7 pillars. Those pillars being economic sustainability, health and safety, climate change, environment, community and supply chain, indigenous partnerships and people and culture. The unrelenting focus of Kevin and his team on our strategy to transform, build and grow around our core assets and on implementing our disciplined low-cost cash-generative operating model truly delivered for the company in 2020. The resilience of the strategy and the operating model was demonstrated in spades, as the company weathered extraordinary market conditions brought about by the global pandemic. The free cash flow breakeven price for 2020 before hedging was $24 a barrel, and it's expected to remain at less than $25 per barrel this year. As a result, Santos has strong operating cash flows, and our balance sheet remains strong, positioning the company well to take advantage of growth opportunities that emerge as the global economy recovers. All of this has been achieved while protecting our people, our sites and our business. I congratulate Kevin and the entire Santos team on keeping our facilities COVID-free throughout 2020. It was a year that shaped and strengthened the organization's resilience, innovation, flexibility and adaptability, attributes that bode well for Santos' future. I do want to take a moment to paint a small picture for you of the personal challenges our people have faced in maintaining vital energy production and keeping our people COVID-free. Many of our people have been away from their families and friends for extended periods of time, up to 10 months in some cases. They not only work longer rosters. But sometimes, they face both isolation requirements before their roster and then quarantine on their return. This has put a great burden on families, and I want to thank families for their understanding and support during this difficult time. I also thank my fellow Board members for their resolve and commitment to Santos over the past year. And my sincere thanks to you, our loyal shareholders, for your patience and confidence in the company over recent years. Now before I hand over to Kevin to give you his report, I'd like to provide you with further details on the CEO growth projects incentive arrangements announced on Monday. Since 2016, Kevin has led a very successful turnaround of Santos, and he's well recognized as one of Australia's leading Chief Executives with a proven track record of delivering value for shareholders. Santos is now moving into a growth phase that includes the development of major projects such as Barossa, Dorado and the Moomba Carbon and Capture Storage Project. The Board sees Kevin as critical to driving the implementation of the company's growth strategy over the next 5 years. Over the last 6 months, Kevin and I have been discussing a framework to ensure that he remains properly incentivized to continue as CEO and to deliver the growth strategy through to 2025. Accordingly, the Board has approved the following growth projects incentive for the CEO. This special one-off award recognizes the importance of Kevin's role in these materially transformative initiatives for the sustainable future of Santos. The incentive will be delivered in the form of Santos share acquisition rights with a maximum value at grant of AUD 6 million, assuming full vesting, which will be subject to strict performance hurdles that relate to milestones for the Barossa and Dorado growth projects and milestones for the carbon-neutral plan that will underpin the company's sustainable future and also continued employment with Santos at 31st of December 2025. When amortized over almost a 5-year vesting period, the CEO's total remuneration opportunity will be just below the 75th percentile of a peer group of companies that are comparable to Santos in terms of size, capital intensity and operational complexity. This marketing positioning is commensurate with the CEO's performance and experience. Therefore, the Board considers the quantum of this one-off incentive to be reasonable. Vesting awards will be settled in Santos shares or cash settled at the discretion of the Board. Santos will seek shareholder approval for the issue of shares to satisfy vested awards at the 2022 Annual General Meeting, and we look forward to engaging with advisers on the details of the incentive and performance hurdles. I'll now hand over to Kevin. Thank you.

Thank you, Keith. I, too, acknowledge the traditional owners where we meet the Kaurna people and the 21 traditional owner groups who we work with in our operations around Australia. Honoring the many indigenous land use and cultural heritage agreements we have in place and working together to review them over the life cycle of our operations, so that we protect traditional lands and culture is very important to all of us at Santos. Indigenous partnerships are a key pillar of our sustainability agenda, and I encourage you to look at our 2021 sustainability report released yesterday on our website. We are committed to continually making progress on the aspirations and targets that we have set for each of our sustainability pillars and maturing the way in which we report. This includes improving our reporting on the level of investments we are making in emissions reduction and growing our clean fuels capability to ensure our business is sustainable over the long term. While we have achieved much on our transformation journey over the last 5 years, the job is not yet done. We have stabilized the business and positioned Santos strongly to take advantage of opportunities as the economy recovers. Now as we move into our growth phase, I will continue to drive a laser focus on costs and on implementing our disciplined, low-cost operating model to drive shareholder value. Sticking to our strategy of building and growing around our 5 core long life natural gas assets and living our values to pursue exceptional results and build a better future is equally important. There is no doubt that 2020 was a challenging year. As the pandemic swept across the world, global demand for oil and LNG plummeted. Oil prices turned negative for the first time in history. In the face of such uncertainty, Santos responded quickly to maintain production and to keep our people safe. As you would have seen in the video, the task of managing COVID across all of our work sites was enormous, as we implemented social distancing measures, rosters and arrangements to minimize travel, increased hygiene and many other initiatives to keep our people healthy. Pleasingly, we also saw in 2020 a continuing strong and improving trend in our safety metrics. Our lost time injury frequency performance improved yet again, and our injury severity has declined over the past 4 years. We are very focused on ensuring the lessons from safety incidents are learned across the organization and that we continue to drive moderate harm incidents lower year-on-year. Despite the external challenges of 2020, I am very pleased to present another strong set of financial results. For the year ended December 2020, Santos reported record annual production of 89 million barrels of oil equivalent and sales volumes of 107 million barrels of oil equivalent, free cash flow of $740 million and underlying profit of $287 million. As a result of lower oil and LNG prices, it was necessary to impair certain assets, which resulted in a net loss after tax of $357 million. We maintained operating discipline. And unit production costs in our base business, excluding the ConocoPhillips acquisition, were 10% lower year-on-year. As a result, we were able to deliver a full year dividend of USD 0.071 per share, representing a 20% payout of free cash flow to shareholders. This strong operating performance, combined with cost-outs and efficiencies, delivered a free cash flow breakeven oil price of $24 per barrel, less than half of our breakeven oil price in 2016 when we started our transformation. As a result, at a similar average oil price in 2016, free cash flow was $0.5 billion stronger in 2020 than it was back then. This is real value for our shareholders, with these results demonstrating the resilience of our cash-generative base business in a lower oil price environment. In 2021, we are targeting a free cash flow breakeven oil price around the same level as 2020, and this means that for every $10 per barrel increase in oil price above breakeven, the business will generate $330 million in free cash flow in 2021, which, at current oil prices, would put us on track to generate over $1 billion in free cash flow for the year. Throughout 2020, we continue to progress our major growth projects, while maintaining capital discipline and flexibility in commitment timing. This enabled Santos to make a final investment decision for the $3.6 billion Barossa natural gas and condensate project in March this year. Pleasingly, we have sold 80% of our equity LNG volumes from Barossa, which will be one of the lowest cost LNG supply projects in the world. It is Australia's biggest single investment in oil and gas sector since 2012, and the decision paves the way for the $600 million life extension of Darwin LNG for another 20 years. The Santos operated Darwin LNG plant has the capacity to produce around 3.7 million tonnes of LNG per annum. And with scope for another 2 trains, Darwin is set to become the next LNG hub that will enable the development of significant gas resources across the region, both onshore and offshore. I'm very proud that Santos has made such a strategic, value-creating investment decision for shareholders and for the Northern Territory and the nation. In the meantime, I am also pleased that we have secured support from the Timor-Leste government and our joint venture partners in Bayu-Undan for our Phase 3C infill drilling program that, if successful, will extend Bayu-Undan production for longer, as we progress with the Barossa development. In Western Australia, the Dorado oil and gas project will enter front-end engineering and design this quarter, and the Narrabri Gas Project in New South Wales is now approved and ready for appraisal phase activities to commence. I am also looking forward to taking a final investment decision on our $155 million Moomba Carbon Capture and Storage Project in the second half of this year, as we continue to deliver on our commitment to decarbonize our existing business and grow our clean fuels capability to achieve net 0 emissions by 2040. We are technically ready, but an approved methodology for CCS projects to generate carbon credits is essential to make the projects stack up economically, with the cost of abatement still at AUD 25 to AUD 30 per ton. Just as Barossa will lock in Darwin LNG's future and the jobs attached to it for another 20 years, a final investment decision for Moomba CCS will breathe new life into the Cooper Basin. This will underpin its transition into a clean fuels hub for decades to come, protecting hundreds of jobs. Through our strategy and operating model, we've been able to grow the business and take advantage of on-strategy acquisition opportunities to increase production by more than 50% since 2015. In 2020, production was higher in all 5 core assets. In Western Australia, production was up due to strong domestic gas volumes, which more than offset the Ningaloo Vision, FPSO being mostly offline for maintenance. I'm pleased to report that Ningaloo Vision is now back in production, and Phase 2 infill drilling of the Van Gogh field will commence this quarter. The Cooper Basin and Queensland delivered stronger production and increased reserves for less CapEx than the prior year. Northern Australia production was significantly higher, following the ConocoPhillips acquisition and Darwin LNG operated at higher rates, shipping the largest LNG cargoes in its history to capitalize on stronger prices at the end of the year. With Exxon as a high-quality operator and valued partner, PNG LNG continues to perform well, delivering record annual LNG production and shipments. One of Santos' core strengths is our diversified and balanced portfolio of conventional and unconventional assets, providing stable production for the next decade before any major growth projects. All of our assets have margins of greater than 40%, and all are free cash flow positive at an oil price of less than $35 per barrel, highlighting the value of the balanced nature of our portfolio. 2020 also saw us drive focus on our midstream infrastructure assets to realize cost-outs and operating efficiency benefits. Santos operates a unique portfolio of strategic midstream infrastructure assets, generating around $400 million in EBITDA per annum. This infrastructure mindset has already delivered synergy gains across the Cooper Basin, with 14% processing cost reductions and improved asset utilization. We are now applying these learnings to other infrastructure assets across the portfolio and are targeting a further 30% reduction in processing costs or $60 million net per annum by 2025. Ultimately, this provides optionality for future funding and equity levels across the assets, while maintaining operatorship and control. In a world that is demanding a lower carbon future faster, 2020 was also a year to drive focus on decarbonizing our business and growing our clean fuels capability. In 2018, Santos is one of the first companies in our industry to state an aspiration to achieve net 0 emissions by 2050. In 2020, we raised the bar yet again, setting our new target to achieve net 0 by 2040. As reported in our fourth annual climate change report this year, we are ahead of our emissions reduction targets and have a detailed and credible roadmap to achieve net 0 by 2040 through a combination of large-scale carbon capture and storage, including our proposed Moomba project; nature-based offsets, such as our world-leading West Arnhem Land Fire Abatement program; increased use of renewables and energy efficiency across our operations; and a focus on new clean fuels opportunities, such as carbon neutral LNG cargoes and hydrogen. The roadmap sets out a market-led energy transformation towards cleaner fuels and net 0 emissions by 2040. Importantly, we see this as a business opportunity, not a cost. In 2040, the IEA forecast natural gas will still account for around 25% of final energy demand. Today, fuels account for around 80% of final energy consumption, with electricity making up the remaining 20%. So natural gas will continue to have a leading role to play in reducing carbon emissions by providing cleaner fuels to the industrial and transport sectors for decades to come. And even in the international Energy Agency's net 0 by 2050 scenario, the world still needs more investment in upstream oil supply. Globally, the timing of a 0 emissions energy transformation will, in my view, be driven by how quickly our customers evolve. Our strategy is to evolve with them as they continue to switch from coal to gas and demand more carbon neutral LNG cargoes and 0 emissions fuels, such as hydrogen. Santos has the skills, the capabilities and the infrastructure and access to natural resources to be a leader in providing the 0 emissions fuels of the future, with CCS the key to achieving our medium-term targets. Our unique competitive advantage for CCS in the Cooper Basin sets Santos apart from our peers. We already have a relatively pure CO2 stream at Moomba, meaning much of our carbon is already separated and doesn't require the technology that is needed for post-combustion capture. We have a strong infrastructure footprint in the Cooper, on which we can build and leverage our low-cost operating model. And we have depleted reservoirs, which have a demonstrated ability to safely store hydrocarbons for tens of millions of years. Initially, it is planned to store up to 1.7 million tonnes of CO2 per annum, but the basin has the capacity to store up to 20 million tonnes of CO2 per annum. As I have said many times, CCS is also the fastest and most efficient route to a hydrogen economy, using less water, decarbonizing natural gas at its source and eliminating Scope 3 emissions. Today, Santos could deliver hydrogen for around AUD 2 per kilogram. That is the Australian government's 2030 target, and we are already there. But we won't set the time frame for hydrogen. That will be set by our customers. In closing, we continue to stick to our proven strategy to transform, build and grow around our 5 core long-life natural gas assets and to implement our disciplined low-cost operating model, an operating model that has proven its value by delivering consistent results, keeping the business resilient and performing strongly, despite challenges thrown at us in recent years, that include 2 oil price crashes; government intervention in the domestic gas market, which continues to be a concern today; a major earthquake that impacted our PNG operations; a takeover approach in 2018; and, of course, a 1 in 100-year pandemic. Despite all of this, our portfolio continues to generate strong free cash flows, maintain the strength of our balance sheet, provide dividends to shareholders, and we are now very well positioned to fund our growth as demand recovers and oil prices improve. As Keith said, the last year has fostered resilience, innovation, flexibility and adaptability in our people right across the business, and I thank all of them and their families for the contribution to our 2020 achievements. These attributes are a great competitive advantage for Santos and the global energy transformation that is rapidly occurring, and as we set ourselves up for a world-leading clean fuels company for the future. Thank you. I will now hand back to Keith.

Thank you, Kevin. Ladies and gentlemen, we now come to the formal business of the meeting. The notice of the meeting is being distributed to shareholders, and I will take that as read. I'll address each agenda item in turn, and the proxy voting outcomes for these items will be shown on the screen. There will be an opportunities for questions to be asked on all items of business. I'll now outline the procedures for asking questions at today's meetings. All questions should be addressed to me as the Chair. [Operator Instructions] It's my duty today to ensure that shareholders as a whole have a reasonable opportunity to ask questions about or comment on the management of the company, the remuneration report and other items of business on the agenda. To ensure that as many shareholders as possible have a chance to ask a question, I ask that you keep your questions short and to the point. Questions submitted online may be answered in a group, if there are multiple questions on the same topic. For shareholders using the teleconference facility, you will have the opportunity to ask one question. If you have further questions that you've not been -- that have not been addressed, you may call again and rejoin the queue, and we'll return to your call if time permits. As our time is limited, it's possible that not all questions will be answered. In order to best manage the interface between the Lumi platform and the teleconference facility, and to streamline the Q&A process so that as many questions as possible can be answered, we will take questions and comments on all items of business in a single Q&A session. During the Q&A session, we'll first address questions submitted in writing by the Lumi platform, and then we'll take questions from the teleconferencing facility. And after that, I'll make my closing remarks. I note that we've received a number of questions from shareholders prior to the meeting, some of which have been addressed in mine or Kevin's earlier comments. The questions we received were mainly about climate change issues, such as emissions reduction targets, and the company's position on entry into the renewable sector and issues relating to growth projects and debt management. In relation to questions regarding impairments, capital expenditure and the cost of debt, I make the following comments. First, 2020 was an extraordinary year with record low oil prices, and we revised our long-term oil forecast accordingly, leading to the need for asset impairment, in line with Australian accounting standards. Secondly, through 2025, our sustaining capital will continue to be in the order of $900 million per annum, in turn, delivering stable production over the same period. And finally, the group's weighted average interest rate was 4.7% for 2020, and I'm very pleased to report that we continue to hold an investment-grade credit rating. Now let's proceed to the first item of business,, to receive and consider the financial report, the Director's report and the auditors report for the year ended 31st of December 2020. I now lay before the meeting the financial report, the Director's report and the auditor's report for the financial year ended 31st of December 2020. I note there is no formal resolution for this item of business. Rather, it gives shareholders an opportunity to ask questions about the Santos Group and its operations. 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. As I mentioned earlier, the opportunity to ask questions on all items of business will be held after I've addressed each item of business. I encourage you to submit your questions now in readiness for the Q&A session. The next item of business is item 2, the election and reelection of Directors. As my reelection is the next item to be put to shareholders, I'll ask my fellow Director, Hock Goh, to chair the meeting for this item. Hock?

Thank you, Keith, and good morning, ladies and gentlemen, and fellow shareholders. Keith Spence was appointed to the Board on the 1st of January 2018 and elected as Chair on the 19th of February 2018. He was last up for election at the 2018 AGM and in accordance with the constitution retires by rotation. Being eligible, Keith offers himself for reelection. in addition to his role as Chair of Santos Board, Keith is Chair of Santos Finance Limited and Chair of the Nominations Committee. Further biographical details are contained in the notice of the meeting. The Board, with Keith abstaining, recommends that shareholders vote in favor of Keith's reelection. I'd now like to invite Keith to speak to his reelection. Keith, please?

So thank you, Hock. Ladies and gentlemen, I'm honored to have been nominated by your Board for reelection as one of your non-Executive Directors. If reelected, I'll continue to represent you, my fellow shareholders, and to act in your best interests and in those of the company as a whole. I'm delighted that over the last 3 years, we have, as a Board, restored sustainable dividends to shareholders and put in place a dividend policy to return in the range of 10% to 30% of free cash flows each year. We've been able to do this only because, together with Kevin and his team, we've built a very resilient company that, as demonstrated in 2020, can deliver strong financial performance at very low commodity prices. I'm also proud of our roadmap to achieve net 0 emissions by 2040, which secures the long-term sustainability of our oil and natural gas production and our future as a clean fuels company. As you know, I bring to the Board more than 40 years of experience in the oil and gas industry, spanning exploration and appraisal, development, construction, operations and oil and gas marketing. My professional discipline as a geologist and geophysicist remains just as relevant today as our company moves into carbon capture and storage, which is fundamental to our clean fuel strategy and the sustainability of Santos in a low-carbon world. My Board experience complements my executive experience and covers both listed and government sectors across critical minerals, education and training, electricity generation and retail, offshore oil and gas regulation, geothermal energy and carbon capture and storage. I think, as a result, I bring to the Board the capability to continue the strengthening of the company's balance sheet and to return value to you, our shareholders. My experience puts me in a strong position to steer both our disciplined growth over the next few years and the innovation required for us to implement our roadmap to net 0 emissions by 2040 in a way that adds value to our company, not cost. I serve on the Board of 2 listed companies in the critical minerals sector, and I confirm that I have the time to dedicate to Santos in fulfillment of my role as a Director. I undertake to serve you to the best of my ability. Thank you.

Thank you, Keith. Shareholders will now have the opportunity to ask questions in relation to the item during the Q&A session. I would like to remind shareholders, who have not yet cast their votes on the resolution, the voting on this resolution and all other items is open. Voting will remain open until 10 minutes after the conclusion of the meeting. The results of the directed proxy voting are 97.83% for the resolution and 1.97% against the resolution. The directed proxy results indicate that the resolution will pass and I congratulate Keith on his reelection. I will now pass back to Keith to chair the remainder of the meeting. Keith, please?

Thank you, Hock. I'll now turn to Item 2B, relating to the reelection of Dr. Vanessa Guthrie. Vanessa was appointed to the Board on the 1st of July 2017, and was last up for election at the 2018 AGM. In accordance with the constitution, Vanessa retires by rotation and being capable, offers itself for reelection -- being eligible, I should say, and capable. Vanessa is a member of the Environment, Health, Safety and Sustainability Committee and the People in Remuneration and Culture committee. Further biographical details are contained in the notice of meeting. The Board, with Vanessa's abstaining, recommends to shareholders that they vote in favor of Vanessa's reelection. I'd like to invite Vanessa to speak to her reelection.

Thank you, Keith, and good morning, ladies and gentlemen. It is indeed a great privilege to have been nominated by your Board for reelection as one of your nonexecutive directors, after serving almost 4 years as a Director of Santos, an outstanding Australian company. If reelected, I commit to continue working alongside my fellow directors in your best interests to create value for you, our shareholders, by focusing on the company's role in a clean energy future, and delivering results consistent with our values, our proven corporate strategy and our operating model. Over the past 4 years, I'm proud to have been a part of what Santos has achieved under Kev's and Keith's visionary leadership and the Board's unrelenting pursuit of exceptional results. In particular, the acquisition of Quadrant Energy in Western Australia and the Northern Australian assets of ConocoPhillips, where we are applying our disciplined low-cost operating model, are key highlights. The success of Santos has been built on the courage, vision and strong company values of both the executive and the Board, and our continued commitment to sustainable value creation for shareholders. This remains a key driver for me in seeking reelection. With over 30 years of executive experience in operations, sustainability and climate change at some of Australia's largest listed resource companies, I'm pleased to bring that expertise and diversity of thought to our Board discussions and our strategic business decisions. As we mature our sustainability aspirations, I offer my deep expertise in these aspects to set Santos up for our exciting and challenging future, including the Barossa, Dorado, Moomba, CCS and the Narrabri projects. My current board experience with 3 global companies has also given me solid experience in robust governance, transparency and safe and sustainable operations. I shared the energy, determination and ambition with my fellow directors for Santos to be a leader in the global energy transformation that is rapidly occurring. If reelected, I want you to know that I am up for any challenge or opportunity that will deliver the very best value we can, as we navigate the increasingly complex external environment in which we operate. I will be honored if you again put your trust in me for a further 3 years as a member of your Board. Thank you. Keith?

So thank you, Vanessa. Shareholders will have an opportunity to ask questions in relation to this item during the Q&A session. A reminder, if you haven't yet cast your vote on the resolution, you may do so now. The results of the directed proxy voting are 99.12% for the resolution and 0.69% against the resolution. Directed proxy results indicate that the resolution will pass, and I congratulate Vanessa on her reelection. I now move to Item 3, the Remuneration Report. This item of business asks shareholders to adopt the company's remuneration report. I've spoken to the strong performance that was delivered by management during 2020 despite the significant social and economic disruption of COVID-19 and that'll include the improved safety performance and the environmental performance, record annual production and record sales volumes, reduced unit production costs and strong free cash flow and record low free cash flow breakeven point. This strong performance contributed to a company's scorecard outcome of 111.3% of target, out of a possible 167%. However, the Board retains full discretion in relation to incentive awards, and in conjunction with the CEO, reviewed the 2020 outcomes to ensure alignment with the shareholder experience during the year. As a result of balancing strong share -- scorecard performance with the outcomes such as reduced dividend, and impairments, which had a negative impact on shareholders, the Board decided to cap the short-term incentive pool at 5% of free cash flow. The application of the cap led to around a 28.5% reduction in the cash component of the short-term incentive from the company's scorecard outcome. The 2017 long-term incentive award was tested following the end of the full year performance period. The share price increased by 56% over the performance period. And the overall vesting outcome was 90.7%, reflecting strong performance across the relative shareholder return measures and the absolute free cash flow breakeven and return on capital measures. We further strengthened the alignment of executive remuneration to the company's emission reduction targets. For 2021, the scorecard has been rebalanced to recognize the criticality of delivering initiatives that will achieve the company's target of net-zero emissions by 2040, increasing the weighting from 5% in 2020 to 12.5%. Shareholders will have an opportunity to ask questions in relation to this item during the Q&A session. If you haven't yet cast your vote on the resolution, you may do so now. The results of the directed proxy voting are 98.45% for the resolution and 1.35% against the resolution. I'll now move to the next item of business. Item 4 relates to the grant of share acquisition rights to Mr. Kevin Gallagher. This item also asked shareholders to approve the grant of share acquisition rights to the Managing Director, Kevin Gallagher. A detailed explanation of this item is set out in the notice of the meeting. While the performance measures are consistent with last year's grant, the free cash flow breakeven point performance measure is being made more challenging to reflect the continued improved cost base of the business, while recognizing there's an optimal level of investment required to sustain the business. To achieve full vesting, the free cash flow breakeven point must be equal to or below $25 per barrel of oil equivalent. The Board is confident that targets for the CEO share acquisition rights are aligned with shareholders' interests. Shareholders will have an opportunity to ask questions in relation to this item during the Q&A session. And you may now submit questions in relation to any of items of business now. You may cast your vote now if you haven't already done so. The results for the directed proxy voting are 98.5% for the resolution and 1.3% against the resolution. This now brings me to the fifth item of business, which is a special resolution to approve the proportional -- sorry, the proportional takeover provisions of the company's constitution for a further 3 years. The proportional takeover provisions were last renewed by shareholders at the 2018 Annual General Meeting. The takeover provisions in the constitution only apply to proportional takeover bids. A proportional takeover bid involves a bidder offering to buy only a portion of each shareholder's shares rather than all their shares. If this resolution is passed, it will mean that shareholders will continue to have the opportunity to vote on a proportional takeover bid before it can proceed. A detailed explanation to this item is set out in the notice of meeting. Shareholders will have an opportunity to ask questions in relation to this item during the Q&A session. Voting on this and all other items is open and you may cast your vote now if you haven't already done so. The results of the directed proxy voting are 99.01% for the resolution and 0.8% against the resolution. I will now move on to Item 6, being resolutions requisitioned by a group of shareholders. The first of these is Item 6A, a special resolution seeking amendment of the company's constitution. This resolution proposes to insert a new provision into the company's constitution, which would enable shareholders by ordinary resolution to express an opinion or 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 exercised. The Board's response to this item and recommendations are set -- is to vote against this. And a response is set out in the notice of the 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 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 or 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 item 6B, which is an advisory resolution that can only put to the meeting if Resolution 6A has passed. As I mentioned earlier, it's clear from the proxy instructions received that Resolution 6A will not be passed. However, I will make some brief comments in relation to this proposed resolution. Santos does not intend to close down its oil and gas operations, as doing so, would be against the interest of shareholders and would not be consistent with global climate and human development goals, particularly reducing air pollution and poverty. Kevin and I have already spoken today on the action Santos is taking to address climate change and the ambitious new industry-leading emissions reduction targets that we announced in December 2020. Santos has a strong future as a clean fuels company, producing zero emissions LNG, hydrogen and other clean fuels, enabled by large-scale CCS, such as our proposed Moomba CCS project, world-leading nature-based offsets, such as our West Island Land Fire Abatement program and the increased use of renewable and energy efficiency in our operations. As reported in our 2020 and 2021 climate change reports, Santos' portfolio is economically resilient under the EIA's 2018 World Energy Outlook, sustainable development scenarios and more robust under other scenarios, which have higher natural gas demand outlook, maintaining earnings in 2030 in excess of Santos' 2019 EBITDAX. Shareholders will have an opportunity to ask questions in relation to this item during the Q&A session. You may cast your vote now if you haven't already done so. The results of the directed proxy voting for Resolution 6A are 5.38% for the resolution and 94.42% against the resolution. In the interest of transparency, the results of the direct proxy voting for Resolution 6B are also displayed on the slide, and are 13.28% for the resolution and 86.53% against the resolution. We now come to the Q&A session of the meeting.

[Operator Instructions] As mentioned earlier, we'll begin with the written questions submitted by the Lumi platform, and we'll then turn to callers on the conference facility. [Operator Instructions] We'll now answer the written questions. James? Could you please read out the first question?

Mr. Chairman, the first question comes from Bob Ritchie, representing Australian Shareholders' Association. Australian Shareholders' Association representatives met with the Santos' Board Chairman before the AGM and thank Mr. Spence for his conversation with us. The ASA intends to vote out undirected proxies in favor of all resolutions, except 6A and 6B, for which our vote will be against. Our attention is directed to proven and probable reserves, as measured by a number of years of future production, which over the last 3 years, has fallen from 14 through 13 to 10 years. As the Barossa investment decision occurred after the reporting period, we ask how much of this has affected the number of years of proved and probable reserves?

So thank you for your question, Bob, and thank you for your support of Santos. Your question is a good one. When we commit a project to final investment decision, the reserves move from our contingent category, if you like, into firm reserves. We have contracts in place, we have a project underway, they're economic, and therefore, they're classified as reserves. So as you rightly observe, the Barossa adds to our reserve base, roughly in something around the order of 380 million barrels of oil equivalent to our reserves. The consequence of that is that the 2P reserves life of Santos increases to 14 years. So the trend of decline over the past few years has been basically addressed through the FID approval of the Barossa project. Thank you.

The next question comes from Mr. Rob Cato. Please advise the quantity of helium gas produced from the plant next to the Darwin LNG facility.

Thank you for your question. It's an interesting one. Helium plants are brought up alongside LNG projects all over the world because the product that comes out, the waste product, if you like, that comes out at the very end of the LNG liquefaction project as it goes through the refrigerator, if you like, is a concentrated product that can change any helium, for instance. And so the plant in Darwin does have helium in it, and it produces approximately 400 standard cubic feet of helium per day. And that goes into companies that procure and produce helium for use by others. Thank you.

The next question is from Mr. Wolfgang, Frank. Remuneration report states LTI aligns the interest of senior executives with the long-term shareholder value. TSR over the 4-year period was 67.3%, on Page 44, whereas the CEO received an LTI of $3.82 million vested at 90.7% as of full year '20. Based on his TSR as at full year '16 of $1.65 million, this represents a 231% return increase of TSR. How does the Board determine that the stark differences in shareholder and CEO align with long-term shareholder value?

I think basically, by having an LTI scheme, the way that we do, we measure the performance of the company against the ASX 100 group. We measure, relative to an international energy index. In both those cases, the company has performed extremely well. And in fact, I believe as over the last 4 years, compared to the Energy -- Global Energy Index Group, we ranked second place. I think the year before this, we were #1 in the world in that index. So the performance of the company has been exceptional. Basically, we believe that both through having an LTI scheme in place, that the executives of the company have skin in the game, they're aligned with the same experience of shareholders, and they are incentivized to deliver strong performance. And I think the sort of returns that you outlined in your question reflect quite clearly that they are incentivized to perform and that you benefit in the same way that they do.

The next question is from Marylou Potts. Will Santos force access against the opposition of pass-through leases in the Beetalo Northern Territory, potentially resulting in the parties being in court?

I thank you for your question, Marylou. Santos and the landholder do have an access -- land access and compensation agreement in place to undertake exploration of Tanumbirini Basin. And we do know, I can reassure you that at all times, we have acted in good faith and kept the landholder informed of our activities, and we've complied with our agreement, including paying compensation in advance for our activities in accordance with the agreement. We have all the relevant approvals from the NT government to undertake those activities, and we're complying with those activities and with the approvals. I am aware, though, that past risks have raised concerns recently, and we will work with them constructively to make sure that our activities don't impact their new pass -- their pass-through businesses. So I'm confident that we can coexist with the pass-through successfully just as we do in other locations, such as Queensland and South Australia. But thank you for the question.

The next question is from JVA Future PTY Ltd. What is the latest schedule and key considerations to FID on the Dorado asset?

Well, we're going through a process at the moment of pre-feed. We expect very shortly to go into what we call the front-end engineering design phase of the project. I think if that all goes to schedule, we'll be taking an FID decision in the first half of next year, as I mentioned earlier, we are going to be drilling 2 exciting prospects before that point, the Apus and Pavo prospects because they could provide -- they could have an impact on the development concept, they could actually provide significant further value to the Dorado development itself. Thank you.

The next question is from Chioma PTY Ltd. Dr. Guthrie is clearly a well-qualified director, and we are pleased to have her on our Board. However, she has quite a number of other commitments. Can Dr. Guthrie speak to a time management to ensure sufficient time for Santos matters?

Well, maybe I'd like to just make a couple of comments there, and then I'll invite Vanessa to actually make a few comments as well. I guess what -- being in the boardroom with Vanessa, I can make a few observations firsthand, if you like. Firstly, to say that she is a really active participant in the Board meeting. She comes well prepared to meetings, and we really value as a Board the insights that she brings to us on the Board. She's always available. As I said, always well prepared. I actually often talk to Vanessa between Board meetings as well. So in terms of -- I have no concerns about her level of commitment, personally. I'm aware that she's on another Board, but actually quite valuable because the Board -- some of the Boards that she operates on globally, for instance, bring insights about what's happening around the world that actually adds to the quality of the conversations we have in the Santos Board. But look, with that said, I'll just ask Vanessa to pop up and say a couple of words, certainly, do it from there, a couple of words about it yourself.

Thank you, Keith. And thank you for the question. And just to add to Keith's comments, I certainly am very committed to my Board portfolio and not more so than Santos in this context. I'd just like to add that in recent times I've rebalanced that portfolio by stepping down from one of my Boards, to be able to concentrate my efforts further into the Boards that remain. And that obviously includes Santos in this context. Thank you.

Yes, thank you, Vanessa. James?

The next question is from Graham Seya. A condition of consent for the Narrabri gas project is to improve the groundwater model prior to the commencement of Phase 2 to be generally in accordance with features of a Class III confidence level model. Advice from groundwater modeling expert is that, that may take up to 6 years to achieve. Won't this delay a final investment decision well beyond the target of first half of 2023?

Look, it's very important to us that the environment and water resources are protected. We have used the best available science to build a regional groundwater model and provide a really comprehensive understanding of any potential effects from gas extraction. It's been reviewed independently by organizations such as the CSIRO, and they've described it as a state-of-the-art model. But recognizing that conditions are put on, as a result of approvals, I should also say, and of course, it's been through the whole review process with the New South Wales government, the IPC and the Commonwealth. And they've all come to the conclusion that the development can go forward, but with certain conditions in place. And the obligation is on us as we move the development forward to meet those conditions. I'm not going to speculate on how long it takes to make these models. I'm not a groundwater expert, but I am an expert on the fact that Santos will comply with its obligations and the conclusions that are in place. And we certainly -- we wouldn't be able to proceed if we didn't. So thank you.

The next question is from Rachel Deans. Santos has committed to actively work with customers to reduce their Scope 1 and 2 emissions by less than 1 million tonnes of CO2 per year by 2030. Can we take that to mean Santos' Scope 3 emissions will be at least 1 million tonnes lower than 2020 levels, which would be just a 3.5% reduction? Or does the commitment actually allow the Scope 3 emissions to increase with our plans to increase production, thereby, wiping out 1 million tonnes of CO2 reduction many times over?

Okay. Thanks for your question. Scope 3 is a really interesting question, isn't it? Look, Australia's obligation under the Paris Agreement, for instance, is to reduce its Scope 1 and 2 emissions. The countries where, for example, our LNG is sold, have similar obligations, and they have made similar commitments. In the long term, countries such as Japan and Korea, where we send our LNG, have made commitments to reduce their emissions to net-zero by 2050. Governments made those commitments. So I think it's important to understand that our Scope 3 emissions are our customers' Scope 1 and 2 emissions. And they are working to reduce them as well. In the short term, I would say, as we have said in previous years that LNG does displace coal and when LNG displaces coal-fired power generation, it reduces Scope 3 emissions by 50% at least. So in selling our LNG in the short term, we are displacing coal, and it's reduced in Scope 3 emissions through that. In the longer-term for us, the game changer is on Scope 3 emissions is producing zero-emission hydrogen in conjunction with our carbon and capture and the storage. So hydrogen with CCS will ultimately eliminate our Scope 3 emissions. And that's our plan. Thank you.

The next question is from ACCR. Considering Santos' net-zero by 2040 commitment, will you proceed with the Moomba CCS project even if an appropriate ACCU methodology is not established or if the project is found to not be eligible for ACCUs?

I think we see the establishment of the ACCUs as a very important element in the Moomba project. They're very important to us in terms of making it stack up economically. With the cost of abatement is still around $30 a tonne. Our aim is to drive these costs lower, and we see things like putting the ACCUs in place is quite important because it's kind of a first step, if you like. And as we improve with the technology, the costs will come down, and it will become even sort of more effective. We are reassured that this will be in place by September. We've spoken to the government there's been a consultation favor that's been out with the whole industry. The industry has provided its feedback. And as I understand it, a legislation is being drafted, and that's the thing that takes time. This needs to be right. So the assurances that we have is that this will be in place by September this year. Thank you.

The next question is from Will Van Depo. Santos' climate change policy states: Santos recognizes the science of climate change and supports the objective of limiting global temperature rises to less than 2 degrees Celsius. So why does the company present LNG demand forecasts consistent with around 3-degree Celsius of global warming to justify its growth strategy in investor briefing material?

That's an interesting piece of work you've done there. We -- I mean, we use basically scenarios such as the IEA scenarios, which consider the whole world, not just Santos' forecasts. And the activities that we're conducting are very consistent with those scenarios. As I said earlier, we see LNG actually is a key component of reducing the world's Scope -- or our customers' Scope 3 emissions, their Scope 1 and 2 emissions as they switch from LNG to coal. Those LNG customers that we work with, I would stress, the customers that are likely to be taking hydrogen for us as we move our industry -- as we transform our company more into a hydrogen -- a zero-net emissions hydrogen industry. So I think the relationships that we established now with our LNG providers, it's having an impact in terms of reducing global emissions already by displacing coal. But in the longer term, through those strong relationships, we can have a really significant impact through the sale of zero hydrogen. Thank you.

The next comment comes from Australian Shareholders' Association on Monday's announcement of offer to Kevin Gallagher. While the quantum of the performance and retention offer to Kevin Gallagher is a matter to be considered, I expect Australian Shareholders' Association attention to be directed to specifics of the hurdles requiring any improved outcome or the lack of an appropriate gate in case there is no gate to ensure alignment with shareholder experience. We remember the inappropriate hurdle set for David Knox to bring the GLNG construction project in on-time and on-budget, which we considered to be 2 project manager, rather than a managing director outcome, such as commissioning and achieving specific business results. We will give careful consideration to the specific hurdles set for Kevin Gallagher. Turning to the gate, or lack of one. For a gate, we would expect a hurdle set to ensure shareholders had a good outcome, something more than not a negative absolute TSR.

Okay. Thank you for your comments. The Board is very aware of what's happened in previous incentive, and we've considered that quite deeply. We are also very aware of the critical nature of setting the milestones and targets for this award. That's yet to be resolved in detail, and we'll be working on that over the next -- over the coming months. And then we've -- as I've undertaken, that we will be engaging with shareholders and proxy advisers, well in advance of our next AGM to make sure that shareholders are satisfied that we have the appropriate measures in place. But thank you for your comment.

The next question is from Graham Sale. A condition of consent for the Narrabri gas project is that a planning approval is granted for a transmission pipeline prior to commencement of Phase 2, given that there is considerable on ground landholder opposition to the 2 possible pipelines isn't this a hurdle that may delay or prevent the project going ahead?

Look, we still haven't entered into sales agreements for Narrabri. Our customers and their needs will play a really key part in the decision about making -- of needing a pipeline for the Narrabri gas to Sydney to Newcastle or other markets. We have a project development agreement with the APA Group for a potential pipeline running southwest from Narrabri to connect into the Moomba to Sydney pipeline. The Hunter Gas Pipeline project, it's a separate project. That's already approved, and it could get into the Narrabri project as well. So there are options there. I think probably the key thing there is that it's early days yet on the Narrabri project. As I said, we're going to be -- the first step is appraisal. And then when we're sure of the resource that we have there, discussions with customers and then their needs we'll have -- we'll inform that sort of future decision. Thank you.

The next question is from Nicholas Fitzpatrick. My name is Nicholas Milyari Fitzpatrick. I'm from the Borroloola region, and I have been fighting to protect our water for years because it is very sacred to us. We understand it is spread all across the McArthur Basin. And we are all living off of it and connected to it. Can you guarantee your drilling, fracking operations will be safe and will not affect our groundwater? Will you be accountable to the risk of pollution to water that will eventually spread throughout the McArthur Basin.

Thank you, Nicholas. Look, I'd start by saying that Santos does have a long history of engaging and obtaining the informed consent of the host traditional owners as defined under the Native Title Act, and the Original Rights Act in the Northern Territory. Specific to the Beetaloo, we work closely with the Northern Land Council as the statutory body that represents the interest of regional owners, not just to ensure that the host owners are engaged, we want them to be fully informed of the life cycle activities, and we want to provide them with direct economic benefits and opportunities. For each phase of work that goes on in the basin, the exploration program, for instance, we undertake community consultations. We do sacred site assessment, site visits to afford the traditional owners direct access to observe activities, and we provide employment and training opportunities. I think what I'm trying to say is that we consider ourselves a part of your community as well. And so we're not going in there with any intention of damaging any water resource. We're trying to minimize our impact in every way. And we'll work with you to give you comfort along the way that, that's in place. Thank you.

The next question is from ACCR. With renewable electricity costs dropping, your peers, Origin and Woodside, are pursuing green hydrogen opportunities. Why is Santos solely considering blue hydrogen over green hydrogen when there are greater challenges associated with ensuring a zero-carbon blue hydrogen product? ET, risk of incomplete capture, leakage risk and fugitive emissions from gas extraction.

First thing I'd say is we're not excluding kind of green hydrogen as a potential in the future. But we have probably quite a significant advantage over some of those companies that you mentioned around green hydrogen. The current cost, for example, of doing -- producing hydrogen in the way we talk about. Kevin mentioned it to you earlier, it's 4.5x cheaper than the way you would do it from electrolysis. Due to a unique set of circumstances in terms of why is Santos going the way we're going, we happen to have a basin, which has all the attributes we need to produce hydrogen in the cheapest and also the most efficient route to get to a hydrogen economy. We use less water, we are decarbonizing natural gas at its source, and we can eliminate Scope 3 emissions. So I think this is a -- in a way, this project is a way it can lead perhaps the rest of the market into hydrogen and help some of the green hydrogen as well. But this is certainly a way with a high degree of confidence we can get hydrogen to the market using the attributes that Santos has and that it understands really well. Thank you.

The next question is from Peter Martin. Is Santos doing baseline health checks on all personnel working at gas well sites in the Beetalo Basin? If not, why not?

We do health checks on our employees when they join the company. We do health checks on a regular basis. I think -- I'm not sure, annual...

Yes.

Annual health checks. And then in terms of things like COVID, we -- it's just continual. You don't go to site without being checked. We have all sorts of protocols in place around COVID. The reason we have this meeting, the way we have it today is we're not prepared to have a whole bunch of people in a room. Within the company still, if you go to a meeting in head office, if you're super new -- if you come into a room and there were a certain number of people in that room, you don't get to participate, you go back to your desk and you get on the video and join in. I mean, we've got these rules in place to protect not just our assets, but to protect our employees and the communities where we operate in. So I'm absolutely confident that we do have the appropriate checks and balances in place there.

The next question is from ACCR. Does the CCS expansion initiative in your road map to net-zero 2040 relate to developing alternative CCS projects to Moomba or does it relate to capturing third-party CO2 at Moomba? If the latter, it appears you intend on cutting third-party CO2 storage as a reduction against Santos' footprint. Is that correct?

No, it's not correct. The road map that we've laid out is basically purely around the first step being applying the 1.7 million tonne CCS project that we have at Moomba and then leveraging that capability to grow and expand that as we produce hydrogen. So there are several steps that are mapped out on our road map. The first is CCS works, and we're very confident about that. We know the reservoirs. We have great experience with them and we're highly confident about that project. The next step then is centralizing the electrification of the Cooper Basin because we have power generation spread over a very large area about the size of Western Europe. And capturing carbon from very dispersed sources is difficult. We're going to bring that back to a sort of central location. And then the next step is having centralized that, we can use the assets that we have in the Cooper Basin, which is the underground storage for carbon, the water that's produced there and the hydrocarbons, the gas, to produce zero-emissions hydrogen, which can then run our power generation in the Cooper and ultimately, be exported into domestic gas and into -- and potentially overseas. Thank you.

The next question comes from Kim Martin. In March 2014, while Santos was seeking to develop the Narrabri gas project, General Manager, Peter Mitchley, said, "It has long been Santos' position, that we will not undertake drilling activities on private land without landholders' consent, and we have been very clear on that publicly." In the Northern Territory, you are attempting to explore for gas in the Beetaloo Basin, and there is reportedly a significant amount of opposition to your proposed exploration activities on some pass-through leases and in local indigenous communities. Will you recommit to not undertake drilling activities on private land without landholders' consent?

I think we talked about a dispute earlier, where we do have a landholder agreement in place. We have a land access and compensation agreement in place. There is a dispute at the moment with the land owner. And I understand that Santos is meeting with them, and we'll engage positively with our -- the pass-through list -- try and resolve the issues. I'm confident that we can coexist successfully as we have in other places around the country. Thank you.

The next question is from Mrs. Jan Nickel. What carbon prices over what time frames were assumed in the analysis supporting the final investment decision on the Barossa project? Were they similar to the IEA's sustainable development scenario, which projects a carbon price of USD 63 per tonne in 2025, rising to USD 140 by 2040?

We screen all our projects using a carbon price, so we do have an assumed price that we use when we're thinking about investment decisions. We're not trying to make a forecast of where carbon prices will go in the future. We do test our portfolio against the IEA prices quite clearly. And we published that in our climate change report every year. And you'll see there, we've shown how the total portfolio stacks up. But on an individual project base, we have a suite of individual screening criteria around things like oil price around exchange rate, but also around carbon prices, which aren't published, but we do use those, and we applied that to the Barossa project. Thank you.

The next question is from Mr. Anthony James Blott. When will the percentage of free cash flow be increased to give shareholders more dividends? Some companies are much higher, approximately 60%.

Yes, I'm aware that some companies are substantially higher. We've tried to pitch our policy at a range that would enable Santos to achieve its strategy. So we want to provide an ability to fund the ongoing capital investment we have to make in our sustaining capital, which is quite -- as I mentioned earlier, is around something like $900 million per annum. And we do have kind of growth projects that we're executing over the next few years as well. So this policy was designed to enable us to conduct our existing business to be able to fund our sustainable capital investment and exploration and to allow us to sort of work through the kind of capital growth phase. When conditions change, if we had no sort of kind of growth in the table, for instance, we might revise the kind of policy. But at the moment, that's a policy, I think that actually works very well for all our shareholders. It gives them certainty around our dividend. Even in a year like 2020, where oil prices went negative, businesses -- some businesses around the globe disappeared and never came back, we actually managed to deliver in line with our policy, pitching our dividend at 10% of free cash flow. Thank you.

The next question is from Ms. Mia Maud Jane Wright. What consultation process has been done when dealing with the Gamilaroi nation? How many groups have you been consulting with?

Thank you very much, Mia. Look, we certainly respect the rights of the Gamilaroi people to work out among themselves the position they want to take on Narrabri. Our requirement is to work with the authorized applicants of the Gamilaroi people, and we've been working with them since 2015. We've had extensive engagements to ensure that they are fully informed on all aspects of the project. But there -- even they are a big group. And like all big groups, like big families, there are differences of opinions. We're still in negotiations with that Gamilaroi, the group, the actual authorized applicants. And we've committed to working with them for the life cycle of the project on all matters that relate to native title, culture and heritage, environment, water and economic opportunities. We have experience with this in Santos. We work with many landholder in indigenous communities and traditional owners. And if it gives you any comfort, we're working with 21 traditional groups, traditional owner groups across the country. Many of whom have cultural heritage and management plans with us and indigenous land use agreements. We'll continue to listen, and we'll continue to work with you to find a way to make you -- to give you comfort on the development at Narrabri. Thank you.

Chairman, that concludes the time for questions from the web platform. And as I understand it, there are no questions on the teleconference facility.

All right. So thank you, shareholders, for your questions. And we certainly appreciate them. And I think for the Board, it's really nice to hear from you the issues that are at front of your mind. So that concludes our question-and-answer session for today. Ladies and gentlemen, that completes the formal business of the meeting for the 2021 Annual General Meeting and I now declare the meeting closed. Please note that the polls will remain open for another 10 minutes. Thank you for your time, for your questions and for your continued engagement in support of these challenging times for everyone. Thank you.