Woodside Energy Group Ltd (WDS) Earnings Call Transcript & Summary

Good morning, and thank you for joining us today for this Investor Briefing Day 2020 webcast from Mia Yellagonga, Woodside's headquarters here in Perth. I'm Damien Gare, Woodside's Vice President, Investor Relations. I'd like to begin by acknowledging the traditional owners and custodians of the land upon which we meet today, the Whadjuk people of the Noongar nation, and pay my respects to their elders, both past and present. I also extend my respect to all other Aboriginal and Torres Strait Islander peoples, their future generations and acknowledge their continued connection to country. This year, we've all had to adjust the way we live and work and demonstrate new ways of doing things. And of course, this has included how we engage and communicate with our shareholders and other stakeholders. And against this backdrop, it is our pleasure to be meeting with you today entirely virtually. Our Investor Briefing Day is an incredibly important part of Woodside's corporate calendar, and we've been committed to going ahead in whatever form possible. Today's program will be led by our Managing Director and CEO, Peter Coleman, live here from Perth; with presentations from Dr. Tom Ridsdill-Smith, Meg O'Neill, Fiona Hick, Shaun Gregory and Sherry Duhe. These presentations have been recorded in recent days, and Peter and all the presenters are here for live Q&A after the completion of the presentations. The key for today to be as interactive as possible in the circumstances. If you have a question, please type it in at any time into the question space, which is accessed by the blue icon at the top right-hand side of the webcast player you're watching now. I'll put the questions to Peter and the team during the course of the Q&A. Also some analysts will be joining us by moderated teleconference and will ask questions live in much the same way as a standard results conference call. After the presentations, we've scheduled a short break for you to stretch your legs before commencing the live Q&A session led by Peter. And an archived version of the webcast will be available on our website if you would like to review the webcast in the future. Now before I hand over to Peter for his introduction and overview, there are 3 important points I'd like to mention. First, may I please draw your attention to the disclaimer, risk and assumptions in the presentation pack, which applies to the information we are discussing today. Secondly, today is Remembrance Day, and we expect to be undertaking the Q&A session at 11 a.m. Perth time. We'll be pausing for a minute's silence at 11 a.m. to remember those who died or suffered for Australia's cause in all wars and armed conflicts. And we'll resume the Q&A session after this short pause. And finally, this week marks NAIDOC Week around Australia, a time to celebrate the history, culture and achievements of Aboriginal and Torres Strait Islander peoples. Woodside is an enthusiastic participant in the Australian reconciliation journey. And at the end of today's program, we'd like to show you a brief video on this year's theme for NAIDOC Week, which is Always Was, Always Will Be. I'd like to now hand over to Peter Coleman to get today underway.

Thank you, Damien, and welcome everybody to Woodside's 2020 Investor Briefing Day. My name is Peter Coleman. I'm the CEO and Managing Director of Woodside. Let me kick off with an overview for our session here today. And really, it's a day that we're going to talk about a number of things, but we're going to make the case for hydrocarbons. We're going to make the case for LNG, in particular, as we -- the world navigates through this climate change challenge that we have. And for Woodside, we see it as a wonderful opportunity to participate and make a significant difference in some of the climate change challenges and opportunities that we see out over the coming years and decades. So let's talk about where we are today, how we've navigated the last few months, and let's then talk about what the future looks like for us. Now Woodside, of course, we're focused on delivering value in really what has been unprecedented times. We've got strong foundations for the company. It's an excellent company, and we've got world-class assets and world-class people. This year, we'll deliver record production. So in the face of Tropical Cyclone Damien at the beginning of this year, the largest tropical cyclone that has ever hit our facilities in Karratha, in the face of COVID and the uncertainties surrounding that, the Woodside's team is still focused on delivering a production record, a production record that's consistent with the guidance that we've given the market over the last 2 to 3 years. Along with that, we've been preparing for our major investment decisions. And the largest one of those is Scarborough. You'll hear more about that in the presentations today. And we've maintained a strong balance sheet. We came into the beginning of the year ready for significant investments. We were confronted with some challenges, serious challenges around COVID. We've responded to that. We've reduced our cost base by 50%. We've reduced our investments this year by some 60%. And we've maintained a strong balance sheet through all of that and excellent liquidity. Sherry Duhe will talk to you about that later on this morning. Like everybody, we had to respond to the existential issues that we were confronted with this year. I've mentioned the energy demand destruction that was particularly acute in the second quarter of this year. You saw that in our first half results. But on top of that, there was price volatility in the marketplace, particularly with respect to crude oil, and the issues that OPEC+1 or OPEC+ Russia had again in the second quarter of this year around what -- how much supply should go into the marketplace. Fortunately, that's now all working its way through. OPEC has become disciplined again. They've got agreement on what their forward supply looks like. And we're seeing demand come back into the market in very positive ways, particularly in Asia. The impact of the pandemic though went beyond simply demand and supply. It impacted our supply chains, and it impacted our people. Our supply chains come from all over the world, and many of our products that we need in our business come from the most affected parts of the globe with respect to the COVID pandemic. We've managed our way through that without disruption. Equally, our people have also been flexible in their working arrangements. And the controls that we've had to put in place to ensure that COVID did not get into our business. And we want to thank them for that, particularly pleasing is the fact that not one Woodside employee has been diagnosed with COVID through this period. So that's a testament to the controls we've had in place and the work that people have done. At Woodside, we're all about protecting value, the value for our shareholders. And setting aside those existential things that we don't always control, but what we do control is how we respond to them. And one of those responses is to work on the things that we have in hand, the things that we have control of, and I'm very pleased to report that this year, on a year-to-date basis, we have the very best reliability we've ever had in our operations. So on top of record production on -- we now have record reliability, and fingers crossed, year-to-date, we also have our best safety record ever. So on the things that we can control, we're doing exceptionally well. We've also then looked to the future. Whilst we've having to deal with the day-to-day issues around our production operations, we've also been looking to the future and taking an opportunity to see how we can increase the value of our projects coming through. And we've done that through increasing capacity at Scarborough and also de-risking some of the execution. Meg O'Neill will speak more to that later on. We've also worked on ensuring that we've got all of the commercial arrangements and all of the approvals in place to be FID ready by the second half of next year. Along with that, and we often forget, we went to an FID on our Sangomar project in Senegal in January of this year. That project is on schedule, and we're very pleased that we'll see production from that sometime in 2023. Now let's talk about the case for hydrocarbon business. We're all about developing a robust and resilient hydrocarbon business for the years and decades ahead as we navigate our way through our climate change commitments. And let's be clear, Woodside is committed to the Paris accord and the climate change commitments in Paris. So for us, our view is, and it's a very strong view, and Tom -- Dr. Tom Ridsdill-Smith will speak to this later, is that LNG is a fundamental element of decarbonizing the world. And the advantage that Woodside has, of course, is LNG goes into the major markets in which we are already very, very competitive. To be in the LNG business, you must be cost competitive. It's becoming more and more commoditized, and those who will have the best margins are those who will outperform the marketplace. Sherry Duhe will show you more of that later on as she shows you the margins that we're getting out of our business. To get those margins, you must have world-class assets. This is a business that is about scale. This is a business where being bigger brings synergies that you simply don't get from small operations. And Woodside clearly operates world-class facilities already. And the projects that we have in front of us are world-class as well. So we're all about scale and all about getting margins back into our business. Along with that, though, goes prudent capital management. And we've promised our shareholders year after year that we will be prudent in the way that we manage our capital. And we've done that this year, as I mentioned previously, in cutting back on our capital spend by over 60%. And we could have cut further if we needed to, but we kept things going where we thought that was prudent. Our balance sheet is in good shape. It's very robust. Our gearing is relatively low. Our ratios are all where they need to be. We're continuing to demonstrate prudent capital management. And then finally, with all of these other things happening around the world, with our competitors starting to look at how they manage the climate change transition, with other companies stretched on their balance sheet and not having the capital to deploy that they need to, we have inorganic opportunities in front of us that just simply didn't exist 12 months ago. And I can assure you that the Woodside team is scouring the world, looking at each one of those opportunities, to identify those that really truly add value to Woodside shareholders. And then finally, before I leave this page, I'm really going to focus on the right-hand side. Today, you're going to hear a lot about Scarborough, and you're going to hear a lot about Scarborough for a good reason. We are continuing to target FID in the second half of 2021 for Scarborough and Pluto Train 2. This is an extremely important project to Woodside. It's an extremely important project to industry. And it's one that I know Woodside shareholders are going to be proud of in the years to come. Let's talk about the energy transition for a moment. It's very important that we understand what the pathway is that Woodside is pursuing. The first part of that energy transition is really making sure that we have a resilient hydrocarbon business. We're proud of what we do. What we do is good for the world. It's providing affordable, clean energy for the world, and we'll show you later how that's going to -- that demand is going to continue to grow. So we're about making sure that the existing business we have and the new hydrocarbon businesses we have, which are centered on LNG, are going to be resilient. We know as part of that, though, we need to do 2 things. The first thing we need to do is to develop large-scale carbon offsets. And we've been doing that for many years already, in fact, since 2008, and we've just grown that activity in the past year with a new relationship that we're developing with Greening Australia. We also know that part of that equation is going to be carbon capture and storage. And we'll show you during the presentations today that we have significant carbon capture and storage opportunities in our existing basins in the Exmouth Basin, in the Carnarvon Basin and in the Browse basin, where our assets are located. So those 3 things go together in ensuring that we have a resilient LNG-based hydrocarbon business and one that is set up to meet our climate change commitments. The fourth step then is simply looking at where can we compete if new products come into the energy market? What are those new products? Are they renewables? Are they wind? Is it hydrogen? For Woodside, we believe our pathway is a hydrogen future. And we'll talk -- we'll show you today what we think that hydrogen pathway looks like, and more importantly, what the opportunity is and why Woodside should be a player in that in the future. Finally, none of this happens without people. And with all of these other things happening this year, we've maintained our focus on a value-creating culture within Woodside and continuing to develop our people. We've refreshed our leadership team. We've recently had 3 appointments to the executive committee that are internal promotions, and we're very pleased with that because it's a testament to the quality of the people we have and the quality of the leadership programs within Woodside. We are without peer with respect to our diversity and inclusivity within our company. And as shareholders and employers, we should all be very, very proud of that. It makes good business sense. It makes for a resilient company into the future. And it's extremely important for the employee value proposition that we put to our employees. And then finally, we've got an engaged workforce. They are our ambassadors. They are the one that creates value for us. They're the ones that go out and deal with the communities each and every day. They're the ones that deal with government. And very importantly, they're the ones that come to work every day, looking for ways to create value for Woodside shareholders. So with that, we will move this morning then to some of the presentations. The first one we've got coming is on climate. It's from Dr. Tom Ridsdill-Smith. Tom is a new appointment to the Executive Committee, and I think you're going to enjoy Tom's presentation.

It's a pleasure to be speaking to you about Woodside's climate strategy. Let's start from a global perspective. Affordable energy and economic development have gone hand in hand for a hundred years. Looking forward to 2030, we see 2 stories: growing demand for energy in developing economies to support an increasing and more prosperous population, particularly in Asia Pacific where the middle class is expected to grow by 1.5 billion people; and flat energy demand in wealthy, developed economies where population is forecast to remain stable. There are many factors that will impact how this future energy demand will be met. The 2016 Paris Agreement, which sets the goal to limit temperature increase to well below 2 degrees Celsius in order to avoid the most significant impacts of climate change, recognizes this uncertainty. Paris requires a global economy to achieve net zero emissions by the second half of the century. But it allows individual countries to set their own policies to achieve this target, recognizing their very different political and economic considerations. The massive disruptions of 2020 associated with the global pandemic have added further variability to potential energy pathways. So Woodside continues to consider a wide range of credible, policy-driven scenarios for future energy demand. For example, the International Energy Agency, or IEA, issues 3 leading scenarios. The Stated Policies Scenario extrapolates current policy commitments, which do not, at this stage, meet the Paris goals. Whilst the Sustainable Development And net zero scenarios meet Paris goals, but will require significant, widespread and rapid changes in policy and in energy investment. Crucially, though, in all of these scenarios, there is significant demand for new investment in gas supply to meet global energy demand in 2030. Let's look more closely at the role gas plays here. Gas is expected to be resilient, partly because it is used in a very broad range of applications beyond just power, including the industrial, transport and building sectors, which are hard to electrify, and therefore, where renewables have limited application. Countries in developing and emerging Asia Pacific have strongly growing energy demand and low gas use currently and are looking to gas as a clean and affordable option to expand their economies and to displace other more polluting fossil fuels such as coal, oil and biomass. Air quality is a major driver of energy policy in countries like China and India, where the health impacts of emissions from coal, oil and biomass are significant and impact the lives of millions. The incredible scenes of blue skies and distant mountain vistas in China and India during the COVID lockdown showed that lowering air pollution by reducing coal and oil use can rapidly make a difference. You can see the impact of these factors reflected in the graph on the right that shows gas demand growing strongly in Asia Pacific out to 2040, even in the IEA's Paris compliance Sustainable Development Scenario. Within the global gas market, LNG demand is expected to grow significantly over the next 2 decades, and meeting this demand will require new investment as the existing fields decline. This growth in LNG is driven by customer preference for low cost, flexible and clean energy, together with the other advantages of gas highlighted in the previous slide. Unlike pipeline gas, customers can secure LNG from diverse suppliers and can rapidly acquire additional gas to manage seasonal or unexpected demand, such as after Japan's Fukushima disaster. To remain competitive as a clean fuel in the long term, the LNG industry needs to continue its journey to reduce methane and carbon dioxide emissions across the entire value chain. Key to this is that each operator in the value chain manages their direct or Scope 1 emissions. Woodside is already managing our direct emissions well within the upstream part of the value chain under our control. Our methane emissions are below 0.1% by volume in our LNG facilities, and we are reducing our overall emissions on the path to our target of net zero by 2050, which I will talk about shortly. Woodside's major customers are already taking action to address emissions in their part of the LNG value chain or what we report as our Scope 3 emissions. In fact, Tokyo Gas and JERA have set net zero 2050 goals in support of their own country's Paris policies. They see LNG, together with energy efficiency and carbon capture and storage, as key to delivering these goals. We are supporting industry efforts to reduce emissions across the LNG value chain. For example, by sharing our deep expertise in managing methane emissions through the methane guiding principles and through our technology partner with JERA to supply low-carbon ammonia for power generation. We expect low carbon hydrogen to be an important and rapidly growing use of our gas in the future. And later today, Shaun will talk about how Woodside is well positioned to take advantage of this opportunity. LNG's important role in supporting decarbonization means that many suppliers see increasing LNG in their portfolio as key to their own decarbonization strategies. Woodside, however, does not need to transition our portfolio to LNG as we are already an LNG company. So let's now look at Woodside's targets for decarbonizing our production. Today, we announced clear near and mid-term emissions reduction targets on our pathway towards our target of net zero direct emissions by 2050. This builds on our existing emissions reduction programs, including our commitment to offset Pluto's reservoir CO2 and our 2016 to 2020 5% energy efficiency target. Our new near-term target is a 15% reduction in net equity Scope 1 and 2 emissions by 2025, compared with the average emissions over the period 2016 to 2020. This will be delivered primarily by offsetting all global equity reservoir CO2 from 2021, supported by a new 2021 to 2025 energy efficiency target. The new midterm target is a 30% reduction in net equity Scope 1 and 2 emissions by 2030. Woodside aims to achieve the 30% reduction target through a range of levers. Firstly, we will design our emissions in new and existing facilities where possible, potentially, including carbon capture and storage. We will limit emissions through efficient operations. And finally, we will use high-quality offsets. By managing our decarbonization strategy on a corporate portfolio level, we can achieve lower abatement costs, and we have already included this spend in our business plan. Finally, when required, we will adjust the reference emissions against which our target supply to ensure there is no advantage or disadvantage to Woodside through equity changes in existing production. This is to ensure that we are supporting global emissions reduction through our targets, not just shifting emissions to other operators through divestments. We are well on the way. In the decade to 2020, we've cut over 2.7 million tonnes of net greenhouse emissions through engineering design, operational efficiency and offsetting. Designing out emissions is always our first preference. In many cases, it not only reduces emissions, but also cuts costs and increases production of salable gas. For example, the world's first deployment of battery storage at the Goodwyn A platform in 2019 resulted in savings of over 3,000 tonnes of fuel gas and 7,000 tonnes of CO2 emissions per year. We also continue to drive down emissions through better operating processes. For example, the installation of automated process control at Pluto LNG in 2014 improved process stability and reduced flaring by 10,000 tonnes of CO2 equivalent per year. Quality offsets supported by good policy and rigorous science will be a key component of our approach. In particular, nature-based carbon removal projects, such as native ecosystem restoration are critical for the world to achieve rapid decarbonization at scale and can also deliver co-benefits related to other sustainable development goals. A recent paper in the journal, Nature, described the restoration of native ecosystems is central to stabilizing the climate and conserving biodiversity. It showed they have the potential to avoid 60% of expected extinctions and sequester nearly 300 gigatonnes of CO2, which is around 30% of the total CO2 increase in the atmosphere since the Industrial Revolution. To summarize, our customers are looking to LNG in the future to provide affordable, clean energy. Woodside has a leading LNG portfolio mix, which positions us well, and we have established clear decarbonization targets to ensure we remain competitive in a low-carbon economy. Finally, before I hand over to Meg, the following short video explains a bit more about the work of our dedicated carbon offsets team. [Presentation]

I'm pleased we were able to maintain this opportunity to update you on Woodside's activities and plans. Hopefully, next year, we can do this in person. Today, I'll be focusing on the Scarborough and Pluto Train 2 developments and the value they will provide to Woodside shareholders as we head towards targeted FID in the second half of 2021. I'll also provide an update on the progress of our Sangomar development and some further information on Browse. Let's kick off with Scarborough and Pluto Train 2 and the significant value we expect to deliver through this development. We say this for a number of reasons. First, the quality of the offshore resource. Noting that it was at last year's Investor Briefing Day that we discussed the 52% increase in the estimated resource size. Secondly, the efficient development concept, which makes use of the existing infrastructure already in place at Pluto LNG. And third, since deferring FID in March this year, we've been busy looking at how we will extract additional value by increasing the offshore processing capacity and optimizing the project schedule. The timing is right for FID, both from the perspective of contractor availability and the external LNG market, and I'll say more about this later. FID for Scarborough and Pluto Train 2 is on track for the second half of 2021. We are aligned with BHP on this schedule, which is expected to provide the first LNG cargo in 2026. Since initially buying 25% of the Scarborough resource in September 2016, Woodside has moved the Scarborough development forward. In a planned and deliberate manner, we increased Woodside's interest, assumed operatorship and proceeded through FEED activities in preparation for taking FID this year, before deciding to defer FID to 2021. We recently received the production license for Scarborough from the state and commonwealth governments, which is a significant regulatory milestone as we target making a final investment decision in the back half of next year. At last year's Investor Day, I talked about the physical size of the Scarborough resource. Today, I want to demonstrate the transformative impact Scarborough will have on our reserves base, our cash flow and the delivery of value to Woodside's shareholders. Scarborough is a resource of the quality and scale that can define our activities in the coming decades. The chart on the left shows the Woodside share of the Scarborough resource compared to the North West Shelf and Pluto, which are 2 landmark resources that have been key features of Woodside's success to date. You can see that Scarborough is larger than both. We've also shown a comparison to our total remaining 2P reserves. With Scarborough's developments, our reserves will more than double. The impact on cash generation will be a game changer for Woodside. We estimate that the integrated project would deliver net cash flow of approximately $35 billion over the life of the field based on our current participating interest. Even at a low oil price deck of $45 a barrel, the net cash flow is around $25 billion. This would set us up for long-term financial success and generate the cash to fund our next phase of developments. To put this in perspective, our average free cash flow over the past 3 years, 2017 to 2019, was about $1.5 billion per year. Importantly, the internal rate of return for the integrated development is greater than 12%, which is a key investment metric for us. So you can see Scarborough recharges our reserves and will deliver substantial cash to the business. I'd like to now turn your attention to how competitive the project is on the global scene. Scarborough is a globally competitive project with an all-in cost of supply of LNG delivered to East Asia of less than $6.80 per MMBtu. This benchmarks extremely well against other pre-FID projects and importantly, is more competitive than U.S. Gulf Coast projects. The U.S. projects are recognized as the swing producers in the industry given their higher marginal cost. So it's important that we remain under their cost of supply. Scarborough is an LNG project well suited to the current environment in which decarbonization objectives are increasingly important. We expect that LNG produced from Scarborough will be a contributor to the decarbonization efforts of our North Asian customers. The development of Scarborough is also consistent with our own carbon reduction targets. The carbon emitted when producing LNG comes from 2 sources: the CO2 in the reservoir, and the CO2 produced at the onshore liquefaction plant. The Scarborough gas fields contain almost no CO2, so reservoir CO2 emissions are very small. The proposed design of Pluto Train 2 will have a lower greenhouse gas intensity compared to the international average and the Australian average. The reservoir, quality and train efficiency mean this will be one of the lowest carbon LNG sources in Australia. A key contributor to lower emissions intensity of processing infrastructure is high reliability. For Scarborough and Pluto Train 2, we are adopting the best available proven technology to deliver high reliability and lower emissions intensity. Now you've just heard from Tom about our emissions reduction targets, and I want to emphasize the point that we can develop Scarborough and achieve those targets. We believe our carbon business will develop at a scale which will allow us to offset sufficient emissions across our business to realize a 15% reduction in net emissions by 2025 and 30% by 2030, even with adding Scarborough to the portfolio. In our half year results in August, we foreshadowed that we were looking at opportunities to increase the processing capacity for Scarborough from the base case of 6.5 million tonnes per annum to 8 million tonnes per annum. We have used the gift of time resulting from the FID deferral to further improve the development concept to match our increased resource size. We have looked across the offshore and onshore designs to identify changes we could make to improve value for minimal additional CapEx. The work is ongoing and the joint venture is working together to mature this concept. We are targeting to increase the upstream capacity by approximately 20% for a very modest CapEx increase. There's basically no cost impact on the downstream. We estimate the capacity change could increase our upstream revenue by around 8% over the first 10 years of operation. And I should point out that the project metrics provided on the previous slides were all based on the original 6.5 mtpa case. So there's upside potential here. The key contributor to the capacity increase would be by modifying the trunk line. By increasing the diameter of the shallow water section, the pressure drop through the pipe is reduced, and we're able to push more gas through it. We've also identified optimization opportunities on the offshore platform, the floating production unit, which will reduce the weight and complexity of construction. We've done some work on the drilling plan to optimize the spend and execution schedule. The initial phase of development will include between 7 and 9 wells, depending on where we land with capacity. Subsequent wells will be timed to meet gas deliverability requirements. On the right-hand side, you see options as to how we'll process the additional 1.5 mtpa of production, should we increase the offshore capacity, either by processing the gas through Pluto Train 1 or by sending additional gas across the interconnector to the North West Shelf. We have used our additional time to derisk the execution schedule for Pluto Train 2 by reviewing and optimizing the construction plan. Our proposed contractor team will be a key contributor to ensuring that Scarborough and Pluto Train 2 are developed in accordance with the business case. Our relationship with our contractors is strong, and we have a high confidence contracting model. As we discussed at last year's IBD, our contracting strategy is designed to derisk the project's cost and schedule by targeting around 90% of the proposed contractor spend being on a lump sum or provisional sum basis. We are finding the current contracting environment to be very competitive, and this is where we expect to be as we head towards FID. The development of the Scarborough resource through Pluto Train 2 will provide superior value to Woodside shareholders than a hypothetical development concept of bringing Scarborough gas solely into the North West Shelf's Karratha Gas Plants. There are several reasons for this. First, the Pluto Train 2 concept requires around 30% lower capital spend over the field life, compared to taking the gas into KGP. The North West Shelf facility simply is not designed to process gas with Scarborough's composition. It would require significant investments to modify the KGP process and additional spend to extend the life of the North West Shelf. These costs are avoided by building Train 2. The Scarborough to Pluto Train 2 concept also extends the economic life of the existing Pluto LNG infrastructure at minimal cost. Secondly, Pluto Train 2 provides the shortest development time line for processing Scarborough gas. If the team were to stop working towards the FID of the Pluto concept and instead focus on North West Shelf, we'd expect this to further delay FID by a couple of years. In that time, we would likely lose our existing heads of agreements and SPAs, which cover a good portion of our proposed offtake. We would also be exposed to a potentially more competitive contracting environment. Third, Woodside's existing equity interest in the Pluto foundation project and Pluto common user facilities means that Pluto will receive 90% of the toll paid for processing Scarborough gas through Train 1 and 50% of the toll through Train 2, assuming a successful sell-down of Train 2 to 50%. For processing at the North West Shelf, Woodside would receive only 1/6 of the toll paid. Our increased working interest at Pluto also means that we have much more control over decisions at the site, which significantly derisks the execution of the onshore scope. We are expecting the time to be right for FID in the second half of 2021, and we have used the extra time to protect value, improve value and derisk our path to FID. We've made great progress on our regulatory engagements and approvals. Recently receiving the production licenses was a major milestone. The target FID timing also allows us to capture advantages in the contractor market, both from a cost perspective and supply chain stability following the COVID-19 pandemic. We continue to expect that LNG demand and supply will rebalance around the middle of this decade at a time when the first cargo will be loaded. The LNG supply overhang, as a result of new production coming to the market around the beginning of this year, has diminished, and we are encouraged by the return of Chinese LNG demand to pre-COVID levels. The increasing depth and liquidity of the global LNG market allows Woodside to contract Scarborough production at the right time for the right price. The market fundamentals of LNG remain robust. The joint venture is aligned on the development timing and concepts, and we are collaborating really well on maximizing the size of the pie. And finally, we have worked hard on the development concept to identify improvement and inopportunity s to enhance the value proposition of the development. Turning now to the Sangomar Field Development Phase 1. The project has been proceeding as planned since the joint venture took FID in the first weeks of the year. The experienced contractor team has demonstrated resilient supply chain management, effectively addressing the pandemic challenges of this year. They have continued to develop their operational footprint in country. The VLCC tanker that will be converted into the FPSO has been purchased and delivered, and we expect it to arrive in the shipyard later this month around the time first steel is cut. The manufacturer of subsea equipment is continuing as planned. Woodside's acquisition of Cairn's interest in the joint venture is expected to be complete before the end of the year, and Sherry Duhe will outline our plans to divest our equity in the project to around 40% to 50% in 2021. First oil remains on track for 2023. We have recently completed processing new seismic data that was acquired earlier this year. The new data has much higher definition than previous versions, providing superior visibility of the reservoir geology. The images on the right compare the old and the new. And you don't have to be a geologist to see the difference. As you can see from the bright blue line through the middle of the bottom image, we are in a far better position now to optimize the drilling program. We can make better decisions on well locations and well paths. We're also better informed now regarding the series 400 sands, which are likely to be targeted in subsequent development phases. Browse is further back in Woodside's development pipeline as a result of the decision in the middle of the pandemic to target FID from 2023. The Browse joint venture remains aligned on development of the significant Browse resource as backfill to the North West Shelf. We continue to progress regulatory and commercial requirements. Applications for production licenses and retention leases are under assessment with the relevant regulators, and we're moving along the project towards FEED entry. The focus is on critical work scopes and optimization of the development concept. We are also using the additional time to assess the potential of introducing carbon capture and storage part of the development concept. So as you can see, we have a critical 12 months ahead of us as we progress work on our 3 major projects. On Browse, our engagement with regulators and joint venture partners continues as we seek to progress the necessary agreements and approvals to move the project towards FEED. On Sangomar, execution is in full swing, and we'll keep a keen focus on cost, quality and delivery as we commence drilling and the FPSO conversion. And on Scarborough, we'll commence ramp-up of activity as we head towards our targeted FID in the second half of next year. I'll now hand over to Fiona.

Thanks, Meg, and thanks for joining us today. We appreciate your ongoing interest in our business. Today, we'll run through our operational performance this year, then talk about how we will continue to deliver value into the future. Operational performance has been excellent in what has been a remarkable year, even with Tropical Cyclone Damien in quarter 1, which was the most significant weather event to impact our onshore facilities in 30 years, followed by COVID disruption from quarter 2 onwards. And this is a real credit to everyone involved. We're on track to achieve strong personal safety performance, which is particularly pleasing given we believe incidents are preventable, and that health, safety and environmental performance is fundamental to our success as a business. We've also achieved high LNG reliability year-to-date, realizing the benefits of our comprehensive maintenance strategy and execution over several years and focusing every single day on the right processes, the right competencies and a high-performance culture to deliver results. We have delivered an 18% increase in production year-to-date compared with 2019. And we've updated our 2020 production range to 99 million to 101 million barrels of oil equivalent. In previous years, we've said that in 2020, we were targeting approximately 100 million barrels. So it's satisfying to see we're on track to achieve this as a result of delivering our near-term growth opportunities. While COVID-19 has presented a lot of unprecedented challenges in 2020, it has also given us an opportunity to review and improve the way we work. As a business, we were proactive. We quickly implemented a wide range of controls to manage the health and well-being of our staff and contractors, things like quarantine periods, COVID-19 testing and extended rosters. And to date, we have had 0 cases of COVID-19 on our operational sites. We also suspended all site work that was not business critical, and this enabled our people to focus on the priorities of maintaining health and safety and continuing reliable, efficient operations. And in doing all of this, we've learned, we can remotely collaborate more effectively, and we can perform some tasks differently. For example, we can access vendor support and do equipment inspections remotely at times. Another example is that we've successfully transitioned to remote control of our North West Shelf gas and Pluto LNG assets for short periods. And we implemented that quickly faster than we'd ever thought was possible pre-COVID. We've learned that applying many of these lessons drives more efficient, cost-effective outcomes that we can leverage from now on. We've also been focused on supporting our local communities and establish the Woodside COVID-19 Community Fund to support humanitarian needs, including grassroots organizations who support vulnerable people facing immense social challenges as a result of COVID-19. Through this, Woodside has given nearly $5 million to 70 not-for-profit organizations, including to community organizations based in the Pilbara in the northwest of Western Australia. Our strong 2020 operational performance has demonstrated that we've been able to adapt and respond well to the challenges of COVID-19. I'm proud that during this time, our entire workforce really stepped up to ensure that we maintained operational continuity and supply to our valued customers. We're also delivering on our climate commitments. We are on track to do better than our target of 5% energy efficiency improvement over 5 years, in line with the commitment made to you at Investor Briefing Day back in 2016. Two examples of what we have done to achieve this are: first, we've challenged our operational philosophies to ensure that we consider energy efficiency in all our decision-making; and secondly, on Pluto LNG, we've commissioned a second vapor-return boil-off gas compressor, and this has contributed to our best ever emissions performance during 2020. As Tom highlighted earlier, we now have very clear near-term and medium-term targets. As we move towards our goal of being net zero for direct emissions by 2050, an ongoing efficient and reliable operations are a key contributor to our decarbonization strategy. On cost, we're proud of our reputation as a low-cost, safe and reliable producer, and we intend to maintain this well into the future. This year, we've remained cost competitive with our gas unit production cost remaining around $4 per barrel of oil equivalent achieved despite the unforeseen costs associated with managing COVID-19. Next year, we're targeting an approximate 15% reduction in North West Shelf cash operating cost and flat unit operating costs at Pluto. A contributor to achieving these targets is the ongoing delivery of efficiencies that we've identified and achieved throughout this year. On the bottom half of this slide, you can see North West Shelf is forecast to be offshore constrained in 2021. We announced earlier that this year, North West Shelf has agreed nonbinding terms for gas processing with other resource owners, Pluto and Waitsia. And we continue to target fully termed gas processing agreements by year-end to support a final investment decision. This is another step towards achieving the goal of transforming the North West Shelf into a world-class gas tolling facility, in addition to producing North West Shelf reserves. Part of realizing the goal of becoming a world-class tolling facility is remaining world-class on cost. So I'm excited to inform you that during 2020, we have started a comprehensive coordinated program to ensure our past performance of being a low-cost producer will continue long into the future. Our operations transformation will take cost out of the business by improving the efficiency of our operations. We'll take bold steps to apply technology and deploy this at scale into our business. And importantly, it will strike the right balance between automation and human judgment and decision making, enabling our people to perform at their best. How will we do it? We formed an independent team separate from the day-to-day running of the business, free to imagine and create a very different future. It's a talented, diverse team containing business experts in a variety of fields, such as engineers, highly skilled maintainers and operators, together with the digital team, and they have the opportunity to redesign and improve the way we work. We have multiple concurrent squads up and running right now, and they're pursuing high priority and high-value opportunities using an agile approach, where we demonstrate rapid delivery of value or we stop and we move to the next opportunity. We have benchmarks from other companies and industries showing that significant efficiency improvements in the order of 30% are achievable in the coming years. So in summary, we've had strong operational performance over 2020, even with the challenges that we've faced. We're on track for strong safety performance, reliability and best-ever production. In future, we intend to remain safe, reliable and cost efficient. Operations transformation is how we'll deliver this, and I look forward to sharing the outcomes of this with you in future updates. I'll now pass you over to Shaun to talk about new energy.

Thanks, Fiona. New energy at Woodside is a combination of technology, carbon and hydrogen themes. We have put the building blocks in place for a new energy business that can scale at the pace of the energy transition. Our carbon and hydrogen businesses have built strong partnerships focused on both market demand and technology supply. This aligns with our net zero aspiration and builds on our existing capabilities. Our focus in new energy started 3 years ago, and we saw the external shift in technology and markets open up with potential growth opportunities. In response, we have shifted our spend from exploration to hydrogen, carbon and technology activities. In hydrogen and carbon, the investment is tailored to understand the market potential the technology and the capability building blocks that are required, and we are focused on the partnerships required to be successful. In hydrogen, we have invested in the HyNet consortium to build hydrogen refueling stations in Korea alongside major partners, KOGAS and Hyundai. The first 4 stations are online with more to come. Our work in Australia is also progressing well, with our operated H2TAS green hydrogen project being shortlisted for the next stage of ARENA funding, and I'll talk more on that a bit later. In technology, we continue to investigate opportunities to improve unit production costs in base business and to enable our growth projects as well as looking further out at applications like quantum computing, and how that could be applied to our industry. In the carbon business, we are focused on building a portfolio of carbon offsets and carbon capture and storage, or CCS. So let's start with talking about CCS. As an explorer and developer of oil and gas, CCS utilizes the same capabilities to identify suitable reservoirs and develop a storage solution. As a technology, CCS is becoming more and more prevalent with 19 projects operating globally with many more in planning. At Woodside, we are screening the 3.4 gigatonnes of storage potential across our operated titles as well as project-specific solutions like Browse. The limiting factor to date for CCS has always been costs with an effective carbon cost historically above $100 per tonne. The industry has learned from these early projects about how to bring costs down, and it comes down to location, reservoir and scale. First, location, meaning being close to infrastructure and access to a concentrated stream of CO2. Second, the reservoir, meaning you need a great reservoir tank to store the CO2; and third, with scale comes lower unit injection costs. This is akin to the unit production cost, but in reverse. The more production or, in this case, injection you can achieve, the better CO2 per tonne cost. Today, we have seen costs come down from $100 per tonne to $80 a tonne, matching many companies' costs of carbon, and in advantage locations, below $60 a tonne. Let's move on to talk about our progress in carbon offsetting through bio sequestration. As you heard from Jayne, 18 months ago, we created a carbon offset business to both generate and acquire offsets through a variety of methods. The main objective is to build a resilient portfolio of offsets to enable both our base business and growth projects in a lower carbon world. Recently, we established a partnership with Greening Australia, and our first phase of planting across 3 properties in Western Australia was completed this year. This phase was focused on securing the methodologies and the supply chain of native seeds, all jointly with local traditional owner groups to optimize costs for future phases. We are targeting our carbon portfolio to be at a cost below $15 per tonne. Let's turn to hydrogen. We are focused on hydrogen because of the role we see at playing in the world's energy mix. It has the potential to play a key role in meeting the growing demand for safe, clean and affordable and reliable energy. We see hydrogen as a natural evolution of our energy export business model post 2030. We believe that pathway will start with blue hydrogen, produced from natural gas using steam methane reforming with related carbon management. The process of shipping blue hydrogen as ammonia is a close cousin to our current business model of LNG. In the future, we expect the transition to green hydrogen to occur over different time lines based on the end market use, be it from heavy transport to power generation and to chemicals and industrials as well. We possess a strategic advantage to produce green hydrogen due to abundant renewable resources in Australia, and the technology focus is enabling us to reduce costs. One of the signposts for hydrogen is when governments of countries stimulate market development. And our 2 key customer countries in Korea and Japan have fully defined hydrogen road maps. But they are not alone. As the next slide illustrates, governments across the world are offering unprecedented policy support, and a spectrum of projects are beginning to come online. Many countries have or are in the process of introducing government-funded hydrogen transport plans and heavily subsidizing various parts of the supply chain, including electricity, refueling stations and car manufacturing in order to stimulate demand. This stimulation translates to our rapid expansion of blue and green hydrogen, reaching 75 million tonnes by 2040 or roughly 200 million tonnes of LNG on an energy equivalent basis. It is this growth that underpins our efforts to be part of the hydrogen value chain. Historically, higher production costs have been the barrier. But technology improvements can deliver the step change required to lower production costs. As you look at this chart on the right, it depicts the learning curve for batteries, solar and wind technologies over the past decade. The costs have reduced by around 80%, the y-axis. And as these cost reductions came with scale, the number of installed units on the logarithmic x-axis, an exponential drop in costs have occurred over time. Two points to make here. First, the learning curves for solar and wind are expected to continue, and this benefits the cost of renewable power, which, in turn, lowers the production cost of green hydrogen. And second, the core technology components of the hydrogen chain, that being electrolyzers and fuel cells, are about to begin a similar learning curve, so we expect a drop in green hydrogen costs over the coming decade, and that will make an increasingly attractive option depending on the end use. So let's talk about one of those end users as a substitute for diesel. Our operated project in Tasmania, pictured here on the right, is a proposed 10-megawatt green hydrogen production facility using existing hydropower. This pilot will help us learn valuable lessons to enable us to scale in order to meet the growing clean energy demand. As you see on the left, we have line of sight to green hydrogen that is competitive with diesel prices today. So to conclude, we've been taking the right steps to build capability and position ourselves in order to execute at scale profitably in the future. We have developed partnerships with stakeholders across the value chain, covering both technology and market development, whilst building expertise. We aim to produce hydrogen local to markets in the mid-2020s and transition to export as the market grows. Our carbon offset portfolio will support our base and future businesses, reach an emissions reduction target of 30% by 2030, as outlined by Tom, and we believe these are the right steps to delivering a profitable business whilst achieving our net zero aspiration. I'll hand over now to Sherry to talk about capital management.

Hello, everyone. It's a pleasure to provide you with an overview of Woodside's capital management priorities and how we're ensuring that we're prepared to fund organic and inorganic growth opportunities. I'm going to discuss how we're applying the key features of our capital management framework to maximize value for Woodside's shareholders. I'm sure it goes without saying, but 2020 has been an extraordinary year on many different fronts. The external environment for Woodside has been characterized by volatility in the underlying price of our products, with the chart on the left demonstrating the roller-coaster performance of oil price. Spot LNG price was at record lows at the height of the impact of COVID-19 and the LNG supply overhang, but it's been encouraging to see the trajectory of improvements in the second half of this year. Spot price for December 2020 deliveries have improved markedly from the midyear lows up to around $7 per MMBtu. These challenges have been intensified by the practical impacts of the pandemic, requiring us to modify how we work in order to continue to produce and execute safely our growth opportunities. And throughout this, Woodside has demonstrated resilience and prudent financial decision-making to protect and maintain value for shareholders. Illustrations of this include the decisions announced in March of this year to defer final investment decisions on our Scarborough, Pluto Train 2 and Browse developments; reduce our planned investment expenditure for 2020 by around 60%; and reduce total planned expenditure by 50%. Cash preservation has been a key priority for us this year. And as an example, Fiona referred earlier to the modifications we made to our 2020 operational plans. We also made and implemented the tough decision last month to reduce our direct workforce by around 8% to ensure that our organizational structure is appropriate to meet the priorities of Woodside in the near to medium term. Whilst we did cut around 60% of our investment expenditure, we have continued to execute the remaining 40% of activities as planned, progressing projects like Greater Western Flank 3 at the North West Shelf, the Pyxis Hub at Pluto, Julimar-Brunello Phase 2 at Wheatstone and, of course, Sangomar Phase 1 in Senegal. Our response to these external circumstances has been multidimensional and proactive, ensuring that the balance sheet is strong and ready to support our growth plans at the right time. My colleagues have outlined in their earlier presentations Woodside's ambitious plans to create value for shareholders. As Meg discussed, the Scarborough and Pluto Train 2 development is expected to be transformative for Woodside. The opportunities available to us in the near to medium term are a driver for Woodside's capital management priorities over the next 12 months. At last year's Investor Briefing Day in Sydney, I set out our capital management framework and how we apply this to our business. What we're going to do for the next 12 months is set out here. Maintaining cash and preserving value are key in the current environment of recovering oil and gas prices. We're also focused on appropriately managing our participating interest in Pluto Train 2 and Sangomar and otherwise ensuring that Scarborough and Pluto Train 2 are ready from a commercial and financial perspective for FID in the second half of 2021. In March, we foreshadowed that we expected that the external environment would create opportunities for inorganic growth, which Woodside's strong balance sheet and liquidity would permit us to capture. We're also reviewing opportunities to release value from existing infrastructure. Identifying and assessing value-accretive opportunities remains a focus, as does protecting our key financial metrics and a strong balance sheet. Woodside enjoys a base business with low-cost and strong margin, which provide excellent resilient cash flow. We have a portfolio of arrangements with customers, from long-term contracts to one-off spot contracts, which achieves the right balance between risk, reward and flexibility to meet customer demand and capture upside. We actively optimize our sales portfolio to deliver this value and manage risk by incorporating price reviews in our long-term contracts. After this unprecedented year, we expect our proportion of spot sales in 2021 to return to around 15% to 20% on an annual basis. Our current proportion of spot prices in 2020 is working to our advantage in Q4 as spot LNG prices improve. Now this is a great story for Woodside's shareholders. As the chart on the left shows, we've demonstrated sustained strong cash margins greater than 75% for our business as commodity prices have varied through the cycle. Our cash margin year-to-date is around 79%, demonstrating Woodside's ability to quickly and proactively respond to lower oil and gas prices. This performance reflects our ongoing focus on cost management and high operational reliability and is a key contributor to ensuring a strong balance sheet. It demonstrates our resilience to lower oil and gas prices. We've provided a strong dividend yield in 2020, as this chart shows, in comparison to both our Australian oil and gas peers and the ASX 20. Of course, eligible Australian shareholders receive additional value from the distribution of franking credits. We currently have a franking credit balance of around AUD 2.3 billion. We expect to make big decisions in the next 12 months as we take our next steps in our growth plans. The most significant, of course, is the final investment decision on Scarborough and Pluto Train 2 targeted for the second half of 2021. This decision will commence active value creation over the next decade and beyond. A major capital management lever we will use is reduction of our participating interest in Pluto Train 2 and in the Sangomar development. For Pluto Train 2, we're aiming to reduce our interest from the current 100% to a target of around 50% prior to FID. This would significantly reduce our capital spend by about $3 billion, and this would exclude the proceeds of the sell-down itself. We continue to engage with potential investors in Train 2, including infrastructure investors. For Sangomar, we flagged in August at the time of announcing our proposed acquisition of Cairn's interest in the project that we'd be looking to reduce our equity interest over the next 12 months. This is an attractive, derisked asset in execute phase with near-term production from 2023. We have interested parties, and we're targeting this sell-down to the right partners at the right price in 2021. Reducing our equity interest in Sangomar to around 40% reduces further our capital spend by approximately $1.2 billion, excluding the proceeds of the sell-down itself. From these 2 proposed divestments, we'll achieve capital savings north of $4 billion, again, excluding the proceeds of the divestments. We'll also continue to explore opportunities available to us to monetize our other assets. Woodside has a strong liquidity position as a result of our active preparation for FID of Scarborough and Pluto Train 2 and the resulting increase in capital expenditure. In this current environment in which we've prudently delayed FID, our strong liquidity position provides significant optionality for us to undertake value-accretive inorganic opportunities. And I'll say some more about how we're approaching this a little later. Similarly, we've been preparing our well-structured and low-cost debt portfolio for growth, which remains primed and available to support major investment decisions next year. We have multiple capital management levers to pull in order to fund our transformative growth plans. Reduction in participating interest in Pluto Train 2 and Sangomar would significantly reduce Woodside's capital expenditure requirements. Ongoing active debt management, focused expenditure management and continuation of the dividend reinvestment plan are other capital management levers available. Our business development and growth team is actively monitoring the market and analyzing growth opportunities in the current environment. We're on the lookout for opportunities which are value-accretive, which meet our investment targets, which typically include an internal rate of return above 12%, a value investment ratio of greater than 0.25% and, depending on the opportunity, a payback period of less than 8 years. We undertake a holistic review of each opportunity against our strategic priorities and broader commercial considerations. And in this slide, we've summarized some of these. We have a bias to quality Tier 1 assets with a medium or near-term production. A clear link between a target and our investing business, whether that be geographical or from a capability perspective, is often a positive. We also take into consideration sustainability and carbon management issues. Our confidence around securing the value we see in an opportunity is central. These commercial considerations include the balance sheet impact, our degree of alignment with our likely partners and the resilience of the opportunity to oil price fluctuations. In the end, our focus is on identifying transactions which will reliably deliver value to Woodside's shareholders. As Fiona mentioned earlier, our 2020 production guidance has narrowed to 99 million to 101 million barrels of oil equivalent. We're expecting our investment expenditure for the full year to be between $2.1 billion and $2.3 billion. The increase in guidance is primarily due to the additional expenditure in Sangomar Phase 1 as a result of increasing our participating interest. There's a similar impact on our guidance for total expenditure in 2020. We've provided line item guidance for net finance costs and depreciation and amortization. Our estimated unit production cost for 2020 has increased by approximately $0.40 per barrel of oil equivalent due to COVID-19 and related events. In summary, as we look to 2021, our shareholders can expect to see Woodside prepare financially for the upcoming targeted investment decisions in Scarborough and Pluto Train 2. This will include targeting a reduction in our equity position of Pluto Train 2 to around 50% before FID and for Sangomar to around 40% to 50%. These transactions would significantly reduce capital expenditure in following years. Similarly, identification and assessment of value-accretive opportunities will be ongoing. And all of this will be undertaken against the backdrop of Woodside's resilient base business and strong balance sheet. Next, we'll have a short break to provide an opportunity for you to stretch your legs. And we look forward to reconvening in 5 minutes for Q&A with Peter. [Break]

Welcome back, everyone. I hope you found those presentations very informative. Now we have a question-and-answer session that will run for about 45 minutes. As I mentioned previously, the questions will come in live via teleconference. And then, of course, our investors have the opportunity to send questions to us, and we'll wrap all of those up. So let's throw to the first question.

Peter, the first question is from Adam Martin on the telephone line.

Yes, Adam.

Just in terms of costs, and thanks for that disclosure on Scarborough, obviously, if you increase the upstream capacity, sort of hinted there that it might actually lower that breakeven a touch more. Can you just talk through that a bit more and be able to sort of provide a bit of guidance there, a bit more detail?

Thanks, Adam. I'll let Meg speak to that.

Thank you, Peter. And thank you, Adam, for the question. It's a great question. So the slides that we presented today are based on the current reference case, which is the 6.5 million tonnes per annum case. As I noted, we're working through all the details associated with the expansion. Our current assessment is that there will be a modest cost increase. But of course, the capacity increase far outweighs that. So at this point in time, we're not prepared to give guidance about what our UPC or our breakeven cost of supply will look like as we go to the 8 million tonnes per annum. But you've inferred correctly that it will lower the breakeven cost compared to what we showed you today. Thanks.

Okay. That's good. And just second question there, I've just got a question, I [ suppose ], the divestment around Pluto Train 2. Obviously, as the energy transition is moving quickly, what sort of feedback are you getting from infrastructure investors, I suppose, just regarding the ESG risk, stranded asset risks? Perhaps you could summarize some of that, Peter, given some of the discussions over the last year.

Yes. It's a really good question, and Sherry has been on top of this one, so I'll let her speak to it.

Okay. Thanks greatly for that question. And as you can imagine, the ESG portion of it continues to be very important. We've talked about the fact that Scarborough and Pluto has an extremely low carbon footprint in terms of the CO2 content in that. But I think more importantly, the interest that we're seeing coming through from infrastructure investors has really just gotten stronger in the current environment. The way that we're looking at structuring the transaction, and that mirrors the way the toll is constructed, is that there is no price risk or LNG or oil price exposure that goes into the infrastructure investment value proposition. And so that's something that's really as strong as it ever could be. And of course, people are also attracted by the overall energy transition story that Woodside has to tell. Thanks for that.

Peter, your next question, from James Byrne from Citibank.

So Slide 54 in Sherry's section, I was quite surprised to see that there's no longer an intention now to farm down Scarborough from its 75% working interest. So I was hoping you might be able to provide some commentary as to why that was no longer the case.

Okay. It's a good question. We kind of looked at where we can get value out of the project. And as you know, we tested the market about 18 months ago on an integrated basis for Scarborough, meaning people that were interested in investing both in the upstream and in the onshore facilities. And then the market ran away from us. To be quite frank, pricing run away. And we said, look, it's -- really, we're not getting the value in the marketplace at the moment. So we'll hold on to it. Our focus now has -- in recent times has really been for infrastructure investors coming into Train 2. We see that's where the best place is for co-investors to come into the particular project. Our view, of course, is that Woodside investors want to be exposed to the commodity risk. That's what our cost of capital is based on. It's based on a risk -- certain risk profile. And so at this point, we've said we want to keep as much of that upstream as we possibly can. We've said that before. I've alluded to that in previous presentations. And our current planning base is that we'll hold on to that upstream. It's just simply not a good time in the market to be trying to sell that. Now if at some point, post-FID, somebody comes along and offers us an offer that we really can't refuse, then, of course, we'll look at that at that point in time. But the market conditions are such that at the moment, from a planning point of view, we think it's appropriate to maintain the upstream and then, of course, sell 50% of the Pluto Train 2 to other investors, very likely infrastructure investors.

Yes. So I guess after your post-results marketing in late August, I mean, investors came away with the expectation that if you're going to be monetizing Scarborough by building Train 2, then that was going to come with an equity check that was going to be written. And for the record, I don't necessarily think that's a bad thing if you've got a good project. But if I then think about Scarborough staying at 75% and the CapEx for an 8 million tonne per annum project is, let's call it, $6 billion to round off, then you're talking about an extra USD 1.5 billion of equity that would potentially need to be raised to cover that CapEx. I'm just wondering how you then think about that trade-off between dilution to the owners of your equity and the risk in having 75% of an upstream project. For me, I still would have preferred to have seen you continue to test the market, even though conditions at the moment aren't particularly favorable for farming down, at least going into your FID over the next 9 months or so.

Look, let me let Sherry run through this. She -- in her presentation, she alluded to some of the capital management levers that we have. We're confident we've got a pathway here that matches -- balances the requirement of the equity investors versus the amount of debt that we need to take on. We've got a clear pathway for that, but Sherry can give a bit more color to it.

Yes. Correct. And thanks for that. And as you mentioned, you'll note that in my presentation, I did not use the word equity for a reason. And that's because when we think about the activities that we have underway, both to dilute our interest back down to around 40% to 50% for Sangomar, where I've mentioned we already do have strongly interested parties, and also to focus on Train 2 to around 50%, but again, some flexibility in that, and then finally, perhaps looking at other opportunities across the portfolio to commercialize and monetize portions of our infrastructure assets. When you take that together with the cost optimization and reduction activities that we're doing across the portfolio and also looking at our dividend reinvestment plan that's been performing very well for us throughout the last 3 periods, we believe we've got multiple pathways to go through that without needing to rely on equity as support, even in the case where we maintain the larger working interest for Scarborough. And as we look at the A case and the increased value around that, we think that's so value-accretive for our shareholders that like Peter said, unless someone comes along and gives us an offer that's too good to refuse, it's actually worth much more for you if we hold on to it and develop it in those higher volumes.

So I guess the messaging is a little bit contradictory over the last few months after the results when it was -- where the messaging was more going down the path of using equity to support the CapEx. I'm just confused as to what's changed between late August and now here in early November about whether you made new equity or not.

I think the messaging has been very clear from us. And we've never told the market, in fact, that we'll need to raise equity. That's been speculation that's been coming from the analyst pool, to be quite frank. So I'm glad you're asking the question because we're dealing with it today. In our view, we're working down a path where the likelihood of raising equity gets smaller and smaller, and that's clearly where we are. So for those who are sitting out there thinking that Woodside is about to raise equity today, that's clearly not our plan today. We'll make decisions as we come closer towards FID. But our plan at the moment is to avoid raising equity to the extent we can. Now of course, there's a balance there. It's going to be around, well, what free cash flow is going to be between now and our FID decision. So how much of our debt are we able to run down? How much cash do we have in the bank? What do our ratios look like? So there's a lot of factors there, and we'll be balancing that up against the ratings agencies' requirements as well. So I'd just say there's a lot of moving parts. But we're certainly not going the first path that says we need to raise equity. In fact, no, the first path, we've always said, is self-help, and self-help is through managing the amount of equity we invest in each part of these projects. And for us, as we've said, we believe the pathway of getting Sangomar back down to 40% to 50%, a pathway of getting Train 2 away down to 50% or even lower, then, of course, it takes a lot of that pressure off us. And once we've done that, of course, then we'll just need to assess where things are. But as you know, the balance sheet is in good shape. The gearing is great at the moment. Free cash flow is still strong, and some of the projects that we've got underway at the moment will start to roll off next year in our capital spend, so it will free up a little bit more space for us. But I'm glad you raised the question because I know that speculation is out there, and I simply just don't know where it came from.

Yes. Okay. Look, the last thing I wanted to ask about is just around emissions reduction. And I think that the disclosures you put out today are pretty good starts. But I guess from our perspective in the market, to understand the merits of it, we also need to know what the cost base is for that emissions reduction. And maybe it's just too early to be able to provide that kind of guidance. But I've thought about a spectrum here of costs emissions abatement. You previously talked about Browse being in excess of $100 a tonne. Peers like Cooper Energy think that they can do it for $10 a tonne, so in order of magnitude, cheaper. And then you've got peers like Santos that might be able to turn it into a revenue stream. Just wanted to understand, if you thought about Woodside as a corporate and the equity emissions that you're looking to offset, where do you think you'd be on that kind of cost spectrum to be able to achieve your targets over the next 5 to 10 years and beyond?

Look, it's a good question. I'll let Shaun answer that one for us, and Tom may chime in as well.

Yes. Thanks for the question. In my slide, I kind of gave you a portfolio mix of offset emissions. And what we targeted there was for $15 as our balance across all those, both international, domestic already in-market, plus a new origination that we create and getting that balance and targeting around $15 per tonne for CO2 for that biosequestration. And we believe that's achievable from what we've seen both on the existing projects and the planting that we did this year as eminently achievable. You're right. When it comes to CCS, the cost ranges are really quite wide. I'm not sure around the $10. But certainly, the kind of the $40 to $100 range, very much dependent on whether or not you're sequestering onshore, where your CO2 is sourced, that would be in the lower end, versus some of the offshore projects, and the quality of that reservoir. So if the reservoir can really take a lot of CO2 at once, then you'll be able to see lower cost for carbon. Now to your point around whether or not this is a future business, right now, our focus is getting our emissions abated, offset for our targets, but yes, not closing the door on a future business. Thank you.

Thank you. Look, everybody, it's just about to turn 11:00 here. So just to respect those that have fallen to allow us to be here today, we're going to take a 1-minute silence now. Welcome back, everybody. Now next question.

Our next question is from Mark Samter at MST Marquee.

I've got 4 questions, actually, which I don't know if it's stretching the friendship. I can come back on the end if it's getting too much. I guess the first question probably for you, Peter or for Meg, looking at Scarborough. If we look at your Slide 23 and you talk about your $6.80 per MMBtu breakeven, your old deck, you used for the impairments was... [Technical Difficulty]

Looks like we've lost Mark. So we'll get Mark back on the line as soon as we can. Why don't we move to the next question?

All right. Tom Allen from UBS. Tom? Okay. We'll sort that out. We have had a question, Peter, from the webcast from Daniel. Just asking, what is the outlook for Q4? Is Woodside expecting a big increase in revenue and profit compared to Q2 and Q3?

Okay. It's a good question, Daniel. Look, I'm not going to give you a revenue prediction, but what I can do is point to pricing. So you might recall, in the second quarter of this year, pricing really hit a low. Now that impacted Woodside in 2 ways. One is we had a lot of spot LNG cargoes that went into the market. So you might recall, the spot price for LNG against the benchmark marker, being Japan Korea Marker, went down to around $2 per million BTU. So that affected a large proportion of our volumes. Roughly 40% of our LNG volumes were sold on the spot prices in that kind of second quarter period. Oil prices, though, kind of held up. So you might recall that we have a linkage to oil prices in many of our long-term contracts, that is a 3-month lagging average. And so of course, the low spot prices were offset a little bit by the fact that we had lagging prices from the first quarter of the year. Of course, in second quarter, spot prices increased. But then, of course, the oil price component of our contracts kicked in, and we saw those second quarter oil prices. Now of course, all of that's now washed through. And you've seen a firming of oil prices now through third quarter and also a firming of spot prices. So spot prices today that we're selling into the market have gone from around $2, roughly $6.75 today. We even saw $7 earlier in the month. So you can see pricing has gone up a lot in the spot area of the market. Of course, we won't be at 40%. We'll be somewhere between 25% to 30% of our product will be sold as spot. And then correspondingly, oil prices have also firmed quite significantly and have been trading in the range of around $40 per barrel. So both of those factors really point to an increased revenue stream coming through for us in the fourth quarter.

Peter, we've got another question from Adrian Prendergast through the webcast. We're interested in better understanding your expectation for Browse's return profile, given consensus values are materially below our greater than 12% IRR hurdle target. And also how does Browse carbon profile compares to Scarborough? And how does it fit in with your longer-term carbon goals?

Right. Let me throw to Meg to answer that one, and Sherry may want to comment as well.

Okay. Thank you, Peter. So with respect to Browse, as we communicated in March, we've pushed our decision to advance that project into FEED and towards an ultimate final investment decision out by a couple of years. But that's not to say that the team is sitting idly by. They're working on a number of critical activities as we speak, which is obtaining the necessary environmental approvals, obtaining the production and retention licenses that we need to keep title over the resource. And importantly, a big part of the team's effort is focused on value improvement. Now there's value improvement in 2 spaces. One is looking at the economics of the project, and we've put a challenge to the team to make sure that the project is economically attractive at a wide range of prices. And so they're looking at things like design improvements, changes we might make to the investment profile, things we can potentially do to try to improve recovery through the -- of the gas from the reservoir. The second area that the team is working is carbon capture and sequestration. Obviously, the Browse CO2 intensity is higher than Scarborough. That said, it's very consistent with other fields that have recently been developed in that part of the Australian offshore. But we are looking at things that we can do in the self-help space. And the FPSO design, even as we were progressing it over the last few years, has always maintained space where we could put the equipment required for CCS if we got to a point where we thought that was economically attractive. So the team is continuing work in that space, looking at both the subsurface and the facilities questions. And we feel like we can meet all of our carbon commitments with the Browse CO2 emissions.

Okay. Thanks, Meg.

I think we've got Mark Samter back on the line now.

Sorry about that, Mark. You were about to throw to your first question.

Sorry, should I repeat the question? I wasn't sure you heard it.

Yes. Yes, please.

Yes. I was just saying, if we look at Slide 23, and you've talked about a $6.80 per million BTU breakeven, your old deck, you used for impairments was $65 a barrel. And if we take the pretty well-publicized Qatar contract as a 10.2 slope DES Asia as the line in the sand for current LNG pricing, I guess on those assumptions, you don't reach $6.80 per million BTU. Against that backdrop, can you talk about, a, what you're thinking on your contracting strategy? How much you want contracted to Woodside? And b, can you foresee a world where LNG markets prohibit you being able to get this project off the ground?

Yes. Mark, as you're probably aware, Meg has now just taken over our marketing activity, along with her development responsibility. So this is a question that obviously is exercising our mind as well. So I'll let Meg kind of walk through the thought process that we have around that.

Thanks for the question, Mark. So as I noted, that graph is prepared based on the current case, which is the 6.5 million tonnes per annum case. And the work that we're doing to optimize the design will improve -- further improve the globally -- global competitiveness of the Scarborough Train 2 investments. Now that said, there are a number of steps that we're trying to take or that we're taking as we think about the LNG market. And the reality is the LNG market has changed very dramatically from the last significant investment that Woodside made in Pluto. So if you think back in time to a decade ago, we were at a point in time when a significant investment decision like this required off-take certainty. And so when we made that investment, it was very important that we had all of our long-term contracts locked up. As we reflect on the LNG market and how it has evolved over time, the market is far more liquid. So there are more customers buying LNG today than ever before. We expect over the next few years, that number will increase. And so if we think about the market conditions today, we're actually in no rush to try to tie up all of our Scarborough and Pluto Train 2 offtake. It's sort of interesting if you think about it, we're in a buyer's market. So as we think about going out and buying services from our contractors, purchasing the goods and services we need to develop the fields, we feel like the timing is right. Equally, as a seller of LNG, we don't feel like we need to be rushing into deals that would be value damaging for the Woodside shareholders. So we have a number of HOAs. We're continuing to try to progress those to fully termed SPAs, but we're not going to be rushing out to try to secure deals at some of the low prices that you would have seen in the marketplace today. Thanks.

Yes. And then I guess just following on from James' question before then. I'm presuming in that world, it's a lot harder to secure debt against the uncontracted project. So again, probably the mix of equity funding increases for a project where you don't take as much contracted first?

No, not really. And that comes back to the strength of our balance sheet. But I'll let Sherry kind of walk through our thinking on that, Mark, and why we believe Woodside actually has a competitive advantage compared to some of the other projects you see around the world.

Yes. Correct. Thanks. And if I could just take a minute at the beginning also to clarify 2 points around our impairment testing, since that was the first part of your question, Mark. I think the first thing to keep in mind is that the impairment testing, of course, was also done on the 6.5 million tonne per annum unoptimized case, and things only get better as we move forward. The second thing that's important, and you're probably aware of this, is that when we look at the price decks that we use for impairment testing, we take a basket of what we believe overall the forward pricing. Now of course, even at the time we did impairment testing, we've been aware for some time that Qatar, as an example, is coming in as the low end of the cost spectrum on supply coming into the markets. And you could imagine that there might be low pricing that goes along with that. But that's one price point. That's not the overall market. I'd also just remind that when we look at our projects, putting impairment testing aside, we look for IRR returns of greater than 12% at $65. But we also stress test at $50 with lower slopes along with that. And in the COVID environment, we've even been stress testing at prices below $50 and slopes commensurate with that. And that's still a very economic attractive project even at 6.5 million. The other answer to your question around funding, I think, is quite simple, is that we're not planning to use project financing. And that's been something we've been clear on all along. That's a flexibility that we have. That is a clear advantage to us versus other projects that may need to rely on project financing and, therefore, need to secure a certain percent or actually a high percent of contracted volumes to enable that project financing to occur. So we have no constraint from that perspective as we'll be looking fully at our balance sheet funding, and we can fully optimize the other levers that we've talked about as we go to FID. And that's really great for us because that leaves us full freedom and flexibility from a marketing perspective to sell at the right time at the right price to the right customers. Thanks for that.

Mark, you had a couple of more questions? Okay. We'll move on. Next question from Tom Allen at UBS. Tom?

Yes. So just following on a couple of questions that we've had related to the 75% carry of Scarborough upstream, and I apologize to continue on this theme. But perhaps another way to ask it is, it appears that you're placing a lot of value on the HOA that you have for Scarborough gas. I was wondering if you can provide some more color on those HOAs and the mechanisms around just to give investors the same confidence that you have that the HOAs will convert to SPAs upon FID.

Look, I'll take that one, Tom. I think the key here is we're not relying on those HOAs. As Meg alluded to, Woodside's been developing a portfolio now for a number of years. We have a trading capability based in Singapore, and we have shipping that goes along with that. So we're looking at it and saying, what do we really need to get across the line at FID? Or could we do what some of the super majors have been doing now for some period of time, it's just simply selling into our own portfolio and then on-selling that as market conditions improve? And that's where we're heading to now. And so the point that Meg was making around the old thinking was you had to have 80% of a project sold before you could get it moving, right? That might be the case for smaller companies that don't have as robust cash flows and balance sheet. It's certainly the case for projects that need to be project financed, and you see that happening in Russia. You see that happening in Africa and so forth. But that is not the case with Scarborough. We will finance this off our balance sheet. And we have the marketing capability, capacity, and we have time on our hands. So there's a lot of time between FID and first production. If you look at the market today, it's a low point in the market. Historically, if you look at these sorts of slopes, it's a low point. Why would you be selling into the market today? Equally, the benchmarks that people want to get out there, the Qatari volumes, you've got to take all of that with a grain of salt. There are clearly G2G relationships there. The Qataris need to build 100 ships. You've got to look at the Korean deal in the context of both the gas they're selling and also the ships that they would be purchasing. I'm sure that was a package deal. And you look at some of the other ones as well. There will be G2G relationship. So you've got to stand off that. Don't take that as your headline number. Don't jump in too quickly. Don't panic. Just back yourself. We've got the capability. We know that across a number of our contracts. We know what the second-tier buyers are willing to pay or need to pay, and we have a strategy around that. Now the HOAs we have in place, we're still engaged with those parties. And obviously, COVID has slowed down the conversion of those HOAs to SPAs simply because we can't get across the table from people. But we are continuing those negotiations. And as the project starts to derisk itself, the buyers come along. So once we start the project up again, and we're planning to start Scarborough up again early next year, start the engineering ramp-up, the buyers will then get the confidence then to start moving forward to completing those SPAs. You're just not going to get them completed today because we've put the project on hold or on a slow burn. Once that starts to ramp up, you'll get that again. But my message really is we don't need to have a specific target for the amount of gas we need to sell to go to FID. And if we do this today, it will be a value-destructive price.