Santos Limited

Good morning, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Santos 2023 full year results webcast and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Kevin Gallagher, Managing Director and Chief Executive Officer. Kevin, you may begin your conference.

Thank you. And good morning and welcome to our presentation of the Santos 2023 full year results. Joining me today is Chief Financial Officer, Anthea McKinnell. Anthea and I recorded a video presentation on today's results, which you can find on our website, along with the presentation. We're not going to repeat the video presentation on this call. We will, however, be happy to take your questions. Before we do that, I'd like to start by acknowledging the traditional lands of the Gardiner people of the Adelaide Plains, where I'm speaking from today. I pay my respects to their elders past, present and emerging. I also acknowledge and recognize the support of traditional owners and indigenous people everywhere Santos operates, including our local communities in Papua New Guinea, Timor-Leste, and Alaska. I'm pleased to present yet another solid set of financial results that demonstrate the success of our disciplined operating model. Santos continues to generate strong cash flow despite the challenging operating environment. I'd also to touch on some of the highlights from this result. In 2023, Santos generated sales revenue of $5.9 billion, EBITDAX of $4.1 billion, free cash flow from operations of $2.1 billion, and underlying profit of $1.4 billion. The Board has determined to pay a final dividend for the year of $569 million, or 17.5 US cents per share, unfranked. We are pleased to continue to deliver strong cash returns to our shareholders while balancing the need to invest in our business. Our lost time injury rate has improved substantially since 2017. However, contractor safety performance has emerged as a key watch area, and we continue to work with our contractors to drive down injury rates across that workforce. Process safety performance is critical to our business. Always safe is a core value here at Santos. Our expectation is that every day, everyone who works at Santos is focused on keeping themselves and their workmates safe, and of course, going home safely. Across the business has been a very busy year. At GLNG, the work we've done at Fairview on horizontal drilling is expected to deliver well productivity 15 times higher than vertical wells have historically produced. GLNG also achieved a record 455 new well connections in 2023. In P&G, Angoria continues to progress, and one of two wells has been successfully drilled and completed. We continue to drive productivity and reliability in our operated P&G business, with reliability post the oil search merger increasing significantly to more than 95%, delivering around 1 million barrels of incremental production in 2023. In the Cooper Basin, We drilled 108 wells and connected 96 in 2023, and we'll continue to chase higher production this year. In the Northern Territory, we shipped seven Darwin LNG cargoes from Bayou London over 2023. Bayou London produced beyond expectations and continues to supply domestic gas into the Northern Territory. And in Western Australia, we extended the field life of reindeer, into the first half of 2024. In Alaska, the PICA project is progressing and on track. Five wells have been drilled and flow back results from the first two wells are in line with pre-drill expectations. The Barossa gas project is on track. Since drilling recommenced in January, we've completed one well ahead of plan and the second well is now in progress. Well flow test results are in line with pre-drill expectations with CO2 content at the low end of concentration expectations. More than 50% of the gas export line has been laid and is 68% complete. We're making good progress with Barossa and First Gas is now only just around 18 months away. Our Santos Energy Solutions business continues to expand its project pipeline and is delivering on a suite of projects. The Mumba CCS project is now more than 80% complete. We have drilled four injection wells and we expect to begin injecting CO2 later this year. Feed for the Bio London CCS project is now more than 86% complete and we have signed four MOUs with potential customers and the Australian government has passed legislation to enable cross-border carbon transfer. In WA, we expect Reindeer CCS to be a customer-led project, and I am pleased to announce that we've moved into feed. And finally, I am very excited about our carbon solutions business, which continues to progress projects in Australia, PNG and Alaska, where we are executing agreements with Alaskan landowners to generate nature-based carbon credits for our PICA project. Santos has almost 4,000 landholder agreements, and we're working with a number of those landholders to identify high-quality nature-based opportunities to generate carbon credits. We are committed to achieving our net zero scope one and two emissions targets by 2040, and we are confident our disciplined approach to operating our business and allocating capital will deliver strong returns to shareholders over the long term. A relenting focus on sticking to our strategy and implementing our disciplined operating model has delivered consistent results and kept the business resilient and performing strongly. We continue to generate strong free cash flows to maintain the strength of our balance sheet and to provide returns to our shareholders. Thank you. We're now happy to take questions.

If you like to ask a question, please press star one on your telephone keypad. Your first question comes from the line of James Byrne from Citi. Please go ahead.

Morning, Tim. First question on capital distributions to shareholders. So at the August results six months ago, the messaging was that we could expect a split between dividends and buybacks. Obviously today, just straight dividends. Could you perhaps give us some insight as to how the board's thinking around dividends versus buybacks as part of capital distributions? And perhaps this is a little cheeky. Is there anything at the moment that might be precluding you from buying back your own shares at the moment, such as discussions around your strategic review?

Well, so a couple of different questions in there, James, but let me try and dissect that and answer all the different points you raised. Well, first of all, the board, resolved to pay a dividend, as you saw, 17.5 US cents per share. Back in the half year, we suspended the buyback at that point in time and the board paid a lower dividend at that point in time. And what we said then was that we'd be reviewing the macro and, you know, obviously Barossa was being delayed at that point as well. So we were kind of waiting to the full year and that we'd be looking to balance the final dividend or the final return to shareholders, I should say, with policy of 40% of free cash flow from operations being returned to shareholders. The board have resolved to pay that as a dividend because they felt that was the best approach at this time to return or to give returns to shareholders, that it was more efficient to give them the cash now rather than the dividend over a longer period of time. and they'll continue to review the buybacks going forward. The buyback programme, I should say, going forward. In terms of the second part to your question, I'm not sure what you meant in terms of being a bit cheeky. I would have thought cheeky giving me more returns than maybe I expected would be something that would be a welcome cheeky, but nonetheless, I think... you referred to a strategic review. What we said at our investor day in November is that we were not doing a public strategic review, that in fact we had advisors appointed. We've been working with those advisors and continue to work with those advisors to look at any opportunity. And of course, we welcome shareholder feedback and opportunities or ideas to unlock or to create shareholder value. And that we'll continue working together with our advisors to evaluate, develop, and negotiate or implement any of those opportunities or ideas as we go forward. And then we would update the market when and if there's something to update them on, rather than carry that out in the public domain. And that's what we've done over the past eight years or so, when we've announced other initiatives, like acquisitions or sell-downs we've done previously on Barossa, etc. And so we will continue to work in that manner. As you saw with the Woodside discussions that made it into the public domain, we are more than willing and open to considering other opportunities if and when they become available, and we'll continue to do that.

Yes. Hopefully that answers most parts of your question. Indeed. So I guess the second question I was going to have was, you've answered most of it really around strategic review, which I appreciate sort of downplaying as not doing a public one. You know, if you and your advisors work together and there's no outcome such as, you know, a sale of certain assets, for example, how do you think you'd like to communicate that to the market? Because today, I guess, you know, there was a bit of an expectation in the market that there might be an update on that kind of activity. And, you know, there was nothing in the slide pack at all. So I guess the fear is, from my perspective, that we're kind of sitting here and there's no news flow until August. I'd just like to know how you'd like to communicate to the market, even if there's no outcome.

Well, my communication today is primarily focused on our full year results, James. And, you know, we have a lot on in the company. And I want this organization predominantly to stay focused on delivering on our strategy, delivering results. on our projects. We want to keep driving forward on Barossa, on PICA. We want to bring on Mumba CCS in the second half of this year. And that's where I want the people inside the organization focusing their efforts. In terms of anything else structurally or otherwise that we are doing corporately, we will update the market when it's appropriate to do so rather than speculate.

Okay, that's clear. Thanks, Kevin. That's all from me.

Thank you. Thanks, James.

Your next question comes from the line of James Redfern from Bank of America. Please go ahead.

Hi, Kevin and Anthea. Good morning. I just had a continuation of James' question. Hi. Sorry to belabor the point, but there has been quite a lot of discussion lately about unlocking shareholder value at Santos. And so the focus is really developing Barossa and Picker, which is great. But, you know, we understand that the merge talks with Woodside were recently terminated. I just want to confirm the proposal last year to potentially de-merge Santos, you know, into LNG Co and de-merge Co. I think, you know, you said that you didn't believe that was a good idea for Santos. So I just want to rule that out as well, just in terms of options to unlock shareholder value that's been talked about a lot. Thank you.

Thanks for the question, James. I don't think I commented on the merits of that proposal one way or the other publicly. What I said is that we welcomed any suggestions and any ideas to unlock value. We're all in the same boat there. We want to do that. And that we would evaluate all options. What we wouldn't do would be running a public strategic review process because as you saw even in the more recent discussions with Woodside, that doesn't help facilitate those types of conversations. And in our experience, they're better conducted confidentially. And when there's something to announce, we update the market when it's appropriate to do so. And in the meantime, we stay focused on delivering on our strategic plan. We believe that that plan will deliver significant shareholder value through the cycle and over the course of time. And we've got to stay very focused on that. And so, you know, I'm pleased that we're able to deliver a strong dividend, but that strong dividend didn't come from one year's work or from one year's oil price. It came from building a portfolio over eight years. implementing a disciplined operating model and leveraging off our assets and our synergies that we've delivered to drive production costs down over the past eight years from where we were in 2016. And, you know, that takes a lot of work and we've got to stay focused inside the organisation to do that. And we know that when Barossa comes online in 2025, PICA in 26, we know that our cash returns will go to a much stronger level from this portfolio, and we will drive our production costs down even further. And so that's very much where our focus has to be inside the organization. But, yeah, we will continue to look at other opportunities that are identified or that come to us, and if there's something to provide an update on, we'll do that, as I say, when it's appropriate to do so.

Thanks, Kevin. Thank you. I appreciate the answer. Just one second question, please. Dorado started targeting FID in 2024. Just wondering, is there still a sell-down process underway for Dorado?

James, when there's something to update the market on, we'll update it when appropriate when it comes to anything like that, sell-downs or whatever. All I'd say is we've recycled that project. We're making it a better project. I'm confident we'll make it a better project. and we will work towards getting FID ready. We have made no commitments on taking FID. And, you know, we've said all along that we'll be very disciplined. We're going through a high CAPEX process at this point in time. We're very focused on delivering on these projects. What we want to do when we come out of this CAPEX cycle is not go back to these CAPEX levels in terms of our all-in break-even. We're very focused on going forward in a very disciplined opportunity. And Dorado will compete with other projects across the portfolio going forward, but we will not be doing them all at the same time. We'll be moving forward on developments in a very controlled manner. So whether that means sell-downs, sell-outs, whatever, again, we'll evaluate those opportunities if and when it's right to do so, and then we'll update the market when appropriate.

Your next question comes from the line of Mark Wiseman from Macquarie Group. Please go ahead.

Good day, Kevin, Anthea. Thanks for the update today. I had a question on the Cooper Basin. We saw your JV partner obviously take some impairments recently. The contribution from the asset seems to have come down a little. But obviously Beech with new leadership, with someone you know well, seems to be looking for cost opportunities and uplifts in margins and so on. I was just wondering, firstly, where do you see the Cooper Basin break evens now? You are getting some better drilling results. But secondly, is there any change in the operating model in the Cooper Basin as a result of Beech really becoming a bit more dynamic with their leadership?

Yeah, well, look, I mean, yeah, I do know him very well. And I was really pleased to hear these comments over the course of the last week or so as he gets started in his new job. And Brett knows only too well. that if he's looking to take cost out of things, that he's not an orphan in that world and he's got a good ally here to talk to about cost out opportunities anytime. And I'm sure we'll work well together on that going forward. And I'm sure there will be opportunities for the two companies to work together to reduce costs across the Cooper. And we'll continually look at those opportunities, whether they be simply operating model type tweaks or whether they be structural tweaks. opportunities there also. But look, the Cooper Basin has had a little bit of increased capex over the last years as we've electrified, as we're spending money getting ready for the CCS project coming online. And, you know, the electrification there for the upstream satellites will result in additional gas, sales gas, as we burn less gas up at the upstream satellites and instead run electric compressors, which will also give us higher reliability than gas-fired turbines out there, and that in itself, again, will increase sales gas. You rightly point out we've had very good drilling results over the past year or so, and I've always said, The Cooper Basin has got to be viewed very much as you would view an unconventional type of assets. It's lots of wells, it's continual drilling, and it's about the number of wells, number of connections. It's a drill-complete-connect business, and it's just a factory approach. And when you do that, you get your costs as low as you can, and you try and connect as many as you drill each year. He will drive that production up. We've had some very good drilling results in the granite wash area, which is a new development area for us. You saw we had very high well rates. I think we said at the Investor Day testing, well rates unconstrained around, I think it was about 8 million terajoules per day at that point in time. We're now looking to drill more of those wells this year, and that's long horizontal wells. That's one of the few areas in the Cooper Basin that's suitable for long, horizontal wells. And what that allows us to do, if we can get a few of them in the Cooper Basin, is build a stronger base production level in the Cooper Basin. And so we'll continue to do that with the granite wash. And we've got some other exciting opportunities around the Cooper Basin. So, Luke, I think the Cooper's got a long, long way to go. I mean, it's still got a high percentage of its reserves and resource in place still to be yet developed. We've got our Moomba CCS project coming on line there later this week. This year, sorry, I wish it was this week, later this year, I'm sorry. And we look forward to that coming on and then making that a much lower carbon intensity asset as well. So we've got a very bright future ahead of it. As you know, it's got very significant storage potential. We added 40 million tonnes of storage capacity, 2C storage capacity to the Cooper this year, and we've now got 140, I think it is, million tons of storage capacity in total in the Cooper. That's 2C. And so, you know, that's a very exciting position for us as we look to build the third-party carbon capture business in the years ahead.

Thanks for that. I just wanted to ask as well on slide 17, you know, the committed major project CapEx really comes down more than we expected in 2025. How are you thinking about this next generation of FIDs, whether it be Dorado, Papua or Picker Phase 2? Whilst you're doing this structural and strategic work, are you in a position to take FIDs on other assets or are you sort of in a zone where you won't necessarily commit to anything for a period of time?

We're going to be disciplined, Mark, in what we commit to, and the best horse will win the race, right? It's a good position to have, and we're not going to look to do everything. We'll just do it in a disciplined way. When you say, how do I look forward when I look at that chart? I look forward to higher margins in terms of lower all-in free cash flow break-evens for the business. We know that 24, 25 were high capex years for the company. They were always committed. to be high CapEx. Our sustaining CapEx is a bit higher over those two years because we've got decommissioning spending there. And our growth CapEx is what you're referring to on this chart. But when we come out of that, we become a much lower capital intensity portfolio with much higher free cash flows from operations from those projects being online. The bulk of the spend in Barossa is this year. And so next year, the spend on Barossa is actually significantly lower. And that's what that chart The predominant spend in 2025 that's committed to this point in time is, of course, the PICA project. But, you know, those projects you mentioned, Dorado, Papua, et cetera, they will compete for capital and we will set a ceiling for total capital expenditure going forward to make sure that we are a much less capital-intensive business and we reap the benefits from the backfill and sustain opportunities that we're executing today.

Your next question comes from the line of Sal Kavanagh from MST Marquis. Please go ahead.

Thank you. Hi, Kevin. Hi, Andrea. A few questions. Yeah, thank you. Just wanted to come back to the capital management and the dividend payout today, which I think takes you to the 40% payout target for the year. I think when that capital management policy was originally announced, you talked about that coming from kind of the base business and that any asset sell-downs would enable additional sharehold returns. Given you've already got $350 million from the P&G sell-down, how come there hasn't been essentially sharehold returns over and above P&G? that 40%? Because it can look like you need to do these asset sell-downs just to meet the 40% target at this point.

Well, look, I mean, thanks for that, Saul. Look, I think what the announcement you're talking about was when we announced the the dividend policy. I think what the board said at the time, they would consider additional returns from any sell-downs, asset sell-downs or whatever, at that time, with the usual qualifier around taking into account all the macro conditions and the situation, et cetera, et cetera. Obviously, Barossa de Leo last year impacted our spend a bit last year, and the reality is that the board decided given that it was such a large dividend, a strong dividend, a record dividend over the course of the year, that that was enough at this point in time. And to balance that with looking after the balance sheet and reinvesting in the projects that we're executing at this point in time. And we'll continue to do that. I mean, we're very confident. that once Barossa comes online particularly, but then PICA as well, that obviously our cash yields from the operating business become a lot stronger. And we're very confident that we'll be able to maintain that dividend as we build or improve the cash yield of the business over time, just as we have done every couple of years. If you look back over the past seven years or so, we just keep torquing up that cash flow yield from the operating business. And that's very much the approach we want to continue taking. I don't see it the same way that we have to do sell downs to maintain the dividend. I mean, I think the dividend shows that the board is confident in our future cash flows and given the progress we're making on our projects, believes that it is sustainable.

Thank you. Second question, if I could just ask a little bit about the commissioning spend outlook. It's obviously doubled this year in Biden versus last year, but is it possible an indication of what that abandonment spend looks like from 2025 onwards? Because just like looking at kind of woodmackish numbers, you've got maybe three quarters of a billion dollars in Harriet, more than that at Barrow, all in the beginning of the next few years. Is that ABEX likely to go up or down from 2024 level over the next several years?

Yeah, look, I think it's likely to stay pretty steady through 2025, so very similar, and then come down considerably after 2025 and be a lower level sort of each year through to the end, second half of this decade, I would say. Significantly lower after 2025. So the big spend really is 2024-25, where we've got some larger decomm commitments, more of the sort of the big floating offshore equipment and wells to be decommissioned. But after that, in 25, it'll drop off quite considerably to a much lower level and get the West back to being a stronger contributor across the portfolio.

Your next question comes from the line of Tom Allen from UBS. Please go ahead.

Hi, morning, Kevin, Anthea, and the board of team. I have a few questions on P&G. I was hoping you could please share some more color On the drilling underfoot in PNG currently, it sounds as though the first of two wells at Angora has taken possibly six months longer than planned. Will the second well be drilled at Angora and the rig then move across to drill the Hydes footwall as well? There's obviously a lot of reserve tied up in those fields. So if drilling doesn't proceed, how might the joint venture rejig the upstream supply plans for the project over the course of the decade?

Look, Tom, the first well is now completed. You're right. There's a lot of drilling problems in that well. And, you know, you've been covering PNG for a long time. You know that the geology and the subsurface can be very challenging there. Learned a lot of lessons on that. And I hope that those lessons now will mean that we will see the drilling improvements on the second well. We've got the 13-3H casing landed, which was one of the problematic issues on the first well. So we've got that. And really, once we sorted out the drilling issues on the other well and we worked out how to drill these sections, it went quite well in the end. And I know that sounds like a driller telling you that at the end of many months of delay and problems. But that's essentially what happened. Once it worked out and worked out to drill that section, it went quite well in the end. My... I guess we need to see if that will replicate it on the second well. But so far, so good. It's going well. And we've been working with Exxon, who are operating this well. We've been working closely with them, our drilling group, to have those after-action reviews and to review the drilling practices and stuff. And we're pretty confident that they've locked those learnings in. So I'm optimistic that we're going to see us catch back a bit of time now and get Angoria on. As for Hyde's Fruitwell, I don't have any clarity on the time at which we'd be spotting that well yet, but you know we're very excited about that opportunity, as are Exxon, and we're keen to drill it as soon as we can, because there are a lot of reserves there, as you know.

Okay, thanks, Kevin. Sandos has got the higher upstream production cost this year. Just wanted to check in on the Papua LNG FID, so... Typically leading up to FID, there's obviously usually a detailed cost assumption review. And so the question is, what's the production cost environment like in P&G? And what timeframe is Papua tracking towards an FID?

Well, look, I mean, I think Total put an announcement out just last week saying they're still aiming to get FID ready by the end of this calendar year. And so I can't really add anything to that. They're doing that upstream feed work. My understanding is that the midstream feed work is going very well. Exxon, of course, managing that. So they're on track for that as well. So I can't really add to anything there. I'm not sure if you're asking about production costs and P&G or just production costs more generally. You know, one of the things that I'm actually really proud of for the organization is that contrary to inflation more generally and peers more globally, our production costs have come down consistently over the past seven or eight years. And our forecast would indicate that once Barossa and Mpeka come on, we expect them to drop to around the $7 mark across the portfolio. And so we stay very focused on cost. I mean, at the end of the day, this is a commodity business, and your best protection and your best opportunity is to have that cost of production as low as you possibly can. And we continue to absorb the challenges of inflation. They are hitting us. We see that. Last year, of course, we got hurt a little bit by the late life production by London. And that's going to be high cost as volumes come off in late life. But outside of that, I'm pretty comfortable with the work the guys are doing to absorb inflation there. on an ongoing basis. You know, that's a challenge. You won't be able to do that forever, but we continue to stay focused on driving those production costs down. Whilst, you know, at the same time, not losing sight of safety and operational excellence and You know, if you look at our loss of containment performance, we're still better than IOGP average. We saw a 63% reduction in moderate harm incidents compared to previous year and a 50% reduction in high potential events compared to 2022. So we're still very focused on the safety and integrity part of our operations. And so, you know, given all of that, Well, hopefully that answers your question. But, you know, we're very focused on cost. I think also if you look at our LNG costs, you know, our weighted average cost of supply for our LNG across our LNG assets is somewhere between 250 and 275 per MMBTU. And we want to keep that down at those levels. You know, that creates a real high quality LNG portfolio and robust against swings in commodity prices.

Your next question comes from the line of Nick Burns from Jardin, Australia. Please go ahead.

Yes. Hi, Kevin and Anthea. A couple of questions from me. First of all, just on P&G again and safety, security, et cetera, significant unrest in P&G over the last few weeks. Just wondering if that's causing any issues in relation to upstream operations. Can you just talk about what the joint venture is doing in that regard? Thank you.

Ruth, Nick, thank you for that question. I mean, it's a very serious issue, of course, when you see unrest. I mean, the unrest in Port Moresby, while it's very disturbing and concerning, didn't really threaten our operations. Our people were safe. We've got very strong security. operation up there that monitors the situation real time and we've got protocols and practices we put in place with our workers. In fact, during that particular event, we were able to let most of our workers work from home until things calmed down and got back to a state of normality. The stuff more recently up in Highlands was a couple of hundred kilometres or so away from where we operate, so it's quite a distance away from us. We believe it was some tribal... clashes we monitor that very closely we stay in contact with the authorities we keep briefed and we have our security operations reviewing the situation real time at this point in time we see no elevated threat to our workforce but of course we would monitor that and you know at times when there's anything like that that crops up we would put into place restrictions on folks travelling into and out of PNG, et cetera, for essential people only. First and foremost, what I should say, though, Nick, is first and foremost, we will prioritise the welfare and the safety of our people at all times.

Appreciate it. Thank you. And just on Barossa LNG, I think you flagged here that CO2 levels on the first world were towards the lower end of expectations. Can you give us an actual percentage number on that? Are we talking 14 or 15? 15% reservoir CO2. And are you expecting CO2 content variability across the drilling? And just trying to think through what that means, what this all means in terms of impact on lower reservoir emissions that need to be offset from day one. Thanks.

Well, look, thank you. That's a great question, Nick. I mean, first of all, you might be right or you might not be right in the numbers and the ranges that you quoted there, but it's down at that end. And so, you know, that has the potential to mean that we have significantly lower emissions over life as fuel, but it's too soon. to say that or to determine that after one well and we've got six wells to drill and a lot of encouraging signs from this well but we will have to wait and see over time and appraise that fully from the flow test information as we drill the other wells and so we're going to be cautious and not jump ahead of ourselves here I think that's important but let's just say that we were encouraged by those results from the first well what does it mean for the project well if It doesn't mean anything yet because of what I just said, but if that was to come true across the rest of the wells, then what that would mean would be less carbon to capture and store and less carbon to offset in the initial years of production, which would improve the IRRs of the project, obviously, because we'll look at that cost as an OPEX cost for the project, and that would reduce that OPEX cost quite considerably.

Your next question comes from the line of Gordon Ramsey from RBC Capital Markets. Please go ahead.

Thank you. Great result, Kevin. Just looking at your capital management policy going forward and the dividend and buyback kind of trade-off, we got it wrong before where we thought you'd do a higher dividend and you did a dividend and a buyback this time around. You've gone for a pure dividend. Going forward, I'm just trying to understand if you can give us some guidance in terms of what the thinking is in the company. Should we be forecasting more returns going forward in the form of a dividend as opposed to a buyback, or is it just going to vary each year?

Well, Gordon, I'd love to give you a really definitive answer to that question, but I think you know what I'm going to say now, and that is that the dividend or the buyback is a matter for the board. And, of course, I have one vote in that conversation, but it's a matter for the board ultimately. Luke, I think what I would say is we're very focused on returns for shareholders. And, you know, what we have right now is when we look at the size of the dividend, we want to provide shareholders both in Australia and internationally with a competitive dividend that makes us attractive to invest in. We look at the returns since 2016-17 that we've given to shareholders. They total around 3.2 billion US dollars in that timeframe. which ironically I think is equivalent to what the market cap of the company was back then. And so we're very focused on trying to maximize those returns for our shareholders. The board will determine what they think is the best way to do that as we go forward, while balancing giving strong returns to shareholders and sustaining those with managing the balance sheet and investing in the business. And we've got to balance all of those three things. So I can't be more definitive than that. But, you know, obviously I am pleased that the returns here resulted in a record dividend for Santos in our 70th year over the course of the full year.

Your next question comes from the line of Henry Mayer from Goldman Sachs. Please go ahead.

Good morning, Kevin. Thanks for the updates. Just a first question on gas market. You've called out a pretty strong 14% average slope on LNG at the moment. We're seeing spot prices start to compress a bit and expect a bit more of that to come in the second half of the decade with new supply coming through. Back in November, you're looking at a 25% target for spot exposure on LNG by the end of the decade. Is this still the right number in your view? Or are you looking at other opportunities to try and Perhaps juggle that in the near term and open up that spot exposure a bit more back-wise towards the end of the decade?

Henry, thank you for that question. Great question. I did say that, didn't I? I did say that I thought the right balance of the portfolio was about 75% contracted and 25% spot exposure contracted. I probably said that when spot prices were really high and we wanted to maximize. And that will happen again. There's nothing sure in the commodity cycle that it goes up and it goes down. And so we do want to have a balance in our portfolio so that we position our LNG portfolio to take advantage of those upswings in the cycle and that we're robust on the downsides. And that's why the cost of supply is so important to us. And having an average weighted cost of supply around, you can see from that chart, around the sort of $2.50 mark is very important to us because... Obviously, when it's that bit lower, that ensures that we still have and maintain strong margins across our LNG portfolio. What we're not saying here, just to be clear, is we're not saying that the price, the contracted price out there right now is around 14%. That's not what we're saying. What we're saying is the weighted average slope of our contracted volumes are greater than 14%. We have a very high quality contract. portfolio of LNG offtake contracts. And that's something that, again, with a low cost of supply and a high weighted average price across a portfolio, creates really strong margins through the cycle.

Got it. Thanks, Kevin. And a second question on Bayou and on CCS. You talk about the other growth projects like Dorado. Papua, maybe Narrabri competing for capital. Could you just confirm that Bayou Undone CCS is competing for that same capital and that same return profile? And what's really needed with the scope you're looking at now through feed as far as carbon pricing to get that return?

Well, thanks for that question. I'm very excited by our CCS portfolio, and more recently was excited to hear our Resources Minister, Madeleine King, with her counterpart from Timor-Leste, announcing their support to work hard on developing the regulatory frameworks now to allow the Bayou London project to proceed successfully. in a timely manner. So that was very exciting and I was very encouraged to hear that only a couple of weeks ago. And of course, late last year, the federal government here in Australia passed the legislation that enacts the London Protocol requirements, allowing the transfer of CO2 across border between two countries as well. So that allows not only us to export CO2 to buy London from Darwin, It also allows us to bring in CO2 from customer countries like Japan and Korea. And we have a number of interested parties, and in fact, interested parties who are looking at building CO2 export hubs in Japan to export CO2 to Australia to some of our projects. So we're building that book. We're building the... the momentum around these projects and particularly the international customer base, many of whom are LNG customers, right? So you can see the whole closed cycle aspect to this model. And of course, that becomes more of a tolling model. And whether we get the credits or those exporting the CO2 get the credits, that's all yet to be determined. That's not clear. Either way, we'd be looking at carbon price exposure What is the price required? Well, I can't really say what the price is required at this stage because we're still working through feed on these projects. But ultimately, we are challenging these projects with the same return metrics as our other projects. So we're not looking to do these projects for lower rates of return than our other projects. And yes, ultimately, they are competing for the same capital.

And maybe just to add to that, just to add to that, there is a, as we look at these projects, Moomba and Bayou CCS particularly, there are pools of capital out there. There's a lot of interest in financing these assets. So while they do have to screen according to our internal hurdles, there's also a lot of capital out there with an interest in funding, you know, energy transition projects such as carbon capture storage. So just to add that in.

And you'd also see, Henry, I know you've been kind of muted there, I guess, but you'll also see that on slide 10, we talk about within our energy solutions group, we have a carbon solutions team. And that's where our team are investing in high-quality nature-based projects. And I mentioned in my opening remarks that we have almost 4,000 landholder agreements and relationships and that's something that's quite unique to Santos. Not many companies in our position would have that many of such relationships and agreements and that allows us to work with those landholders to identify high quality nature based project opportunities many of which are with our indigenous partners which create job opportunities with sustainable nature based carbon credit generating projects. And that's where we can generate our own credits from those projects as well. So we don't only have the CCS projects, and we're looking to grow them. And you can see it's initially relatively modest levels of CO2 until later in the decade. And you can see it starts to ramp up. And that's our estimated startup time for those projects, given the time to get the regulatory frameworks in place. But we also have high-quality nature-based projects where we have firm projects in the pipeline right now that would estimate delivering more than 2.5 million tonnes. These are sanctioned products per annum by 2030, and line-of-sighted projects that would deliver over 3.5 million tonnes per annum by 2030. And obviously we want to keep working with our landholders and developing new opportunities and get those volumes to be even higher. And that's not necessarily just for us to offset our emissions. That's so we can help our customers to offset their emissions. And we're very excited about that, particularly when we're targeting cost of supply for those high-quality credit units around the $15 to $25 mark.

Your next question comes from the line of Dale Kenders from Bear and Joey. Please go ahead.

Morning. Two quick questions. Firstly, I might have missed it. What's the status of the Commonwealth sell-down process given the disruption in country? You said it's excess to balance sheet needs. I understand it's your option to cancel it if you want. Shareholders don't want you to do it. Why not just walk away from the distraction?

Dale, I'm going to ask Anthea to give you an update on the sell-down process.

No problem. So, you know, as you know, we did a partial close of the 2.6% at the end of January. It's open to Kummel then to complete that 2.6% sell-down, provided they can come up, obviously, with the financing for that. So that's something that they will need to do. The remaining 2.4%, which is their call option, that they could call an additional 2.4%, will expire in June. So those options are out there. They're commitments we've made to the government and to Kumul, and they're not things we'll walk away from. But I think that's the status. So at the moment, Kumul are very much focused on completing that 2.6% as a priority.

Okay, thanks. And then secondly, you've called out that the pipeline on PIC is greater than 50% complete. I think from memory, this is the critical path. So if you've done more than half and winter's still going, could you potentially have it completed by this time next year and first oil in 2025?

Dale, just to be clear, the pipeline we're referring to there is on Barossa. It's more than 50% complete, not PIC. But what I will say is that the The pipe laying, I think they call them stanchions, where we're putting in the frames, if you like, that will support the pipeline, is going well. It's going very well. The guys are doing a good job in-country. And you're right to point out that if we can get that productivity up to a certain level, that could make that a two-winter programme rather than a three-winter programme. too soon to tell if we've achieved that yet so we will review that at the end of this winter which I think is another around six weeks away or something that winter period and we'll take stock of it then but it's going well the drilling is going very well the well results have been very encouraging online with pre-drill expectations and the seawater treatment plant as we've seen really high productivity on that as well. So all the major components of that project are going well. It looks pretty bloody cold out there, though, I have to say. It was minus 45, Bruce was telling me the other day, but the productivity is looking great. They're doing a good job. Thanks.

Thank you, Dale. Your next question comes from the line, Sarah Kerr from Morgan Stanley. Please go ahead.

Thanks so much and congratulations on the result. May I ask a cheeky question? Looking at slide 11, this looks like it's mostly unchanged since your investor day in November last year. And I'm sure we'll get out the ruler and measure all those dotted boxes, lines later tonight. The November slide had a Roachie guide of 15 to 20%. and the Rohechi is still part of the LTIs in the REM report. So I was just wondering if there's any particular reason why that would be missing from the slide this year.

No, there's no logic behind that. It's just this is the way we want to present the slide. We've certainly not moved away from anything we put into the market in November. It's more just to simplify something. Yeah.

Okay. Thanks for that. And just staying on slide 11. Oh, yes, go ahead, Kev.

I was just going to say, nothing cheeky about that.

Okay and just staying on slide 11 because we love this slide so much. You have contributions from Moomba and other CCS projects. Can you give us any insights on the marketing strategy and the progress for those abatements? Obviously you have a strong foundation customer but perhaps you can let us know what your thoughts are on the trade-off between long-term customer contracts versus taking a view on certificate prices.

But by foundation customer, are you referring to ourselves?

Yes.

Yeah, yeah, sorry, just clarifying that. Well, that's right, but also through the the portfolio that we have in Australia, we have a number of assets that qualify as safeguard mechanism assets. And so we're looking at various initiatives like electrification on these assets and other efficiency projects to drive down emissions on those projects. And they would generate safeguard mechanism credits. And we'd want to use those within our portfolio to offset any emissions that are more difficult to... capture emissions and free up as much of the accuse that we generate and for other customers, whether they be our gas and LNG customers, our manufacturers, for example, or LNG buyers. And so that's very much the logic we're applying to how we're marketing that business. And Alan and the team are developing and implementing those marketing strategies real time. So we'll wait until the project's online, we'll see what we're generating, and we'll review that just as we do with other products, other commodities, And we're looking at carbon essentially as a commodity. And the reason we're viewing it that way is it really drives motivation across the business to capture every molecule of carbon we can to store it and create new revenue opportunities for our business. And so we're setting that up as an incentive for all parts of our business to reduce those emissions.

Great. Thanks so much.

Thank you.

Your next question comes from the line of Sal Kavonick from MST Marquis. Please go ahead.

Thanks again. I'm going to just try to squeeze two more in. I just wanted to come back to the merger discussions and I guess the timing of the announcements of the discussions, which I think Woodside came about an hour earlier, which leads one to perhaps assume Woodside took the initiative to walk away. Any indication of why Woodside walked away here, and particularly, is there any risk that they might have seen something in that due diligence process which has caused them to walk away?

Well, that's not what they've said, Saul. I don't know what they've said to you, but that's not what they've said. And, you know, we're not going to play out anything in public. The two sides just couldn't get there at the end of the day. But as I said earlier, you know, from our perspective, it's in the past and we are moving on. We are moving on. We will continue to look at other opportunities that unlock or create shareholder value whilst keeping our organisation focused on delivering on a strategic plan.

All right, fair enough. And my last question is, I'm just flicking through the scorecard in the REM report. I think the overall scorecard for 2023 was about 110%, so exceeding of the target. I'd venture to say perhaps most or all Sandsoft shareholders are quite frustrated at the moment and over the last couple of years. How do you justify management paying themselves above target REMs when the shareholder base is so frustrated with performance over the recent history?

Well, I think you have to look at it broader than one year. I mean, the company gets measured on a balanced scorecard that has four components to it, and they get measured on those deliverables. And that's really a matter for the board to solve. The board set the scorecard, and the board approved the final scorecard outcome scores. And, of course, they discuss that with shareholders annually, as you know. I think in terms of TSR, you know, as much as our returns have been strong in dividends, the last couple of years, the share price has not outperformed, although last year it performed significantly better than in 2022, of course. But that reflects itself more in LTI payouts. And you'll see the LTI payouts are a lot lower than the lowest in four or five years as a consequence of that. And I think that's where management are held more to account on TSR outcomes rather than operational outcomes. Yeah, but, you know, in terms of the scorecard itself, that's really a matter for the board.

Thank you. That's all for me. Appreciate it. All right. Thanks, all.

Your next question comes from the line of Gordon Ramsey from RBC Capital Markets. Please go ahead.

Thanks for the opportunity for a second question. Just on the Camul sell-down, Kevin, 30th of June, if the PNG government does not exercise its option for the remaining 2.4%, do you still intend to sell that or will you just hold on to the asset?

Look, Gordon, I mean, right now we're just focused on continuing to progress the Kumo sell-down as announced. You know, we'd have no... There's nothing to say about what we do after that. If it doesn't progress, if we only sell the 2.6, we sell the 2.6, we get on with business. And we'll enjoy the cash returns until there's something else that we want to announce. But if there's nothing to announce, then we just get on with business and we'll take the cash flows from that extra 2.4% equity in P&G. It's a great asset. It's a world-class asset. And I'm happy to own the 2.4%.

And we have no further questions in our queue at this time. I will now turn the call back to Kevin Gallagher for closing remarks.

Okay. Well, thank you, everyone, for listening in this morning. Again, I was pleased to announce a very strong set of results, and I look forward to catching up with many of you on our investor roadshows over the next few weeks. So thank you very much.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.