Thank you for standing-by. And welcome to Santos' 2021 Half Year Results Question-and-Answer Conference Call. All participants are in a listen-only mode. The call will begin with Mr. Kevin Gallagher, Managing Director and Chief Executive Officer providing some opening remarks, and we will then move straight to Q&A with both Kevin Gallagher and Anthony Neilson, Chief Financial Officer. [Operator Instructions] I would now like to hand the conference over to Mr. Kevin Gallagher, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, and good afternoon and welcome to the Santos half year results question and answered call. Joining me is our CFO, Anthony Neilson. Anthony and I recorded a video presentation on today's results, which you can find on our website, along with the presentation pack. I do recommend that you watch the video if you get the time as it's certainly a riveting viewing. We're not going to repeat the video presentation on this call. We will however be happy to take your questions. But before we do that, let me make a few brief opening remarks. Let me start by saying that I'm pleased to present another strong set of financial results that demonstrate the strength of a disciplined low cost operating model. Total operational and cost performance delivered USD $572 million of free cash flow and underlying profit of USD $317 million. This was despite lower average LNG prices due to the lagged oil linkage and our long-term offtake contracts. The board has declared an interim dividend of USD $5.5 per share fully-franked a significant increase from the previous interim. The dividend represents 20% of free cash flow and is consistent with our sustainable dividend policy, which targets a range of between 10% to 30% [payout] of free cash flow. Business performed well in the first half and I'd particularly like to call a record first half production in sales volumes, which enabled us to increase guidance to the upper part of the range. A sales revenue increased 22% to just over USD $2 billion, which is a record for the first half our lower unit production costs. Focus on safe low cost and efficient operations is continuing to drive reductions and is reflected in production costs of USD $7.87 per barrel of oil equivalent. I'm pleased that our continued focus in costs sees a lowering of a production cost guidance despite cost challenges across the industry. EBITDAX was up 24% to USD $1.2 billion driven by higher oil prices and lower unit costs. And our value accretive low cost supply of offshore infill projects and Van Gogh and Bayu-Undan have delivered excellent results with strong initial production rates into existing infrastructure. And finally, a very successful maiden debt issue in the U.S. 144/A market, we raised USD $1 billion at a very competitive long-term interest rate. This was an excellent result for Santos and showed strong support from the capital markets for our discipline growth strategy and industry leading ESG position. We have now delivered more than USD $4 billion in free cash flow since 2016 and to recap between 2016 and now, we've had to navigate two oil price crashes, an earthquake in PNG, a global pandemic and ongoing government threats of intervention in domestic gas markets. This demonstrates the strength and the resilience of our portfolio and our disciplined local cost operating model. In 2021, we are targeting a free cash flow breakeven oil price before hedging at around USD $25 per barrel, the same level as last year. At current oil prices, we would generate over $1.1 billion in free cash flow this year. And for every USD $10 the oil prices above our free cash flow breakeven price. The portfolio generates around USD $330 million in free cash flow before hedging. And I spoke to you in December at our Investor Day, I set out five strategic priorities for this year. I'm pleased to say that we have ticked-off three of these already and the fourth to FID Moomba CCS project is on track for the second half as promised. Our first priority of course is maintaining a safe and strong base business with a free cash flow breakeven of less than USD $25 per barrel. We want to keep the business functioning efficiently and keep at low cost. And that's what our long-life assets with steady production profiles allow us to do. All activities within that base business are self-funded within the rules of a disciplined operating model. Second priority was to take FID on Barossa, which we did in March. Barossa is a world class LNG project with a very competitive cost of supply into Asian markets. Barossa fits perfectly with our strategy for discipline growth, utilizing existing infrastructure around our core assets. There's also a tangible benefit of our acquisition of the ConocoPhillips assets in the region. And it is one of the lowest cost new LNG projects in the world and will give Santos and Darwin LNG a competitive advantage in a tightening LNG market. By targeting a cash cost of production of around USD $2 per mmBtu, including the FPSO service contract costs. Barossa is basically an offshore scope with an FPSO and a pipeline tied into the existing Darwin LNG plant. Importantly, around 80% of the capital cost is protected under fixed price contracts. So we're not materially exposed the cost pressures seen across this industry. And the project is off to a great start with first steel for the FPSO turret in July, and manufacturing of subsea flowlines and trees already underway. They're on track for first gas in the first half of 2025. I'd like to take this opportunity to thank Barossa partner SK E&S for their support and taking FID earlier this year. We're also finalizing the sale and purchase agreement for JERA to acquire a 12.5% interest in Barossa. The third priority was to take FID on the Moomba CCS project. CCS is the key pathway technology to achieving our medium-term emissions reduction targets. With the Moomba project now ready to take FID. All we need is for CCS to be eligible for carbon credit units in Australia. We are extremely encouraged by the draft methodology released by the Clean Energy Regulator for qualification for Australian Carbon Credit units. That consultation process now complete, everything remains on track for the government process to be completed in the next month. And then we will deliver on our commitment of taking FID on Moomba CCS project. Moomba as the lowest cost and one of the largest CCS project globally as a benefits from existing separation equipment and depleted gas reservoirs with proven rock seal. The forecast of lifecycle cost of less than USD $24 per tonne of CO2. Moomba CCS paves the way for a significant carbon reduction story for Santos and for Australia. It also means we're able to explore a three hub CCS strategy that covers Moomba by Bayu-Undan and potentially offshore Western Australia. This infrastructure footprint potentially provides more than 30 million tonnes per annum of CCS capacity across three Santos operated hubs. Moomba will be the first project to hit the go button. But I am especially excited about the potential we have to repurpose Bayu-Undan as a CCS hub in the region. We estimate a storage capacity of around 10 million tonnes of CO2 per annum and Bayu-Undan once production from the field CCS. Our studies indicate existing wells and pipeline can be repurposed for CO2 service. And I would remind you that at Bayu-Undan project startup over 1 Bcf of gas a day was injected into these high permeability reservoirs. So they are some of the best offshore reservoirs in the region for gas injection. Bayu-Undan and CCS would contribute to decarbonizing Barossa from project startup, as well as opening up other resource opportunities and complementary industry opportunities in Northern Australia. We look forward to working with a joint venture partners and our host government to bring an exciting project to fruition. Fourth priority was to launch FEED on the Dorado oil and gas project which we did in June. We plan to develop Dorado in two phases, an initial liquids phase followed by a future gas development, providing supply into a domestic gas infrastructure in Western Australia. Entering FEED is a significant milestone and has the project on track for FID around the middle of next year for the Phase 1 liquids development. FID and the second phase of gas development to backfill a domestic gas infrastructure and WA is likely to occur in the second half of the decade. Dorado is a very low CO2 reservoir and -- with approximately 1.5% CO2 and with all gas reinjected in the initial phase. This makes it one of the lowest emissions intensive oil projects in the region. Potential tying opportunities Dorado starting with the Pavo and Apus prospects to be drilled early next year could easily be tied back into the Dorado infrastructure and materially increase the value of the project. The first priority and the one we have not been able to progress as planned was to commence appraisal drilling at Narrabri. While Narrabri achieved state and federal environmental approvals last year, an appeal has been lodged against the state approval. A hearing on the appeal is scheduled for later this month with a final decision not expected until the end of the year. The proposed merger with Oil Search is consistent with a disciplined strategy to grow around our core assets. It represents a compelling combination of two industry leaders to create an unrivaled regional champion of size and skill with a unique diversified portfolio of long life low cost oil and gas assets. The merged company would have strong cash generation from a diverse range of assets, which provides a strong platform for sustainable growth and shareholder returns. Merger also builds on our industry leading approach to ESG through the combination of Santos is net zero pathway with Oil Search’s unique social and community investment programs in PNG. As I have previously said I believe that our industry must be in a position to self fund growth and the energy transition to cleaner fuels. I believe this merger will create a company which is better placed to achieve this goal than either have a standalone. I also believe the merger will unlock material shareholder value in three key areas. First, substantial combination synergies to the benefit of all shareholders using Santos's proven ability to deliver the incremental value. Second, through partner alignment in PNG to unlock incremental value. Just as we have achieved that Darwin LNG and Barossa following the Conoco acquisition and subsequent sell-downs. And third, options and flexibility for portfolio optimization and the merged group, including continue with Oil Search’s sell-down process in Alaska. We are currently undertaking exclusive due-diligence on each other and expect this will be complete by the end of this month, and are targeting to have the scheme vote and all approvals in place before the end of the year which will position the merged company to hit the ground running at the start of the following year. Santos has a proven track record and delivering integration synergies from acquisitions. Of the Quadrant and ConocoPhillips acquisitions delivered over USD $160 million in synergies from areas like duplicated overhead and corporate costs and OpEx and CapEx savings through applying a low cost operating model. On the Oil Search merger, we will use the same approach and the same team, which we expect will deliver significant synergies for the benefit of all shareholders. We will be able to provide further guidance on potential synergies once we've completed due-diligence. Something I'd be very pleased with this year has been our success in delivering incremental value from assets that we have acquired. And the case of Bayu-Undan Phase 3C and Van Gogh Infill Phase 2 these are projects that represent upside value over and above our acquisition cases. They are perfect examples of our strategy to deliver incremental value from short cycle low risk opportunities around the core assets using existing infrastructure. Both projects have delivered better than expected reservoir outcomes and strong initial flow rates from the first wells. We look forward to completing the remaining four wells on these projects over the course of the second half. Let's focus on driving incremental value from the assets is something that we'll bring to the Oil Search merger. In summary, it was a strong start to the year for Santos. The business is performing well. And our operating model sets us up for disciplined growth. Potential merger with Oil Search creates an exciting opportunity to create a regional champion of size and scale. And with size and scale comes the opportunity to accelerate our aspiration to becoming a clean fuels company and reaching our net zero commitment by 2040. With that brief opening, we’d now be happy to take your questions. Thank you.

Thank you. [Operator Instructions] The first question comes from James Redfern from Bank of America. Please go ahead.

Hi, Kevin, I’m happy you well. I just want to ask a couple questions about the proposed merger with Oil Search. Assuming the merger goes ahead, Santos will have a 42.5% equity interest in PNG and LNG I was just wondering would Santos be happy with the level of equity in the project or would you be interested in selling down I guess you were looking to sell-down? What would be Santos's equity interest in PNG and LNG? And I've got one more after that. Thank you.

Well, look, I mean, I think all I would say on that, James, and by the way, thanks for the question as that I think when you put the two companies together, it gives you the opportunity for portfolio optimization. And we've said that from day one, 42.5% is a very high equity level in a project. So that in itself creates the opportunity for further alignment in PNG, and the ability to optimize that portfolio, strengthen the balance sheet and support the growth plans going forward. Look, I'm not going to say what the ideal equity level in the project would be. I think for any particular asset, we'd only talk about that once. We're in that position where we know what the opportunities look like.

Okay thank you. Well, I might try one more in relation to the Alaskan oil assets. Any comments you can make around your view on those assets, and whether you'd be happy to give up operatorship of the picking year, assuming the merger goes ahead and the proposed sell-down? Thanks a lot.

Yes. Look, I mean, what we've said is, we'll continue with Oil Search's sell-down. We believe that perhaps we can have more flexibility than was offered previously during the sell-downs. And we were not [indiscernible] to operatorship of any asset, if the deal was right at the end of the day. And that includes in our current portfolio today. So we're coming out -- I think all I would say is that, we'll continue with Oil Search's plans to sell-down and we'd be very flexible on what that would look like in terms of operatorship.

Okay, [indiscernible] thanks Kevin. That's all. Thank you.

Thanks James.

Thank you. Your next question comes from Dale Koenders from Barrenjoey. Please go ahead.

Good morning gentlemen. On the slide that mentions the -- on Papua LNG JVs recommends discussions in July expansion, and obviously flagged this strategic rationale to realign JV interests. Is there also scope to revise the current proposal of the two small trains, stakeholders open to this I'd assume there's obviously greater value and greater capital efficiency to be can bring total into the foundation project, the move back to larger train designs?

Well look I mean, I think that’s all yet to be seen, right. And I wouldn't want to predict how any of that plays out deal. Look, I think the bottom line is that all of those options vary in terms of looking at how we optimize the portfolio, how we optimize the equity positions and how we optimize the development of projects going forward. We're going through the DD process right now. And in that we're getting a better understanding of the expansion project. But it's too early to make comments like that. I'm actually surprised at your question, Dale, I thought you were calling up -- see I told you so Arcadia and how [good] they're developing, which I would -- I have to give you credit for me. But yes, so that's all I can really say on the PNG stuff at this stage.

Okay. I might try my luck, not on Arcadia but on the synergies. It sounds like you're trying to avoid quantifying them. But can you talk about the areas the cost synergies is that just around corporate costs from Oil Search with -- there are other areas given this limited gas marketing, when we're trying to think about how big those could be?

Look I mean, most people would think of synergies in terms of just people, right. People synergies. I’m sure there's a component of that. But as we saw both with Quadrant and with ConocoPhillips, we were able to realize significant synergies not only in the corporate areas but an areas like IT, direct OpEx. One of the benefits of having a number of facilities midstream and upstream facilities that we operate as a reconsent relies a lot of the engineering and maintenance planning efforts. And we get scale benefits that are quite considerable. We've seen that across many of the assets that we're operating here around the Australia now. Now if you think most oil and gas companies have one or two assets to operate, we've got seven midstream assets we operate around Australia, and that's been able to realize very -- or we've been able to realize very significant scale synergies and benefits from that. And then there is other things contractual what scale you typically get better global contracting arrangements and outcomes. And we've been able to see benefits there also as we've brought in the Conoco and the Quadrant organizations into Santos.

Interest insurance, Treasury sort of areas Dale. So across the board, little bits and pieces may all add up as we start to get inside and have a look. But we're in the middle of the due diligence at the moment. So we're still going through to get that quantification. So we want to try and do that at the end of the day period.

And so when we look at the synergies that were realized in both those previous acquisitions we can see significant potential here. And you're right, I'm not -- I don't want to give guidance on that yet until we've completed the DD process. Because there's always pluses and minuses when you go through DD and these things, and then we'll give the most accurate guidance we can once we're in a position to do so hopefully, in just a few weeks time.

Okay, thanks, gentlemen. And well done on the result.

Thanks, Dale.

Thank you. Your next question comes from Mark Samter from MST. Please go ahead.

Good morning, guys. I've got three if that's not taking that too much. First one on the -- just a bit more detail on the infrastructure side. Obviously, in particularly [indiscernible] project with their permission, giving us details around the financials the total deal. I'm curious whether someone getting nine times maybe EBITDAX for what is purely a financial instrument of how you carry volume risk, but you're not giving up any operational control or any operational impact whatsoever. Has that changed the way you view some of that more core infrastructure and I'm also curious just whether there's only a change in time on expectations in the infrastructure with the Oil Search transaction, are you still full steam ahead?

Well Mark as you would know my CFO doesn't show a lot of emotion. But he gets very excited to talk about infrastructure. So, I'm really thrilled that one over to him because he likes talking about it. So Anthony.

Thanks, Mark. Look that's a look through like-for-like for that we've sort of had to back calculate from the total LNG’s transaction, but it's pretty close proxy to the value that I got which was USD $95 million of EBTDAX items. So I think you're right, it shows that there is appetite out there for sort of 9 to 10 times transaction that is largely a synthetic financial instrument, like you said. So it was a very good value point for us to be able to sort of show what we've been talking about now for the past year because as you said, I think it was united -- the rest -- that EBITDAX in our portfolio is trading at four to five times. So if we can unleash that incremental multiple of an extra five times, on a USD $500 million EBITDAX business, including JEERA and [indiscernible] then you're potentially looking at a quite a significant value uplift of over USD $2 billion if you just apply that multiple. So I think it does show that there's appetite out there. It shows that there is money out there. It gives us the flexibility in the options is another source of capital as well. And in terms of the last part of your question, look I think it's something that when merged kind of goes ahead that we need to look at in the tools that we have around or balancing out all of the capital management we have across all the different projects. And as Kevin said, looking at the alignment across the projects as well. So I think this is still on the agenda for us. It's just going to be part of a bigger portfolio.

Thanks. And I guess my next couple of questions actually kind of ties into that last point as well. I'm just curious about Dorado sell-down, is there logic to finding out how much for the Alaska you want to keep and be end up keeping just from a account portfolio balanced perspective how much liquids you want on the portfolio or should…?

Well look I mean I think that's a good question. I mean, sometimes the timing of these events are going to take care of themselves and but look ultimately, we're looking to have a balanced portfolio. We've always said that we like the idea of having a certain share of a portfolio that's fixed price domestic gas contracts. We want a certain share or exposure to the LNG markets. And of course, then you've got your liquids markets that we like to have an exposure to as well. And so having a balance in the portfolio not too dominated by any one is important to us. And we've seen the benefits of that through the cycle when oil price has crashed in recent years those fixed price domestic gas contracts come to the fore. And obviously, when oil price goes up our LNG and our oil or liquids products, then sort of carry the weight of the revenue stream. So we do want a good balance. And we don't want to expose it to anyone. But yes, to answer your question specifically, yes looking at what you may end up being left with an Alaska falling Oil Search's sell-down process would be an important consideration.

Thanks. Kevin, just last quick one, and so this is a bit of a kind of wonky big picture one and it is putting the cart before the horse because I'm going to go so much let alone done any asset sell-downs, but I guess there is a world where you do sell-down a reasonable sales stake and PNG LNG and all of a sudden, the businesses, I mean, all of it can go pretty rapidly towards no debt on transaction with the ability that these companies need to be able to fund themselves. But do you have a view on what you think is a optimal balance sheet for an entry and to go forward? Well, don't know, that's inefficient. Do you have in your mind where you would ideally like to see the balance sheet looking 12 to 24 months post completion?

Well, look I mean, I think we've said historically, that 20 to 30 range is a great place to be through the cycle from a gearing perspective and probably targeting around 25%. Going forward that may be more than the 20% to 25% range is a much healthier place to be. Because you're right you don't want to get too lazy and have a lazy balance sheet. But I think what we want as an organization has got enough cash flow generation that we're effectively funding, are able to fund their growth projects, pay a dividend, and self fund all of our sustaining CapEx within that and not be too leveraged when inevitably the commodity cycles turn against you.

Okay. Thanks guys.

Yes, thanks Mark.

Thank you. Your next question comes from Tom Allen from UBS. Please go ahead.

Hi, afternoon Kevin and Anthony. Question on CCS. So given the moment gas plant is currently meeting 2.3 million tonnes per annum Beach you have indicated their intention to opt in for this year, the project. How come the scope is still only for a 1.7 million tonne project rather than all the emissions from the plant? And can you just confirm which specific reservoir will be first targeted to CCS?

Yes look, I mean, the emissions that we're capturing a reservoir emission. So the reservoir -- the emissions that gets separated, loaded Moomba they come from the reservoir. We still have what we call combustion emission. So the emissions that come from running the power plants at Moomba, we're not capturing those yet. So we [indiscernible] economic post combustion, a carbon capture technology available to that which I might talk about later. But, so 1.7 million that come from the reservoirs that we're capturing and then we're injecting them into the upstream reservoirs. And the first one, I can't actually remember the specific fuel but as we've said before, we have something like 20 million tonnes per annum of Cooper capacity for the next 50 years. It's available to us across all of those reservoirs across the Cooper Basin. So just come back to me [indiscernible] fuel that we're injecting into initially and that's Phase 1. And that I think that gives us the first 7 to 10 years, I think, before we have to move to an adjacent reservoir. So we've got a lot of reservoirs all set depleted over the years, great inventory and I believe it won't be too long until we start to share that capacity with the just same way we reserve today. We're working through the PRMS to start their credit, that storage capacity and that will be booked in the not too distant future and be part of our annual reserves and I suppose capacity statements that will prove out. We also another project in the Cooper Basin, our upstream nodal optimization project which we're just going through the final stages of approving internally. Over the course of the next year two to three years, we will be electrifying as part of our larger Cooper electrification project by electrifying some of our compression and power gen and the upstream satellites. What that does is that allows us to bring more CO2 to embark the Moomba there’s currently where the gas is currently being consumed to drive the compression and the power gen at the upstream satellites today. And by bringing that back to Darwin -- sorry, bring that back to Moomba Darwin would be one heck of a pipeline, bring that back to Moomba we'll then add to that 1.7 million tonnes overtime. And so that's something we'll be doing over the next few years. And not only will that bring us more CO2 to inject and generate more carbon credits what it will also do, and this is very important, as it will produce more sales gas, because we'll burn less gas for power gen and essentially be running poles and wires from the Moomba power facilities to operate those upstream facilities.

Sure. Thanks, Kevin. And then based on your read of the draft legislation from the Clean Energy Regulator, do you think you'd still be eligible for Australian Carbon Credit units if you saw a little bit of incremental production from injecting CO2 underground via enhanced oil recovery?

Well, look, I mean, the legislation is focused on CCS, not CCUS. If that happens in the future, that will be the case. But our project is built to only injecting store and permanently store the CO2. So that's what we're focused on. We're not focused on enhanced recovery of any fuels. And so our focus here on this project is purely as a carbon capture and storage project.

Sure. And then just lastly, on your plans to build out the scale midstream business, can you describe so -- you're pointing to potentially briefing up the with the synthetic toll from GLNG but can you describe how you might bring the CCS project into the scope of the midstream EV and how we should think about open access tolling on carbon sequestration and how the value of ACCU use might be shared?

Well, look in the Cooper Basin, that's going to be a bit more restricted, right, because it's not close to other industries, it's not closed to lot of other fields other than the Cooper Basin operators that we have today. So I don't anticipate a lot of third-party CO2 being transported into the Cooper Basin. That said, Santos is investing in direct air capture technology both post combustion and direct air capture and looking to get a target price there below 50 Australian dollars per tonne to capture and if we're able to achieve that in the years ahead, depending on carbon price, they're not open just the opportunity to offset other people's emissions in the Cooper Basin. And given we have such a large capacity and up to 20 million tonnes per annum capacity that creates future offsetting or tolling opportunities for us in Cooper, and we'd be very -- well we are very excited about that opportunity for the longer term. But the carbon price isn't there yet. It's not there to meet that economic yet. But we do believe that will happen in the years ahead not too far into the future. GLNG is however, a bit different. So when we look at the Bayu-Undan, CCS opportunity that we're pursuing. That we'll be looking to take around 2.3 million tonnes from Barossa and Darwin every year. But it has a capacity of up to 10 million tonnes per annum. And so we're looking at other projects in the region there and third-party access there as an opportunity. And that can become a very lucrative opportunity, not only for oil and gas projects, but for other industries in the Darwin area that could or would be a matters. And so we see that as a real exciting opportunities, a better work to do in that but all the studies so far are very encouraging with a number of MoUs with our partners both at Darwin and Bayu-Undan. We're working with the [indiscernible] and the team are listed regulators on this project. I believe it's a very exciting project but a water to go under the bridge yet on that one. But if we're able to get that up, I think that is a very exciting opportunity.

Thanks, Kevin. Appreciate it.

Yes. Thanks.

Thank you. Your next question comes from Adam Martin from Morgan Stanley. Please go ahead.

Good afternoon. Just first question maybe just ongoing Gulf, I mean just goes a pretty good flow right 23,000 barrels a day. You got reserves there 10 million barrels back in 2020. Are there any reserve implications here?

Now we wouldn't have thought so at this stage. Obviously, if there's an outperformance that would change it. But at this point, it's pretty much in line with the recurring --

The existing numbers are in presentation. I mean, [indiscernible] was 10 million barrels gross a year.

That's right.

Okay. And production costs to Northern Australia about $70 million a quarter obviously coming down nicely. Is that the sort of new run rate from here or are you expecting to lower that again?

From a OpEx perspective design?

Yes.

So, look, we're definitely in the bottom end of the range. So I think that's obviously the place we'd like to be. The range is 790 to 830. The reason it's got a bit of flex in the range obviously FX, as I said in the presentation and has sort of been pushing us a little bit higher, particularly in the onshore assets include the basin although FX seems to have eased off a bit in the second half, which is good news. So the lower U.S. FX rate helps us from that sense. So that will hopefully, the easing of the FX helps us cope towards the bottom end of that range. And the other thing that hit us hard in the first half, and obviously it's hard to see the impacts of it in the second half would be is COVID costs such as quarantining in particular, an extra sort of security and sanitization costs, et cetera, across the organization. So…

Those particularly for Northern Australia.

Yeah particularly Northern Australia with the Bayu-Undan because it's offshore, and we've got Timor-Leste, people as well coming onto the platform. So those two things aside. Yes, that is the trajectory on a normalized basis. So taking those things out is in the bottom end and coming down.

Okay, and final question. Just on the merger due diligence, so you may have to describe the sort of one or two key focus areas there what would they be?

Look I mean, in due diligence, I never tried to predict what the key focus areas are going to be because there can always be surprises. But it goes without saying we know PNG LNG very well. And so it's really around path one Alaska at the end of the day from an asset perspective.

Okay. That makes sense. Thank you. That's all for me.

Thank you. Thanks Adam.

Thank you. Your next question comes from Saul Kavonic from Crédit Suisse. Please go ahead.

Hi, gents. Three unrelated questions, if I may. Firstly, just on the Bayu-Undan and carbon capturing storage project are you able to give a ballpark idea of what you're expecting in breakeven cost there? And can you also provide color on where it fits with the regulator in terms of baselines for the emissions there? And are they going in a direction where they're going to potentially demand CCS rather than it just being kind of offshore voluntary action on your part?

Thanks for that Saul. I think the first thing to point out there is -- well, let me just say, not in a position to give cost guidance on that yet, because we're working through all of that, except to say, it looks very competitive and that -- and the reason for that is that much of the infrastructure is already in place; the pipeline, the offshore facilities et cetera. So there's a lot in place, and everything CO2 compatible then that reduces a lot of costs. So there's some plant would be required at Darwin, but that could be offset with some reductions in plant requirements offshore at Barossa and with some changes to scope to the Barossa project that would sort of compensate some of those costs. So we see as being a very competitive project, very competitive with price, but not in a place to give guidance here. We want to work through with our joint venture partners and get it up to a point of maturity before we do that. In terms of your second point to that question. I'm not sure if that's one, that's two of your three, or that's just one of your three. But the second part of your first one, if that's what it is on the regulatory stuff. Look, I think the first thing to recognize is Barossa is an approved project. It's already approved. The baseline process is a very different process and it's mechanical. How baselines are calculated as a mechanical process. And so we -- today Barossa has got a baseline for offshore and Darwin has got a baseline for onshore and Darwin's baseline has been set really -- well currently is the Bayu-Undan baseline. But the baseline for Darwin, when Barossa comes online would be very much in line with the one that has today with very similar baseline it would get last year we've set it up. I mean Barossa has an offshore baseline that is set around the reserves, sort of the reservoir emission levels offshore. And so we're very confident what that looks like and of course any sort of carbon price assumptions we've taken care of and the economics anyway for that project. The key here though, is that, so there will be no requirements as part of our baseline to do CCS, that's my point, because the project is already approved. The baselines for each project are resubmitted I think, every five years. And so it doesn't matter what project you're on, you don't get a baseline for later resubmit it every five years. And we'll go through that. And it's got to be three years from start up, I think is when you get your official baseline. And so we will get that -- at that point in time, 12 months or so before start up, that will be confirmed. The point of CCS was then it doesn't matter. If we do CCS, we want to make money a CCS just leave we believe we will in the Cooper Basin, number one, but number two, importantly what CCS Barossa becomes a very low carbon intensity project. And that's our ultimate aim here is stability. And we've always said once the government qualifies carbon, sorry carbon capture and storage projects for [indiscernible] is our belief that these projects will become very valuable projects and we'll see a lot more of them.

Thanks. My other questions regarding the Oil Search merger, I think that you can share. I wanted to understand what you are thinking about the concentration with PNG [indiscernible] risk, and how you'll address credit rating agency in order to concerns on that front and particularly around, could the merger prior essentially be under pressure from those kinds of agencies to sell-down in PNG, rather than it being a voluntary portfolio optimization and you characterized that?

Thanks Saul. Yes, look, we've done a lot of work, obviously, through the banks in the laid up to the merger and through the [indiscernible] that we're doing now. As you know, most of the big banking companies, big bulge buckets sort of internal credit rating views on how to calculate that. So we're pretty comfortable with the country risk score as a diversified company. It doesn't really restricted on the notching scales from S&P from all the work we've done. And we'll go through a process with S&P obviously, and we're in constant engagement with them around how that's going to work. So, from that regard we're not worried at all from a country risk perspective. I think the important bit that it does do is it as Kevin said, there's always the potential for the alignment across the organization of merged [indiscernible] and S&P always look at those leaders that you've got the ability that you can move things around, optimize things, sell things down. So that's a secondary part of what they look at. And that also given the track record of what we've been able to achieve and I think Kevin even mentioned that in their latest bulletin I think we're very confident in that regard that with the leaders that we have, and the fact that we've done a lot of work around the country risk score in the diversified portfolio, we don't think there's a risk.

Thanks. And just lastly, touching on the timing on the announcing of the proposal of the merger with Oil Search, that obviously could the day after that coal with Oil Search, which left a lot of uncertainties regarding the outlook for Oil Search for the rest of the year, can you describe what was the driver for pursuing for disclosing that merger right after that call when we otherwise might have thought Oil Search's share price could have probably deteriorated in the wake of the coal on demand, then you might have been able to pick it up at a lower price. What was the ratings for doing it the day after?

It's a disclosure obligation. So we had no choice but to respond given Oil Search's announcement.

Okay, so there is no merit then to the reports in the press that it was an email or message from Santos from the evening before. That's what triggered Oil Search to make the disclosure the next morning?

I'm not going to comment on what Oil Search's drivers were or an internal communications between the two companies. But once Oil Search responded, we had no choice. It was the necessary, the clarification, a comment that they put out the next morning, we had no choice but to disclose. And we were just bound by our obligations.

Thanks, gents. That's all from me.

Thank you. Your next question comes from Gordon Ramsay from RBC Capital Market. Please go ahead.

Thanks very much. Just a couple questions from me. Anthony, just on the CapEx clearly you got a big spend coming up in the second half of the year on my numbers potentially over a billion. Can you just give us a feel for how that might be broken up? Is there any kind of two or three projects that are dominating that spend?

Yes. Thanks Gordon. Yes, you're right. The phasing for this year has definitely been pushed in the second half. And there's a couple of factors for that. There's some offshore spend in terms of the drilling campaigns, and obviously they're bigger and lumpier now WA and northern business. So that sort of it's got a kick in second half. And then, in Cooper Basin in particular, we've bought the phasing was skewed to the second half, due to sort of the phasing of joint venture budgets due to COVID. And we've just bought on a fourth rig in the Cooper Basin which we'll be targeting oil wells. So we'll have four rigs going in second half. So they're the main two drivers in the sustaining CapEx. So it will pick up activity during the second half with the obviously, improved conditions post-COVID -- sorry, in the middle of COVID. That's a better way of saying it. And then in terms of the major CapEx, again, that's phasing so Barossa is obviously really starting to gather steam now having hit FID in the first quarter. So as a result of that, we will see a bit more spend coming through as the phasing of Barossa starts to ramp up as well.

That's good. Thank you. And just a couple other quick ones. PNG LNG scheme of arrangement requires shareholder approval, you've also mentioned that you'll require PNG national court approval. Can you kind of explain what that is? And what's involved in that?

Yes. Thanks Gordon. Look, PNG court approval process is just similar to an Australian scheme. So it's pretty much based on very same legislation that we have. So instead of going to an Australian court as you would with an Australian scheme, you're going to a PNG court. But it's exactly the same process. So shareholder votes and PNG court approval process and -- what was the second part of the question?

No, that was all. Just trying to understand that whether politicians got involved and things like that, and just lastly on Moomba Beach has become your partner, which we knew. But there was or is an MoU with BP, is that still there on the CCS?

The arrangement with BP yes that's still there today. And we also have a technical services agreement with Occidental.

Excellent, thank you very much Kevin. Thanks guys.

Thanks Gordon.

Thank you. Your next question comes from Nik Burns from Jarden Australia. Please go ahead.

Yes, thanks, Kevin and Anthony. Look, I might just follow on from Gordon's question around PNG. The Prime Minister has been pretty vocal around the proposed merger, saying it must pass the national interest test just wondering have you had any conversations with the Prime Minister around the merger proposal? And if so, what assurances as you were able to provide him in relation to resourcing and support?

Thanks, Nik. I'm not going to talk about specific conversations we've had with anybody. However, what I will say is that commitments that we're very comfortable to make is that we will continue with the level of and country support for the social and community programs, that Oil Search do support because we think those are world class and leading. And the PNG is a developing nation, a pro developing nation, and we want to be part of that story. So that's something that we see a lot of value in continuing and so our commitment to that as absolute. And just to clarify one thing, though, I mean, I think you've got to be very careful, when you quote what government have said versus what a journalist has said, it may mean and at the end of the day, what the government's have said is, they actually see it as free market activity. But that any approvals would be subject to a national interest test. That's actually the same in most countries. And there is nothing unusual about that. And all the feedback we're getting back from government is that they see the benefits over, they see the advantages and strategic alignment and country, they would want to see that commitment coming from anyone who's investing in PNG to continue investing in those programs, and of course, to be committed to growing the pathway LNG project for example and then taking that forward.

That makes sense. Just now that a question on Bayu-Undan and CCS project can you just talk about how that would practically work. My understanding is the Barossa pipeline will tap into the bio into pipeline from around mid ‘23. So I just thinking about how you would run a CCS project from onshore without tied in with the requirement to duplicate that pipeline and if so, who pay for that? And just also might just add on another question around that just around the CO2 volumes, my understanding is most of the CO2 from Barossa will be vented offshore at the FPSO with around 6% coming onshore. So if you're thinking to just store the 6% that comes to shore or you look to change how Barossa operates trying to capture more of the CO2 and look to put all that through CCS as well? Thanks.

Well the opportunity we are looking at Nik is to capture it all and send it all to the shore and backup the bio into pipeline. So what that would actually mean is that actually instead of the Barossa pipeline tying in to the bio and to the Darwin pipeline we are turning it 90 degrees at the tying point and run along site back into Darwin. And we bring sort of the additional section of the pipeline required to make that work and that's a very easy scope change. And it's actually would be a significant cost reduction to the Barossa project today because you wouldn't be doing those subsea tying which will offset the additional cost of that pipeline. Now who pays for the pipeline is not a question and which JV owns it is another question. But I am not concerned about that as a case whether you want to pay a toll or you want to pay for the pipeline at the end of the day right and it depending on who owns it. And the -- lot of enthusiasm for the project or by all parties. And so three parties involved here, three joint ventures involved, and two governments. You have got Barossa, you've got GLNG and you've got the Bayu-Undan joint venture. And of course, and in this case, when we take all the reservoir emissions back to Darwin, what that would mean is that Barossa has very, very little emissions. But Darwin LNG then gets all the emissions. And so Darwin LNG becomes the entity that under the current regulations would qualify for carbon credits by sending them offshore for injection and storage.

It sounds like there's a bit of a time factor here given obviously, as far as under construction. And you need to change potentially what the cases on board, you need to compress additional volumes to take it to shore is that how we should think about it?

No. We originally designed we designed the FPSO to handle the CO2 and be able to send it to the Beach, and the pipeline was designed to take it from day one. So it was always designed with this possibility. What an actual fact it would mean is that we could take catch-off the FPSO and reduce the power load offshore wouldn't be changed to power spec, up to the spec of the power gen equipment, it means you're just wanting less power offshore, which again, reduces emissions. So it was always designed for the possibility in case we made that change later. This is more about an acceleration opportunity.

That's great. Thanks, Kevin.

Thanks, Nick.

Thank you. Your next question comes from Daniel Butcher from CLSA. Please go ahead.

Hi, everyone. I think most of our questions have been asked just maybe another go on financing with Anthony, if that's okay. It’s [indiscernible] out recently saying that if they see a lot of country risk with your earnings or payments. It will only go up with pathway with FID. So I'm so curious. You give us a little bit more color, perhaps on what the internal banks were saying about what sort of share of PNG would be acceptable to S&P in their view that's my first part of my question.

Yes. Thanks Dan. Because as I said, we've worked a lot with the banks on the deal to go through the numbers on how country risk works, and how the knockings first and they work. And it's complicated to guarantee on core but I think the important in the size is, as I said, we're very confident that the diversified portfolio doesn't get restricted by PNG's country risk, and that we're still well below the hurdles that S&P set. So the balance of the earning stream, the production stream, and the latest that we have available for us are all something that S&P look at. And from that diversified portfolio, it's actually quite stronger in that regard. So I think from that sense we are -- as I said, we're really confident that there shouldn't be any problems with that. It's just the bullets in the S&P pulled out was they're obviously getting a lot of questions similar to this one. And I think that we're just sort of saying that the end of the day, look, there is heightened risk around the PNG country risk which is obvious it doesn't mean that we're getting a downgrade. That's not what they're trying to say. And we're working closely with them. And we'll go through a process with them over the coming weeks and months to get comfortable and make sure we've acknowledged.

I think that's right. I think it's important to note that we're just simply clarifying what they have to look at, yeah. Then the media, a lot of supporting comments on the same bulletin about Santos's track record and Santos's portfolio.

Yes. I just wanted me to share with the reality of moving parts besides PNG that you sort of needed to change your side of the business existing right now which might be needed to stand those metrics.

Look, to the country actually the existing business the [indiscernible] debt measures and all of the credit measures for this year are extremely strong. So they're flying. So from that regard, the existing businesses is well above the hurdle rates that we need. As I said that bulletin was purely just focused on the heightened PNG country risk. Don't forget, we've also got Fitch and Fitch have come out supporting our BBB credit rating, which is a notch above the S&P rating. And from that regard, they've already again, we've been in discussions with Fitch and they're very comfortable with the diversified portfolio of merged car.

Sure. Sure. And it's might be hard to answer just so curious, I mean, if you combined market capital such as Santos is sort of well below where they were, or not no higher, certainly than before the merger was announced. You're sort of pointing towards 60 million to 100 million of synergies per annum, which could create a couple billion dollars worth of value. Especially the higher than that. So I'm sort of curious, what's your feedback from investors about why or why no one sort of seems to be believing the synergies in the combined share price of the two companies?

I think the whole sectors Daniel, I think we'll move with the sector, generally speaking, and we haven't seen that response to oil price this year here in Australia, we have seen it more within the National Oil and Gas, we just haven't seen it here. I think you've probably got a very strong view. And that is why that is as well. But ultimately, we just want to keep building value and creating a stronger company. And my belief is if we keep doing that, and we build a much stronger balance sheet foundation for [indiscernible] going forward that allows us to accelerate our plans for the transition, then I think, ultimately that share price and that market cap will respond.

Okay, looking forward to seeing the [indiscernible] in September. So thank you.

Cheers.

Thank you. Your next question comes from Baden Moore from Goldman Sachs. Please go ahead.

Good morning and good afternoon. And thanks for the question. Just a detailed one on the results today a very strong profit number. Some of that came from a decent or lower tax rate through the half. I was just wondering, is there anything one-off that cycling through those numbers to expect that to normalize through the year? Any more color you can provide there?

Yes. Thanks Baden. Yes, look, there was a couple of things in the tax rate. So there was a payout actually one-off credit of USD $32 million, which was for booking some Barossa pay our tax rates on FID so we weren't able to book them under from a recognition perspective until we hit FID. That's, you can see that in our normalized underlying profit calculation. So that USD $32 million is adjusted out of the underlying as a one-off, but it is in the tax rate. And then the other probably thing to call out was there is also some credits with regards to our asset sales tax. So there is USD $26 million heat, credit positive heat, I should say, for the sales to JERA, and SK [indiscernible] Barossa and Darwin interests. JERA has been booked as an asset held-for-sale under the accounting recognition standards, because we're close to hopefully signing that transaction this half. So those two hits the USD $32 million for [indiscernible] credit for Barossa and USD $26 million credit for the asset sales are the main differences. If you adjust for those, the income tax rate moves to around 25%, 26%. So it's pretty close to 30% income tax rate, pretty normal.

Thank you.

Thank you. Your next question comes from Saul Kavonic from Crédit Suisse. Please go ahead.

Sorry gents I forgot my most important question. Just wanted to check with you, Kevin any consideration to changing the name of Santos post merged group?

Next question. Wait. Not really. I mean, I think at this point, as I've always said to people, Santos stands for the South Australian and Northern Territory Oil Search company. And so one of the things I think that makes us a good fit is the fact that Oil Search's already in our name.

Thank you very much.

Thank you, Saul.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Gallagher for closing remarks.

Okay, well this is Kevin. That concludes our Q&A session. Again, thank you all very much for your support and for your time this afternoon, and I'll look forward to catching up with many of you over the next few days in our roadshow presentations. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.