Santos today announced an updated capital allocation framework that will target returns to shareholders of at least 60 per cent of all-in free cash flow from 2026, following a period of major capital investment to bring significant new production online from the Barossa and Pikka projects.

In addition, Santos announced a carbon storage growth target to build and operate a commercial carbon storage business that would permanently store approximately 14 million tonnes of third-party CO2e per annum by 2040.[1]

The target is equivalent to around 50 per cent of Santos’ 2023 equity Scope 3 emissions from the combustion and use of our products.

The successful startup of Santos’ 1.7 million tonnes per annum Moomba Carbon Capture and Storage (CCS) project last month, with the technology and reservoirs performing as expected, demonstrates the potential for future phases to provide safe, low-cost, permanent carbon storage for customers and hard-to-abate industries.

Speaking at the company’s Investor Day in Sydney, Managing Director and Chief Executive Officer Kevin Gallagher said today’s announcement confirms Santos’ commitment to prioritise shareholder returns when new production comes online and to support the global energy transition while generating new revenue streams for the business.

“Santos has been unrelenting in sticking to its strategy and implementing its disciplined operating model,” Mr Gallagher said.

This continues to deliver strong production and project execution to backfill our infrastructure with highlights including:

• Angore wells in PNG now online with two wells successfully commissioned and connected, supplying up to 350 million standard cubic feet of gas per day to sustain PNG LNG production
• Commencing drilling of the highly prospective Hides Footwall structure
• Barossa now 84 per cent complete with first gas expected in third quarter 2025
• Pikka now ~70 per cent complete with first oil expected by the first half of 2026.

Santos’ world-class LNG portfolio is backed by long-term contracts with tier one buyers and flexible contract terms to provide risked upside potential.

“The proximity of our projects to Asian markets provides a significant shipping cost and emissions advantage compared to supply from east coast US and Middle East suppliers,” Mr Gallagher said.

“We are delivering on our strategy to develop upstream production to backfill and sustain our leading infrastructure position, decarbonise our operations and build a commercial carbon management services and low-carbon fuels business to meet future demand.

“With Barossa and Pikka coming online, Santos’ production is expected to increase by more than 30 per cent by 2027 compared to 2024, significantly lowering unit production cost which will support strong free cash flow generation throughout the commodity price cycle.

“The simplified capital allocation framework announced today reflects our commitment to prioritise shareholder returns following the company’s investment over recent years in new production from Barossa and Pikka.

“From 2026 we will return at least 60 per cent of all-in free cash flow to shareholders, and when gearing is below our target range of 15-25 per cent, 100 per cent of free cash flow will be returned to shareholders in the form of dividends and/or buybacks.

“The market outlook for LNG into Asia, domestic gas in Australia and liquids remains strong out to 2040 and beyond.

“2024 is set to be another peak consumption year for hydrocarbon fuels globally, making it increasingly clear that decarbonisation of their production and use is critical to the world’s net zero goals.

“Santos has a leading infrastructure and adjacent resource position that makes it well placed to meet ongoing demand with low-cost production.

“We have a wealth of backfill options to sustain production at our Gladstone and PNG LNG plants, which will be Santos’ top priority for future development capital – provided it fits within our capital allocation framework following the startup of Barossa and Pikka.

“These options include unlocking new geological plays in the Cooper Basin, which we have been appraising over the last few years, and prolific gas resources in the McArthur (Beetaloo) Basin shales in the Northern Territory as well as in the PNG Hela, Eastern Highlands and Gulf Provinces.

“Very importantly, our gas resources and LNG facilities are close to large-scale, relatively low-cost carbon storage resources and existing infrastructure that can be repurposed for CCS.

“The International Energy Agency’s Net Zero Emissions by 2050 (IEA NZE) scenario assumes that 70 per cent of global gas demand will be served with abated gas through CCS.

“We are extremely proud of the performance to date of the first phase of Moomba CCS that has now stored more than 150 thousand tonnes of CO2.

“Moomba CCS is groundbreaking as one of the world’s largest and lowest-cost CCS projects, dedicated to permanent CO2 storage.

“This first phase of Moomba CCS will safely and permanently store up to 1.7 million tonnes of CO2 per year, depending on CO2 availability.

“That is equivalent to 70 per cent of Australia’s total annual net emissions reduction in 2023.”[2]

“The IEA NZE scenario assumes more than 2.5 billion tonnes of CO2 will be stored globally each year by 2035, about 50 times more than today.

“The success of Moomba CCS to date and the strong outlook for CCS demand growth gives us a high level of confidence in setting our new carbon storage growth target to build and operate a commercial carbon storage business.

“With a strong balance sheet, line of sight to long-term, cash-generative production and a healthy portfolio of sustainable backfill and expansion options, I am confident Santos can continue to deliver superior value for shareholders over the long term,” Mr Gallagher said.

Guidance

There is no change to Santos 2024 production, unit cost and capital expenditure guidance.

Santos will provide 2025 guidance with our 2024 fourth quarter report in January 2025.

Live Webcast

A live webcast of the 2024 Investor Day will be available on the Santos website at www.Santos.com from 8.30am ACDT today.

[1] This is a target not a forecast and is a growth target for gross storage from Santos operated carbon storage projects. The target is ambitious and subject to substantial engineering, finance, commercial and policy work to establish enabling frameworks with customers, governments, regulators and other stakeholders. The potential projects that would enable achieving the target remain at an early phase of planning and commercial and economic viability is still to be confirmed.

[2] https://www.abs.gov.au/statistics/measuring-what-matters/measuring-what-matters-themes-and-indicators/sustainable/emissions-reduction

To view the full announcement '2024 Investor Day', click here.

Source: Santos