Thank you, and good morning, and welcome to the presentation of Santos' 2025 half-year results. I'm speaking today from the traditional lands of the Kaurna people of the Adelaide Plains, and I pay my respects to elders past and present. I also acknowledge and recognize the support of traditional owners, Indigenous people, and nationals everywhere Santos operates around the world. Before I commence my report on what has been a strong financial and operational performance for Santos for the first half of 2025, you will have seen our update this morning on progress with the non-binding indicative proposal from the XRG Consortium. We are finalizing an acceptable Scheme Implementation Agreement and have made considerable progress. Importantly, the SIA will include customary protections for shareholders should the potential transaction take longer than expected to complete.
The Consortium requested an extension of the exclusivity period to conclude due diligence and to obtain all necessary approvals to enter into a binding transaction. On the basis that we have made considerable progress towards an acceptable SIA, and given the Consortium has also again confirmed it has found nothing in due diligence that would lead it to withdraw its indicative proposal, Santos has agreed to extend the process date for four weeks until the 19th of September. We will, of course, keep the market updated in accordance with our continuous disclosure obligations over the coming weeks. Now, turning to our first half results, I am pleased to report on another strong financial performance, underscoring the cash-generated strength of our base business. Our disciplined low-cost operating model continues to deliver efficiency and reliability.
I will provide an overview of our first half performance, and our Chief Financial Officer, Sherry Duhe, will present the financial details. Following Sherry's presentation, I'll take you through our operational performance and progress against our 2025 strategic priorities, then open up the call to questions. Before we start, I draw your attention to the usual disclaimer on slide two. Safety drives everything we do, and we have continued to deliver a strong safety performance during a period of high activity levels across our base business and across our development projects. Our lost time injury rate remains better than the IOGP 2024 global average, underscoring our dedication to maintaining a safe workplace. We've achieved an impressive 46% improvement in our total recordable injury rate compared to the first half of 2024. Our process safety performance, measured by the loss of containment incident rate, has also improved.
While our safety performance is strong, there is never room for complacency, and we will always pursue a culture of continuous improvement. Slide four summarizes our financial results. Sales revenue of $2.6 billion, generated EBITDA of $1.8 billion, free cash flow from operations of $1.1 billion, and profit after tax of $439 million. Our production for the first half of the year was 44.1 million barrels of oil equivalent. Our strong performance in the first half delivered positive all-in free cash flow of $258 million while investing in our growth projects. Our gearing remains within target at 23.7%, including the impact of operating leases. I am pleased that our strong performance has enabled the Board to resolve to pay an interim dividend of $0.134 per share. The Board has also resolved to track the interim dividend to 10% this period.
Strong execution of our major development projects in the first half of 2025 has been a highlight. Barossa remains on schedule, with production expected shortly. The Darwin LNG plant has achieved ready for startup. The BW Opal FPSO is on location, successfully hooked up to the subsea infrastructure, with only final commissioning work to go before reaching RFSU within weeks. This has been achieved within three months of schedule and within the original budget, thanks to outstanding self-execution, disciplined contractor management, effective contracting strategies, and simultaneous operations that prevented potential delays from the COVID pandemic, regulatory approvals, legal challenges, and supply chain disruptions. Our Alaska project is also progressing well, and we've brought first oil guidance forward to the first quarter of 2026, with a ramp-up to plateau expected in the second quarter. This is another outstanding example of Santos's self-execution project delivery model in action.
The pipeline was completed a year ahead of schedule, and the challenging logistics of river lifting key processing modules from Canada and barging the seawater treatment plant from Indonesia have been executed flawlessly. Our drilling and completion team have just finished the 21st well, the first combination well with a 10,000-foot long horizontal section that replaces two wells with one single well. Combination wells, together with deployment of other innovative drilling technologies and techniques, are delivering real cost savings and faster job completion times. This represents a significant value upside opportunity for future developments in Alaska. We're now drilling the 22nd well, which will be the longest well in the field, with an expected total depth of 27,000 feet. Six wells are being flowed back in 2025, including three producers, bringing average expected flow rates per well to 7,000 barrels per day at startup.
Pikka and Barossa are expected to deliver around a 30% increase in production by 2027, setting the company up with long-term stable cash flows to support returns to shareholders and disciplined investment in future production growth. Moving to slide seven, the excellent operational performance of our base business has ensured reliable production and solid cash flows, with LNG assets performing strongly, major development projects nearing completion, and our LNG marketers continuing to capture outstanding value through our customer-focused contracting strategy. These achievements demonstrate the strength of our portfolio and our ability to deliver value through the commodity price cycle. Demand for LNG from Asia remains strong, underpinned by economic growth. Our portfolio is well positioned, commanding premium for high heating value LNG from Barossa and PNG LNG, and providing reliable regional supply. Santos' diversified LNG contract mix also provides the flexibility to take advantage of market conditions.
Our recent contract with QatarEnergy demonstrates our ability to leverage the flexibility of our LNG portfolio. The LNG portfolio is 92% contracted and around 80% oil-linked between 2025 and 2029. Portfolio pricing is around 14.7% float to Brent on 2025 to 2027. Our strong realized prices in the first half, realized prices from the first half of 2025, have exceeded our peers and supported strong cash margins. Decommissioning is being delivered to ensure safety of people, property, and the environment. We are phasing our decommissioning spend to prioritize safety and facility integrity, capturing synergies and applying lessons learned from our own experience and from across the industry to reduce both costs and job completion times. We're also adopting a responsible approach to waste management with the Mutineer Exeter, Fletcher Finucane decommissioning campaign, recycling more than 100 tons of metal, plastics, and wood this year.
Moomba CCS phase I is a great demonstration of our project self-execution, online and under four years from FID, and performing to expectations. In the first half, it reached a major milestone, safely and permanently storing more than 1 million tons of CO₂ equivalent since startup. Since the startup of Moomba CCS, Santos emissions intensity has improved by 22%, and we have already achieved 84% of our target to reduce Scope 1 and 2 emissions by 30% by 2030. We operate in some of the world's most demanding environments: the PNG Highlands, the Australian Outback, deep water basins off WA, and the Alaskan North Slope. Different environments, different regulations, one disciplined low-cost operating model. In an industry with a track record of poor project execution, Santos has set to deliver three major development projects within months of target and within 10% of the original combined budgets.
We achieved this during the COVID years, navigating regulatory approval and legal challenges, supply chain disruption, and inflationary pressures. Through it all, we remain disciplined. We focused on our own race, and we stuck to our strategy. At the same time, we maintained safe operations and strong base business performance. This has been a phenomenal achievement. Our self-execute capability has been developed and refined over the years because the nature of our assets means we are constantly in development mode, delivering large short-cycle CapEx development projects every year. Self-execution means we reduce costs, improve efficiency, and accelerate delivery by self-managing our subcontractors. It is how we transform technical excellence into sustained value. Over the past decade, our disciplined low-cost operating model has driven production costs down, strengthened the portfolio, and delivered strong free cash flow and returns for shareholders.
At the same time, we've successfully executed three major developments: Moomba CCS phase I , Barossa LNG, and Pikka phase I , all while keeping yielding within our target range. With production set to rise as Barossa and Pikka phase I come online, and unit production costs expected to trend lower over time, our strategy is clear: generate cash, reward shareholders, reinvest to battle and sustain our infrastructure, and to build and grow our production while continuing to operate safely and reliably. I will now hand over to Sherry to provide an overview of our financial results.
Thanks, Kevin, and thank you everyone for joining us today. Santos has delivered a strong set of financial results underpinned by solid base business performance. Our disciplined low-cost operating model continues to deliver, highlighted by a unit production cost of $7.28 per barrel and free cash flow from operations of $1.1 billion. The business had a positive all-in free cash flow of $258 million for the period, while continuing to invest in our two major development projects, Barossa and Pikka. Our balance sheet remains robust, with gearing at 23.7%, including leases at the end of the half, and excellent performance during a period of significant investment. On this basis, we are pleased to declare an interim dividend of $435 million. Last year, we rolled out our updated capital allocation framework.
The updated framework is designed to prioritize and enhance shareholder returns as we move beyond the capital-intensive period of a major growth cycle and new production comes online. It provides a clear pathway to sustainable, improved returns across the cycle. The framework is built around three key pillars: maintaining a strong balance sheet, delivering improved shareholder returns, and generating strong free cash flow from operations. Together, these give us the flexibility and the resilience to create long-term value for our shareholders. This slide really shows the strength of our disciplined low-cost operating model. On the left, you can see our strong free cash flow generation, even through periods of commodity price headwinds. In the first half of 2025, we've delivered more free cash flow than the first half of 2024, despite significantly lower commodity prices. On the right, the impact is clear.
Since adopting our disciplined low-cost operating model, we've returned more to shareholders than the company's entire market cap back in 2016. We remain focused on prioritizing shareholder returns, and with a strong balance sheet, we have the flexibility to keep delivering through the cycle. Shareholder returns of $435 million, equivalent to 40% of free cash flow from operations, and up on last year, have been delivered this half in line with our capital allocation policy. In the first half of 2025, free cash flow from operations was around $1.1 billion. This result is higher than the first half of 2024 and supported by lower production costs and lower CapEx. Our operating free cash flow for the first half of 2025 tells its own story: a resilient, diversified portfolio powered by high-performing core assets, secure LNG offtake agreements, inflation-linked fixed-price domestic gas contracts, and an unwavering commitment to low-cost operations.
Our underlying earnings show that product sales revenue remains strong at over $2.6 billion, generating EBITDA of more than $1.8 billion and underlying profit of $508 million. Underlying profit is lower than the prior comparative half due to lower revenue from real-life domestic gas and crude oil pricing and sales volume, higher restoration and financing costs, offset by lower tax expenses. We recorded a one-off non-recurring exploration and evaluation impairment of $119 million against the P&G business. These are historical costs which were capitalized as a part of the Oil Search acquisition, and since then, the hive's footwall prospects have been unsuccessful. Despite the footwall section being plugged and abandoned, pleasingly, the hanging wall section was successful, with the operator planning to bring it online between late 2025 and early 2026.
Building on a strong first-half performance, we've tightened our unit production cost guidance for 2025 to $7.00 to $7.40 per BOE. Once Barossa LNG and Pikka phase I are online, we remain on track to target unit costs below $7.00 per BOE. We continue to target an unhedged operating free cash flow breakeven of under $35 per barrel in 2025, ensuring our portfolio stays resilient in an ever-changing commodity price environment. Retaining our investment-grade credit ratings from Fitch, Moody's, and S&P reflects Santos' focus on disciplined capital management and our low-cost operating model in place since 2016. Net debt stood at less than $4.9 billion at the end of the first half, with gearing in our target range.
As noted previously, we do expect that gearing will increase temporarily later this year as we near project completion for Barossa and Pikka, and with the inclusion of the lease liability from the Barossa FPSO, after which it is forecast to reduce as development capital expenditures decline and new revenues materialize. We continue to hold a high level of liquidity, with $3.9 billion at the end of June in a combination of cash facilities and undrawn finance facilities. In accordance with our capital management framework, we look to protect the balance sheet and safeguard our financial position through hedging strategies for commodity and FX exposures. We have 7.5 million barrels of oil hedged at a floor of $65 and an average cap of $80.57.
Further, we have hedged positions in place for FX of AUD 930 million in the second half of 2025 and AUD 1.06 billion i n 2026. This hedging has been undertaken at rates well below the long-term Australian dollar FX averages, providing strong FX protection as we complete our current period of major capital expenditure. Overall, we've had a strong financial performance in the first half of 2025, returning $435 million to shareholders. Thank you, and I'll now hand back over to Kevin.
Thanks, Sherry. I want to turn my focus now to our operational performance. As I said earlier, Santos' disciplined low-cost operating model continues to deliver through the first half. PNG LNG performs strongly, driven by high plant reliability and sustained feed gas contributions from Santos operated upstream assets, which produced more than 4 million barrels of oil equivalent and accounted for 17% of total supply into PNG LNG. Santos successfully lifted and sold eight equity LNG cargoes on behalf of Santos lifting groups. Looking ahead to 2035, 100% of our LNG share will be equity lifted and integrated into our LNG contract portfolio. We are making strong progress on backfill projects that will sustain PNG LNG into the future. Starting with Angore, which was brought online in November last year, we are seeing strong production of over 360 million standard cubic feet of gas per day into PNG LNG.
The IDD6 infill oil well continues to contribute to production and has helped identify further backfill and sustain opportunities. The Hides F2 well from the hanging wall reservoir has been completed and is planned to come online late this year or early next year. The Papua LNG project is making good progress towards an expected FID early in the new year. Muruk, P'nyang, and Juha remain in the pipeline to support PNG LNG's long-term supply. GLNG delivered over 3 million tons of LNG production, completing the 51 contract cargoes. This was an excellent result underpinned by 100% plant reliability. We completed a planned seven-day shutdown of Train 2 on schedule and with a strong safety performance. GLNG continues to support the East Coast domestic market through offering seasonal shaping of LNG supply.
GLNG upstream production has remained steady, underpinned by high reliability and strong drilling performance, with 74 wells drilled and 58 connected in the first half. Both Roma and Scotia fields achieved new daily production records at 215 terajoules and 110 terajoules, respectively, demonstrating our team's operational excellence. Four rigs are now dedicated to the multi-year Fairview campaign, positioning us for sustained production levels and maximum resource recovery. Development is also being advanced across Roma, Scotia, and Arcadia. Electrification supported around 2 petajoules of additional production, along with reduced emissions. In the Cooper Basin, production was impacted by floods on a scale not seen since 1974, with more than 200 wells and several upstream compressors affected. We are actively managing safe recovery as flood levels recede and access is restored.
The impact of the floods has led to top-end production guidance for the full year being reduced to 95 million barrels of oil equivalent. Pleasingly, all four rigs have remained in operation. Multi-stage stimulation was successful in two horizontal granite wash wells in Member South, with one well online and the second expected online during the third quarter. Member Central optimization is an exciting opportunity for the Cooper Basin. Over 90% of the future resource sits in the Member Central and northern fields. That's where our focus will be going forward. We can optimize infrastructure by replacing 25 gas compressors with just five electric compressors. From a reliability and maintenance point of view, that will be transformational for the Cooper, materially reducing unit production costs.
In February, Halyard-2 began production six weeks ahead of schedule and has been consistently delivering approximately 90 million standard cubic feet per day to the Varanus Island hub, compared to the expected rate of 65 million standard cubic feet per day. This achievement highlights the immense value derived from developing reserves close to existing infrastructure. Small, low-cost hybrids like Halyard-2 allow us to maximize plant capacity, boost production, and reduce unit costs. We are now concept screening a number of near-field resources such as John Brookes infill, Spar Deep, Kultarr , and we're evaluating prospectivity externally. Plant performance has steadily improved at Varanus Island since 2022, achieving 98% reliability in the period. Across our portfolio, Santos has a range of low CapEx development opportunities that can boost production levels.
These initiatives are embedded in our base business plans, leveraging existing infrastructure to deliver strong investment returns and maximize value from our current assets. In PNG, the APF Tie-in project is on track to be FID ready by 2026, with projections to deliver up to 125 million standard cubic feet per day gross. As I noted earlier, in the Cooper Basin, the Member Central optimization project is focused on replacing higher cost barrels with more cost-efficient production. In Western Australia, the impact of Halyard-2 on production costs highlights the advantages small actions can offer. Further development opportunities around Varanus Island promise value for years to come. In Eastern Queensland, Santos can leverage its comprehensive CSG experience and expertise in low-cost drilling to unlock significant value from our acreage positions. In Alaska, we have a low-capital project that aims to extend the plateau of Pikka and Deep [Autumnite] facilities.
With disciplined investment, Santos is uniquely positioned for profitable growth. Momentum is building behind the Narrabri gas project, which signed an MOU with Origin to supply up to 20 petajoules a year for 10+ years into the East Coast domestic market. The Native Title Tribunal has remade a favorable future act decision for production tenure awards, and we continue to work constructively with the Gomeroi on both the gas project and the pipelines. Around 30% of land access for the Hunter Gas Pipeline is now secured, and other approvals are progressing well. In PNG, the Papua LNG project continues to progress through FEED, with FID expected early 2026. We have a strong acreage position on Alaska's North Slope, which positions us well for future growth there, and an appraisal well in Quokka is planned for the coming year.
In Western Australia, we're assessing an integrated gas and liquids concept at Bedout, with appraisal wells being planned to refine scope and timing. In the Beetaloo, we have already booked 1.4 trillion cubic feet gross of 2C contingent resource from only two wells, and an appraisal program is planned for next year. The Beetaloo has the potential to reshape energy supply in the Northern Territory and materially boost both domestic gas and LNG markets in the North and East. Santos continues to invest in the communities where we operate and where our people live and work. Through the Santos Foundation, the Barossa Aboriginal Future Fund, partnerships such as our Cooper Basin Ranger programs, and our award-winning training collaboration with KAEFER Integrated Services, we're supporting jobs, skills, and better outcomes for our host communities.
While the current market environment is challenging, our focus for the remainder of 2025 remains clear: operating our base business safely and reliably, bringing our development projects online, and implementing our disciplined low-cost operating model. Our first-half performance has been strong, and we're committed to bringing 2025 home safely with a strong finish by continuing to ramp Cooper production to full rates following this year's record plugs, maintaining unit production costs within our guidance, delivering structural cost savings of $150 million per year going forward, starting Barossa up successfully and safely, and delivering our first LNG cargo at DLNG from Barossa Gas, keeping Pikka on track and on budget, and aiming for early first oil in the first quarter of 2026, progressing Papua LNG, Bayu-Undan CCS, and Narrabri to FID ready status, and finalizing appraisal programs for Beetaloo and Bedout Basin to support getting these projects FID ready.
In closing, the momentum we anticipated for 2025 is well underway and delivering value for our shareholders. Thank you, and it's now time to take questions.
Thank you. If you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press * then 2. If you're using a speakerphone, please pick up the handset to ask your question. We ask that questions be limited to two per person. Please rejoin the question queue for any follow-up questions. The first question today comes from Tom Allen from UBS. Please go ahead.
Good morning, Kevin, Sherry, and the Board. I'll start with a question on the transactions. This morning, Santos has announced another extension to the exclusivity period for the potential transaction. Can you please provide some color on the customary protections, which read like a ticking fee under discussion, just to ensure the shareholders are supported if the timeline continues to slip further out?
Good morning, Tom. Look, thank you for the question. Look, we gave color on the reasons for the, we flagged last week the reasons for the extension in our announcement to the market last week. This morning's announcement on the further extension is really as a result of us moving to finalize the acceptable Scheme Implementation Agreement. We have made considerable progress. We did say that it would include customary protections for shareholders should the potential transaction take longer than expected to complete. However, we're not going to comment on specific terms and conditions until we get to the binding agreement, which we're targeting for the end of this extension period. At that point, that document, of course, will become public, and we'll update the market accordingly in line with our obligations at that time.
Okay, thanks, Kevin. If a binding transaction is agreed by 19th September, can you outline just an indicative timeline on securing regulatory approvals and when investors might expect a scheme vote?
It's too premature to be speculating on what that timeline will be, Tom. We will look at those customary approvals taking normal durations, but obviously we'll talk about that at the time when we reach the point of having a binding agreement.
Okay. On the result itself, PNG LNG continuing to annualize production at 25% above nameplate continues to look really strong. Following the drilling at Hides F2 and the hanging wall, can you provide a comment on how long current upstream supply to PNG LNG can sustain production at those levels? When the joint venture might consider a FEED decision on the P'nyang gas development, just in the event that Papua LNG development schedule continues to shift further to the right?
I'll look at things over the course of the next year. We'll provide an update on longer-term developments like P'nyang. Currently, our focus is on a number of different projects, as we talked about in the presentation this morning, including APF Tie-in to continue to maintain plateau production all the way through until Papua comes on. Our confidence in the Papua project is increasing, and we're looking forward to getting that FID ready around the end of this year and then taking FID hopefully early in the new year. P'nyang would come after that. We'll give information in terms of moving into Pekin stuff, I'd imagine, throughout the course of the next year or so. Really, our focus in the short term is on many of those infill projects to provide to maintain plateau production all the way until Papua comes on.
Okay, thanks, Kevin.
Thanks, Tom.
Thank you. The next question comes from Dale Koenders from Barrenjoey. Please go ahead.
Morning, Kevin and James. Firstly, just on the Barossa lease coming onto the balance sheet, can you give us a steer as to how large that is? In terms of the lease payments that are coming with it, how should we think about that? I understand there's a level of prepayment.
Thanks, Dale. I'm going to handball that one right over to Sherry, who loves talking about leases.
We love that, Dale. Thank you for the question. We've guided previously that you should think low single digits in terms of the lease coming onto the balance sheet. We do expect that as soon as we come on production and first gas, we'll be able to update exactly what that is and then talk about how that actually hits the income statement and the cash flows that go along with that. As you say, there is a right of use asset that will be made up of both the prepayment and the actual lease obligation for the operation going forward. We'll disclose all of that in the future reporting period.
Can you give us any steer in terms of how much of the leases are being prepaid or what timeframe you get beneficial treatment for?
No, I think other than what we've put in our financial statements already, I can't go any further than that, Dale. We do expect to update you fully on that, and again, how it'll hit the income statement and cash flows once we have it online and producing.
Okay. It doesn't seem to be any sort of comment around the proposed price from the XRG Consortium being adjusted for the dividend declared today. I'm just wondering if you can provide any comments on that, Kevin, or is that one of the things that's up for discussion still?
The offer indicated that any dividends would be deducted from the price, and that is the status of the offer. As I say, you know, really don't want to start commenting on specific terms and conditions of the deal until we get to a binding agreement. The terms of the offer, the non-binding indicative offer, we made public some weeks back when we announced the opportunity. We'll talk more about the details when we get to the binding agreement, hopefully in around four weeks' time.
Okay, thank you.
Thank you.
Thank you. The next question comes from Gordon Ramsay from RBC Capital Markets. Please go ahead.
Oh, thank you very much. Kevin, just another question about the bid. When XRG asks for extended time, do they have to go back to the UAE for government approval on this once the SIA is agreed?
As we flagged last week at Gordon, they have to go back for what they would call corporate approvals. As part of the discussions we've had with them, they've provided some color on those approvals. We don't want to comment publicly on XRG's internal processes, that is a matter for XRG. We're pleased with the progress we've made. We've worked well with the folks from XRG over the last few weeks. As a result of the considerable progress that we've made towards an acceptable SIA, and given that the consortium has again confirmed that it's found nothing in due diligence that would make it consider withdrawing its offer, we've agreed to extend the process , as you heard this morning, for a further four weeks until the 19th of September.
Thank you. Just one more. You made a comment this morning on increased confidence on Papua LNG, potentially, you know, moving forward early in the new year. Can you just remind us what the critical path items are there? Is that achieving acceptable EPC contracts, or are there other factors in play that have held up this project?
Really, it was the operators recycled some bid activities at the time, which I think that was way 2023, I think. Costs were looking a bit higher, so we've recycled some of that, and they've done a good job at taking considerable costs out. We'll update the market when we get to the point of making that decision. We're confident that project's heading in the right direction and that we should be in a position at least to be FID ready around the end of this year.
Thank you.
Thanks, Gordon.
Thank you. The next question comes from Rob Koh from Morgan Stanley. Please go ahead.
Good morning. Congratulations on the result. Just first question about PNG LNG. If you could give us any color on what kind of a plateau you're anticipating for Angore, please.
We're not giving any specific data on Angore itself at this point in time. I think we always said that we'd watch its production for the first year before the operator would be in a position to give us their views on the longer-term bigger picture for that, if there's any upside or otherwise. Likewise, our subsurface people said the same thing. The great news is it's performing really strongly. As I said in my speech earlier, around 360 million standard cubic feet per day going into PNG LNG, and it's been a very successful project thus far. I can't really give you any more than that, I'm afraid.
No worries. All right. Good start. I guess just a question on GLNG. There's been some commentary around the domestic gas review around the potential extension of a co-gas option. Are you able to provide any color on the co-gas option in 2031 and if that's already been exercised or whose right it is to exercise?
I'm not going to give any comments on contractual discussions or decisions that haven't been made yet. Ultimately, you know, the project's performing well. Our gas is contracted, the majority of our gas at GLNG, and we'll continue to operate, and we'll update the market if anything changes. There is nothing really to say on that at this point in time.
Okay, cool. Thanks so much. Cheers.
Thanks very much. Thank you.
Thank you. The next question comes from Saul Kavonic from MST Marquee. Please go ahead.
Thanks, Kevin and Sherry. Just, I guess last week's announcement of the four-plus-week XRG corporate approval timeframe did seem to come as a surprise. Didn't you check with XRG about these approval timeframes before putting out all the ASX releases, including the one on the 11th of August, which indicated that you could have a binding deal much sooner than that timeframe allowed?
Look, I think the question there really around the quality of XRG's internal corporate approvals is really a question for XRG, Saul. Look, we put the announcement out at the time that said six weeks to negotiate an SIA. At that time, both parties believed that was achievable. However, this is a big transaction. I believe it would be the largest all-cash transaction ever on the ASX, and I think the largest all-cash energy sector transaction globally. What has become apparent during that period and during the SIA detailed discussions was that things were taking a bit longer, and we got more clarity on the internal corporate approvals processes. As soon as we became aware of that, we flagged that for market last week.
I guess if XRG haven't been honest with you about the timeframe of these basic procedural steps in this process, what do you think is the faith that our government can have that XRG are being honest about their plans for the business and our critical infrastructure if the deal is allowed to go through?
I don't think any of those comments are really for me, Saul, and those were your words, not mine.
Fair enough. If I'm not going to ever make a decision-maker available to us to ask questions, we will. So far, they're not exactly paying, don't appear to be playing a straight bat here. Just earlier, you mentioned in reply to an earlier question that you were targeting a binding agreement by the end of this period ending on the 19th of September. I just want to be clear, is that a full binding approved agreement, or that's just agreed terms, and then there'll still be the subsequent corporate approval process that would happen after that?
We're targeting a full binding agreement by the 19th of September. Thanks, Saul.
Thank you.
Thank you.
Thank you. The next question comes from Nik Burns from Jarden, Australia. Please go ahead.
Yeah, hi, Kevin and Sherry and team. Apologies. Another couple of questions on the proposed bid. Last week, your announcement did say that it would take the XRG Consortium at least four weeks to obtain relevant approvals. You've now granted them a four-week extension. Based on what you said last week, it's clear that it feels like four weeks is the best-case outcome for the consortium to get those internal approvals. I guess the question is, is four weeks enough here, or is this a case of the Santos board really drawing a line in the sand and saying, "We really need you to get there within the next four weeks"? Is there a risk that the consortium does ask for a further extension? Thank you.
Thanks, Nik. Look, I mean, I think those are really questions for XRG. From our perspective, we've had very positive discussions and made a lot of progress over the last week or two on the SIA terms. Consequently, because of that, and as I said earlier on, because the consortium has again confirmed it's found nothing in due diligence that would make it lead to consider withdrawing its proposal, we've granted them the extension to the 19th. The other thing I would say is that they've also demonstrated a commitment to the transaction, a very strong commitment to the transaction, and a commitment to expedite those approvals over the four-week process. Following those discussions, the progress, and the strong commitment from XRG, the board selected to grant that extension. We'll be working very diligently with XRG to help them make that happen.
Okay, that's great. That's clear. Thanks for that, Kevin. I fear this question might give us another straight bat that's asked XRG. There's been a fair bit of focus on the consortium's requirements to obtain all necessary regulatory approvals before the SIA is taken to the Santos shareholders for approval. There's particular focus, I guess, on FIRB. I'm just wondering, can you comment at all on whether the delay in executing the SIA here is impacting the timeline behind the scenes to obtain those regulatory approvals, or is that a separate work stream, as far as you understand?
Look, I think if I was given any guidance on the timeline for the expected timeline, I should say, for regulatory approvals, it would be from the signing of the SIA . I'd be able to give you more color on my expectations or thoughts around that at that point in time, Nik, but now it would be premature.
Thanks for that, Kevin. I had to try, cheers.
Yeah, good try, Nick. Thanks.
Thank you. The next question comes from Henry Meyer from Goldman Sachs. Please go ahead.
Morning, team. Just to follow up on the Barossa leases, if gearing rises over the 25% target this half, how do you think about dividends in February if you're considering the de-gearing trajectory over 2026? Would you still see a minimum payout?
That's an excellent question, Henry. We've been very clear throughout that we did expect that gearing, subject in particular to commodity prices in the second half, may increase. However, that should not have any impact in terms of our ability to pay out dividends in accordance with the capital allocation framework because a lot of that's non-cash as well, just coming onto the balance sheet, as you can imagine. No impact should be expected in terms of our ability to stick to our cash.
I would draw your attention, Henry, to the fact that if you exclude those operating leases, gearing excluding those leases is under 21%. You know, coming to the end of a heavy investment cycle, we're pretty pleased with where we are on that front.
Perfect. Thanks, both. I guess a few months away from 2026 now, it seems the major drilling programs are shaping up for 2026 and 2027, and you're getting one offsite to Papua getting closer to FID as well. Can you give a sense of where you think that CapEx ceiling for 2026 might be set now?
As normal, we'll give that CapEx guidance towards the end of the year, Henry. It's too premature to be giving that guidance at this point in time.
Okay. Thanks, Kevin. If I can, a quick third one. In the accounts, we can see the commitments for expenses across the CapEx exploration leases have all fallen since December last year. Could you maybe just step through what's driving some of the changes in the key buckets there?
Yeah, I think the biggest single one, Henry, without looking through the details of that, is that we're coming to the back end of our spending on both Barossa and Pikka. A lot of those longer-term commitments and long-lead items that were related to those major projects have now been extinguished. That's really the storyline there.
Yep, okay. Thanks. Makes sense.
Thank you. The next question comes from Mark Wiseman from Macquarie Group. Please go ahead.
Oh, good day, Kevin. Sherry, thanks for the update today. In note one to the XRG announcement today, or the announcement separately on the XRG offer, you've clarified that all dividends would be adjusted. Obviously, you're trying to get customary protections to protect investors. I guess the question I've got is the business is improving substantially over the next six months with Barossa achieving startup, and Alaska started to come on as well. Under your capital framework, the dividend steps up quite materially in calendar 2026. Should we assume that if this drags through to mid-2026, including regulatory processes, that there'll be some sort of provision to protect investors against that sort of dividend step-up that would be deducted?
Oh, look, I mean, we'll make it. Presumably, you're talking about in the terms of the binding Scheme Implementation Agreement. As I said earlier, Mark, we'll provide guidance and clarity on what those terms are at the point of getting or announcing that we've got the signed and binding agreement. I can't really speculate, or I don't want to comment on the specific terms at this point in time. As we said in our announcement this morning, there are customary protections in place.
Okay. Are you able to give any sort of insight into the timing from which investors would be protected? Is there any logical point in time that things would kick in?
No. As I said earlier, I don't want to comment. Until we've got a signed and binding agreement, we don't want to comment on specific terms and conditions.
Okay. All right. Thanks very much.
Thanks, Mark.
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