Good morning, and thank you all for joining our 2021 Half Year Results Investor Call. It is a pleasure to speak with you again following the investor update teleconference last night. I would like to begin by acknowledging the traditional custodians of the land upon which we are presenting from today, the Noongar Wagic people, and pay my respects to the Elders past, present and emerging. I also extend my respect to all other Aboriginal nations, the future generations and their continued connection to country. As you are aware, this morning we released our half year report and results briefing PAC to the ASX.
I am joined on this call by our Chief Financial Officer, Sherry Dewey. I'd also like to recognize that this is my first investor results call as the confirmed CEO and Managing Director of Woodside. I'm humbled that the Board has selected and entrusted me to lead our company. While we have an exciting 12 months ahead of us as we work to complete the merger announced yesterday with BHP's Petroleum business. The ongoing strength of Woodside's business and progress on our commitments is equally important.
We will continue our focus on running Woodside to be customer focused, low cost and low carbon, and this will continue once the merger is complete. I will start with a brief overview of our financial and operational performance and progress achieved on our key growth opportunities. Sherry will then give a more detailed financial update before I provide a closing summary and open up the call to a Q and A session. Please note the standard disclaimer on Slide 2 advising that this presentation does include some forward statements and that our reported numbers are all in U. S.
Dollars. If we move to Slide 3, You can see that our low cost operations have enabled us to take advantage of the strong rebound in market conditions following the challenges and uncertainties due to COVID-nineteen in 2020. With global energy demand recovering towards pre pandemic levels, we reported increases in profit and revenue. We recorded a net profit after tax of $317,000,000 and an underlying NPAT of $354,000,000 up 17% from the first half of twenty twenty. The directors have declared an interim dividend of $0.30 per share, representing an approximately 80% payout ratio of underlying NPAT.
Moving to Slide 4. In the first half, we achieved solid production performance after the record production levels last year and higher sales volumes as we increased trading activity in response to favorable market conditions. The safety and well-being of our people remains our priority. We have robust measures in place to reduce the risk of COVID-nineteen to our workforce, and it was pleasing that we recorded no Tier 1 or Tier 2 process safety events. On Slide 5, you can see we continue to deliver safe, reliable and efficient operations across our producing assets.
There are a number of activities included on this slide, but I'd like to highlight a few. First, Pluto LNG achieved a record daily production rate, while also delivering efficiency improvements and emission reductions. Examples of this include improving our operating processes to reduce methane and other emissions during steady state LNG processing. At Northwest Shelf as well, we have achieved to direct emission savings by streamlining the process of trunkline depressurization for the turnaround at KGP. Ongoing emissions reductions are also being realized through automation and advanced process control optimization, which includes challenging and optimizing power generation and compressors to reduce fuel gas usage.
Also during the period, the Northwest Shelf project finalized arrangements to enable the processing of third party gas, which was a major milestone in transforming the Karatha gas plants into a world class tooling facility. Our Australia oil business also achieved a record price premium to David Brent, for crude produced from the Najima Yin FPSO. If we move to Slide 6, As the graph shows, during the first half of the year, the oil and gas market experienced a sustained price recovery after the volatility of 2021 sorry, after the volatility of 2020. We have seen this reflected in increased average realized price in the half. These market conditions have provided an appropriate environment for increased trading activities this half compared to first half last year.
Moving to Slide 7. We are making good progress toward our target of a 30% cost reduction for our operated assets over the next 3 years. This is essential for us to maintain cost competitiveness in a dynamic market. We are bringing improvements off the drawing board and deploying them in the field with a focus on streamlining our processes and utilizing technology to inform decision making and automate routine tasks. We have also deployed low cost field sensors on assets, so we can more effectively monitor equipment and be more targeted with our maintenance.
As Slide 8 shows, we have made significant progress towards our final our targeted final investment decision before year end on the Scarborough developments and Pluto Train 2 expansion. Scarborough is a globally competitive development with the potential to deliver significant value to our shareholders while supporting the world's transition to lower carbon energy. You'll see on Slide 9 that technical work to support execution readiness for Scarborough is complete and the majority of the key regulatory approvals have been secured. It was particularly good to receive the nearshore environmental approval last week, which authorizes the installation of an approximately 32 kilometer section of the Scarborough trunkline within state waters and the associated activities required to construct the trunkline. We completed and announced earlier this month the Scarborough cost update, which incorporates value accretive scope changes to deliver an approximately 20% increased offshore processing capacity.
This provides the cost certainty we need ahead of FID and supports the sell down processes for Pluto Train 2 and Scarborough. In the first half, we secured state ministerial approval of an update to the Pluto Greenhouse Gas abatement program, supporting the development of Pluto Train 2. The proposed merger with BHP's petroleum business announced yesterday provides a clear path towards achieving our targeted FID this year. Moving to Slide 10. Work on the Sangomar field development Phase 1 is progressing to schedule, and we are on track to deliver targets at first oil in 2023.
Support facilities in Dakar have been commissioned, enabling the commencement of the 23 well development drilling campaign in July. Subsea equipment fabrication is progressing and equipment is already arriving in Senegal as you can see from the photos on the slide. FPSO conversion activities are well underway on the VLCC oil tanker. We have commenced to the formal process to sell down our equity in Sangomar and are seeing positive interest from the market. In summary, it has been a strong and productive first half, and we will be maintaining this momentum through the second half of this year.
Sherry will now take us through the financial update.
Thank you, Meg, and good morning, everyone. Before I begin, I'd like to congratulate Meg on her well appointed Well deserved appointment as the CEO and Managing Director, and I'm looking forward to continuing under her outstanding leadership. Starting off with Slide 12, Meg has already discussed the sustained price recovery, and the waterfall chart shows the impact of strengthening commodity prices have had on our profit this half. Sales revenue due to improved oil and gas pricing was up $387,000,000 from first half twenty twenty, and we had higher revenue due to sales volumes as a result of increased Corpus Christi volumes and trading activity. We recognized lower depreciation and amortization expenses, which reduced due to lower asset values following the impairments in 2020 and lower production due to planned maintenance and weather events.
With increased trading activity, associated trading costs have also increased in the half. The other items is showing an increase of $166,000,000 from the first half of twenty twenty, and this relates primarily to costs associated with our Kitimat exit, which was announced in May 2021, hedging activities and new energy and operational transformation projects. We've realized the final closeout of commodity hedges, which were paced in 2020 and the mark to market valuation of new hedges placed on Corpus Christi volumes in the half. This has resulted in a first half reported net profit after tax of 3.17 and an underlying impact of $354,000,000 Moving to Slide 13. Our operating revenue has increased by 31% in the first half of twenty twenty one compared to the first half of last year.
This is underpinned by the improved pricing and higher trading activity I mentioned in the previous slide. We have also had higher shipping and other revenue due to an increase in shipping sub chartering. On Slide 14, I'd like to talk about our operational cost performance. As you can see, we've maintained flat production costs from the first half of twenty twenty. However, unit production cost has increased to $4.9 per BOE as a consequence of lower production volumes and planned maintenance activities, including our turnarounds at KGP's LNG Train 4 and the Goodwin A platform.
Slide 15 puts our unit production and into the context of our cash margin. We've maintained a cash margin above 80% and our cash margin has increased by $8.60 per barrel in the half. These margins continue to support our strong balance sheet. Moving to Slide 16, we We continue to prepare our balance sheet ahead of a targeted Scarborough and Pluto Train 2 final investment decision later this year. Our balance sheet is characterized by a well managed debt maturity profile and high liquidity.
Our gearing has decreased to 23.3 percent from 24.4 percent at year end 2020, and we continue to manage our near term debt maturities and maintain a low cost of debt. Pleasingly, our credit ratings were reaffirmed in the half, and we continue to maintain our target liquidity cover of 12 to 18 months. On to Slide 17. We have taken a number of proactive measures to ensure we manage price risk across our portfolio. We have placed hedges on our unsold Corpus Christi volumes.
And as of 16th August this year, we have reduced our pricing risk on approximately 85 of our 2022 cargoes and 20 20 and 25 percent of our 2023 Corpus Christi volumes as a result of this hedging and fixed price in terms of term sales. In the half, we've seen an increase in trading and optimization activity driven by favorable market conditions. This activity is opportunistic and includes the purchase and on sale of 3rd party cargoes to extract additional value from flexibility within Woodside's contract portfolio. Trading and optimization activity is managed within a robust risk management framework and is expected to generate average margins of up to 5% of cost. This reflects the value accretive but relatively low risk nature of this type of trading.
The cost of purchasing 3rd party cargoes and Corpus Christi volumes is presented in trading cost and the profit and loss statement, and the associated revenue from the onsale of these cargoes is presented within LNG revenue. Given the Current market factors and improving LNG spot prices, we expect full year trading costs, including the Corpus Christi volumes to be between 1.1 at $1,300,000,000 Approximately $800,000,000 of this is expected to be 3rd party trading in nature, subject to market conditions and opportunities. To protect against downside pricing risk, we are also looking to hedge up to 20% of oil linked exposure in any 1 year. Subsequent to the half, we have placed a number of hedges in 2021 2022 production at Brent pricing above $70 per barrel. To date, we have hedged 2,000,000 barrels of our 2021 production at an average price of $73.68 per barrel and approximately 6,000,000 barrels of our 2022 production at an average price of $71.72 per barrel.
Where appropriate, we will continue to lock in prices to provide pricing certainty. Moving to Slide 18 and 2021 full year guidance. In addition to the trading cost range I mentioned on Slide 17, We are providing guidance on expected production cost of between $450,000,000 $550,000,000 and expected general and with a straight up cost of between $150,000,000 $250,000,000 Our expected production cost Incorporates higher planned maintenance activities and foreign exchange assumptions compared to 2020 and expected general and administrative costs incorporates higher spending on on sell down and growth related activities. In our Q4 report earlier this year, we provided investment expenditure guidance of 2.9 to $3,200,000,000 This remains unchanged as the Sangamoire equity position of 82% was already incorporated previously. Our production guidance range for 2021 has narrowed to 90,000,000 to 93,000,000 barrels, and our guidance on uncontracted production remains unchanged at 10% to 15%.
I'm pleased to say we continue to maintain a strong balance sheet as we head towards our targeted Scarborough and Pluto Train 2 final investment on the decision and have positioned our company well for the next 12 months as we progress towards the merger with BHP's Petroleum business that we announced yesterday. I'll now pass back to Meg for a summary.
Thank you, Sherry. If we move to Slide 20, many of you have heard me speak on the importance of Woodside being both low cost and low carbon and the action we are taking to ensure this. On the Left hand side of the slide, you can see our corporate targets for emissions reductions, which we have previously announced. To be clear, We are taking action today towards our near and medium term targets in support of our aspiration of net zero emissions by 2,050 or sooner. We will achieve these targets by avoiding emissions through the way we design our projects, reducing emissions by the way we efficiently operate our projects and originating and acquiring quality offsets for the remainder of our targets.
We have previously announced we will be putting our climate reporting to a nonbinding advisory vote of shareholders at our 2022 Annual General Meeting. We understand the level of interest in this area and the importance of transparent reporting. We have been engaging with our major shareholders on our climate reporting and look forward to sharing further our approach to the energy transition in the lead up to next year's AGM. On the right hand side of the slide, we have highlighted our ongoing focus on growing our New Energy business, which includes further maturation of our portfolio of hydrogen and ammonia. We are also progressing renewable power opportunities in the Pilbara and investigating carbon capture and storage options.
Moving to Slide 21, I want to take this opportunity to reinforce our priorities for the remainder of the year and our commitments to becoming a low cost, low carbon company. These priorities remain and complement the activities we announced yesterday afternoon as part of our proposed merger with BHP's Petroleum business. We are focused on maintaining a disciplined approach to expenditure. We are assessing what we do and how we do it, transforming our business to reduce costs and increase efficiency. We will create and protect value by achieving our targeted final investment decision for Scarborough and Pluto Train 2 in in the second half of the year and delivering the Sangomar field development Phase 1.
We will build our sustainable future by delivering value through the energy transition, continuing the safe and reliable supply of energy to customers, diversifying our business streams and working with our communities to realize positive outcomes. Thank you for kind of efficiently prioritizing activities in the growth hopper and then the third is exploration and making sure that we've got the right focus in the exploration business, thinking long term about what are the sorts of things that we want to bring in the hopper, but It'd be premature to give you any more detail at this point in time.
All right. And lastly, and I think it's a follow-up on the question from yesterday. The decline in Woodside base business that was shown from 2024, I want to get an understanding, does that include a decline beginning in Pluto, in the 2024 to 2027 window, are you expecting Pluto to remain full absent the Scarborough FID into the Well into the second half of this decade.
So we don't provide the forward looking statements on an asset by asset basis.
All right. I can only try it. Thank you very much, Meg.
Thank you.
Thank you. Your next question comes from Gordon Ramsay with RBC
Capital Markets. Please go ahead.
Thank you very much.
Thank you very much. Meg, I'm just going to ask questions about the merger. Under what circumstance I mean, you're targeting the FID for Scarborough before the end of the year. I just don't understand how BHP is not going to exercise its option on Scarborough. FID is going
to be taken before December 15 presumably, so You're going to have to pay BHP $1,000,000,000
Yes. It's not the right way to think about it, Gordon. So the option can only be exercised by BHP Petroleum in the second half of twenty twenty two. So, it's we've got alignment with BHP to take a final investment decision this year. If that is successful, then the option comes into play.
The only scenario where it would be exercised is if the merger doesn't complete. And when we look at the value that Scarborough brings to Woodside shareholders, both the Woodside shareholders today and the Woodside shareholders in the future merged company, We see Scarborough as a very compelling investment. So it really is just a kind of option for BHP in the event that the merger doesn't progress. Assuming the merger is successful, the option just goes away, and we are able to progress the projects for the benefit of all of our shareholders.
Got it. My mistake. And then just on abandonment costs in Bass Street, there's been Studies that imply that the net cost of BHP could be up to about $5,000,000,000 Can you confirm that?
So Gordon, I don't want to provide any specific numbers about decommissioning costs for any particular asset. I think it is worth highlighting a few points. So in our due diligence, decommissioning was absolutely one of our key focus areas because of the studies that you've pointed to. And so we had a very significant part of our team looking at Bass Strait, trying to understand the assets, trying to understand the decommissioning plans and the costs to execute those plans. We obviously, as an experienced offshore operator, have experience in this, and we've I've had some of our best people digging into it.
So we've got a good understanding of what Bass Strait decommissioning costs are likely to be. I think it's important to bear in mind that those costs are spread out over probably 20 years. And Bass Creek continues to be an asset that will be very productive and generate value for the merged company over the very near term and the decades to come. So The valuation that's built into the merger ratio fully accounts for those decommissioning obligations.
Okay. Other than those 2 wishes, congratulations on a great deal. Thank you.
Thank you, Gordon.
Thank you. Your next question comes from Mark Samter with MST. Please go ahead.
Yes. Good morning, Megan. Three questions, I think, if I can. Just to come back to the contingent payment to BHP and I appreciate it. I think Explained it well on the call last night as well, Meg.
But I'm just going to understand how you guys approach the balance sheet leading into it. Are you going to The Woodside balance sheet with the assumption that the merger happens because I'll correct me where I'm wrong, but it feels like once you take an FID on that, If the balance sheet is in a position where it assumes the merger is completing, I mean, effectively, you hold a gun to shareholders head where it would be, I think it's impossible to break the deal down because the alternative to the deal not happening as you suddenly got a fair $1,000,000,000 out And you own 100 percent of the upstream. So will the balance sheet be reflective of the business you think it becomes? Or Do you feel like it's It's
anywhere from 10% to 20%, depending on what's happening in the marketplace in that particular year and the different ADP nominations that are made by our customers in the end of the Q1 of each
year. Right. And just following up some questions earlier just on the trading business. Over the half that the trading business may have made a loss, we're seeing Hi, 3rd party LNG purchases coming through. Can you just break out the drivers there and how you're confident with those trading volumes Lifting up and down half on half that you're going to secure that margin that you're targeting?
Yes. And just to be clear, when you look at our overall trading activity For the period, we did not experience any losses. There is a little bit of a nuance in the sense that we have an owner's contract provision that we booked last year for Corpus Christi, And so changes in that position actually go to a different line item on the financials, and you can see that broken out in the segment P and L for that line item. But overall, we saw a positive impact for our trading activities for the period. And some of that goes through those spot activities that I highlighted earlier and other of that is just the trading contribution to the equity volumes that we sell from our produced portfolio.
All right. Thanks, Jack.
Thank you. Your next question comes from Baden Moore with Goldman Sachs. Please go ahead.
Good morning, Megan, Sherry. Just a follow on, on the spot exposure for the business. In the context of the merger, You'll be a much larger player in that global market. And I was wondering how you think about whether you'll be looking to take a greater Spot exposure in the future. And then in that context, as we look at the Scarborough development, you've previously talked about a 50% commission precedent on contracted levels for Scarborough.
Just wondering if that's still the case?
Look, Baden, it's a great question. It's probably one we need to put on our list of things to work through. Obviously, we've taking a bit of a different approach from BHP Petroleum in terms of marketing strategy, particularly for growth projects like Scarborough. We do need to get our thoughts together, and we've talked about it in the past actually that we're seeing an LNG market that is changing in many fundamental ways. It's becoming far more liquid.
We're seeing different price markers. So I think the guidance that Sherry gave is sound for the next few years. But as we move forward in time and as we think about what our marketing strategy is going to be in the context of the merger. We'll be looking to refine our approach to Spot. It's probably worth highlighting that we have a very strong marketing team.
As Sherry highlighted, we've been doing a good bit more trading this year, managed under a very tight risk management framework, but we are getting great experience in the market. We know the customers well. We understand what the market is doing. And so that gives us a few more levers to pull, particularly as the merger comes together.
And on the Scarborough volumes, Will I be 50% contracted?
Look, Payton, that's where we are today actually with our current working interest in Scarborough, between LNG term sales as well as our domestic gas sales to Pertamin. One of the complexities, of course, is we're going through a sell down process, so we'll be kind of seeing how those bids come in, and we'll be working with other prospective joint venture partners on whether or not they'd be interested in some of the Partiman volumes. But the number I don't want to be too definitive on the number recognizing that our equity is likely to be a little bit different than what it is today.
Okay. And on the revised $12,000,000,000 capital number, in the 2018 capital raising documents, The business flagged the 25% contingency allowance in the capital program. I was wondering, did that change through the revision Of the CapEx estimates for FID at this point? Or can you shed any light on what's there for Continued to see the lightest CapEx update.
Yes. Look, we wouldn't normally disclose contingency levels or allowances or any of that sort of information. I think it's Worth highlighting though that the technical work and the execution planning for Scarborough and Train 2 is extremely well advanced. It's With the delay in FID from 2020 to 2021, the technical teams have had a chance to really firm up our understanding of what the facilities will look like to mature the engineering, the detailed design work. We've actually purchased some long leads, so our confidence in the cost estimate is very high.
And worth pointing out as well that our contracting strategy with a heavy bias towards lump sum and fixed rates It puts us in a position where we've got the things we've been doing as we've been building out our capability in ammonia and hydrogen is really working closely with our customers to understand what they need. And we fully recognize that any Material investments in new energy is one that has to be customer led. We could build facilities today to make hydrogen, but if nobody is there to take it and pay for it, it's not a good of our shareholders' money. So as we work with our customers, one of the things we recognize is They're going to have to make investments on their side to take products. So blue hydrogen, we see as a very natural kind of bridge between LNG, which is something we make today and something that's very affordable for our customers, which is not something that is widely produced today and that likely will end up being more expensive for customers.
So in many ways, we see blue hydrogen as a stepping stone to get to the ideal world, which is a green hydrogen world where there's no emissions at all. But we do recognize that we need to really and the actual emissions profile of any investment in this space. And so this is something we'll continue to work very closely with our customers as we mature those opportunities. Thank
you. Thank you. Your next question comes from Sarah Kerr with Australian Super. Please go ahead. Good morning.
I just had a question