Incentivised Santos boss Kevin Gallagher pulls no punches on federal ‘intervention’

Rejuvenated by a $6m incentive to remain with Santos until 2025, boss Kevin Gallagher has come out swinging against federal government ‘intervention’ challenging future energy supply in Australia.

Santos managing director and CEO Kevin Gallagher. Picture Mark Brake

Santos managing director Kevin Gallagher has outlined “government intervention in the domestic gas market” as one of its major ongoing concerns.

The business was resilient and focused on major multibillion-dollar projects while working on its goal to have net-zero operational emissions by 2040, he told shareholders via a virtual meeting.

Other recent challenges included two oil price crashes, a major earthquake that impacted its PNG operations, the Harbour Energy takeover approach in 2018 and the COVID-19 pandemic.

“Despite all of this, our portfolio continues to generate strong free cash flows, maintain the strength of our balance sheet, provide dividends to shareholders, and we are now very well positioned to fund our growth as demand recovers and oil prices improve,” Mr Gallagher said.

This year, Santos is planning for the start of a two-year appraisal drilling program at the $3.6bn Narrabri gas project in NSW, which the company received environmental approval for in November last year.

Chairman Keith Spence welcomed the progress, but said there was ongoing uncertainty.

“However, there is still some way to go with federal government policy uncertainty and an appeal against the project approval to be heard in the NSW Land and Environment Court over three days from 30 August,” Mr Spence said.

Working on securing approvals for the project – acquired in 2011 – has been going for many years, which was not conducive to being able to deliver cheap gas into the Australian market, Mr Gallagher has previously said.

“It probably feels like a project we’ve been talking about in biblical time frames,’’ he said.

At the AGM, he told shareholders the group’s assets have margins of greater than 40 per cent and all are free cashflow positive at an oil price of less than $35 per barrel, highlighting the value of the balanced nature of its portfolio.

Earlier this week, the Santos board allayed shareholders’ fears of losing one of the industry’s best leaders by offering Mr Gallagher a $6m “once-off growth projects incentive”, locking in his commitment at least until 2025.

The move was clearly designed to keep him out of the race for Woodside’s top job after he stoked speculation about being in the frame.

Santos CEO Kevin Gallagher and chair Keith Spence. Picture: Brenton Edwards

Shortly after his incentive announcement, Woodside’s search for a new leader took a bizarre twist, which is likely to be a topic of some discussion at its shareholder meeting, also on Thursday.

As stated previously Santos’s priorities this year will include besides drilling work at Narrabri, the recently-approved $4.7bn Barossa gas project in the Northern Territory, Dorado LNG project in offshore WA, and the Moomba carbon capture and storage development in South Australia.

The annual meeting took place as the industry warned of new anticipated challenges after federal Resources Minister Keith Pitt approved tough new measures on how huge offshore oil and gas infrastructure will be decommissioned.

Climate change will also feature on the corporate agenda next year, with Santos shareholders having their say on it at annual meetings from next year.

Santos has committed to net-zero operational emissions by 2040, but is facing pressure to address the largest part of its carbon footprint — the Scope Three emissions from the oil and gas they sell.

The company’s Adelaide head office was targeted by Extinction Rebellion protesters in March, some of whom glued themselves to the road, with others setting off flares.

Mr Gallagher has said the Moomba proposal, a key driver to improving its environmental footprint, could store up to 20 million tonnes of carbon dioxide per year.

“As I have said many times, CCS is also the fastest and most efficient route to a hydrogen economy, using less water, decarbonising natural gas at its source and eliminating Scope 3 emissions.

“Today, Santos could deliver hydrogen for around 2 Australian dollars per kilogram – that is the Australian Government’s 2030 target and we are already there.

“But we won’t set the time frame for hydrogen – that will be set by our customers.”

However climate activist group Market Forces, affiliated to the Friends of the Earth organisation, said Santos’s massive oil and gas expansion plans are “a bet on the failure” of the Paris Agreement.

“Today’s record level of support for a resolution (by Market Forces) calling for the wind up of fossil fuel production demonstrates considerable investor opposition to Santos’ growth plans …,” Market Forces’s campaigner Will van de Pol said.

“With today’s vote almost doubling the previous record set for a fossil fuel wind up resolution, all coal, oil and gas producers must take note: shareholders are increasingly willing to demand drastic action to align with global climate goals,” he said.