This resolution seeks to provide confidence to shareholders that Santos’ oil and gas assets are handled in a way that protects shareholder value, while ensuring employee transition and asset decommissioning obligations are adequately planned and resourced.

Failure to adopt the requests of this resolution would see Santos continuing to exacerbate climate-related financial risks by undermining its own climate claims and defying the clear demands made by investors.

Undermining commitments
Investor calls for Santos to align its business with global climate goals include:
- 43% of shareholders voting for scope 1, 2, and 3 emission targets, and exploration and capital expenditure plans aligned with the Paris Agreement in 2020,
- 13% of shareholders voting for the company to manage down oil and gas production in line with the Paris Agreement in 2021, and
- The Climate Action 100+ investor initiative’s demand to “align future capital expenditures with the Paris Agreement’s objective of limiting global warming to 1.5° Celsius”.

Santos has failed to meet these demands and has instead moved in the opposite direction, drastically increasing exposure to climate-related transition risks by pursuing new projects that are incompatible with the Paris climate goals and a net-zero by 2050 global energy scenario.

In doing so, Santos has exposed itself and shareholders to legal risk. A current Australian Federal Court case alleges Santos engaged in misleading and deceptive conduct by claiming to have a “clear and credible pathway to achieve net zero emissions by 2040”, but failing to “disclose that it has firm plans to increase its greenhouse gas emissions by developing new or existing oil and gas projects”.

Betting against climate action
Demonstrating the divergence between Santos’ plans and the energy transition required to meet the Paris climate goals, the International Energy Agency’s (IEA) seminal Net-Zero Emissions by 2050 Scenario (NZE) – modelled to provide a 50% chance of limiting global warming to 1.5°C – concludes, “The rapid drop in oil and natural gas demand in the NZE means… no new oil and natural gas fields are required beyond those that have already been approved for development.”

The NZE also projects sharp declines in demand for Santos’ products. Santos’ 2021 sales revenue split was 47% LNG, 27% domestic gas, and 26% liquids. The NZE projects:
- Australia’s LNG trade to fall 25% below 2020 levels by 2030, and to halve by 2040, and
- Global oil demand to fall by more than 4% per year on average between 2020 and 2050.

CSIRO’s 1.5°C-aligned Strong Electrification energy pathway for Australia models significant falls in gas demand starting from 2020, dropping almost 40% by 2030 and 78% by 2050.

In direct contrast to these foreseeable and necessary demand falls in domestic and international markets, Santos plans to significantly increase production through new projects, and has taken on even greater exposure to oil and gas through the Oil Search merger.

Even before the Oil Search merger, Santos was planning to spend billions of shareholder capital to increase production by a third from 2021-2025. The new projects planned to drive this increase include:
- Barossa LNG (Santos share of capex ~$1.8 billion)
- Narrabri coal-seam gas (~$520 million)
- Dorado oil (~$1.6 billion).

Independent analyses find all three projects incompatible with the global climate goals Santos claims to support. Investment in these projects therefore equates to Santos betting shareholder capital against the achievement of those goals.

Carbon Tracker has found Dorado, for which a final investment decision is planned in 2022, is incompatible with even the IEA’s (net-zero by 2070) Sustainable Development Scenario (SDS), let alone the far more constrained demand profile imposed by the NZE.

The extremely high CO2 content of the Barossa gas field has led energy experts to state the project “is like a CO2 emissions factory with an LNG by-product”. IEEFA concludes, “Santos’ proposed Barossa to Darwin LNG development would be both a major financial risk and a serious climate risk for all if it were to go ahead”.

Former Australian chief scientist Penny Sackett has confirmed the Narrabri gas project is incompatible with the Paris Agreement and net-zero by 2050. Santos is also actively pursuing unconventional gas exploration in the undeveloped Beetaloo basin, which has similarly been found to be incompatible with global climate goals.

Oil Search’s plans and climate risk liabilities, which Santos has now taken on, involve increasing production by >80% from 2020 to 2030. Carbon Tracker’s analysis shows 81% of Oil Search’s business-as-usual capex falls outside the SDS. This means our company is consuming another that is spending the vast majority of its capital on activities consistent with the failure of the Paris Agreement. Raising particular concerns about Oil Search’s Alaskan oil projects, Carbon Tracker states, “Oil Search is preparing to commit capex to some of its less resilient assets, which will now become Santos’ problem.”

The immense stranded asset risk facing Santos under a net-zero by 2050 transition is becoming increasingly likely to materialise, with key markets rapidly moving to align policy with these global climate goals. Japan and Korea, key markets for Santos, have both announced plans to reduce gas in their energy mixes by 2030, while IEEFA has found over 60% of proposed LNG import and gas power infrastructure in emerging Asia is unlikely to be built.

Shareholder support for this resolution is therefore required to ensure returns from Paris-aligned production are maximised, while preventing capital being wasted on projects that are incompatible with climate goals Santos claims to support.