Earnings Call Transcript - WDS Q2 2023

Marguerite O’Neill, CEO

Good morning, and thanks, everyone, for joining our 2023 half year results investor call. We are presenting the results today from Sydney and I would like to begin by acknowledging the traditional custodians of this land, the Gadigal people of the Eora nation, and pay my respects to their elders past, present and emerging. I also extend my respect to all other Aboriginal nations, the future generations, and their continued connection to country. This morning, we released our half year results and briefing back to the market. I am joined on the call with our Chief Financial Officer, Graham Tiver. Together, we will provide an overview of our first half 2023 performance before opening up the call to a Q&A session. Please take the time to read the disclaimers, assumptions, and other important information on Slides 2 and 3. I'd like to remind you that all dollar figures in today's presentation are U.S. dollars unless otherwise indicated. Starting with Slide 4. In June, we celebrated one year since completing the merger with BHP Petroleum. The strong results this half highlight the benefit the merger has realized. We delivered a record first half net profit after tax of $1.7 billion. Our operating capability was reflected in our continued reliable operations and the safe execution of two major turnarounds. We are investing in the business with our major projects progressing well and additional growth sanctions with the Trion project in Mexico. Just a few weeks ago, we announced the sale of a 10% interest in Scarborough. This has been a strategic priority, reducing our capital commitment and bringing a great partner into the joint venture. Our disciplined approach to capital management has positioned us to be able to invest in the business and return value to shareholders. The directors have determined an interim dividend of USD 0.80 per share. The dividend will be fully franked for eligible Australian shareholders. Slide 5 highlights our strong operational and financial performance. We produced 91.3 million barrels of oil equivalent, reflecting the strength of our larger portfolio in a half that included major turnarounds at two of our facilities. We achieved reliability of 97.7% at our operated LNG facilities. While we saw prices received from the record highs of 2022, we realized an average portfolio price of $74 per barrel of oil equivalent, indicative of ongoing strong demand for our products, and this resulted in $7.4 billion of operating revenue and a record first half EBITDA of $4.9 billion. The balance sheet is well-positioned, allowing us to invest in the business and return value to shareholders. On Slide 6, our strong operational and financial performance provides the means to deliver our strategic imperatives. We've said consistently that we were aiming to sell down a portion of Scarborough to the right partner at the right value and we are really pleased with the outcome. I am delighted to welcome LNG Japan to the Scarborough joint venture. Additionally, the Trion FID was a major milestone. We have a solid execution plan and we see that this project can deliver enduring value. Underpinning these impressive results is a strong focus on sustainability. We are on track for our 2025 emissions reduction targets and continue to mature our decarbonization plans. We paid a record AUD 3.7 billion in Australian tax and royalty. Slide 7 shows our safety performance. The death of a worker at the North Rankin offshore platform was a tragedy. We have implemented changes to our operational practices based on the preliminary findings and shared our learnings with the broader industry. I am not satisfied with our current safety performance. Across all our operations, we are committed to increasing our focus on safety and we are determined to return to leading safety performance. Slide 8 highlights the strong operational performance across our larger global portfolio. We continue to achieve outstanding reliability at our LNG facilities, reflecting our operating capability and experience. The interconnector continues to add value, enabling an additional 5.4 million barrels oil equivalent of Pluto gas to be processed at the Karratha Gas Plant. We are progressing a significant program of work to decommission wells and equipment that are no longer in use. In the U.S. Gulf of Mexico, Mad Dog Phase 2 achieved a significant milestone by producing first oil in April and is expected to continue ramping up through the year. Our project teams continue to effectively deliver subsea tie-back with Shenzi North first production now expected in 2023, ahead of schedule. Slide 9 shows Woodside's dividend performance over the last five years. The interim dividend of USD 0.80 per share represents a payout of 80% of underlying profits and an annualized yield of 6.9%. With this, we will have returned over $6 billion to our shareholders since the completion of the merger in a period where we are also investing significantly in the business. Slide 10 shows global oil and gas prices. Prices have reduced from the record highs of 2022 as the energy market has stabilized and adjusted to changing oil and gas trade flows. We continue to see buyers focus on energy security and we are actively engaged in discussions for short- and long-term supply. Moving to Slide 11. We realized an average price across our portfolio of $74 per barrel of oil equivalent. This compares favorably with the first half for the last five years. You will also note that we are increasing our gas hub exposure guidance for the year to 27% to 33%. On Slide 12, analysts are forecasting continued growth in global demand for LNG, our key product. Across a number of scenarios, developing markets in Asia make up a significant portion of this demand growth. While new projects are coming online, the market is expected to remain finely balanced. In recent weeks, for example, we have seen rapid and significant movement in European gas prices based on speculation about Australian LNG supply. We make an important contribution to delivering the energy the world needs. Longer term, we anticipate demand growth to outpace supply, which creates strong conditions when Scarborough will be producing LNG. Moving to Slide 13. We are making significant investments in our traditional business. The Sangomar oil development in Senegal is now 88% complete. We updated our target first oil date to mid-2024 and our focus today is on completing the pre-commissioning work on the FPSO in Singapore. In Senegal, 12 of the 23 wells have been drilled and completed and the subsea work scope is 95% complete. On Slide 14, Scarborough is now 38% complete. Fabrication of the Train 2 liquefaction modules and the floating production unit are well underway. Upstream pipeline manufacturing is complete and the site works at Pluto Train 2 are making good progress. We are working with the regulator on outstanding secondary approvals and we're pleased to see the approval of the Marine Seismic Survey Environment Plan by NOPSEMA. Moving to Slide 15. In June, we made our final investment decision on the Trion development. The joint venture approved the field development plan and it was submitted to the regulator. We have started executing key contracts, including the floating production unit, or FPU, engineering, procurement and construction contracts and the drilling rig contracts. Slide 16 provides a view on the potential growth of hydrogen demand across different sectors. While the hydrogen market is still maturing, momentum is building for us to play a key role in our customers' decarbonization efforts. Hydrogen production leverages our core capabilities in LNG, including developing and operating industrial facilities and collaborating with customers and partners across the value chain. Slide 17 outlines the portfolio we have created of new energy opportunities. We are working on multiple options across Australia, the United States, and New Zealand and see opportunities both domestically and in export markets. On Slide 18, H2OK is the most advanced of our new energy opportunities. The technical work is well-progressed. We've purchased the land and have been progressing agreements for water and power. We are currently focused on offtake discussions to help underpin this investment. We continue to target final investment decision readiness for later this year. Slide 19 shows the steps we have taken to develop a carbon capture and storage position. We have secured permits to progress studies in four areas in Australia and commenced front-end engineering design on the opportunity in Southeast Australia. Our capabilities are well-suited to carbon capture and storage. Informed by the IPCC, we believe that CCS will play a critical role in global decarbonization and we are working to address the technological, commercial, and legislative challenges to unlock these opportunities. Slide 20 shows the progress we have made on our decarbonization plans. I'm proud of our operational teams for their continued focus and innovation in this space. We have now developed asset decarbonization plans for the former BHP-operated assets and are focused on implementation. Since we issued our 2021 climate report, we have identified a further 640 kilotons of CO2 equivalent that can potentially be abated by design-out and operate-out. An example of this is Woodside Solar, which is an opportunity to provide solar power to the Pluto LNG plant. During the Pluto turnaround this year, we took the opportunity to install electrical tie-in points for Woodside Solar. We are targeted to be FID-ready this year. I'll now hand over to Graham to cover our financial results.

Graham Tiver, CFO

Thank you, Meg, and good morning, everyone. Starting off with Slide 22. We have achieved record operating revenue of $7.4 billion and a 6% increase in net profit after tax of $1.7 billion, which was driven by the contribution of the former BHP Petroleum assets and the Pluto KGP Interconnector. This was in a period where we completed two major turnarounds and global oil and gas prices were lower following the highs of 2022. We have been positioning our balance sheet to be flexible through the cycle, whilst delivering strong shareholder returns and our liquidity of $7.5 billion supports the major investments we are making in our projects today, which will deliver near-term growth. While earnings per share has dropped to USD 0.92 per share, the driver of this reduction is primarily the lower realized price in the half. The impact of the merger itself is EPS-accretive. Moving on to Slide 23 and our capital management framework. We are managing the balance sheet with discipline to provide flexibility through the commodity cycle. This allows us to balance investments with shareholder returns. We are in a period of high capital expenditure, particularly through 2023 and 2024. We are delivering Sangomar and Scarborough and made a final investment decision on Trion in June. We are committed to maintaining our investment-grade credit rating, which enables us to access debt competitively. Our dividend policy is to pay a minimum of 50% of underlying NPAT, and we target to pay between 50% and 80%. In the first half, we delivered at the top end of this range with an interim dividend of USD 0.80 per share fully franked. This reflects an annualized yield of 6.9%. While this dividend is lower compared to the first half 2022 dividend of USD 0.109 per share, the 2022 dividend included a $0.33 contribution from the merger completion payment. At 30 June, our gearing was 8.2%, just below our target range of 10% to 20%. If we were to incorporate the payment of the interim dividend, our gearing would increase to 12.1%. Given the volatility we've seen in oil and gas prices and our capital expenditure commitments over the next few years, we feel it is prudent to remain at the lower end of our targeted gearing range and this is consistent with what we said in our full year 2022 results in February. Slide 24 shows the first half comparison of our operating revenue, EBITDA, and underlying NPAT over five years. All three have outperformed on this five-year comparison. As I mentioned previously, the key drivers of our strong financial performance for this half are the contributions of the merged assets and the Pluto KGP Interconnector, which have been partially offset by a lower realized price, the planned turnarounds, and operating costs, including depreciation relating to the merged assets. Slide 25 shows the first half comparison of operating, investing, and free cash flows over the five years. We've had an increase in operating cash flow despite higher tax payments relating to higher profits in '22 and '23 and our investing cash flow is also up significantly as we progress the Sangomar and Scarborough projects. It is important to note we remained free cash flow positive in the half. Slide 26 compares our first half production cost performance over five years. Our cost performance was impacted by the Pluto LNG and Ngujima-Yin FPSO turnarounds during the half. Our unit production cost was $8.80 per barrel of oil equivalent. If we exclude the $0.90 impact of the planned turnarounds, our UPC would be $7.90 per barrel of oil equivalent. While UPC is up from the 2022 first half, the underlying costs of the heritage Woodside assets remain in line with H1 2022. We do have a full six-month contribution from the merged assets, which has changed the cost mix. The Pluto KGP Interconnector also adds to the cost base, but is highly value accretive through six additional cargoes compared to the first half of 2022. So to summarize, there are several moving parts to our unit costs through turnarounds, the addition of the BHP assets, and the Pluto KGP Interconnector which do not impact the underlying cost performance. We continue to focus on cost performance and are managing inflationary pressures in our operations. Slide 27 outlines the resilience of our cash margin. We continue to maintain a strong cash margin of 80%, even in a lower price environment. While unit production costs have increased due to the turnaround activity, we have kept other cash costs at approximately 7%. Slide 28 shows our net debt and gearing over five years as well as our 10-year debt maturity profile. Our gearing of 8.2% is low. We have no significant near-term debt maturities, and our cost of debt is competitive. These all reflect the strong positioning of our balance sheet, enabling us to navigate market volatility while investing in the near-term growth and maintaining shareholder returns. Slide 29 outlines our liquidity profile over the past five years. Our liquidity remains strong at $7.5 billion, providing ample capacity to meet our expenditure commitments. This is important in the context of the investment program we have in the coming years as we complete Sangomar, progress Scarborough, and Trion. Additionally, we have the added flexibility from the Scarborough sell-down proceeds to be received in early 2024. Slide 30 shows our overall Australian tax contribution. In the first half of 2023, we paid AUD 3.7 billion in Australian tax and royalties, reflecting the recent strong business performance in 2022 and '23. This is a record contribution for Woodside and demonstrates that the mechanism for paying taxes is working. When Woodside profits, higher taxes are paid. To put this into further context, over the past 12 months to 30 June, we have paid more than AUD 1 billion in PRRT. Our global all-in effective tax rate at 30 June was 42% when excluding the one-offs. The one-offs are the recognition of the Trion deferred tax asset and the de-recognition of the Pluto PRRT deferred tax asset. The contribution we make to the Australian economy and other jurisdictions we operate in is something we are really proud of. So to summarize, our first half 2023 financial performance has been strong, and our business is in great shape. We're generating positive free cash flow while investing in near-term growth and balancing shareholder returns. We are well-positioned for the capital expenditure ahead of us and we will continue to be disciplined in our approach to capital management to ensure the business remains resilient. With that, I'll now hand back to Meg.

Marguerite O’Neill, CEO

Thank you, Graham. It has been a strong half. Moving to Slide 32. The results discussed this morning support the case for investing in Woodside. Our high-quality portfolio and disciplined approach to capital management allow us to invest in producing the energy the world needs and deliver shareholder returns through the price cycle. Slide 33 is our capital allocation framework, which I'm sure you are used to seeing and shows the standards we hold ourselves to as we bring new projects forward. We are and will remain disciplined in future investment decisions. To close, Slide 34 shows our priorities for the second half. We have strong core assets and are focused on operating them safely. We are investing in the business, so a key priority is safe project execution, on budget and on schedule. Everything we do is done with a focus on sustainability and we're preparing for some exciting decisions in this space in the coming months. We will now open up for the question-and-answer session.

Operator, Operator

Your first question comes from James Byrne with Citi.

James Byrne, Analyst

Question for Graham first up. Look, the EBITDA for the half was, call it, $1 billion higher, but your operating cash flow only around $400 million higher versus the half year 2022. As I kind of dig through the cash result versus what the Street was expecting, it does seem like there was a pretty material miss on the cash taxes. And I was hoping we might be able to just pick through whether there were any one-offs in cash taxes versus things that might have structurally changed from a cash perspective. So if you can maybe talk through that.

Graham Tiver, CFO

Yes. Sure, James. So has anything structurally changed from a business perspective? No. I guess what I would say is in the higher price environment, the extremes of 2022, as I mentioned in my presentation, we will pay more taxes, in particular, around PRRT. So I think you can see in the cash flow there, we paid more than $2.2 billion in taxes made up of income tax and PRRT for the first half. But in terms of your question, has anything structurally changed, no. But in a higher price environment, we will certainly pay more taxes, and that is a combination of PRRT or where PRRT really kicks in.

James Byrne, Analyst

My second question is about Scarborough. I see we are still waiting for secondary environmental approvals. Could you provide a timeline for receiving those? If the process continues to be delayed, at what point does it become critical for drilling and the pipelay, which I understand should have commenced based on the presentation from the Scarborough FID in 2021?

Marguerite O’Neill, CEO

Thank you for the question, James. Following the court ruling that overturned NOPSEMA's approval of certain environmental plans in December, we have been collaborating closely with NOPSEMA to grasp the new consultation requirements. We have made progress on the enhanced consultations for several environmental plans related to both the Scarborough project and our base business. A positive development is that NOPSEMA recently approved two environmental plans: one for the Nganhurra and another for the Scarborough seismic. This suggests that the enhanced consultation requirements are now clear and that Woodside has adequately addressed them for multiple environmental plans. We are also working with NOPSEMA on other Scarborough secondary environmental plans related to drilling and infrastructure installation. While we continue with the consultations, the recent approvals indicate that there is now clarity on what constitutes complete and appropriate consultation following the court's decision. We remain cautiously optimistic that our efforts on the remaining Scarborough secondary environmental plans will meet NOPSEMA's expectations.

James Byrne, Analyst

Yes, that's great, Meg. However, how should we consider the contingency you have within the schedule for activities like drilling and pipelay? For instance, looking at Barossa Santos, which talks about maintaining schedule by drilling fewer wells upfront and not drilling backup wells for production, I'm curious about how much flexibility you have on that schedule if the...

Marguerite O’Neill, CEO

Yes, the critical path for Scarborough is and always has been through the floating production unit, which is in fabrication right now. The other elements of the project, we do have a bit of schedule flexibility. So there still is a bit of time, but I would note and the presentation flags it that receiving those approvals is one of our key risks. And then the legal challenge that might be brought is also an area that we continue to work very closely with NOPSEMA and with the government on.

Operator, Operator

Your next question comes from Tom Allen with UBS.

Tom Allen, Analyst

Just following the recent announcement of the LNG SPA with Sojitz and Sumitomo. Can you please provide an update on the current LNG marketing activities for Scarborough, just recognizing there's still a lot of LNG, particularly given the current legacy Pluto LNG offtakes expire shortly?

Marguerite O’Neill, CEO

Thanks for the question, Tom. We're very excited about the Memorandum of Understanding we signed with LNG Japan, which involves the parent companies, Sumitomo and Sojitz, regarding LNG offtake. This is a very positive sign. The Japanese market remains interested in Australian LNG and views it as essential for their energy security while addressing climate change. Regarding your broader question, we are engaged in discussions with several counterparties about potential LNG offtake. Once we have definitive information, we will update the market. I can tell you that these discussions are with several quality counterparties and are progressing well because there is a strong demand for LNG.

Tom Allen, Analyst

Can we assume that those counterparties are all Asian-based buyers? So recognizing Woodside sells from a portfolio basis now?

Marguerite O’Neill, CEO

Yes.

Tom Allen, Analyst

Also recognizing that the LNG at Scarborough will all be sold into North Asia. It certainly implies that there's a lot more counterparts you need, particularly in the North Asian market?

Marguerite O’Neill, CEO

Yes. So Tom, you cut out midway through, but I think your question was around confirming that the buyers are in Asia. And yes, happy to confirm that's the natural market for our Australian-produced LNG. The market now has enough flexibility between the Atlantic and Pacific basins that trading can often move cargoes between, and the bulk of our production does go to those Asian buyers.

Tom Allen, Analyst

You've highlighted the CCS options that Woodside is developing. Can you provide some details on the estimated unit costs for some of your CCS concepts? Additionally, can you confirm that CCS costs will be included in the project economics that need to meet your hurdle rates for gas or LNG development?

Marguerite O’Neill, CEO

Yes, Tom, it's worth differentiating two kinds of CCS options. So first is the CCS projects that allow us to progress new developments. So Browse is probably the most prominent of those. So for Browse, we've said that we are pursuing CCS from day one, and the costs associated with that will need to be included in the Browse investment decision. The other CCS options that we described in the slide in the North Carnarvon Basin, Angel and the Gippsland, that is where we are looking at CCS as a service we can offer to our customers. So for other industrial emitters, we are working on opportunities to offer them sequestration as an alternative to offsets or an alternative to finding new energy sources. And so there are two really different types of use cases for CCS. And I won't give you indicative unit costs. It's still reasonably early days with all of these. The Southeast Australia CCS opportunity is the only one that is in the engineering stage. The other three are in the concept development stage. So it would be premature to give unit costs.

Operator, Operator

Your next question comes from Cameron Taylor with Bank of America.

Cameron Taylor, Analyst

Just a couple of questions on behalf of James Redfern, please. Firstly, can you provide some color on what the key issues are with offshore Alliance and whether you think an agreement can be reached tomorrow to avoid any production impacts?

Marguerite O’Neill, CEO

Yes, we continue to have a number of very constructive bargaining discussions with our employee representatives as well as their unions that they're associated with. Look, thematically, it's pay and conditions. I would highlight that over the course of bargaining, we have come to agreements on or, I think, substantive agreements on a number of items that have been important to our workforce, and we will continue to engage constructively in these open discussions with our employees.

Cameron Taylor, Analyst

Okay. Secondly, the guidance for gas hub exposure in 2023 has increased from 20% to 25% to 27% to 33%. Can you just explain what the driver for this is, given the larger LNG markets and weather at the moment?

Marguerite O’Neill, CEO

Sure. A lot of the driver relates to reliability. As we noted, Pluto's reliability for the first five months of the year was 99.99%, which is really outstanding operational performance. It's also important to clarify that the way the LNG cargo schedule is structured tends to be somewhat conservative in our assumptions about LNG cargo delivery timing. When plant performance exceeds our planning expectations, it leads to more cargoes available for shorter-term sales. This is the key factor behind the increase in gas hub exposure.

Operator, Operator

Your next question comes from Dale Koenders with Barrenjoey.

Dale Koenders, Analyst

The slides mentioned the common gearing target at 10% to 20% through the cycle, suggesting a comfort level above this range. However, Graham, you also indicated that it is wise to stay at the lower end of this range, where you currently are with the first half dividend payment. I noticed that you have either paid CapEx or increased PRRT payments. So, Meg, you frequently mention a dividend policy with a 50% payout, yet Graham continues to distribute 80%. What would need to occur for you to consider a lower payout ratio?

Marguerite O’Neill, CEO

Thank you for the question, Dale. We've maintained a consistent gearing target ratio of 10% to 20% throughout the cycle. There may be times when we are slightly above or below this target. Currently, we are below, at around 8.2%, and we are comfortable with this, especially considering our ongoing capital expenditures for the remainder of this year and into 2024. Our dividend policy is straightforward, targeting a payout ratio of 50%, with a range of 50% to 80%. We recognize that many of our shareholders value the cash yields provided by Woodside. Therefore, each time we approach a dividend payment period, we evaluate all relevant factors, including the cash flow generated during that period and the anticipated expenditures ahead, making our decision based on the current forecast. Graham, would you like to expand on this?

Graham Tiver, CFO

I think the only thing to add, Meg, is that we weigh up, Dale, in the context of our capital management framework each period, the dividend. We look at our capital in front of us. We look at our metrics of our balance sheet. But we also look at what's happening macro as well. And as you know and see, it's uncertain at the moment. So I think I used the word prudent. I think where we are today is prudent in the context of where we are in our capital projects where the global markets are, and set ourselves up to continue to balance that shareholder return and invest in these near-term growth projects.

Dale Koenders, Analyst

Can you provide any insight into the next phase of growth? With projects like Browse and Calypso, will everything need to wait until we start seeing cash flows from Sangomar? Is timing a critical factor?

Marguerite O’Neill, CEO

So yes, timing is definitely a crucial factor. However, I am really pleased with the strength of our future investments portfolio following the merger. We have gas investment opportunities such as Browse, Calypso, and Sunrise, as well as new energy investments looking beyond H2OK to projects like H2 Perth and the Southern Green hydrogen project in New Zealand. We also have carbon capture and storage opportunities, giving us a full pipeline of prospects. While the pace at which we advance our balance sheet is a consideration, other important factors include regulatory approvals, partner alignment, technical readiness, and commercial viability. We are actively working on these aspects across various opportunities, and I'm confident in our position regarding the investments we have approved to date, including Scarborough, Sangomar, and Trion.

Operator, Operator

Your next question comes from Saul Kavonic with Credit Suisse.

Saul Kavonic, Analyst

I have a couple of questions. I want to address the risk of industrial action because we see significant movements in European gas markets whenever news breaks. It seems like Woodside might be benefiting from this situation. For clarity, do you anticipate any material risk to Woodside's production guidance due to possible industrial action in the coming months?

Marguerite O’Neill, CEO

Look, thanks for the comments, Saul. And appreciate your observations. I think the way the European markets have reacted is a sign of just how fragile those markets are and how tightly balanced supply and demands are. Look, our employees who are union members have supported protected industrial action. There are a number of different actions that they might take, ranging from things that would have a modest impact on the business to things that would have a more significant impact on the business. I don't know what the unions are going to call. What we can control is the engagement that we have with our employees, the engagement we have in the bargaining process. And as I said, we've been very constructive. We've been listening, trying to really understand the things that our employees are concerned about and coming up with solutions. And I feel good about the way the bargaining has progressed to this point. And we look forward to just continuing to have those good discussions.

Saul Kavonic, Analyst

Fair enough. My second question is about some of the smaller assets, specifically mentioning that Pyrenees has been impaired, which can occur when companies are preparing to sell assets. Do you anticipate that more assets like Pyrenees and perhaps Macedon will still be part of the Woodside portfolio in a few years, or are they more of a temporary investment?

Marguerite O’Neill, CEO

Look, we're really pleased with the assets that we've acquired in the BHP Petroleum merger. Macedon is a nice little asset that provides domestic gas in Western Australia where the market is increasingly tight. So we're pleased to have these assets in our portfolio at this point in time. The Pyrenees impairment was associated with the drilling program that was not as successful as we had hoped it would be.

Operator, Operator

Your next question comes from Adam Martin with E&P Financial.

Adam Martin, Analyst

Well done on the sell-down process at Scarborough. I mean the 10% was probably lower than the 25% to 50% that you historically talked about, although we're probably closer to 25% over time. I'm just wondering, is there more to sell there? Is that a short-term opportunity? Or is that more of a medium- to long-term opportunity? Just any observations there, please?

Marguerite O’Neill, CEO

Yes. Thank you, Adam. We've always indicated that the Scarborough sell-down was more of a nice opportunity than a necessity. We intended to be patient and find the right partner who would provide a value in line with the asset's worth. We're very pleased that LNG Japan, after a long period of due diligence, has chosen to enter the asset at a value we believe is quite favorable for Woodside shareholders. We're comfortable with taking 90%. If others wish to participate, we now have a clear price reference in the market. So if anyone has the funds available, we're open to discussions with potential buyers. However, we're happy to proceed with 90%. Looking at our history, we moved forward with Pluto at 90% as well. This remains a key asset for us, and we will be disciplined in deciding who joins the venture.

Adam Martin, Analyst

That makes sense. I have a second question regarding the $5 billion target for new energy spending. While 2030 is a long way off, it also feels like it's approaching quickly. What are your thoughts on this? Will you be allocating this capital in the next few years? Are there any specific projects that excite you or that could clarify where this capital will be spent?

Marguerite O’Neill, CEO

Yes. Thanks for the question, Adam. So we still are committed to the target of profitably investing $5 billion in new energy projects between essentially now and 2030. It does require a ramp-up in activity. H2OK will be the first really material step on that journey. Look, at this point, I'd say we do still have confidence that the market will grow and will support profitable investments in that space. That's part of why we included the chart on the hydrogen market and how that is going to be growing over time. And while there have been questions around how fast will that grow? I think the clear signals that we're seeing from places like Europe, places like North Asia, it's very clear that those industrial economies need something different to be able to meet their climate change commitments. So we do see growth in the hydrogen market and that is underpinning our strategy to profitably invest in these sorts of projects. So the short version of the answer is, yes, I think we'll get there, but we do have a lot of work to do between now and then.

Operator, Operator

Your next question comes from Gordon Ramsay with RBC Capital Markets.

Gordon Ramsay, Analyst

My first question relates around the strike action, Meg, and I just want you to confirm that for Woodside, it's the offshore north shelf production facilities workers there. And I guess what I'm asking is the difference between that and perhaps the LNG plant work is going on strike. In other words, these workers have no ability to affect LNG exports from the North West Shelf plant itself. Is that correct?

Marguerite O’Neill, CEO

Yes, to clarify, the workers who have begun negotiations for an enterprise agreement are those on the North West Shelf offshore platform, which includes North Rankin, Goodwyn, and Angel. These platforms supply the Karratha Gas Plant, but they do not directly impact the LNG operations. It is important to mention that the gas plant processes both LNG and domestic gas. Therefore, any disruption to the inputs can create challenges in delivering either product.

Gordon Ramsay, Analyst

Okay. And the second question, just on the successful appraisal of Mad Dog Southwest. The independent expert previously estimated an extension had potential to add around 87 million barrels to the project. Is that kind of in line with Woodside's expectations moving forward with that project?

Marguerite O’Neill, CEO

Yes. It'd be too early to say, Gordon. So as we noted, the appraisal well was successful and we're very pleased with that outcome. I think the operator describes the economics as with some fairly glowing terms; I think it was 'fabulous' might have been the adjective that the operator provided. Look, we still need to do a bit of work. The opportunity hasn't even gone through feed. So we're working closely with the joint venture on Mad Dog about how we would progress this opportunity. But suffice it to say, and this is something that was clear in the investor relations is that the subsea tiebacks in the Gulf of Mexico do offer quite attractive economics because you've spent the big dollars already on the physical infrastructure. So we're excited about the opportunity, but too early to give you any numbers on volumes or economics.

Operator, Operator

Your next question comes from Henry Meyer with Goldman Sachs.

Henry Meyer, Analyst

The first question from me is on the Sangomar delay. I understand you might be limited on commentary on behalf of the contractors. But can you share any details on from your perspective, at least, what led to the delay? What processes or controls might have failed internally to catch the issues? And what's changed internally to avoid that going forward?

Marguerite O’Neill, CEO

Thank you for the question, Henry. It's important to note that the Sangomar FPSO was built in China during a time of COVID-related travel restrictions. When the vessel arrived in Singapore, we discovered that the quality of materials did not meet our standards, which required us to conduct remedial work on piping and valves. Although each issue was small, the cumulative effect was significant, leading to delays in the shipyard. This is a valid concern, and I have pressed the team on it because we are constructing the Scarborough floating production unit in China as well. We have applied many lessons learned from the Sangomar project regarding quality control and material identification. With travel restrictions lifted, we're now able to send our quality experts and project leaders to the Scarborough facility more frequently. We recognize the causes of the remedial work and are taking steps to ensure that we do not face the same issues with Scarborough.

Henry Meyer, Analyst

Okay. Great. And second question on Calypso, I guess, good to see that the preferred development concept has been selected as an infield host. Are you able to share any details on the scope of the development, what existing infrastructure can be utilized, and what would be required to develop the field? And then maybe also just touching on preferred marketing opportunities, if you'd want to toll through Atlantic LNG, pick up equity interest, or still supplying to TNT's pet chem industry?

Marguerite O’Neill, CEO

Yes. Thanks, Henry. So yes, Calypso is quite an interesting asset that came to us through the merger. So we have gone through the concept select phase. So we have selected the in-field host. There would be really, I'd say, little to no use of existing infrastructure just given the location of the Calypso field relative to the existing shallow-water infrastructure. And the commercial options actually are something that are being explored live as we speak. And one of the really attractive things about Trinidad and Tobago is the fact that we do have a range of different downstream customers, we can consider all of those options pulling through the plants and listing our own LNG. We can consider selling to the pet chem industry. So we're continuing to look at all the options. And the plus for us is that commercial attention should improve the economics for us as the Calypso resource holder.

Operator, Operator

Your next question comes from Nik Burns with Jarden Australia.

Nik Burns, Analyst

Just a question around Scarborough and CapEx. Appreciate 90% is covered by lump sum contracts, but you must be aware your contractors are exposed to significant cost inflation and escalation at the moment. Do you still have most of your contingency left for the project? Or will some of that be utilized to manage this inflation risk and the potential delays to drilling and trunkline installation?

Marguerite O’Neill, CEO

Thanks, Nik. So at this point in time, when we look at the Scarborough cost outlook with great regularity because, as you know, there are pressures in the marketplace. We still do have confidence that we'll be able to bring the project in for our FID, the demand that we sanctioned at FID timing, but it's something that we're continuing to monitor very closely and work with our contractors very closely.

Nik Burns, Analyst

Got it. And maybe just a question on H2OK. You continue to flag FID target second half this year. We've yet to see a formal cost estimate for the project or finalized any customer agreements for offtake. Do you remain confident that hydrogen customers will be there and willing to pay the price that will allow to take your investment return hurdles of greater than 10%? Or may you need to accept a lower return here but leverage the learning from this project to reduce costs for future hydrogen projects?

Marguerite O’Neill, CEO

Yes. Thanks, Nik. So you highlighted two things that we're keenly focused on for the next few months. One is ensuring that we really have an attractive investment, and that means taking a hard look at the facility layout and the costs associated with construction. So we've been out to market to understand the cost and we'll continue to be refining both the design, the execution plan to ensure that we drive those costs to as low as practical for the facility that we want to construct. And the second key focus for the team is securing customers. We want to make sure that when we start the facility up that we have an outlook for the product. Now it is worth noting that there already is a vibrant market for hydrogen for ground transportation in the California market. If we were able to place all the product there, it would clearly meet our investment thresholds, but we need to make sure we can get into that market. So those are the two things that we're focused on is making sure that we've got a good handle on costs and that we have a good handle on customers.

Operator, Operator

Your next question comes from Sarah Kerr with Morgan Stanley.

Sarah Kerr, Analyst

Congratulations on the result. For my first question, just relating to Slide 19, showing Woodside's emerging CCS portfolio. I was wondering if you could please comment on the regulatory approval process for these? And is it broadly similar with standard and offshore and NOPSEMA offshore approvals? And if you can comment on just Woodside's work on free and prior informed consent with stakeholders for the CCS projects?

Marguerite O’Neill, CEO

Yes. Thanks for the question, Sarah. So a couple of comments. So the regulatory framework or the licensing framework for CCS is reasonably new, but we do have CCS licenses for three of these opportunities. So the Angel, Browse, and Bonaparte opportunities. The Southeast Australia is going through the licensing process as we speak. Our understanding of the next step in the regulatory approval process is that it would follow the NOPSEMA process, but we've got a bit of work to do to really understand those pathways. That would include, again, assuming it is the same NOPSEMA process that's applied to hydrocarbon extraction, that does include a consultation process, and I'll remind you that consultation and consents are two different things. The legislation requires us to consult, and we do consult quite extensively. If you want to have a real take a look at our Scarborough seismic environment plan, and that details the extensive consultation that we've undertaken for that particular environment plan.

Sarah Kerr, Analyst

Great. And just for my second question. Can you talk to the North West Shelf production flexibility and contingency in the event of work stoppages? And can alternative personnel or the interconnector from Pluto be ramped up to mitigate a situation like this?

Marguerite O’Neill, CEO

Yes. So as I said to an earlier questioner, there are many different forms that protected industrial action might take. And those range from things that are slowdowns of work, I call it, headaches and inefficiencies in the business were up to complete stoppages. One of the things that we're very focused on and something that the Fair Work Commission and the unions are also focused on is ensuring safety of people and operations throughout. So if we do have protected industrial action, we all want to be working together to ensure safety of people and operations. But as I know, there's a wide range of possible actions that might be taken. As far as production flexibility, very little actually. So without North West Shelf gas, the Pluto interconnector gas cannot be processed. One of the challenges with Pluto gas is its high nitrogen content.

Operator, Operator

Your next question comes from Saul Kavonic with Credit Suisse.

Saul Kavonic, Analyst

I'd squeeze one in if we've just got the time. But just one last question on the increased gas hub exposure by a couple of hundred basis points here. Just what's been the driver of that? And on balance, is this likely to realize higher prices or lower prices than if it had been within the contracted Bradley mix?

Marguerite O’Neill, CEO

Yes. Thanks, Saul. So I know you've got a good understanding about the LNG annual delivery plans are put together. Typically, the producer puts a certain amount of conservatism in there because we never want to miss a committed cargo. So as the year has gone by, we've seen fantastic reliability at particularly Pluto, but also North West Shelf, and we've seen better-than-expected production through the interconnector. So our guess of exposure for the first half is 31%, and that uplift we're expecting to carry through the back half of the year. As far as pricing goes, look, it will depend on the market opportunity. And you see in our pack where JKM has been tracking versus JCC, but one of the things that we signaled is that we like to have a bit of exposure to both markets. If I were to crystal ball, I'd say that the gas markers would be more likely to increase in the fourth quarter as the northern hemisphere gets cold. But we'll let you and your colleagues in the modeling community to figure out how to build that into the models for the business. But look, honestly, we're pretty pleased with how we've been able to respond and we're really pleased with the trading team's work to ensure that as those additional cargoes come available that we're able to place them at attractive pricing.

Operator, Operator

That's all the time we have for our question-and-answer session. I'll now hand back to Ms. O’Neill for closing remarks.

Marguerite O’Neill, CEO

Very good. Well, thank you to the operator. Let me thank everyone for your questions and for joining the call today. In terms of upcoming events, we will release our third quarter report on the 18th of October and host our Investor Briefing Day on the 8th of November. So look forward to seeing everyone then. Thank you.