Santos progresses marginal fossil fuel project under guise of energy security, CEO’s pay packet the only clear winner

The Australasian Centre for Corporate Responsibility​ (ACCR) is commenting on Santos’ announcement about the progress of regulatory approvals for its Dorado oil project.

Commenting on the update, Alex Hillman, Lead Analyst at the Australasian Centre for Corporate Responsibility (ACCR) said:

“The Dorado oil project was postponed in August last year due to poor economic fundamentals. The announcement today attempting to link Dorado to “energy security” concerns does nothing to allay investor concerns that Santos is wasting investor funds.

“Santos’ attempt to link this fossil fuel project to energy security is farcical. It ignores the realities of the market and the advice of the International Energy Agency (IEA), which shows that accelerating the energy transition is the best way to reduce dependence on fossil fuels and create real energy security. Dorado was postponed even after Russia’s invasion of Ukraine sent oil prices skyrocketing.

“Santos’ decision to progress a marginal fossil fuel project also raises questions for investors about a remuneration structure that incentivises expansion - a bizarre condition, considering that the latest IEA forecasts show decreasing demand for fossil fuels. Santos’ CEO Growth Projects Incentive rewards chief executive Kevin Gallagher with  a $6 million personal bonus, including for the “successful delivery of Santos’ major growth projects”.

“Santos suffered an embarrassing first strike against its remuneration report at the 2022 AGM, due in part to the CEO Growth Projects Incentive. The board will be padding up to bat off a second strike at this year’s AGM, with proxy advisers and investors paying close attention to the company’s  incentive structure and its consequences.

“Santos’ cavalier approach to project delivery, alongside the CEO’s bonus structure, will no doubt have investors scrutinising the risks of tying excessive cash bonuses to growth.

“Botched consultation on the Barossa gas project resulted in an adverse ruling from the Federal Court, requiring the drilling operations to cease. Santos still hasn’t come clean about likely project delays and how many millions were wasted in that effort.

“Shareholders expect more accountability and a stronger incentive structure aligned to total shareholder returns. Dorado is a step in the wrong direction.”

Background

The delay of the Dorado project was announced with Santos’ 2022 half year report (p8)

The CEO Growth Projects Incentive (2021 Annual Report p50) is a $6 million bonus established in 2021, that is awarded based on a. delivery of a range of ‘Major Growth Projects’ and ‘Emissions reduction, net-zero plan and energy transition’ projects, and b. ongoing employment to December 2025.