20 Net debt

The Group seeks to maintain a strong balance sheet and deploys its capital with reference to the Capital Allocation Framework.

The Group monitors capital using the net debt balance and the gearing ratio, being the ratio of net debt to net debt plus net assets.

The net debt definition includes the fair value of derivative financial instruments used to hedge cash and borrowings which reflects the Group’s risk management strategy of reducing the volatility of net debt caused by fluctuations in foreign exchange and interest rates.

Under IFRS 16/AASB16 ‘Leases’, vessel lease contracts are required to be remeasured at each reporting date to the prevailing freight index. While these liabilities are included in the Group interest bearing liabilities, they are excluded from the net debt calculation as they do not align with how the Group assesses net debt for decision making in relation to the Capital Allocation Framework. In addition, the freight index has historically been volatile which creates significant short-term fluctuation in these liabilities.


	2022						2021
US$M	Current			Non-current			Current		Non-current
Interest bearing liabilities
Bank loans		397			2,075			437		1,823
Notes and debentures		1,690			9,673			1,244		13,525
Lease liabilities		519			2,057			889		3,007
Bank overdraft and short-term borrowings		–			–			–		–
Other		16			1			58		–

Total interest bearing liabilities		2,622			13,806			2,628		18,355

Less: Lease liability associated with index-linked freight contracts		113			161			346		679

Less: Cash and cash equivalents
Cash		5,728			–			4,408		–
Short-term deposits		11,508			–			10,838		–

Less: Total cash and cash equivalents		17,236			–			15,246		–

Less: Derivatives included in net debt
Net debt management related instruments 1		(358	)		(1,330	)		20		537
Net cash management related instruments 2		273			–			34		–

Less: Total derivatives included in net debt		(85	)		(1,330	)		54		537

Net debt					333					4,121

Net assets					48,766					55,605

Gearing					0.7	%				6.9	%

1	Represents the net cross currency and interest rate swaps designated as effective hedging instruments included within current and non-current other financial assets and liabilities.

2	Represents the net forward exchange contracts included within current and non-current other financial assets and liabilities.

Cash and short-term deposits are disclosed in the cash flow statement net of bank overdrafts and interest bearing liabilities at call.


	2022		2021		2020
	US$M		US$M		US$M
Total cash and cash equivalents		17,236		15,246		13,426
Bank overdrafts and short-term borrowings		–		–		–

Total cash and cash equivalents, net of overdrafts		17,236		15,246		13,426

Cash and cash equivalents includes US$127 million (2021: US$159 million) restricted by legal or contractual arrangements.

Recognition and measurement

Cash and short-term deposits in the balance sheet comprise cash at bank and on hand and highly liquid cash deposits with short-term maturities that are readily convertible to known amounts of cash with insignificant risk of change in value. The Group considers that the carrying value of cash and cash equivalents approximate fair value due to their short-term to maturity. Refer to note 21 ‘Leases’ and note 23 ‘Financial risk management’ for the recognition and measurement principles for lease liabilities and other financial liabilities.

Interest bearing liabilities and cash and cash equivalents include balances denominated in the following currencies:


	Interest bearing liabilities				Cash and cash equivalents
	2022		2021		2022		2021
	US$M		US$M		US$M		US$M
USD		8,813		11,146		7,654		12,003
EUR		3,463		4,505		2,656		4
GBP		2,621		3,415		30		32
AUD		783		1,053		3,360		573
CAD		584		635		3,437		2,455
Other		164		229		99		179

Total		16,428		20,983		17,236		15,246

The Group enters into derivative transactions to convert the majority of its exposures above into US dollars. Further information on the Group’s risk management activities relating to these balances is provided in note 23 ‘Financial risk management’.

Liquidity risk

The Group’s liquidity risk arises from the possibility that it may not be able to settle or meet its obligations as they fall due and is managed as part of the portfolio risk management strategy. Operational, capital and regulatory requirements are considered in the management of liquidity risk, in conjunction with short-term and long-term forecast information.

Recognising the cyclical volatility of operating cash flows, the Group has defined minimum target cash and liquidity buffers to be maintained to mitigate liquidity risk and support operations through the cycle.

The Group’s strong credit profile, diversified funding sources, its minimum cash buffer and its committed credit facilities ensure that sufficient liquid funds are maintained to meet its daily cash requirements.

The Group’s Moody’s credit rating has remained at

A2/P-1

outlook stable (long-term/short-term) throughout FY2022 and Moody’s affirmed its credit rating on 2 June 2022. The Group’s Standard & Poor’s rating changed from

A/A-1

outlook stable (long-term/short-term) to

A/A-1

CreditWatch negative (long-term/short-term) on 23 August 2021 following the announcement of the proposed merger of our petroleum business with Woodside. Upon completion of the merger, on 1 June 2022 Standard & Poor’s lowered the Group’s long-term credit rating by one notch, removed the credit rating from CreditWatch, and confirmed a credit rating of A-/A-1 outlook stable (long-term/short-term).

There were no defaults on the Group’s liabilities during the period.

Counterparty risk

The Group is exposed to credit risk from its financing activities, including short-term cash investments such as deposits with banks and derivative contracts. This risk is managed by Group Treasury in line with the counterparty risk framework, which aims to minimise the exposure to a counterparty and mitigate the risk of financial loss through counterparty failure.

Exposure to counterparties is monitored at a Group level across all products and includes exposure with derivatives and cash investments.

Investments and derivatives are only transacted with approved counterparties who have been assigned specific limits based on a quantitative credit risk model. These limits are updated at least

bi-annually.

Additionally, derivatives are subject to tenor limits and investments are subject to concentration limits by rating.

Derivative fair values are inclusive of valuation adjustments that take into account both the counterparty and the Group’s risk of default.

Standby arrangements and unused credit facilities

The Group’s committed revolving credit facility operates as a back-stop to the Group’s uncommitted commercial paper program. The combined amount drawn under the facility or as commercial paper will not exceed US$5.5 billion. As at 30 June 2022, US$ nil commercial paper was drawn (2021: US$ nil). The facility

was amended in November 2021 for IBOR transition and

is due to mature on 10 October 2026.

A commitment fee is payable on the undrawn balance and interest is payable on any drawn balance comprising a reference rate plus a margin. The agreed margins are typical for a credit facility extended to a company with the Group’s credit rating.

Maturity profile of financial liabilities

The maturity profile of the Group’s financial liabilities based on the undiscounted contractual amounts, taking into account the derivatives related to debt, is as follows:


2022 US$M	Bank loans, debentures and other loans		Expected future interest payments		Derivatives related to debentures		Other derivatives		Obligations under lease liabilities		Trade and other payables 1		Total
Due for payment:
In one year or less or on demand		2,109		492		525		221		579		6,608		10,534
In more than one year but not more than two years		1,634		427		300		112		443		–		2,916
In more than two years but not more than five years		2,609		1,032		492		246		936		–		5,315
In more than five years		7,550		3,705		1,467		245		1,470		–		14,437

Total		13,902		5,656		2,784		824		3,428		6,608		33,202

Carrying amount		13,852		–		1,824		752		2,576		6,608		25,612


2021 US$M	Bank loans, debentures and other loans		Expected future interest payments		Derivatives related to debentures		Other derivatives		Obligations under lease liabilities		Trade and other payables 1		Total
Due for payment:
In one year or less or on demand		1,722		729		61		149		980		6,851		10,492
In more than one year but not more than two years		2,278		661		267		80		680		–		3,966
In more than two years but not more than five years		4,062		1,492		256		240		1,397		–		7,447
In more than five years		7,801		4,136		585		317		1,842		–		14,681

Total		15,863		7,018		1,169		786		4,899		6,851		36,586

Carrying amount		17,087		–		586		690		3,896		6,851		29,110

1	Excludes input taxes of US$79 million (2021: US$176 million) included in other payables. Refer to note 9 ‘Trade and other payables’.