Santos is appealing a landmark Federal Court decision, where Justice Mordecai Bromberg ruled the offshore gas regulator should not have approved environmental plans to drill in the Barossa gas field, 265km northwest of Darwin.
Justice Bromberg in September ordered for the regulator's approval to be set aside and drilling to be stopped.
Santos on Tuesday launched its appeal in the Federal Court in Melbourne, arguing the ruling judge did not properly consider what constituted a "relevant person" who needed to be consulted.
Santos barrister Christopher Horan KC told the court under the regulations, a relevant person was someone whose "functions, interests or activities" may be affected by the drilling work.
Mr Horan said while the traditional owners' connection to sea country was "genuine and real", it did not constitute the type of legal "interest" detailed in the legislation.
A community also did not exist as a legal person so Santos would have to identify individual people, Mr Horan said.
Identifying and consulting with each and every person would be unworkable for Santos and difficult for the regulator to ensure everyone had been consulted, the barrister said.
Nicholas Wood SC, representing the National Offshore Petroleum Safety and Environmental Management Authority, said the regulator believed the concept of "interest" was broader than Santos was arguing.
But the authority deemed relevant persons as those who could be reasonably identified by a title holder, Mr Wood said.
As the hearing broke for lunch, traditional owners from the Tiwi Islands and their supporters rallied outside the Federal Court in Melbourne.
They called for the gas project to be stopped, noting they would continue to fight regardless of the outcome of Santos' appeal.
"We still live off our land," Antonia Burke told the rally. "We are the cultural giants and we will not be bullied or ignored by the federal government or by these mining companies."
Federal Greens Senator Lidia Thorpe was also at the rally, telling the crowd they should fight instead of letting gas projects continue.
"Sea country has song lines, just like country does," she said. "That's important to all of us. When that goes, we go."
The appeal hearing before Federal Court Justices Susan Kenny, Debra Mortimer and Michael Lee continues on Wednesday.
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