Meeting the Challenge 2004 Interim Results
24 August 2004
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Disclaimer & Important Notice
This presentation contains forward looking statements that are subject to risk factors associated with the oil and gas industry. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a variety of variables which could cause actual results or trends to differ materially, including but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, gas commercialisation, development progress, operating results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial markets conditions in various countries, approvals and cost estimates. All references to dollars, cents or $ in this document are to Australian currency, unless otherwise stated.
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1 Program
• Overview - John Ellice-Flint
• Harvesting value from existing assets - Jon Young
• Financial performance - Peter Wasow
• Creating value from new assets - John Ellice-Flint
• Q&A
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Meeting the Challenge
Overview Harvesting value from existing assets Financial performance Creating value from new assets Close Q&A
John Ellice-Flint Managing Director
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2 Safety - Recordable Injuries Reduce
• Major focus Total Recordable Case Frequency Rate (12 month rolling average) 10 • Embedding new culture 8 Full Year 6 2002 Full Year • Applying a range 2003 TRCFR of programs 4
(per million exposure hours) exposure (per million 2
0 Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun 02 02 02 02 03 03 03 03 03 03 04 04 04 Month / Year
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Positioned for High Oil Prices
Tapis (AU$)
80
70 Average $48.9/bbl
60
50
40
A $/bbl Average $26.5/bbl 30 1st half 2003 1st half 20 average 2004 $45.91 average 10 $46.76
0 1992 1994 1996 1998 2000 2002 2004
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3 Results Reflect Moomba
Half Year Half Year 2004 2003
Produced volume (mmboe) 21.2 26.8 Sales volume (mmboe) 22.0 26.5 Net profit after tax & write downs ($m) 86.5 135.6 Operating cash flow ($m) 192.6 421.7 Gearing (% net debt/net debt + equity) 28.7 25.3 Dividend (cents) 15 15 TSR (% annualised) 6.8 1.2
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Reshaping the Organisation
John Ellice-Flint Managing Director & Chief Executive Officer
Jacques Bruce Rick Paul Jon Peter Gouadain Wood Wilkinson Moore Young Wasow VP VP VP VP Exec VP Chief Geoscience Strategic Gas Marketing Dev Projects Operations Financial Projects Officer
Exploration Commercialisation Development Production Cash
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4 Value From New Assets
Developments start to contribute
Gas commercialisation progress
Exploration portfolio management
Value from acquisitions and divestments
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Meeting the Challenge
Overview Harvesting value from existing assets Financial performance Creating value from new assets Close Q&A
Jon Young Executive Vice President Operations
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5 1H 2004 Production
mmboe
Natural Field New Moomba Decline Performance Projects Incident 30 28 26.8 (1.6) 26 (0.3) 0.3 25.2 (4.0) 24 21.2 22 20 18 16 14 12 10 1st Half 2003 1st Half 2004
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Moomba Incident
Moomba re-streaming is nearing completion
• Liquids Recovery Plant (LRP) B recommissioning underway • Minimal production impact in 2nd half • Minimal impact on longer term costs • No reserves impact
Stage 1 & 2 Stage 3 Stage 4 Stage 5 Stage 6 • Storage gas • Gas rate • Full gas • LRP A • Complete 3 Jan (100 500 TJ/d processing resumes recovery TJ/d) • Oil at 90% capacity May August • Storage + • LRP rebuild • Liquids at field gas 4 Jan 70% (200 TJ/d)
January February March April May June July August
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6 East Spar
• Decline in deliverability due to water breakthrough • Recent drilling outcomes • Accelerated John Brookes development
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Stag
• Field decline increased • Mechanical reliability • Workovers commenced • Infill sidetracks imminent • Waterflood optimisation ongoing
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7 Cost Management
Santos Continuous Improvement Program is on track to deliver substantial cost savings through process redesign
• Strategic sourcing Process Benchmarking 1st tier • Maintenance strategy Continuous process improvement • Drilling and completions 2nd tier Santos • Asset utilisation 2005 Santos • Engineering 3rd tier Now
Santos • Headcount reduction Pre-2001 4th tier
10% 20% 30% 40% Improvement
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Technology New technologies continue to be implemented…
• Pinpoint fraccing • Coiled tubing underbalanced drilling • Improved real time production data capture • Moomba plant control systems upgrade • Wellhead telemetry
… to increase reserves, productivity and reduce costs
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8 Moomba Hub
Leveraging Moomba’s commercial and infrastructure position…
• Gas swaps Spot sales • Spot sales 3rd • Third party processing Peaking party services • Price review gas HUB
3rd Gas party oil swaps
…is on track to deliver ~ $100 million NPV 10
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Meeting the Challenge
Overview Harvesting value from existing assets Financial performance Creating value from new assets Close Q&A
Peter Wasow Chief Financial Officer
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9 Sales Revenue
$m Commodity Controllable Natural Decline Prices Items
750 716 (30) 693 (103)* (20) (5) 16 700 8 8 650 Gas 590 600 Volumes Liquids Liquids USA Aust Bayu- Volumes Prices Gas Gas Undan 550 Prices Prices start-up Moomba 500 Incident 450 400 350 300 250 200
1st Half 2003 1st Half 2004
* Reflects the 2004 volume variance based on 2003 prices
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Production Costs
$m
150 140 128 8 (8) 131 130 (3) 123 120 110 Cost Bayu- Moomba Incident 100 savings Undan start-up 90 80 70 60 50 1st Half 2003 1st Half 2004 1st Half 2004 Production Cost Production Cost Production Cost $4.78/boe $4.88/boe $6.18/boe
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10 Netback
($/boe) Market Movements Controllable Items 21 2.03 (1.93)
20 0.37 19.13 (1.35) 18.66 0.36 19 18.76 (0.66) 0.30 Bayu- 17.78 18 US$ FX Cost Undan Commodity Volume Aust savings Start up Moomba 17 Prices /Mix Gas Prices Incident
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1st Half 2003 1st Half 2004
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Depreciation, Depletion & Amortisation
$m 2003 Reserve Movements (24) 14 250 230 11229 20 225 209 Appraisal 200 Volume 2003 Success Moomba 175 Revisions Incident 150
125
100
75
50
25
0
1st Half 2003 1st Half 2004 $8.58/boe $9.86/boe
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11 NPAT
$m
2 149 (62) 150 136 (28) 31 Other 125 7 (14) 5 7 3 Write- 100 Field decline 87 Bayu- downs Aust gas Undan Restructure Cost prices start-up 75 Comm savings Moomba odity Incident prices 50
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0
1st Half 2003 1st Half 2004
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Capital Expenditure
1st Half 2004 - $390m 1st Half 2003 - $344m
Exploration 41 61 Bayu-Undan Liquids 35 81 Bayu-Undan LNG 66 20 Mutineer-Exeter 53 3 Cooper Gas Devt 64 Cooper Oil D&D 26 13 99 Moomba LRP Rebuild 36 0 USA 25 21 Southern Aust 10 11 Corporate & Other 36 35
100 80 60 40 20 0 0 20406080100
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12 Cash Flow & Net Debt
Operating cash flow ($m) Net Debt ($m)
1,239 142 450 422 1,250 (49)
(74) 1,097 1,125 79 350 Sales 120 Moomba volumes 299 (106) Incident 1,000 FX on Working 898 Debt 250 capital & tax 875 payments 193 Net Cash flow Moomba Incident 150 750
1st Half 2003 1st Half 2004 Year End 1st Half 2004 1st Half 2003 (exc. Moomba) 2004 Gearing Gearing 25.9% Gearing 22.5% 28.7%
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Capital Management
• Funding the growth program
• Redeeming existing Resets of $350m
• Offering FUELS $500m
• FUELS more equity-like
• Improves capital structure
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13 International Accounting Standards (IFRS)
Effective 1 January 2005
No extractive IFRS half year IFRS full year industry standard reports – including reports – including available comparatives comparatives
parallel accounts required
time elapsed1 Jan 04 30 Jun 0431 Dec 04 30 Jun 05 31 Dec 05
“Grandfathering” “Grandfathering” exposure draft issued issued as a ED6 standard?
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Meeting the Challenge
Overview Harvesting value from existing assets Financial performance Creating value from new assets Close Q&A
John Ellice-Flint Managing Director
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14 Developing New Assets
Project Start-ups 2004–2006
2004 2005 2006
Bayu-Undan Liquids Mutineer-Exeter Bayu-Undan LNG 1Q 100% Mid 60% 1Q 50%
Minerva John Brookes Casino 4Q 90% Mid 20% 1Q 20%
Maleo Oyong 4Q-05/1Q-06 10% 1Q 10% 1Q Production commences Sanctioned Pre-sanctioned
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Developing New Assets
Potential Projects 2007–2010+
2007 2008 - 2009 2010+
• Sole • Petrel-Tern • Hides • Golden Beach • Evans Shoal • Indonesia exploration • Kipper • Indonesia exploration • Otway exploration • US exploration • Egypt exploration • Onshore Aust oil • Otway exploration • Onshore Aust gas
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15 Bayu-Undan
• Liquids project complete ahead of schedule, on budget
• LNG project over 50% complete on schedule on budget
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Mutineer-Exeter
• On track for mid 2005 start-up
• FPSO topsides construction and installation in progress
• Subsea equipment ready for delivery from September
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16 John Brookes – Varanus Hub
• Gas Sales John Brookes Wellhead Platform East Spar Gas Plant (water depth ~ 47m) Gas Processing Agreement signed & Compression • Major facilities contracts in place Varanus Island
East Spar • Platform fabrication Pipeline to Mainland commenced
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Casino
• Project close to sanction • Low environmental impact • Facilitates further exploration
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17 Indonesian Gas
Maleo • MOPU bids under evaluation • Gas securitisation issues nearing completion • Planned project sanction 3Q-04
Oyong
Bawean 1 PSC 00 50 • Reviewing recoverable oil kilometreskilometres Bawean Island reserves Legend Santos acreage Java Sea Novus acreage
• Reviewing development plan Oyong Maleo Kangean IslandsIslands Madura Offshore PSC options Madura Island Sampang PSC
Surabaya Oyong Maleo
Area ll Area Area lV V Area l Porong • Gas securitisation issues under Area lll Brantas PSC Brantas PSC Bali Sea Grati North Bali l Central PSC negotiation Java East Java
Bali
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Novus Acquisition
Kakap* Malaysia • Cost US$110mm PSC (9%) Malaysia Sarawak Popodi • Reserves 22 mmboe Singapore PSC (20%) (mainly gas) Kalimantan • Production 2 mmboe Papalang in 2005 PSC (20%) Sulawesi Sumatra Indonesia Sulawesi • Fits well with Bawean 1 existing acreage JavaJava SeaSea PSC (45%) Madura Offshore Jakarta PSC (75%) Sampang Flores Sea Legend Java PSC (45%) Santos acreage North Bali 1 PSC (40.1%) (Showing Santos PSC (40.1%) 020Indian Ocean Indian Ocean Brantas Group Interests) kilometres 020 PSC (18%)* Novus acreage kilometres * Kakap PSC and Brantas PSC subject to conclusion of Santos Agreement with Medco
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18 Meeting the Challenge
Overview Harvesting value from existing assets Financial performance Creating value from new assets Close Q&A
John Ellice-Flint Managing Director
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Exploration: The Journey So Far
Basin Excellence Building a portfolio of opportunities
New Ventures International Portfolio Egypt/Middle East/Nth Africa strength, value + New Ventures core areas optionality US/Indonesia/Australia Drilling the new opportunities Maximise value of existing portfolio
20012002 2003 2004 2005 2006 2007
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19 Basin Excellence
“Start with the rocks” Examples
Leader in technical East Java Total/ understanding Mitsui
Identify Establish substantial Kutei Unocal basins where we acreage position Gulf of Devon can build niche Suez competitive Early entrant/low cost advantages Balance technical and Southern Unocal/ commercial risk to build Margins Inpex a strong portfolio Timor Conoco Sea Phillips Select partners with complementary skills
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Active Portfolio Management Exploration first half 2004
Gulf of Suez Gulf of Mexico
East Java Timor Sea
Gulf of Suez East Java NT/ Woodbine Ras Abu Egypt P61 Texas Darag Cougar Jeruk 1
Area ll Area Area lV V S.E. July Khefren 1 Area l Nth Torres 1A Area lll Gulf of N. Zeit Bay Jeruk Bali l Timor Sea Mexico
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20 Exploration Focus Indonesia Java Sea Madura Offshore PSC Sampang PSC Jeruk Prospect Nth Bali l Brantas PSC* Agung Kutei Basin East Java Prospect East Java Basin
* Novus acreage subject to conclusion of Santos agreement with Medco
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Sampang PSC Jeruk prospect Jeruk 1 Jeruk 1 Jeruk 2
Top Kujung Limestone Top Kujung Limestone Depth Structure Map
TD 5300m MD
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21 North Bali l PSC Agung prospect Proposed Agung 1
N 4km
Proposed Agung 1
Top Kujung Limestone Agung
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Exploration Focus Indonesia
Popodi PSC Pohon Prospect
Bontang Makassar Strait
Samarinda Papalang PSC Kutei Basin East Java Basin Pandu Prospect
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22 Exploration Focus Australia Callister Prospect VIC/P44 VIC/P51 Casino VIC/L22 Amrit Prospect VIC/RL7 Victoria Tasmania VIC/P52 Otway Basin
T/35P T/32P Sorell Basin T/33P
T/36P
Otway & Sorell Basins
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Otway Deep Water Amrit prospect
Amrit
VIC/P 51
VIC/P 52
Proposed Amrit 1
5km
VIC/P 52 VIC/P 51
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23 Exploration Focus Egypt
Osage 1X Ras Abu Darag
Gulf of Suez Egypt
Egypt
South East July Khefren 1 North Zeit Bay
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Gulf of Suez Khefren 1 BP Edfu discovery BP Saqqara discovery 2001, 63 mmbo 2003, 80 mmbo Khefren 1
Khefren 1
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24 Meeting the Challenge
Harvesting value from existing assets Price Costs Technology
Creating value from new assets Development projects Exploration
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Meeting the Challenge
Overview Harvesting value from existing assets Financial performance Creating value from new assets Close Q&A John Ellice-Flint Managing Director
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25 Reference slides
1
Prices & Exchange Rates
Half Year Half Year Change 2004 2003 %
Realised Oil Prices (USD/bbl) 32.63 28.63 +14.0
AUD/USD Exchange Rate 0.6978 0.6236 -11.9 (after hedging)
Realised Oil Price (AUD/bbl) 46.76 45.91 +1.9
USA Gas Price (USD/mcf) 5.81 6.07 -4.3
Australian Gas Prices (AUD/gj) 3.03 2.94 +3.1
2 Reference No. 15 August, 2000
1 Cost Definition
US Peer Oil Companies* Santos Group Reporting
Sales Revenue Sales Revenue
Production Costs Production Costs Operating Costs Transport’n/Handling Expenses Tariffs & Tolls Royalties, Excise & RRT Taxes other than Income net back Gas Purchases Exploration Expense Product Stock Movements
DD&A*** DD&A Write downs Write downs cost of sales Other Income / Other Operating Expenses ** Income / Expenses Borrowing Costs Income taxes Income taxes Profit from Net Profit After Tax Oil & Gas Operations
* Source: J S Herold 36th Annual Reserve Replacement Cost Analysis ** Includes selling and corporate administration expenses *** Plus exploration expense for successful efforts companies
3 Reference No. 15 August, 2000
Cost of Sales
Half Year Half Year Change 2004 2003 %
Production Costs 131 128 2.3 Pipeline Tariffs 17 17 Royalties 39 46 PRRT 26 25 Total Operating Costs 213 216 -1.4 Gas Purchases 3 2 Inventory Movement - (6) D,D&A 210 230 -8.7 Cost of Sales 426 442 -3.6
4 Reference No. 15 August, 2000
2 2004 First Half Results
Half Year Half Year Change 2004 2003 %
Gross Profit 165 274 Profit on Sale of Non-Current - 5 Assets Other Revenue 18 11 SG&A Expenses (36) (18)** Borrowing Costs (14) (20) Income Tax (42) (82) Net Profit after Tax before Write 91 170 -46.5 Downs Write downs (after tax) (4) (34) Net Profit after Tax 87 136 -36.0
** including restructuring costs of $22 million
5 Reference No. 15 August, 2000
2004 First Half Capital Expenditure
(A$ million) 2004 2003
Exploration Australia 15.7 20.4 Overseas 25.4 40.5 Delineation Australia 28.6 13.0 Overseas 15.6 3.1 Development (1) Australia 292.7 244.2
Overseas 12.1 22.5 Total Exploration, Delineation & Development Expenditure 390.1 343.7
(1) Includes construction & fixed assets expenditure
6 Reference No. 15 August, 2000
3 Capitalised Exploration & Development at June 2004
Non producing (A$ million)
Hides Gas 124 PNG Gas Project Indonesia 117 Oyong and Maleo discoveries and North Bali exploration acreage
Evans Shoal Gas 81 Commercialisation activity Gippsland Basin 59 Interests in Kipper, Sole and Golden Beach gas fields
USA Gulf Coast 28 Exploration leases acquired with Esenjay acquisition; Woodbine/Cougar prospects
Otway Basin 23 Deepwater exploration prospects
Browse Basin 11 Exploration permits Perth Basin 6 Exploration permits Other 6 Total 455
7 Reference No. 15 August, 2000
2004 Second Half Sensitivities
• US$1 change in the unhedged oil price per barrel leads to change of A$7 million in profit after tax
• One cent movement in the exchange rate will cause a profit after tax movement of A$2 million
• A 1% change in interest rates will cause a profit after tax movement of A$3 million
8 Reference No. 15 August, 2000
4 Upcoming Exploration
Well Basin/Area Target Upside Resource Santos Quarter Potential Interest drilling (mmboe) % Expected to unrisked start Khefren 1 Gulf of Suez Oil 120 20 Drilling Jeruk 2 East Java Oil 170 50 Drilling Agung East Java Oil 550 40 Third Venus Cooper SA Gas 4 60 Third Pohon Kutei (Popodi PSC) Oil/Gas 450 20 Third Stilton Cooper SWQ Gas 8 60 Fourth Yangtse Cooper SWQ Gas 8 60 Fourth Plasma Cooper SWQ Gas 5 60 Fourth Cougar GOM- Gas 29 100 Fourth Texas State Waters Charlemagne Dampier Oil 52 33 Fourth Callister Otway offshore Gas/Oil 88 80 Fourth Woodbine/Knight East Texas Gas 11 30 Fourth Pandu Kutei (Papalang PSC) Oil 165 20 Fourth Amrit Otway deep-water Oil/Gas 715 33 Fourth Caldita/Melville Bonaparte Gas 615 40 Fourth Osage 1X Gulf of Suez Oil 340 50 Fourth NZB 1X Gulf of Suez Oil 50 50 Fourth
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Popodi PSC
Pohon prospect Proposed Pohon 1 Middle Miocene depth structure
Upper Miocene
Pohon Middle Miocene
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5 Otway Offshore
Callister Prospect Proposed Callister 1
Callister
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Gulf of Suez – Osage 1X
Proposed Osage 1X
Osage
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6