Santos Finance Limited Santos Limited
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PROSPECTUS DATED 26 OCTOBER 2010
A13.4.13
SANTOS FINANCE LIMITED (incorporated with limited liability in Australia, ACN 002 799 537) €300,000,000 Fixed to Floating Rate Subordinated Notes due 2070
(to be consolidated and form a single series with the €700,000,000 Fixed to Floating Rate Subordinated Notes due 2070 issued on 22 September 2010) unconditionally and irrevocably guaranteed by SANTOS LIMITED (incorporated with limited liability in Australia, ACN 007 550 923) Issue price: 101.00 per cent. (plus 36 days’ accrued interest)
The €300,000,000 Fixed to Floating Rate Subordinated Notes due 2070 (the Notes, which expression, when used in “Terms and Conditions of the Notes”, includes the Original Notes (as defined below) and, unless the context otherwise requires, any further notes issued pursuant to Condition 9 of “Terms and Conditions of the Notes” and forming a single series with the Original Notes and the Notes) are issued by Santos Finance Limited (the Issuer) and unconditionally and irrevocably guaranteed by Santos Limited (the Guarantor). The Notes will from 28 October 2010 (the Issue Date) be consolidated and form a single series with the existing €700,000,000 Fixed to Floating Rate Subordinated Notes due 2070 (the Original Notes) of the Issuer issued on 22 September 2010 (the Original Issue Date). Upon consolidation the aggregate principal amount of the Original Notes and the Notes will be €1,000,000,000. The Notes will bear interest, payable semi-annually in arrear on 22 March and 22 September in each year, from and including the Original Issue Date to but excluding 22 September 2017 (the Optional Redemption Date) at the rate of 8.25 per cent. per annum. From and including the Optional Redemption Date, the Notes will bear interest at a rate of 6.851 per cent. per annum above three-month EURIBOR, payable quarterly in arrear on the Floating Interest Payment Dates. Interest payments must be deferred in certain circumstances in the case of a Trigger Event. See Condition 4 of “Terms and Conditions of the Notes“ for details as to how and when Deferred Interest Payments may be made. The Notes mature in 2070, subject as described in “Terms and Conditions of the Notes”. However, the Issuer may redeem the Notes on the Optional Redemption Date or on any Floating Interest Payment Date thereafter at their Principal Amount (plus any accrued interest and any outstanding Deferred Interest Payments, including any amount of interest accrued thereon). If a Gross-Up Event or a Change of Control Event occurs, the Issuer may redeem the Notes prior to (but excluding) the Optional Redemption Date (in the case of a Gross-Up Event) or at any time (in the case of a Change of Control Event) at their Principal Amount (plus any accrued interest and any outstanding Deferred Interest Payments, including any amount of interest accrued thereon). The Issuer may also redeem the Notes prior to (but excluding) the Optional Redemption Date at the Early Redemption Amount on the occurrence of a Tax Event, a Capital Event or an Accounting Event. In addition, the Issuer may elect to redeem the Notes at any time prior to the Optional Redemption Date at their Early Redemption Amount, or on, or on any Floating Interest Payment Date after, the Optional Redemption Date at their Principal Amount (plus any accrued interest and any outstanding Deferred Interest Payments, including any amount of interest accrued thereon), if the Issuer, the Guarantor and/or any Wholly Owned Subsidiary of the Guarantor has, individually or in aggregate, purchased (and not resold) or redeemed Notes and/or Original Notes equal to or in excess of 80 per cent. of the aggregate Principal Amount of the Original Notes issued on the Original Issue Date. See Condition 5.6 of “Terms and Conditions of the Notes” for further detail. If the Issuer does not choose to redeem the Notes upon the occurrence of a Change of Control Event, and a Rating Downgrade has also occurred, Noteholders will have the right to require the Issuer to redeem or (at the Issuer’s option) purchase that Noteholder’s Notes in the circumstances described in Condition 5.7 of “Terms and Conditions of the Notes”. Application has been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the UK Listing Authority) for the Notes to be admitted to the Official List of the UK Listing Authority and to the London Stock A13.5.1 Exchange plc (the London Stock Exchange) for the Notes to be admitted to trading on the London Stock Exchange’s regulated market. The London Stock Exchange’s regulated market is a regulated market for the purposes of Directive 2004/39/EC (the Markets in Financial Instruments Directive). The Notes will be rated BB by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies Inc. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating A13.7.5 organisation. The Notes will initially be represented by a temporary global note (the Temporary Global Note), without interest coupons, which will be deposited on or about the Issue Date with a common depositary for Euroclear Bank SA/NV (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg). Interests in the Temporary Global Note will be exchangeable for interests in a permanent global note (the Permanent Global Note and, together with the Temporary Global Note, the Global Notes), without interest coupons, on or after 7 December 2010 (the Exchange Date), upon certification as to non-U.S. beneficial ownership. Interests in the Permanent Global Note will be exchangeable for definitive Notes only in certain limited circumstances – see “Summary of Provisions relating to the Notes while represented by the Global Notes”. Word and expressions defined in “Terms and Conditions of the Notes” and not otherwise defined in this Prospectus shall have the same meanings when used in the remainder of this Prospectus. An investment in Notes involves certain risks. Prospective investors should have regard to the factors described under the heading “Risk Factors” on page 10. Joint Lead Managers UBS Investment Bank Deutsche Bank (Structuring Adviser) Level: 5 – From: 5 – Monday, October 25, 2010 – 09:44 – eprint6 – 4278 Intro
This Prospectus comprises a prospectus for the purposes of Article 5.4 of Directive 2003/71/EC (the Prospectus Directive) and for the purpose of giving information with regard to the Issuer, the Guarantor and its subsidiaries and affiliates taken as a whole (the Group), the Guarantor and the Notes which according to the particular nature of the Issuer, the Guarantor and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and the Guarantor.
The Issuer and the Guarantor accept responsibility for the information contained in this Prospectus. To the A9.1.1 best of the knowledge and belief of each of the Issuer and the Guarantor (each having taken all reasonable A9.1.2 A13.1.1 care to ensure that such is the case) the information contained in this Prospectus is in accordance with the A13.1.2 facts and does not omit anything likely to affect the import of such information.
Neither the Managers (as described under “Subscription and Sale”, below) nor the Trustee have independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Managers or the Trustee as to the accuracy or completeness of the information contained or incorporated in this Prospectus or any other information provided by the Issuer or the Guarantor in connection with the offering of the Notes. Neither the Managers nor the Trustee accepts any liability in relation to the information contained in this Prospectus or any other information provided by the Issuer or the Guarantor in connection with the offering of the Notes or their distribution. Advisors named in this Prospectus have not caused the issue of, and take no responsibility for, this Prospectus, have acted pursuant to the terms of their respective engagements and do not make, and should not be taken to have verified, any statement or information in this Prospectus unless expressly stated otherwise.
No person is or has been authorised by the Issuer, the Guarantor or the Trustee to give any information or to make any representation not contained in or not consistent with this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorised by or on behalf of the Issuer, the Guarantor, any of the Managers or the Trustee.
Neither this Prospectus nor any other information supplied in connection with the offering of the Notes (a) is intended to provide the basis of any credit or other evaluation or (b) should be considered as a recommendation by the Issuer, the Guarantor, any of the Managers or the Trustee that any recipient of this Prospectus or any other information supplied in connection with the offering of the Notes should purchase any Notes. This Prospectus does not take into account the objectives, financial situation or needs of any potential investor. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer and/or the Guarantor. Neither this Prospectus nor any other information supplied in connection with the offering of the Notes constitutes an offer or invitation by or on behalf of the Issuer, the Guarantor, any of the Managers or the Trustee to any person to subscribe for or to purchase any Notes.
Neither the delivery of this Prospectus nor the offering, sale or delivery of the Notes shall in any circumstances imply that there has been no change in the affairs of the Issuer or the Guarantor since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer or the Guarantor since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that the information contained herein or any other information supplied in connection with the Notes is correct at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same. The Managers and the Trustee expressly do not undertake to review the financial condition or affairs of the Issuer or the Guarantor during the life of the Notes or to advise any investor in the Notes of any information coming to their attention. The Notes and the Guarantee have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes and the Guarantee may not be offered, sold or delivered within the United States or to U.S. persons. For a further description of certain restrictions on the offering and sale of the Notes and on distribution of this document, see “Subscription and Sale” below.
This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any of the Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction.
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The distribution of this Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions. None of the Issuer, the Guarantor, the Managers or the Trustee represents that this Prospectus may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Guarantor, the Managers or the Trustee which is intended to permit a public offering of the Notes or the distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Prospectus and the offering and sale of Notes. For a description of further restrictions on the distribution of this Prospectus and the offer or sale of Notes in the United States, the European Economic Area (including the United Kingdom) and Australia, see “Subscription and Sale”.
This Prospectus has not been, and will not be, lodged with the Australian Securities and Investments Commission and is not, and does not purport to be, a document containing disclosure to investors for the purposes of Part 6D.2 or Part 7.9 of the Corporations Act 2001 of the Commonwealth of Australia (the Corporations Act). It is not intended to be used in connection with any offer for which such disclosure is required and does not contain all the information that would be required by those provisions if they applied. It is not to be provided to any ‘retail client’ as defined in section 761G of the Corporations Act. The Issuer and the Guarantor are not licensed to provide financial product advice in respect of the Notes or the Guarantee. Cooling off rights do not apply to the acquisition of the Notes.
This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any of the Notes in any jurisdiction to any person who is an associate of the Issuer within the meaning of subsection 128F(9) of the Income Tax Assessment Act 1936 of the Commonwealth of Australia and is: (a) a resident of Australia that would acquire the Note through a permanent establishment outside Australia, or a non- resident that would not acquire the Note through a permanent establishment in Australia; and (b) is not acting in the capacity of a dealer, manager or underwriter in relation to the placement of the relevant Notes, or a clearing house, custodian, funds manager or responsible entity of a registered managed investment scheme for the purposes of the Corporations Act.
The Managers, the Trustee and the Principal Paying Agent have received, or will receive, fees from the Issuer in connection with their participation in the offer and may hold interests in the Notes for their own account. In addition, certain of the Managers, the Trustee and the Principal Paying Agent and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, or may provide services to, the Issuer and/or the Guarantor.
IN CONNECTION WITH THE ISSUE OF THE NOTES, UBS LIMITED AS STABILISING MANAGER (THE STABILISING MANAGER) (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) MAY OVER ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE ORIGINAL NOTES AND/OR THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF ANY STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
All references in this document to AUD and A$ refer to the currency of the Commonwealth of Australia and to euro and € refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended.
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CONTENTS
Page
Overview...... 6
Risk Factors ...... 10
Documents Incorporated by Reference ...... 20
Terms and Conditions of the Notes ...... 21
Summary of provisions relating to the Notes while represented by the Global Notes...... 41
Use of Proceeds ...... 44
Description of the Issuer ...... 45
Description of the Guarantor ...... 46
Taxation ...... 57
Subscription and Sale ...... 62
Australian Accounting Standards and Financial Statements ...... 64
General Information ...... 65
Glossary ...... 67
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OVERVIEW
This overview must be read as an introduction to this Prospectus and any decision to invest in the Notes should be based on a consideration of this Prospectus as a whole.
Words and expressions defined in “Terms and Conditions of the Notes” shall have the same meanings in this section.
Issuer: Santos Finance Limited
Guarantor: Santos Limited
Description of Notes: €300,000,000 Fixed to Floating Rate Subordinated Notes due 2070 (the Notes), to be issued by the Issuer. The Notes will from 28 October 2010 (the Issue Date) be consolidated and form a single series with the existing €700,000,000 Fixed to Floating Rate Subordinated Notes due 2070 (the Original Notes) of the Issuer issued on 22 September 2010 (the Original Issue Date). Upon consolidation the aggregate principal amount of the Original Notes and the Notes will be €1,000,000,000.
Issue Price: 101.00 per cent. plus accrued interest from and including 22 September 2010 to but excluding the Issue Date in the aggregate amount of €2,461,325.97.
Trustee: BNY Corporate Trustee Services Limited
Structuring Adviser: UBS Limited
Managers: Deutsche Bank AG, London Branch
UBS Limited
Maturity Date: The Floating Interest Payment Date falling in September 2070.
The Notes will be redeemed on the Maturity Date, unless redeemed by the Issuer beforehand, at their Principal Amount plus any interest accrued up to (but excluding) the Maturity Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3).
Guarantee: Payments of the principal and interest in respect of the Notes and all A6.1 other moneys payable by the Issuer under or pursuant to the Trust Deed will be unconditionally and irrevocably guaranteed by the Guarantor. The obligations of the Guarantor under its guarantee will be direct, unconditional, subordinated and unsecured obligations of the Guarantor. The rights and claims of the Noteholders and Couponholders in respect of the Guarantee will rank as set out in Condition 3.2 of “Terms and Conditions of the Notes”.
Status of the Notes: The Notes and the Coupons will constitute direct, unconditional, subordinated and unsecured obligations of the Issuer and will rank pari passu, without any preference among themselves. The rights and claims of the Noteholders and the Couponholders will rank as set out in Condition 2.2 of “Terms and Conditions of the Notes”.
Subordination: Payments in respect of the Notes and the Guarantee will be subordinated as described in Conditions 2.2, 2.3 and 3.2 of “Terms and Conditions of the Notes”.
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OVERVIEW
Interest: Subject to the limitations as described in Condition 4 of “Terms and Conditions of the Notes”, the Notes bear interest at:
(a) from (and including) the Original Issue Date to (but excluding) the Optional Redemption Date, a fixed rate of 8.25 per cent. per annum; and
(b) thereafter at a rate per annum reset quarterly of 6.851 per cent. per annum above three-month EURIBOR.
Interest Payment Dates: Interest payments in respect of the Notes will be payable:
(a) from (and including) the Original Issue Date to (and including) the Optional Redemption Date semi-annually in arrear in equal instalments on 22 September and 22 March in each year, commencing on 22 March 2011; and
(b) thereafter, subject to adjustment for non-business days, on 22 March, 22 June, 22 September and 22 December in each year, commencing on 22 December 2017.
Mandatory Deferral of If, on any day which is 8 Business Days prior to any Interest Payment Interest Payments: Date, a Trigger Event exists and the Issuer fulfils the S&P Rating Criteria, the Interest Amount falling due on such Interest Payment Date will not be due and payable or be paid until the relevant Payment Reference Date and will constitute a Deferred Interest Payment. A Trigger Event exists if the corporate credit rating assigned by Standard & Poor’s to the Guarantor (and the Issuer, if it has been assigned such a credit rating) as published by Standard & Poor’s is BB+ or lower. The Issuer fulfils the S&P Rating Criteria if the Issuer or the Guarantor is rated by Standard & Poor’s and the Notes are eligible for the same or higher category of equity credit as was attributed to the Notes at the Original Issue Date (as notified from time to time to the Issuer by Standard & Poor’s).
The Holders will have no entitlement or claim in respect of any Interest Payment so deferred, other than in accordance with the provisions below relating to the payment of Deferred Interest Payments.
All Deferred Interest Payments (including interest thereon which accrues as provided in “Terms and Conditions of the Notes”) must be paid in full on the Payment Reference Date, being the earliest of:
(i) the Business Day falling 5 Business Days after the date on which the Trigger Event is no longer subsisting;
(ii) the date which is the fifth anniversary of the date on which any of the then outstanding Deferred Interest Payments was initially deferred;
(iii) the Maturity Date;
(iv) the date on which the Notes are otherwise redeemed; and
(v) the date on which the Trustee takes any action in respect of an Event of Default which results from an order being made for the winding-up of the Issuer or the Guarantor.
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OVERVIEW
Early Redemption: The Notes will mature on the Maturity Date unless redeemed earlier.
Prior to the Maturity Date, the Issuer may redeem the Notes (in whole but not in part) on the Optional Redemption Date or on any subsequent Floating Interest Payment Date at their Principal Amount (plus any accrued interest up to (but excluding) the Early Redemption Date and any outstanding Deferred Interest Payments, including any amount of interest accrued thereon in accordance with Condition 4.3).
Following a Gross-up Event or a Change of Control Event, all of the Notes may at the option of the Issuer be redeemed (in the case of a Gross-up Event, prior to (but excluding) the Optional Redemption Date and, in the case of a Change of Control Event, at any time) at their Principal Amount (plus any accrued interest up to (but excluding) the Early Redemption Date and any outstanding Deferred Interest Payments, including any amount of interest accrued thereon in accordance with Condition 4.3).
Following a Tax Event, a Capital Event or an Accounting Event, all of the Notes may at the option of the Issuer be redeemed at any time prior to (but excluding) the Optional Redemption Date at their Early Redemption Amount.
For further details, see Condition 5 of “Terms and Conditions of the Notes”.
Put Option on a Change If both a Change of Control Event and a Rating Downgrade occurs of Control: and are subsisting following the end of the Change of Control Period, and the Issuer chooses not to exercise its right to redeem the Notes, Noteholders will have the option to require the Issuer to redeem or, at the Issuer’s option, purchase (or procure the purchase of), the Notes of that Noteholder at their Principal Amount plus any interest accrued up to (but excluding) the Put Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3).
For further details, see Condition 5.7 of “Terms and Conditions of the Notes”.
Purchases: The Issuer, the Guarantor or any of its Wholly Owned Subsidiaries may, in compliance with applicable laws, at any time following 31 December 2015, purchase Notes in any manner and at any price. Such acquired Notes may be surrendered for cancellation or held or resold. In the event that the Issuer, the Guarantor and/or any Wholly Owned Subsidiary has, individually or in aggregate, purchased (and not resold) or redeemed Notes and/or Original Notes equal to or in excess of 80 per cent. of the aggregate Principal Amount of the Original Notes issued on the Original Issue Date, the Issuer may redeem the remaining Notes (in whole but not in part): (i) at any time prior to the Optional Redemption Date, at the Early Redemption Amount; and (ii) on or on any Floating Interest Payment Date after the Optional Redemption Date, at their Principal Amount (plus any accrued and outstanding interest and any Deferred Interest Payments).
Replacement capital covenant: The Issuer and the Guarantor intend to enter into an amended and restated replacement capital covenant deed poll for the benefit of one or more designated series of the Issuer’s debt securities. It is anticipated that the terms of such replacement capital covenant will
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OVERVIEW
provide that neither the Issuer nor the Guarantor, during the period from the Original Issue Date until the termination of the replacement capital covenant (and subject to certain circumstances in which it will cease to apply), will redeem or purchase any Notes, and the Guarantor will not permit any Subsidiary to purchase any Notes, unless and to the extent that the aggregate redemption or purchase price is equal to or less than the net proceeds received by the Issuer, the Guarantor or its Subsidiaries during the 12 months prior to such redemption or purchase date, from new issuances of qualifying securities (subject to certain exemptions).
Withholding Tax and The Issuer will pay such Additional Amounts as may be necessary in Additional Amounts: order that the net payment received by each Noteholder in respect of the Notes, after withholding for any taxes imposed by tax authorities in the Relevant Jurisdiction upon payments made by or on behalf of the Issuer in respect of the Notes, will equal the amount which would have been received in the absence of any such withholding taxes, subject to customary exceptions, as described in Condition 7 of “Terms and Conditions of the Notes”.
Meetings of Noteholders: The Terms and Conditions of the Notes and the Trust Deed contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
Modification, Waiver and The Trustee may, without the consent of Noteholders, agree to (i) any Substitution: modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) the substitution of the Guarantor or a subsidiary of the Guarantor as principal debtor under any Notes in place of the Issuer, in each case, in the circumstances and subject to the conditions described in Conditions 14 and 15 of “Terms and Conditions of the Notes”.
Listing and admission to trading: Application has been made to the UK Listing Authority for the Notes to be admitted to the Official List and to the London Stock Exchange for the Notes to be admitted to trading on the London Stock Exchange’s regulated market.
Governing Law: The Notes will be governed by, and construed in accordance with, English law, with the exception that the subordination provisions will be construed in accordance with the laws of Australia.
Form: The Notes will be issued in bearer form in denominations of €50,000 and integral multiples of €1,000 in excess thereof.
Credit Rating: The Notes are expected to be assigned on issue a rating of BB by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies Inc. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
Selling Restrictions: The Notes and the Guarantee have not been and will not be registered under the Securities Act and, subject to certain exceptions, may not be offered or sold within the United States. The Notes may be sold in other jurisdictions (including Australia) only in compliance with applicable laws and regulations. See “Subscription and Sale” below.
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OVERVIEW
Use of Proceeds: The proceeds of the issue of the Notes will be applied by the Issuer for its general corporate purposes and (in whole or in part) to fund its growth strategy.
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RISK FACTORS A9.3.1 A13.2 Each of the Issuer and the Guarantor believes that the following factors may affect its ability to fulfil its obligations under the Notes. All of these factors are contingencies which may or may not occur and neither the Issuer nor the Guarantor is in a position to express a view on the likelihood of any such contingency occurring.
In addition, factors that are material for the purpose of assessing the market risks associated with the Notes are described below.
Each of the Issuer and the Guarantor believes that the factors described below represent the principal risks inherent in investing in the Notes, but the inability of the Issuer or the Guarantor to pay interest, principal or other amounts on or in connection with the Notes may occur for other reasons which may not be considered significant risks by the Issuer and the Guarantor based on information currently available to them or which they may not currently be able to anticipate. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision.
Please refer to “Description of the Guarantor” and “Glossary” for definitions of terms used but not otherwise defined in this section.
Factors that may affect the Issuer’s ability to fulfil its obligations under the Notes and the Guarantor’s ability to fulfil its obligations under the Guarantee The risk factors described below apply in the context of the Guarantor and the Group and are also applicable to the Issuer.
Finance vehicle
The Issuer is a finance vehicle and acts as the principal finance company for the Group. The Issuer’s sole business is raising debt to be on-lent to companies within the Group and to fund their investment programmes and to manage cash generated from Group operations. Accordingly, substantially all the assets of the Issuer are loans and advances made to other members of the Group. The ability of the Issuer to satisfy its obligations in respect of the Notes will depend upon payments made to it by other members of the Group in respect of loans and advances made by it.
Volatility in oil and gas prices
The Guarantor’s business relies primarily on the production and sale of oil and gas products (including LNG) to a variety of buyers under a range of short-term and long-term contracts. International oil and gas prices have fluctuated widely in recent years and may continue to fluctuate significantly in the future. The Guarantor cannot predict future oil and gas prices.
Demand for, and pricing of, LNG remains sensitive to external economic and political factors, including crude oil prices and buyer preferences as between LNG and oil. Crude oil prices are affected by numerous factors beyond the Guarantor’s control, including worldwide oil supply and demand, the level of economic activity in the markets that the Guarantor serves, regional political developments and military conflicts in oil producing countries and regions (in particular, the Middle East), the weather, the ability of the Organization of the Petroleum Exporting Countries (OPEC) and other producing nations to influence global production levels and prices, the price and availability of new technology and the availability and cost of alternative sources of energy. The international price for crude oil has historically been volatile. Accordingly, it is impossible to predict future crude oil price movements with certainty.
Fluctuations in the global oil and global and domestic gas market, in particular, any extended or substantial decline in oil and gas prices or demand for oil and gas, may materially affect the Guarantor’s financial condition and results of operations. Increases and decreases in oil and gas prices affect the amount of cash flow available for capital expenditure and the Guarantor’s ability to borrow money or raise additional
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RISK FACTORS capital. Lower oil and gas prices may also reduce the amount of oil and natural gas that the Guarantor can produce economically.
LNG supply contracts
The Guarantor’s market share of LNG supply contracts and, therefore, its profits may be adversely affected by the introduction of new LNG facilities and the expansion, by the Guarantor’s competitors, of their existing LNG facilities in the global LNG market. Such new facilities or expansion of existing facilities could increase the global supply of LNG, thereby potentially lowering the price of LNG.
Replacement of existing reserves
The Guarantor’s future long-term results are directly related to the success of efforts to replace existing oil and gas reserves as they are utilised, either through exploration or acquisition. In general, the volume of production from oil and gas properties declines as reserves are depleted, although the rate of decline depends on the characteristics of a particular reserve. The Guarantor’s reserves will decline as they are utilised unless the Guarantor acquires properties with proved reserves or conducts successful exploration and development activities. The Guarantor’s aim is to continue to replace its utilised reserves but given that exploration is a high risk endeavour subject to geological, technological and environmental hazards and that there is no certainty that acquisitions will continue to be made, no assurance can be given that the Guarantor will be able to continue to replace its utilised reserves with additional proved reserves.
Acquisition and divestment activities A.9.4.1.5
The Guarantor from time to time evaluates acquisition and divestment opportunities across its range of assets and businesses. Any acquisitions or disposals would lead to a change in the sources of the Guarantor’s earnings and result in variability of earnings over time. Any acquisitions or disposals could also lead to changes in future capital and operating expenditure obligations which may impact the Guarantor’s funding requirements. They may also give rise to liabilities. Integration of new businesses into the Santos group may be costly and may occupy a large amount of management’s time. There is no certainty that the Guarantor will complete any acquisition or divestment that it has entered into, including the sale of its Evans Shoal interests to Magellan announced on 26 March 2010. On 9 September 2010, the Guarantor announced the sale of a 15 per cent. interest in the GLNG Project to Total E&P Australia which is subject to certain customary conditions including the approval of the Australian Foreign Investment Review Board. While it is expected that these conditions will be satisfied to allow completion to occur, there is no certainty that such approvals will be forthcoming and a failure to complete this sale would have an adverse impact on the Guarantor’s future funding requirements. The Guarantor has also announced the possibility of a further sell down of an interest in the GLNG Project, but there is no certainty that it will be successful in doing so.
Projects risks
The Guarantor is investing a significant amount of capital in the PNG LNG and GLNG Projects. These and other projects may be delayed or be unsuccessful for many reasons, including unanticipated financial, operational or political events, the failure to receive state and federal government environmental and other approvals, whether a final investment decision is reached, cost overruns, decline in LNG prices or demand, equipment and labour shortages, technical concerns including possible reserves and deliverability difficulties, environmental and water disposal impacts, increases in operating cost structures, contractual issues associated with GLNG upstream joint venture alignment or with major engineering procurement and construction contracts, community or industrial actions or other circumstances which may result in the delay, suspension or termination of the projects, the total or partial loss of the investment and a material adverse effect on the Guarantor’s business, results of operations, financial condition and credit rating.
In addition, sales contracts with various counterparties are expected to be entered into in relation to the PNG LNG and GLNG projects. The ability of the counterparties to meet their commitments under such an arrangement may impact on the Guarantor’s investment in these projects.
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Project developments in which the Guarantor is, or may become, involved are subject to risks, including technical risk. Changes in reserves, liquids and gas prices, exchange rates, construction costs, design requirements and delays in construction may adversely affect the commerciality and economics of project development.
Operational risk
Industrial disputes, work stoppages and accidents, natural disasters, drilling and production results, reserve estimates, environmental impacts and other factors all contribute towards operational risk which may have an adverse effect on the Guarantor’s profitability and results of operations. Appropriate insurance can only provide protection for some, but not all, of the costs that may arise from unforeseen events.
Counterparty risk
As part of its ongoing commercial activities, the Guarantor enters into sales contracts with various third parties for the sale of natural gas, LNG and other products. If any counterparty were unable to meet its commitments to the Guarantor under such contracts, in whole or in part, and if there is no form of security in place, there is a risk that future anticipated revenues would reduce unless and until the Guarantor was able to secure an alternative customer. Therefore, such failure of a counterparty to a sales contract could materially and adversely affect the Guarantor’s financial condition and credit rating. Counterparty risk also arises when the Guarantor enters into contracts for committed lines of credit and derivatives with financial institutions. The Guarantor’s risk to counterparty credit risk is reduced by the implementation of credit policies that apply to sales contracts, banking arrangements and derivative contracts.
Currency risk
The functional and presentational currency of the Guarantor is the Australian dollar. Some subsidiaries have a functional currency of U.S. dollars and the results of their operations are translated into Australian dollars. The Guarantor may incur expenditure in the local currencies of the countries in which it operates or in other currencies for supplies of materials and services. The Guarantor is exposed to foreign exchange rate fluctuations in the Australian dollar value of foreign currency-denominated revenues, expenses, assets and liabilities. Accordingly, a change in the value of the Australian dollar relative to the relevant local currency and/or U.S. dollar may have an effect on the net asset value and profit and loss of the Guarantor in Australian dollars.
Market risk
The Guarantor borrows money domestically and internationally on interest rates that are either fixed or floating. A rise in interest rates, either domestically or internationally, would affect the Guarantor’s cost of borrowing and would adversely affect its business and financial condition.
The Guarantor, from time to time, hedges some of its commodity price, exchange rate and interest rate risks. While such hedging activities may provide downside risk protection for the Guarantor, it is also possible such activities may limit its upside benefit potential or give rise to additional losses. The management of interest rate risk, foreign exchange risk and commodity risks are governed by treasury policies which are approved by the Board of the Guarantor.
Access to capital
The Guarantor’s business and, in particular, development of large scale projects, relies on access to debt and equity financing. The Guarantor’s ability to secure financing, or financing on acceptable terms may be materially adversely affected by volatility in the financial markets, globally or affecting a particular geographic region, industry or economic sector, or by a downgrade in its credit rating (the Guarantor is currently rated BBB+ by S&P). For these or other reasons, financing may be unavailable or the cost of financing may be significantly increased. Such inability to obtain, or increase to the costs of obtaining, financing could materially and adversely affect the Guarantor’s business, results of operations and financial condition.
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Mineral Resources Rent Tax and other Australian taxes
In addition to the standard level of income tax imposed on all industries, companies in the petroleum and gas industries are required to pay government royalties, direct and indirect taxes and other imposts in the jurisdictions in which they operate. The profitability of companies in these industries can be affected by changes in government taxation and royalty policies or in the interpretation or application of such policies. On 2 July 2010, the Australian Labor government announced that it intends to introduce a Minerals Resource Rent Tax (MRRT) and an expanded Petroleum Resource Rent Tax (PRRT) from 1 July 2012. The existing PRRT regime applies to offshore oil and gas projects. The MRRT was stated to be intended to apply to iron ore and coal in Australia, with all other minerals excluded, whilst the expanded PRRT was stated to be intended to apply to onshore and offshore oil, gas and coal seam methane projects. The recent Australian federal election on 21 August 2010 initially produced an inconclusive result as neither major party was able to secure the requisite number of seats in the House of Representatives to form a government in its own right. On 7 September 2010, the Australian Labor Party secured the support of a further two independent members of Parliament such that it had the requisite backing to form a minority government. Accordingly, it is unclear whether and to what extent the MRRT and expanded PRRT will be implemented. Further, assuming implementation, exact details concerning the proposed changes to the tax regime remain uncertain and the extent to which they may impact on the Guarantor and/or its operations is yet to be determined. The possible introduction of the expanded PRRT has the potential to increase the Guarantor’s effective tax rate, which could adversely affect the Guarantor’s financial performance, financial position, cash flows and share price.
Environmental risk
Oil and gas exploration and production is an environmentally hazardous activity which may give rise to substantial costs for environmental rehabilitation, damage control and losses.
With increasingly heightened government and public sensitivity to environmental sustainability, environmental regulation is becoming more stringent. The Guarantor could be subject to increasing environmental responsibility and liability, including laws and regulations dealing with air quality, water and noise pollution and other discharges of materials into the environment, plant and wildlife protection, the reclamation and restoration of certain of its properties, greenhouse gas emissions, the storage, treatment and disposal of wastes and the effects of its business on the water table and groundwater quality.
Sanctions for non-compliance with these laws and regulations may include administrative, civil and criminal penalties, revocation of permits, reputational issues, increased licence conditions and corrective action orders. These laws sometimes apply retroactively. In addition, a party can be liable for environmental damage without regard to that party’s negligence or fault.
Increased costs associated with regulatory compliance and/or with litigation could have a material and adverse effect on the Guarantor’s earnings and cash flows.
Carbon emissions
There is growing recognition that greenhouse gas emissions potentially contribute to global warming, greenhouse effects and climate change. A number of governments or governmental bodies, including those in Australia, have introduced, or are contemplating, regulatory change in response to the potential impacts of climate change and greenhouse gas emissions.
The Australian Labor government, under former Prime Minister Kevin Rudd, proposed a national emissions trading scheme (the Carbon Pollution Reduction Scheme (CPRS)). The proposed CPRS would require certain carbon emitters to purchase permits which reflect their emissions volume, subject to price caps. If the CPRS is introduced in the form previously proposed (which is not certain), the Guarantor may be exposed to additional operating costs which will have an adverse impact on its financial performance. The CPRS legislation was not passed by the Australian parliament. On 27 April 2010, the Australian Labor government announced the delay of the implementation of the CPRS until after the end of the current commitment period of the Kyoto Protocol, at the end of 2012, or until the domestic and international
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RISK FACTORS political circumstances improve. In the lead up to the recent federal election, the Australian Labor Party maintained its commitment to a CPRS following that delay, but also proposed further public consultation measures. The Coalition (comprised of a coalition of the centre-right Liberal Party of Australia and the centre-right National Party of Australia) has proposed an alternative ‘direct action’ approach. The Australian Greens support stronger responses. A carbon tax is a further alternative, including as an interim measure before an emissions trading scheme operates. Likely global action is also uncertain. The recently formed minority Labor government has announced the formation of a Climate Change Committee, which will encompass experts and parliamentary representatives. The Climate Change Committee will explore options for the implementation of a carbon price and is designed to help build a consensus on how Australia will address the challenge of climate change. Although the precise terms of any potential legislation are unclear, from a medium and long-term perspective, the regulation of greenhouse gas emissions is likely to become more stringent and there are likely to be changes in the returns on the Guarantor’s greenhouse gas-intensive assets and energy-intensive assets as a result of regulatory impacts on the industry in which the Guarantor operates. It will depend on, among other things, the final form of greenhouse gas emissions regulation, commercial arrangements, energy efficiency, the development of low emissions technology and the carbon price. Until the final form of greenhouse gas emissions regulation is known, the impact on the Guarantor’s business, results of operations and financial condition is uncertain.
Government actions and regulatory risk The Guarantor’s business is subject to various national and local laws and regulations, in each of the countries in which it operates, relating to the development, production, marketing, pricing, transportation and storage of its products. A change in the laws which apply to the Guarantor’s business or the way in which it is regulated could have a material adverse effect on its business, results of operations and financial condition. Other changes in the regulatory environment (including applicable accounting standards) may have a material adverse effect on the carrying value of material assets or otherwise have a material adverse effect on the Guarantor’s business, results of operations and financial condition. The Guarantor’s operations could also be affected by government actions in Australia and other countries or jurisdictions in which it has interests. These actions include government legislation, government approvals, guidelines and regulations in relation to the environment, the petroleum and gas industries, competition policy, native title and cultural heritage. Such actions could impact on land access, the granting of licences and other petroleum and gas interests, the approval of developments and freedom to conduct operations. The possible extent of introduction of additional legislation, regulations, guidelines or amendments to existing legislation that might affect the Guarantor’s business is difficult to predict. Any such government action may require increased capital or operating expenditures and could prevent or delay certain operations by the Guarantor, which could have a material adverse effect on the Guarantor’s business and financial condition.
Political risk The Guarantor is subject to a risk that it may not be able to carry out its operations as it intends to or enter into new operations, nor ensure the security of its assets. In addition, it is subject to risks of, among other things, loss of revenue, property and equipment as a result of hazards such as expropriation, border and territorial disputes, war, insurrection and acts of terrorism and other political risks and increases in taxes and government royalties. The Guarantor has operations outside Australia in Indonesia, Kyrgyz Republic, India, Bangladesh, Vietnam, Papua New Guinea and Timor-Leste.
The Guarantor’s interests are subject to political, economic, social and other uncertainties, including the risk of civil rebellion, expropriation, nationalisation, land ownership disputes, renegotiation or termination of existing contracts, licences and permits or other agreements, changes in laws or taxation policies, currency exchange restrictions and changing political conditions. The effects of these factors are difficult to predict
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RISK FACTORS and any combination of one or other of the above may have a material adverse effect on the operation or development of the Guarantor’s business and even render it uneconomic.
Joint venture risk
The Guarantor’s business is carried out through joint ventures. Some of these joint venture assets are managed and operated by the Guarantor or its subsidiaries, and some are “non-operated” (that is, managed and operated by other international and domestic exploration and production companies). The use of joint ventures is common in the exploration and production industry and serves to mitigate the risk and associated cost of exploration, production and operational failure. However, failure of agreement or alignment with joint venture partners or the failure of third party joint venture operators could have a material effect on the Guarantor’s business. The failure of joint venture partners to meet their commitments and share of costs and liabilities can result in increased costs to the Guarantor.
Land resource and tenure
The Guarantor has investments and operations in several countries where title to land and access and other rights with respect to land and resources (including indigenous title) may be complex and unclear. From time to time, these complexities and uncertainties can result in disputes with local groups and/or parties representing local interests. The outcome of these disputes may have an adverse impact on the Guarantor’s assets (including its ability to develop these assets) in the relevant jurisdictions. A number of the Guarantor’s Australian interests are located within areas which are the subject of one or more claims or applications for native title determinations. The Guarantor does not believe that the outcome of those claims or applications will significantly impact on its asset base, however, native title decisions have the potential to introduce royalty payments and delay in the grant of mineral and petroleum tenements and other licences and consequently may impact generally on the timing of exploration, development and productions operations.
Banjar Panji-1 Well Incident
In May 2006, a non-toxic mudflow incident occurred at the Banjar Panji-1 Well near Surabaya, East Java. The incident resulted in significant property damage, the interruption of local infrastructure and the need to relocate a significant number of local villages. In December 2008, the Guarantor’s subsidiary (Santos Brantas) transferred its 18 per cent. non-operating interest in the project to Minarak Labuan Co (L) Ltd (Minarak), with approval from the relevant Indonesian regulator. The transaction also included a release from the remaining joint venturers in the project from all liability (if any) to them in relation to the project and the mudflow incident. However, the transaction did not release Santos Brantas from liability to third parties. There are currently no third party claims pending and no matters have come to the Guarantor’s attention to indicate that a third party has or is likely to claim against Santos Brantas in respect of the incident. Consistent with the Guarantor’s view that the chance of a third party claim being made is unlikely and, if such a claim were made, it would be able to successfully defend those claims, no provision for any future costs in relation to the incident and no contingent liability disclosures were made in the Guarantor’s 30 June 2010 financial statements.
Key Personnel
The Guarantor’s future success depends on the expertise and continued service of certain key executives and technical personnel. Although the Guarantor enters into employment and incentive arrangements with such personnel to secure their services, the Guarantor cannot guarantee the retention of their services. Should key personnel leave, the Guarantor’s business, its results of operations and financial condition may be adversely affected.
Estimates of oil and gas resources are uncertain
Calculations of recoverable oil and gas resources contain significant uncertainties, which are inherent in the reservoir geology, the seismic and well data available and other factors such as project development and operating costs, together with commodity prices. This uncertainty is often expressed as a range of resource
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RISK FACTORS levels with associated probabilities. During the course of appraisal, development and continuing operations, the increased quantity and variety of data will generally improve the accuracy of the resource estimate and narrow the range of uncertainty. However, in some cases the stated reserves may move significantly away from the previous estimates, either upwards or downwards.
Exploration and production licences may be withdrawn
The Guarantor’s exploration and prospective production are dependent upon the granting and maintenance of appropriate licences, permits and regulatory consents (authorisations) which may not be granted or may be withdrawn or made subject to limitations at the discretion of, inter alia, government or regulatory authorities. Although the authorisations may be renewed following expiry or granted (as the case may be), there can be no assurance that such authorisations will be continued, renewed or granted or as to the terms of such renewals or grants. Moreover, if the Guarantor does not meet its work and/or expenditure obligations under permits and licences, this may lead to dilution of its interest in, or the loss of, such permits and licences.
Factors which are material for the purpose of assessing the market risks associated with the Notes The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus or any applicable supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor’s currency;
(iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant financial markets; and
(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
The Notes are complex investment securities. Sophisticated institutional investors generally do not purchase complex investment securities as stand-alone investments. They purchase complex investment securities as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in the Notes unless it has the expertise (either alone or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of the Notes and the impact this investment will have on the potential investor’s overall investment portfolio.
The Notes are subordinated obligations
The Notes will be subordinated obligations of the Issuer and the Notes will rank pari passu with each other in a winding-up of the Issuer. Upon the occurrence of any winding-up proceedings of the Issuer, payments on the Notes will be subordinated in right of payment to the prior payment in full of all other liabilities of the Issuer, except for obligations which rank equally with the Notes.
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Similarly, the Guarantor’s obligations under the Guarantee are subordinated obligations of the Guarantor. Upon the occurrence of any winding-up proceedings of the Guarantor, the Guarantor’s obligations under the Guarantee will be subordinated in right of payment to the prior payment in full of all other liabilities of the Issuer, except for obligations which rank equally with the Guarantee.
Holders of the Notes are advised that unsubordinated liabilities of the Issuer or the Guarantor may also arise out of events that are not reflected on the balance sheet of the Issuer or the Guarantor (as the case may be), including, without limitation, the issuance of guarantees on an unsubordinated basis. Claims made under such guarantees will become unsubordinated liabilities of the Issuer or the Guarantor (as the case may be) that in a winding-up of the Issuer or the Guarantor (as the case may be) will need to be paid in full before the obligations under the Notes or the Guarantee (as the case may be) may be satisfied.
Under certain conditions, interest payments under the Notes must be deferred
If there is a Trigger Event and the S&P Rating Criteria is satisfied, the Issuer will be obliged to defer interest payments whilst that Trigger Event is continuing (as defined and further described in Condition 4.3 of “Terms and Conditions of the Notes“). Deferred Interest Payments will only be satisfied in certain circumstances (as set out in Condition 4.4 of “Terms and Conditions of the Notes”). While the deferral of interest payments continues, the Issuer may make payments on any instrument ranking senior, pari passu or subordinated to the Notes.
Any deferral of interest payments will likely have an adverse effect on the market price of the Notes. In addition, as a result of the interest deferral provision of the Notes, the market price of the Notes may be more volatile than the market prices of other debt securities on which interest accrues that are not subject to such deferrals and may be more sensitive generally to adverse changes in the Issuer’s financial condition.
The Notes are long-dated securities
The Notes will mature on the Floating Interest Payment Date falling in September 2070 and, although the Issuer may redeem the Notes in certain circumstances prior to such date, the Issuer is under no obligation to do so. Further, the Issuer and the Guarantor have entered into a replacement capital covenant (as described in “General Information“) which may limit the circumstances in which the Issuer may choose to redeem the Notes. The Holders have no right to call for the redemption of Notes except in the limited circumstances following a Change of Control Event (as set out in Condition 5.7 of “Terms and Conditions of the Notes”). Holders can only declare the Notes due and payable in certain circumstances relating to payment default and insolvent winding-up of the Issuer or the Guarantor (see Condition 10 of “Terms and Conditions of the Notes“). Therefore, Holders should be aware that they may be required to bear the financial risks associated with an investment in long-term securities.
The Issuer may redeem the Notes under certain circumstances
Holders should be aware that the Notes may be redeemed at the option of the Issuer (in whole but not in part) at their Principal Amount (plus any accrued and outstanding interest and any outstanding Deferred Interest Amounts) on 22 September 2017 or on any Floating Interest Payment Date thereafter. The Notes are also subject to redemption (in whole but not in part) at the Issuer’s option upon the occurrence of a Gross-Up Event, Change of Control Event, Tax Event, Capital Event or Accounting Event (each as defined in Condition 5 of “Terms and Conditions of the Notes”) or if the Issuer, the Guarantor and/or any Wholly Owned Subsidiary of the Guarantor has, individually or in aggregate, purchased (and not resold) or redeemed Notes and/or Original Notes equal to or in excess of 80 per cent. of the aggregate Principal Amount of the Original Notes issued on the Original Issue Date. The relevant redemption amount may be less than the then current market value of the Notes.
No limitation on issuing senior or pari passu securities
There is no restriction on the amount of securities or other liabilities which the Issuer or the Guarantor may issue or incur and which rank senior to, or pari passu with, the Notes or the Guarantee (as the case may be). The issue of any such securities or the incurrence of any such other liabilities may reduce the amount
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(if any) recoverable by Holders on a winding-up of the Issuer or the Guarantor (as the case may be) and/or may increase the likelihood of a deferral of Interest Payments under the Notes.
Fixed rate securities have a market risk
The Notes will bear interest at a fixed rate until 22 September 2017. A holder of a security with a fixed interest rate is exposed to the risk that the price of such security falls as a result of changes in the current interest rate on the capital market (the Market Interest Rate). While the nominal interest rate of a security with a fixed interest rate is fixed during the life of such security or during a certain period of time, the Market Interest Rate typically changes on a daily basis. A change of the Market Interest Rate causes the price of such security to change. If the Market Interest Rate increases, the price of such security typically falls. If the Market Interest Rate falls, the price of a security with a fixed interest rate typically increases. Investors should be aware that movements of the Market Interest Rate can adversely affect the price of the Notes and can lead to losses for the Holders if they sell the Notes.
Floating rate securities may suffer a decline in interest rate
If not previously redeemed, from 22 September 2017 until their redemption the Notes will bear interest at a floating rate. A holder of a security with a floating interest rate is exposed to the risk of fluctuating interest rate levels and uncertain interest income. Fluctuating interest rate levels make it impossible to determine the yield of such securities in advance.
Risks related to the Notes generally Set out below is a brief description of certain risks relating to the Notes generally:
Modification, waivers and substitution
The Terms and Conditions of the Notes and the Trust Deed contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
The Terms and Conditions of the Notes also provide that the Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default or Potential Event of Default shall not be treated as such or (iii) the substitution of the Guarantor or a subsidiary of the Guarantor as principal debtor under any Notes in place of the Issuer, in the circumstances described in Conditions 14 and 15 of “Terms and Conditions of the Notes“.
Change of law
The Terms and Conditions of the Notes are based on laws in effect as at the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to relevant law or administrative practice after the date of this Prospectus.
Denominations involve integral multiples: definitive Notes
The Notes have denominations consisting of a minimum of €50,000 plus one or more higher integral multiples of €1,000. It is possible that the Notes may be traded in amounts that are not integral multiples of €50,000. In such a case a holder who, as a result of trading such amounts, holds an amount which is less than €50,000 in his account with the relevant clearing system at the relevant time may not receive a definitive Note in respect of such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to €50,000.
If definitive Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of €50,000 may be illiquid and difficult to trade.
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Risks related to the market generally Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk and credit risk:
The secondary market generally
Any pre-existing trading market for the Notes may not be maintained. Additionally, any such market may not be very liquid. Illiquidity may have a severely adverse effect on the market value of the Notes. Investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes, and the Guarantor will make any payments under the Guarantee, in euro. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the Investor’s Currency) other than euro. These include the risk that exchange rates may significantly change (including changes due to devaluation of the euro or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to euros would decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor’s Currency equivalent value of the principal payable on the Notes and (3) the Investor’s Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.
Credit ratings may not reflect all risks
S&P have assigned a credit rating to the Notes. The rating may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) the Notes are legal investments for it, (2) the Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of the Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-based capital or similar rules.
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DOCUMENTS INCORPORATED BY REFERENCE A9.11.2 A9.11.1 The following documents which have previously been published and have been filed with the Financial Services Authority shall be incorporated in, and form part of, this Prospectus:
(a) the auditor's report, directors’ report and consolidated financial statements for the Guarantor for the financial year ended 31 December 2008;
(b) the auditor's report, directors’ report and consolidated financial statements for the Guarantor for the financial year ended 31 December 2009;
(c) the auditor's report (review opinion), directors’ report and consolidated financial statements for the Guarantor for the six months ended 30 June 2010;
(d) the auditor's report, the directors’ report and financial statements for the Issuer for the financial year ended 31 December 2008; and
(e) the auditor's report, the directors’ report and financial statements for the Issuer for the financial year ended 31 December 2009.
Copies of documents incorporated by reference in this Prospectus can be obtained from the registered offices of the Issuer and the Guarantor and from the specified office of the Principal Paying Agent for the time being in London.
Any documents themselves incorporated by reference in the documents incorporated by reference in this Prospectus shall not form part of this Prospectus.
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TERMS AND CONDITIONS OF THE NOTES
The following, subject to alteration, are the terms and conditions of the Notes which will be endorsed on each Note in definitive form (if issued).
The €300,000,000 Fixed to Floating Rate Subordinated Notes due 2070 (the Notes, which expression A13.4.1 includes the Original Notes (as defined below) and, unless the context otherwise requires, any further notes A13.4.2 issued pursuant to Condition 9 and forming a single series with the Original Notes and the Notes) of Santos Finance Limited (the Issuer) are consolidated and form a single series with the €700,000,000 Fixed to A13.4.11 Floating Rate Subordinated Notes due 2070 (the Original Notes) issued by the Issuer on 22 September 2010 and are constituted by a first supplemental trust deed dated 28 October 2010 (the First Supplemental Trust Deed) made between the Issuer, Santos Limited (the Guarantor) as guarantor and BNY Corporate Trustee Services Limited (the Trustee, which expression includes its successor(s)) as trustee for the holders of the Notes (the Noteholders) and the holders of the interest coupons appertaining to the Notes (the Couponholders and the Coupons respectively, which expression, unless the context otherwise requires, includes the talons for further interest coupons (the Talons) and the holders of the Talons) which is supplemental to a trust deed dated 22 September 2010 (together with the First Supplemental Trust Deed and as further modified and/or supplemented from time to time, the Trust Deed) between the same parties.
The statements in these Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed. Copies of the Trust Deed and the agency agreement dated 22 September 2010 (the Principal Agency Agreement) as supplemented by a first supplemental agency agreement dated 28 October 2010 (together with the Principal Agency Agreement and as further modified and/or supplemented from time to time, the Agency Agreement) made between the Issuer, the Guarantor, The Bank of New York Mellon, London branch as initial principal paying agent (in such capacity, the Principal Paying Agent, which expression includes any successor thereto) and initial interest calculation agent (in such capacity, the Interest Calculation Agent, which expression includes any successor thereto) and the Trustee. Copies of the Trust Deed, the Agency Agreement and the Calculation Agency Agreement (if any) are available for inspection during normal business hours by the Noteholders and the Couponholders at the specified office of the Trustee, the Principal Paying Agent and of each of the other paying agents appointed under the Agency Agreement (together with the Principal Paying Agent, the Paying Agents). The Noteholders and Couponholders are entitled to the benefit of, are bound by, and are deemed to have notice of all the provisions of the Trust Deed and are deemed to have notice of all of the provisions of the Agency Agreement and the Calculation Agency Agreement (if any) applicable to them.
1. FORM, DENOMINATION AND TITLE
1.1 Form and denomination A13.4.4 The Notes are in bearer form, serially numbered, in the denominations of €50,000 and integral multiples of A13.4.5 €1,000 in excess thereof (the Principal Amount) with Coupons and one Talon attached on issue.
1.2 Title
Title to the Notes and the Coupons will pass by delivery.
1.3 Noteholder absolute owner
The Issuer, the Guarantor, any Paying Agent and the Trustee may (to the fullest extent permitted by A13.4.7 applicable laws) deem and treat the bearer of any Note or Coupon as the absolute owner for all purposes (whether or not the Note or Coupon is overdue and notwithstanding any notice of ownership or writing on the Note or Coupon or any notice of previous loss or theft of the Note or Coupon or of any trust or interest therein) and will not be required to obtain any proof thereof or as to the identity of such bearer.
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2. STATUS AND SUBORDINATION A13.4.6
2.1 Status
The Notes and the Coupons constitute direct, unconditional, unsecured and subordinated obligations of the Issuer and will at all times rank pari passu without any preference among themselves. The rights and claims of the Noteholders and the Couponholders are subordinated as described in Condition 2.2.
2.2 Subordination
The Noteholder Claims, including any claim in respect of Deferred Interest Payments, will, in the event that an order is made, an effective resolution is passed or other action is taken for the Winding-Up of the Issuer (subject to and to the extent permitted by applicable law), rank in such Winding-Up:
(a) junior to the rights and claims of all Senior Creditors of the Issuer;
(b) pari passu with each other and with the rights and claims of any Parity Creditors or holders of Parity Shares of the Issuer; and
(c) senior to the rights and claims of holders of the Issuer’s shares other than Parity Shares, and, for the purposes of giving effect to the foregoing, in any Winding-Up of the Issuer the Noteholder Claims:
(i) are subordinated and postponed and subject in right of payment to payment in full of the rights and claims of Senior Creditors of the Issuer, and may only be proved (to the extent otherwise provable) as a debt which is subject to and contingent upon prior payment in full of the rights and claims of Senior Creditors of the Issuer; and
(ii) are further limited as to the amount provable (to the extent otherwise provable) in any winding-up of the Issuer to the extent necessary to ensure that, after the satisfaction of the Noteholder Claims (as so limited), the distribution payable in respect of the rights and claims of any holder of Parity Shares in the Issuer is equal to the amount that would be payable in respect of such rights and claims if the Maximum Amount in respect of such shares was a debt provable in the winding-up of the Issuer with which the Noteholder Claims ranked equally under Condition 2.2(b).
In these conditions, references to the Maximum Amount in respect of a share is a reference to the maximum amount the holder of such a share would be entitled to receive (whether by way of return of capital, participation in any profits or surplus, payment of any debt due to the holder in its capacity as a member or otherwise) in respect of such share assuming the Issuer or Guarantor (as the case may be) had sufficient assets to satisfy that entitlement after satisfaction of all claims ranking in priority to it.
In these Conditions, Winding-Up includes receivership or other appointment of a controller, deregistration, compromise, deed of arrangement, amalgamation, administration, reconstruction, winding up, dissolution, assignment for the benefit of creditors, arrangement or compromise with creditors or bankruptcy.
2.3 No set-off
To the extent and in the manner permitted by applicable law, no Noteholder or Couponholder may exercise, claim or plead any right of set-off, counterclaim, compensation or retention in respect of any amount owed to it by the Issuer in respect of, or arising from, the Notes and each Noteholder and Couponholder will, by virtue of his holding of any Note, be deemed to have waived all such rights of set-off, counterclaim, compensation or retention.
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3. GUARANTEE A6.1
3.1 Guarantee A6.2 The payment of the principal and interest in respect of the Notes and all other moneys payable by the Issuer under or pursuant to the Trust Deed has been unconditionally and irrevocably guaranteed by the Guarantor (the Guarantee) in the Trust Deed.
3.2 Status of the Guarantee
The obligations of the Guarantor under the Guarantee constitute direct, unconditional, unsecured and subordinated obligations of the Guarantor. The Noteholder Claims, including any claim under the Guarantee in respect of Deferred Interest Payments, will, in the event that an order is made or an effective resolution is passed or other action is taken for the Winding-Up of the Guarantor (subject to and to the extent permitted by applicable law), rank in such Winding-Up:
(a) junior to the rights and claims of all Senior Creditors of the Guarantor;
(b) pari passu with the rights and claims of any Parity Creditors or holders of Parity Shares of the Guarantor; and
(c) senior to the rights and claims of the holders of the Guarantor’s shares other than Parity Shares, and, for the purposes of giving effect to the foregoing, in any Winding-Up of the Guarantor the Noteholder Claims:
(i) are subordinated and postponed and subject in right of payment to payment in full of the rights and claims of Senior Creditors of the Guarantor, and may only be proved (to the extent otherwise provable) as a debt which is subject to and contingent upon prior payment in full of the rights and claims of Senior Creditors of the Guarantor; and
(ii) are further limited as to the amount provable (to the extent otherwise provable) in any winding-up of the Guarantor to the extent necessary to ensure that, after the satisfaction of the Noteholder Claims (as so limited), the distribution payable in respect of the rights and claims of any holder of Parity Shares in the Guarantor is equal to the amount that would be payable in respect of such rights and claims if the Maximum Amount in respect of such shares was a debt provable in the winding-up of the Guarantor with which the Noteholder Claims ranked equally under Condition 3.2(b).
3.3 No set-off
To the extent and in the manner permitted by applicable law, no Noteholder nor Couponholder may exercise, claim or plead any right of set-off, counterclaim, compensation or retention in respect of any amount owed to it by the Guarantor in respect of, or arising from, the Notes and each Noteholder and Couponholder will, by virtue of his holding of any Note, be deemed to have waived all such rights of set- off, counterclaim, compensation or retention.
4. INTEREST A13.4.8
4.1 Fixed Interest Periods
Unless previously redeemed in accordance with these Conditions and subject to the further provisions of this Condition 4, interest on the Notes from and including the Original Issue Date to but excluding the Optional Redemption Date will be paid as follows:
(a) The Notes bear interest at the Fixed Rate of Interest on their Principal Amount. Such interest will be payable semi-annually in arrear on 22 March and 22 September of each year commencing on 22 March 2011 (each a Fixed Interest Payment Date). The amount of interest payable on each Fixed Interest Payment Date is €2062.50 per €50,000 in principal amount of the Notes.
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(b) When interest is required to be calculated in respect of a period of less than a full half-year, it shall be calculated on the basis of (a) the actual number of days in the period from and including the date from which interest begins to accrue (the Accrual Date) to but excluding the date on which it falls due divided by (b) the actual number of days from and including the Accrual Date to but excluding the next following Interest Payment Date multiplied by two.
4.2 Floating Interest Periods
Unless previously redeemed in accordance with these Conditions and subject to the further provisions of this Condition 4, interest on the Notes will be paid from and including the Optional Redemption Date to, but excluding, the calendar day of redemption of the Notes as follows:
(a) The Notes will bear interest at a rate determined by the Interest Calculation Agent pursuant to Condition 4.2(d) below, payable quarterly in arrear on each Floating Interest Payment Date.
(b) If any Floating Interest Payment Date would otherwise fall on a calendar day which is not a Business Day, the Floating Interest Payment Date will be postponed to the next calendar day which is a Business Day unless it would thereby fall into the next calendar month, in which case the relevant Floating Interest Payment Date will be the immediately preceding Business Day.
(c) The rate of interest for each Floating Interest Period (the Floating Rate of Interest) will, except as provided below, be the offered quotation (expressed as a percentage rate per annum) for three-month deposits in euro for that Floating Interest Period which appears on the Screen Page as of 11.00 a.m. (Central European Time) on the Interest Determination Date, plus the Floating Margin, all as determined by the Interest Calculation Agent.
If the Screen Page is not available or if no such quotation is available, the Interest Calculation Agent will request each of the Reference Banks selected by the Issuer to provide the Interest Calculation Agent with its offered quotation (expressed as a percentage rate per annum) for the relevant Floating Interest Period in an amount that is representative for a single transaction in the relevant market at the relevant time to leading banks in the interbank market of the participating Member States in the third stage of the Economic and Monetary Union, as contemplated by the Treaty on the Functioning of the European Union, for three-month deposits in euro. The offered quotations will be those offered at approximately 11.00 a.m. (Central European Time) on the relevant Interest Determination Date. As long as two or more of the selected Reference Banks provide the Interest Calculation Agent with such offered quotations, the relevant Floating Rate of Interest for such Floating Interest Period will be the arithmetic mean of such offered quotations (rounded if necessary to the nearest one thousandth of a percentage point, with 0.0005 being rounded upwards), plus the Floating Margin, all as determined by the Interest Calculation Agent.
If the Floating Rate of Interest cannot be determined in accordance with the foregoing provisions, the Floating Rate of Interest will be the offered quotation on the Screen Page, as described above, on the last calendar day preceding the Interest Determination Date on which such quotation was displayed, plus the Floating Margin, all as determined by the Interest Calculation Agent.
Floating Margin means 6.851 per cent. per annum.
Screen Page means Reuters Page EURIBOR01 (or such other screen page of Reuters or such other information service which is the successor to Reuters Page EURIBOR01 for the purpose of displaying such rates).
(d) The Interest Calculation Agent will, on or as soon as practicable after each Interest Determination Date, determine the Floating Rate of Interest for each Note and calculate the amount of interest payable per Note for the relevant Floating Interest Period (the Floating Interest Amount). Each Floating Interest Amount will be calculated by multiplying the Floating Rate of Interest by the Day Count Fraction and the Principal Amount per Note and rounding the resulting figure to the nearest cent (with 0.5 or more of a cent being rounded upwards).
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Day Count Fraction means, in respect of the calculation of the Floating Interest Amount for any Floating Interest Period, or part thereof, the actual number of calendar days in that period divided by 360.
(e) The Interest Calculation Agent will cause the Floating Rate of Interest, the Floating Interest Amount for each €1,000 in principal amount of Notes for each Floating Interest Period, the relevant Floating Interest Payment Date, and each Floating Interest Period (as the case may be), to be notified to the Issuer, the Guarantor and the Trustee promptly and, if required by the rules of any stock exchange on which the Notes are listed from time to time, to be notified to such stock exchange and to the Noteholders in accordance with Condition 13 without undue delay, but, in any case, not later than on the fourth Business Day after their determination.
(f) All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of these Conditions, whether by the Reference Banks (or any of them) or the Interest Calculation Agent will (in the absence of negligence, default or bad faith) be binding upon the Issuer, the Guarantor, the Trustee, the Interest Calculation Agent, the Paying Agents and all Noteholders and Couponholders and (in the absence of negligence, default or bad faith) no liability to the Issuer, the Guarantor or the Noteholders or the Couponholders will attach to the Reference Banks (or any of them) or the Interest Calculation Agent in connection with the exercise or non-exercise by any of them of their powers, duties and discretions pursuant to such provisions.
4.3 Mandatory Deferral of Interest Payments
(a) If, on any day which is 8 Business Days prior to any Interest Payment Date, a Trigger Event exists and the Issuer fulfils the S&P Rating Criteria, the Interest Amount falling due on such Interest Payment Date will not be due and payable or be paid until the relevant Payment Reference Date and will constitute a Deferred Interest Payment. Interest will accrue on each Deferred Interest Payment for so long as such Deferred Interest Payment remains outstanding at the same rate of interest as the Principal Amount of the Notes bears at such time and will be added to such Deferred Interest Payment (and thereafter bear interest accordingly) on each Interest Payment Date. Each Deferred Interest Payment and interest thereon will be payable in accordance with Condition 4.4.
(b) The Issuer will notify the Noteholders (in accordance with Condition 13.1), the Trustee and the Principal Paying Agent of the existence of the Trigger Event not less than 5 Business Days prior to the relevant Interest Payment Date. Deferral of interest pursuant to this Condition 4.3 will not constitute an Event of Default or a default of the Issuer or the Guarantor or any other breach of their respective obligations under the Notes or the Trust Deed or for any other purpose.
(c) A Trigger Event will exist if the corporate credit rating assigned by Standard & Poor’s to the Guarantor (and the Issuer, if it has been assigned such a credit rating), as published by Standard & Poor’s, is BB+ or lower.
(d) The Issuer fulfils the S&P Rating Criteria if:
(i) the Issuer or the Guarantor is rated by Standard & Poor’s; and
(ii) the Notes are eligible for the same or higher category of equity credit as was attributed to the Notes at the Original Issue Date, as notified from time to time to the Issuer by Standard & Poor’s.
4.4 Payment of Deferred Interest Payments
(a) A Deferred Interest Payment will become due and payable, and the Issuer must pay such Deferred Interest Payment (including any amount of interest accrued thereon in accordance with Condition 4.3), on the relevant Payment Reference Date (in accordance with Condition 6), on the giving of at least one Business Day’s prior notice to the Noteholders (in accordance with Condition 13), the Trustee and the Principal Paying Agent.
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(b) Payment Reference Date means the date which is the earliest of:
(i) the Business Day falling 5 Business Days after the date on which the Trigger Event is no longer subsisting;
(ii) the date which is the fifth anniversary of the date on which any of the then outstanding Deferred Interest Payments was initially deferred;
(iii) the Maturity Date;
(iv) the date on which the Notes are otherwise redeemed; and
(v) the date on which the Trustee takes any action in respect of an Event of Default which results from an order being made for the winding-up of the Issuer or the Guarantor as described in Condition 10(b).
4.5 Accrual of interest
The Notes will cease to bear interest from the beginning of the calendar day on which they are due for redemption. If the Issuer fails to redeem the Notes upon due presentation and surrender thereof when due, interest will continue to accrue as provided in the Trust Deed.
5. REDEMPTION AND PURCHASE A13.4.9
5.1 Maturity
Unless redeemed earlier in accordance with these Conditions, the Notes will be redeemed on the Floating Interest Payment Date falling in September 2070 (the Maturity Date) at their Principal Amount plus any interest accrued up to (but excluding) the Maturity Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3).
5.2 Early Redemption at the option of the Issuer
The Issuer may redeem the Notes (in whole but not in part) on 22 September 2017 (the Optional Redemption Date) or on any subsequent Floating Interest Payment Date at their Principal Amount, plus any interest accrued up to (but excluding) the relevant Early Redemption Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3), on the giving of not less than 30 and not more than 60 calendar days’ irrevocable notice of redemption to the Noteholders in accordance with Condition 13.1.
5.3 Early Redemption due to a Gross-up Event or Change of Control Event
(a) If a Gross-up Event or a Change of Control Event occurs, the Issuer may redeem the Notes (in whole but not in part) (in the case of a Gross-up Event, prior to (but excluding) the Optional Redemption Date and, in the case of a Change of Control Event, at any time), at their Principal Amount, plus any interest accrued up to (but excluding) the relevant Early Redemption Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3), on the giving of not less than 30 and not more than 60 calendar days’ irrevocable notice of redemption to the Noteholders in accordance with Condition 13.
(b) In the case of a Gross-up Event:
(i) no such notice of redemption may be given earlier than 45 calendar days prior to the earliest calendar day on which the Issuer or, as the case may be, the Guarantor would be for the first time obliged to pay the Additional Amounts in question on payments due in respect of the Notes; and
(ii) prior to the giving of any such notice of redemption, the Issuer will deliver or procure that there is delivered to the Trustee:
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(A) a certificate signed by any one duly Authorised Signatory of the Issuer stating that the Issuer is entitled to effect such redemption and setting out a statement of facts showing that the conditions to the exercise of the right of the Issuer to redeem have been satisfied and that the obligation to pay Additional Amounts cannot be avoided by the Issuer or, as the case may be, the Guarantor taking reasonable measures available to it; and
(B) an opinion of an independent legal or tax adviser of recognised standing to the effect that the Issuer or, as the case may be, the Guarantor has or will become obliged to pay the Additional Amounts in question as a result of a Gross-up Event,
and the Trustee shall be entitled to accept the above certificate and opinion as sufficient evidence of the satisfaction of the conditions precedent set out above, in which event it shall be conclusive and binding on the Noteholders and the Couponholders.
(c) In the case of a Change of Control Event, such notice of redemption may only be given simultaneously with or after a notification by the Issuer in accordance with Condition 13.1 that a Change of Control Event has occurred.
(d) Gross-up Event means that as a result of any change in, or amendment to, the laws (or any rules or regulations thereunder) of the Relevant Jurisdiction, or any change in or amendment to any official interpretation or application of those laws or rules or regulations, which change or amendment becomes effective on or after the Original Issue Date (i) the Issuer has or will become obliged to pay Additional Amounts; or (ii) the Guarantor has or will become obliged to pay Additional Amounts provided that (in either case) the payment obligation cannot be avoided by the Issuer or, as the case may be, the Guarantor taking reasonable measures available to it.
A Change of Control Event will occur if:
(i) the Issuer ceases to be a Wholly Owned Subsidiary of the Guarantor; or
(ii) the Guarantor becomes a Subsidiary of another person (Relevant Person),
provided that a Change of Control Event will not have occurred if: (A) the shareholders of the Relevant Person holding, directly or indirectly, more than 50 per cent. of the issued voting share capital of the Relevant Person are also, or immediately prior to the event which would otherwise constitute a Change of Control Event were, shareholders of the Guarantor who held, directly or indirectly, more than 50 per cent. of the issued voting share capital of the Guarantor; or (B) the event which would otherwise constitute a Change of Control Event occurs as part of a Solvent Reorganisation of the Issuer or the Guarantor.
5.4 Early Redemption due to a Tax Event, Capital Event or Accounting Event
(a) If a Tax Event, a Capital Event or an Accounting Event occurs, the Issuer may redeem the Notes (in whole but not in part) at any time prior to but excluding the Optional Redemption Date at their Early Redemption Amount, on the giving of not less than 30 and not more than 60 calendar days’ irrevocable notice of redemption to the Noteholders in accordance with Condition 13.1.
(b) Such notice of redemption may only be given simultaneously with or after a notification by the Issuer in accordance with Condition 13 that a Tax Event, a Capital Event or an Accounting Event (as the case may be) has occurred.
(c) Tax Event means that:
(i) in the opinion of a recognised independent tax adviser (such opinion to have been obtained by the Guarantor and delivered to the Trustee), on or after the Original Issue Date, as a result of:
(A) any amendment to, or change in, the laws (or any rules or regulations thereunder) of the Commonwealth of Australia or any political subdivision or any taxing authority thereof or therein which is enacted, promulgated, issued or becomes effective otherwise on or after the Original Issue Date; or
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(B) any amendment to, or change in, an official and binding interpretation of any such laws, rules or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination) which is enacted, promulgated, issued or becomes effective otherwise on or after the Original Issue Date; or
(C) any generally applicable official interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the previous generally accepted position which is issued or announced on or after the Original Issue Date,
payments by the Issuer on the Notes and by the Guarantor pursuant to the Guarantee would no longer, or within 90 calendar days of the date of that opinion will no longer, be fully deductible (or the entitlement to make such deduction shall be materially reduced) by the Issuer or (as applicable) the Guarantor for Australian corporate income tax purposes; and
(ii) such risk cannot be avoided by the Issuer or, as the case may be, the Guarantor taking reasonable measures available to it (as certified to the Trustee by any one duly Authorised Signatory of the Issuer).
The Trustee shall be entitled to accept such opinion and certification as sufficient evidence of the satisfaction of the conditions precedent set out above, in which event it shall be conclusive and binding on the Noteholders and the Couponholders.
A Capital Event will occur if the Issuer or the Guarantor has been notified by Standard & Poor’s, or has become aware following a publication by Standard & Poor’s, that the Notes will no longer be eligible for the same or higher category of equity credit as was attributed to the Notes at the Original Issue Date.
An Accounting Event will occur if the obligations of the Issuer under the Notes or of the Guarantor under the Trust Deed may no longer be recorded as a “financial liability” in the audited consolidated financial statements of the Issuer or the Guarantor prepared in accordance with Australian International Financial Reporting Standards or other recognised accounting standards that the Issuer or (as the case may be) the Guarantor may adopt from time to time for the preparation of its audited consolidated financial statements.
5.5 Early Redemption Amount
The Early Redemption Amount will be calculated by the Calculation Agent on the Redemption Calculation Date as the greater of the Principal Amount of the Notes and the Make-Whole Amount of the Notes, in each case plus interest accrued thereon until (but excluding) the relevant Early Redemption Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3), where:
The Adjusted Comparable Yield will be equal to the yield at the Redemption Calculation Date on the euro- denominated benchmark security selected by the Calculation Agent, after consultation with the Issuer, as having a maturity comparable to the remaining term of the Notes to the Optional Redemption Date that would be utilised, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Optional Redemption Date.
The Make-Whole Amount will be calculated by the Calculation Agent, and will be equal to the sum of the Present Values on the relevant Early Redemption Date of: (i) the Principal Amount of the Notes; and (ii) the remaining scheduled interest payments on the Notes up to and including the Optional Redemption Date (not including any Deferred Interest Payments or any interest amount accrued thereon or the portion of any scheduled interest payment in respect of which interest has already accrued prior to the relevant Early Redemption Date). In performing such calculation, it will be assumed that the Principal Amount of the Notes is due and payable on the Optional Redemption Date and that all interest payments that have not been paid prior to the relevant Early Redemption Date are due and payable in full.
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The Present Values will be calculated by the Calculation Agent by discounting the Principal Amount of the Notes and the remaining scheduled interest payments to and including the Optional Redemption Date using the Adjusted Comparable Yield plus 1.75 per cent. per annum. If interest is to be calculated for a period of less than one year, it will be calculated on the basis of the actual number of calendar days in the relevant period divided by the actual number of days in the relevant year (365 or 366).
Redemption Calculation Date means the fourth Business Day prior to the relevant Early Redemption Date.
5.6 Purchase of Notes
The Issuer, the Guarantor or any Wholly Owned Subsidiary of the Guarantor may, in compliance with applicable laws, at any time following 31 December 2015 purchase Notes (provided that all unmatured Coupons and unexchanged Talons appertaining to the Notes are purchased with the Notes) in any manner and at any price. Such acquired Notes may be surrendered for cancellation or held or resold.
In the event that the Issuer, the Guarantor and/or any Wholly Owned Subsidiary of the Guarantor has, individually or in aggregate, purchased (and not resold) or redeemed Notes equal to or in excess of 80 per cent. of the aggregate Principal Amount of the Notes issued on the Original Issue Date, the Issuer may redeem the remaining Notes (in whole but not in part):
(a) at any time prior to the Optional Redemption Date, at the Early Redemption Amount; or
(b) on, or on any Floating Interest Payment Date after, the Optional Redemption Date, at their Principal Amount plus any interest accrued and outstanding up to (but excluding) the Early Redemption Date and any Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3), on the giving of not less than 30 and not more than 60 calendar days’ irrevocable notice of redemption to the Noteholders in accordance with Condition 13.1.
5.7 Optional Noteholder redemption upon a Change of Control Event
(a) If both a Rating Downgrade and a Change of Control Event have occurred and are subsisting, the Issuer shall within 14 days after the end of the Change of Control Period relating to that Change of Control give notice thereof to the Noteholders in accordance with Condition 13 (a Change of Control Notice). Such notice shall contain a statement confirming whether or not the Issuer intends to exercise its right to redeem the Notes pursuant to Condition 5.3 and, if the Issuer does not intend to exercise its right to redeem the Notes pursuant to Condition 5.3, of the Noteholders’ entitlement to exercise their rights pursuant to Condition 5.7(b) below. The Change of Control Notice will also specify, if relevant: (i) the material facts comprising the Change of Control Event; (ii) the Put Date; (iii) the names and specified offices of all Paying Agents; and (iv) that a Put Notice, once validly given, may not be withdrawn.
(b) If the Change of Control Notice specifies that the Issuer does not intend to exercise its right to redeem the Notes pursuant to Condition 5.3, a Noteholder may require the Issuer to redeem or, at the Issuer’s option, purchase (or procure the purchase of), the entire aggregate principal amount of the Notes held by such Noteholder on the Put Date at their Principal Amount plus any interest accrued up to (but excluding) the Put Date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3), on the giving of not less than 30 and not more than 60 calendar days’ notice (which shall be irrevocable) after the delivery of a Change of Control Notice to the Issuer in accordance with Condition 13.2 and this Condition 5.7 (a Put Notice).
(c) The Put Notice must include:
(i) the name and address of the Noteholder;
(ii) the aggregate principal amount of the Notes held by such Noteholder;
(iii) the details of the euro cash account to which payments can be made; and
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(iv) confirmation that such Noteholder authorises the production of such Put Notice in any applicable administrative proceedings. (d) If, subsequent to a Noteholder exercising its rights under Condition 5.7(b), the Issuer chooses to exercise its right to redeem the Notes pursuant to Condition 5.2, 5.3, 5.4 or 5.6, all Notes will be redeemed in accordance with Condition 5.2, 5.3, 5.4 or 5.6 (as relevant) and not in accordance with Condition 5.7(b). In such circumstances, all Put Notices will be disregarded. (e) Change of Control Period means the period: (i) commencing on the date that is the earlier of: (A) the date of the relevant Change of Control Event; and (B) the date of the earliest Relevant Potential Change of Control Announcement (if any); and (ii) ending 90 days after the Date of Announcement. Date of Announcement means the date of the public announcement by the Issuer or the Guarantor that a Change of Control Event has occurred. Put Date means the Business Day which is, or immediately follows, the two month anniversary of the last day of the Change of Control Period. Rating Downgrade means, within the Change of Control Period: (i) any rating (other than an unsolicited rating) assigned to the Notes by any rating agency is withdrawn; (ii) the Guarantor (and the Issuer, if it has been assigned a credit rating) ceases to hold a credit rating from any rating agency (other than a rating agency that has provided an unsolicited rating); or (iii) any credit rating assigned to the Guarantor (and the Issuer, if it has been assigned a credit rating) is lowered by at least one full rating notch by any rating agency (other than a rating agency that has provided an unsolicited rating) and the lowered credit rating is lower than ‘BBB+’ (or equivalent thereof) in the case of Standard & Poor’s or the nearest equivalent in the case of any other rating agency, provided that no Rating Downgrade will occur by virtue of a particular withdrawal of, or reduction in, rating within the Change of Control Period unless the rating agency withdrawing or making the reduction in the rating announces or confirms that the withdrawal or reduction was the result, in whole or in part, of the relevant Change of Control Event and does not reinstate the rating that applied prior to the withdrawal or reduction prior to the end of the Change of Control Period. Relevant Potential Change of Control Announcement means any formal public announcement or statement by or on behalf of the Issuer or Guarantor, or any actual or potential bidder or any advisor thereto relating to any potential Change of Control Event where, within 90 days of the date of such announcement or statement, a Change of Control Event occurs.
5.8 Cancellations
All Notes which are (a) redeemed or (b) purchased by or on behalf of the Issuer, the Guarantor or any of the Guarantor’s Subsidiaries and which the Issuer elects to cancel will forthwith be cancelled, together with all relevant unmatured Coupons and unexchanged Talons attached to the Notes or surrendered with the Notes, and accordingly may not be held, reissued or resold.
6. PAYMENTS AND EXCHANGE OF TALONS
6.1 Payments in respect of Notes
Payment of principal and interest in respect of each Note will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the Note, except that payments of interest due on an
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Interest Payment Date will be made against presentation and surrender (or in the case of part payment only, endorsement) of the relevant Coupon, in each case at the specified office outside the United States of any of the Paying Agents.
6.2 Method of payment
Payments will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by euro cheque.
6.3 Missing Unmatured Coupons
Each Note should be presented for payment together with all relative unmatured Coupons (which expression will, for the avoidance of doubt, include Coupons falling to be issued on exchange of matured Talons). Upon the date on which any Note becomes due and repayable, all unmatured Coupons appertaining to the Note (whether or not attached) will become void and no payment will be made in respect of such Coupons.
6.4 Payments subject to applicable laws
Payments in respect of principal and interest on the Notes are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 7.
6.5 Payment only on a Presentation Date
A holder will be entitled to present a Note or Coupon for payment only on a Presentation Date and will not, except as provided in Condition 4.3, be entitled to any further interest or other payment if a Presentation Date is after the due date.
Presentation Date means a day which (subject to Condition 8):
(a) is or falls after the relevant due date;
(b) is a Payment Business Day in the place of the specified office of the Paying Agent at which the Note or Coupon is presented for payment; and
(c) in the case of payment by credit or transfer to a euro account as referred to above, is a Business Day.
In this Condition, Payment Business Day means, in relation to any place, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place.
6.6 Exchange of Talons
On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon comprised in the Coupon sheet may be surrendered at the specified office of any Paying Agent in exchange for a further Coupon sheet (including any appropriate further Talon), subject to the provisions of Condition 8. Each Talon will, for the purposes of these Conditions, be deemed to mature on the Interest Payment Date on which the final Coupon comprised in the relative Coupon sheet matures.
6.7 Initial Paying Agents
The name of the initial Principal Paying Agent and its specified office is set out below. In accordance with the Agency Agreement, the Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of, and to appoint additional or other, Paying Agents, provided that:
(a) there will at all times be a Principal Paying Agent;
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(b) there will at all times be at least one Paying Agent (which may be the Principal Paying Agent) having its specified office in a European city which so long as the Notes are admitted to official listing on the London Stock Exchange shall be London or such other place as the UK Listing Authority may approve;
(c) there will at all times be at least one Paying Agent having its specified office in a European city; and
(d) the Issuer undertakes that it will ensure that it maintains a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive.
Notice of any termination or appointment and of any change in specified office will be given to the Noteholders promptly by the Issuer in accordance with Condition 13.
7. TAXATION AND GROSS-UP
7.1 Payment without withholding
All payments in respect of the Notes by or on behalf of the Issuer or the Guarantor will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (Taxes) imposed or levied by or on behalf of the Relevant Jurisdiction, unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer or, as the case may be, the Guarantor, will pay such additional amounts (Additional Amounts) as may be necessary in order that the net amounts received by the Noteholders and Couponholders after the withholding or deduction will equal the respective amounts which would otherwise have been receivable in respect of the Notes or, as the case may be, the Coupons in the absence of the withholding or deduction; except that no additional amounts will be payable in relation to any payment in respect of any Note or Coupon:
(a) presented for payment by or on behalf of a Noteholder who is liable to the Taxes in respect of such Note or Coupon by reason of their having some connection with the Commonwealth of Australia other than the mere holding of the Note or Coupon;
(b) presented for payment by, or by a third party on behalf of, a Noteholder or Couponholder who is liable to Taxes in respect of the Note or Coupon by reason of that person being an associate of the Issuer for the purposes of Section 128F of the Tax Act;
(c) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive;
(d) presented for payment by or on behalf of a Noteholder or a Couponholder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union;
(e) presented for payment more than 30 days after the Relevant Date (as defined below) except to the extent that a holder of such Note or Coupon would have been entitled to such Additional Amounts on presenting the same for payment on the last day of the period of 30 days assuming, whether or not such is in fact the case, that day to have been a Presentation Date (as defined in Condition 6);
(f) to, or to a third party on behalf of, a holder who could lawfully avoid (but has not so avoided) such deduction or withholding by complying or procuring that any third party complies with any statutory requirements or by making or procuring that any third party makes a declaration of non-residence or other similar claim for exemption to any tax authority in the place where the relevant Note or Coupon is presented for payment;
(g) in respect of any tax, duty, assessment, withholding or other governmental charge that is imposed, deducted or withheld by reason of a failure of a holder or beneficial owner of a Note or Coupon (i)
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to provide certification, information, or documentation concerning the nationality, residence, identity or connection with the Commonwealth of Australia of the holder or beneficial owner (including, without limitation, the supplying of an Australian Business Number (if relevant), any appropriate tax file number or other appropriate exemption details), if and to the extent that furnishing such information would have reduced or eliminated any taxes, duties, assessments, withholdings or other governmental charges as to which additional amounts would have otherwise been payable to such holder or beneficial owner, or (ii) to make any certification, declaration or other similar claim or satisfy any information, documentation, statement or reporting requirement, which, in the case of (i) or (ii), is required or imposed by a statute, treaty, rule, regulation or administrative practice of the Commonwealth of Australia (or any territories or political subdivisions or any taxing authority thereof or therein) as a condition or precondition to relief or exemption from all or part of such tax, duty, assessment, withholding or other governmental charge; or
(h) presented for payment in the Commonwealth of Australia.
7.2 Interpretation
In these Conditions:
(a) The Relevant Date means the date on which the payment first becomes due but, if the full amount of the money payable has not been received by the Principal Paying Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect has been duly given to the Noteholders by the Issuer in accordance with Condition 13.
(b) The Relevant Jurisdiction means the Commonwealth of Australia or any political subdivision or any authority thereof or therein having power to tax or, in the event of any substitution, Solvent Reorganisation or other corporate action resulting in either the Issuer or the Guarantor (as the case may be) being incorporated in any other jurisdiction, that other jurisdiction or any political subdivision or any authority thereof or therein having power to tax.
7.3 Additional Amounts, principal and interest
Any reference in these Conditions to any amounts in respect of the Notes will be deemed also to refer to any Additional Amounts which may be payable under this Condition 7 or under any undertakings given in addition to, or in substitution for, this Condition pursuant to the Trust Deed. Unless the context otherwise requires, any reference in these Conditions to “principal” includes any instalment amount or redemption amount and any other amounts in the nature of principal payable pursuant to these Conditions and “interest” includes all amounts payable pursuant to Condition 4 and any other amounts in the nature of interest payable pursuant to these Conditions.
8. PRESCRIPTION
Notes and Coupons (which for this purpose does not include the Talons) will become void unless presented for payment within periods of 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date in respect of the Notes or, as the case may be, the Coupons, subject to the provisions of Condition 6. There may not be included in any Coupon sheet issued upon exchange of a Talon any Coupon which would be void upon issue under this Condition 8 or Condition 6.
9. FURTHER ISSUES
The Issuer is at liberty from time to time without the consent of the Noteholders or Couponholders to create and issue further notes or bonds either (a) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same will be consolidated and form a single series with the Notes or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. Any further notes which are to form a single series with the Notes will be constituted by a deed supplemental to the Trust Deed. Any further notes or bonds not forming a single series with the Notes will not be constituted by the Trust Deed.
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10. EVENTS OF DEFAULT
If any of the following events occurs (each an Event of Default) then the Trustee may, and shall if so directed by an Extraordinary Resolution of the Noteholders or so requested in writing by the holders of at least one- quarter in principal amount of the Notes then outstanding (subject in each case to being indemnified and/or secured and/or prefunded to its satisfaction): (i) serve notice on the Issuer and the Guarantor that they are (and they shall upon the service of such notice be) in default under the Trust Deed, the Notes and the Coupons and the Trustee, (ii) notwithstanding Condition 11, institute proceedings for the winding-up of the Issuer and/or the Guarantor and/or prove in the winding-up of the Issuer and/or the Guarantor and/or (iii) claim in the liquidation of the Issuer and/or the Guarantor for the payment referred to in paragraph (a) below and/or give notice to the Issuer and the Guarantor that the Notes are, and they shall immediately become, due and payable at their Principal Amount together with any accrued and unpaid interest to such date and any outstanding Deferred Interest Payments (including any amount of interest accrued thereon in accordance with Condition 4.3), as provided in the Trust Deed:
(a) neither the Issuer nor the Guarantor pays any principal or interest or other amount due and payable in respect of the Notes or any of them in full within 30 days of its due date; or
(b) an order is made (other than an order successfully appealed or permanently stayed within 30 days) by a State or Federal Court in the Commonwealth of Australia or a resolution is passed by the shareholders of the Issuer or the Guarantor, as the case may be, for the winding up of the Issuer or the Guarantor (other than for the purposes of Solvent Reorganisation of the Issuer or the Guarantor).
11. ENFORCEMENT
11.1 Enforcement by the Trustee
Without prejudice to Condition 10, the Trustee may at any time, at its discretion (subject to the next following sentence) and without further notice institute such proceedings against the Issuer and/or the Guarantor as it may think fit to enforce any term or condition binding on the Issuer or the Guarantor under the Trust Deed, the Notes or the Coupons (other than any payment obligation of the Issuer or the Guarantor under or arising from the Trust Deed, the Notes or the Coupons, including, without limitation, payment of any principal or interest in respect of the Notes or the Coupons and including damages awarded for the breach of any obligations) but in no event shall the Issuer or the Guarantor, by virtue of the institution of any such proceedings, be obliged to pay any sum or sums in cash or otherwise, sooner than the same would otherwise have been payable by it. The Trustee will not be bound to take any such proceedings or any other action in relation to the Trust Deed, the Notes or the Coupons unless (a) it has been so directed by an Extraordinary Resolution of the Noteholders or so requested in writing by the holders of at least one- quarter in principal amount of the Notes then outstanding and (b) it has been indemnified and/or secured and/or prefunded to its satisfaction.
11.2 Enforcement by the Noteholders
No Noteholder or Couponholder will be entitled to proceed directly against the Issuer or the Guarantor unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure is continuing.
12. REPLACEMENT OF NOTES AND COUPONS
Should any Note or Coupon be lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Principal Paying Agent upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.
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13. NOTICES 13.1 Notification in newspapers All notices to the Noteholders will be valid if published in a leading English language daily newspaper published in London (expected to be the Financial Times) or such other English language daily newspaper with general circulation in Europe as the Trustee may approve. The Issuer will also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange or the relevant authority on which the Notes are for the time being listed. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers. If publication as provided above is not practicable, notice will be given in such other manner, and will be deemed to have been given on such date, as the Trustee may approve. Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this paragraph.
13.2 Notices from the Noteholders Notices to be given by any Noteholder must be in writing and given by lodging the same, together with the relative Note or Notes, with the Principal Paying Agent or, if the Notes are held in a clearing system, may be given through the clearing system in accordance with its standard rules and procedures.
14. SUBSTITUTION The Trustee may, without the consent of the Noteholders or Couponholders, agree with the Issuer and the Guarantor to the substitution in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Notes, the Coupons and the Trust Deed of the Guarantor or any of its other Subsidiaries, subject to:
(a) except in the case of the substitution of the Guarantor, the Notes being unconditionally and irrevocably guaranteed by the Guarantor;
(b) the Trustee being satisfied that the interests of the Noteholders will not be materially prejudiced by the substitution; and
(c) compliance with certain other conditions set out in the Trust Deed.
15. MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER, AUTHORISATION AND DETERMINATION 15.1 Meetings of Noteholders The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than 50 per cent. in principal amount of the Notes for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Notes held or represented by him or them, except that, at any meeting the business of which includes the modification or abrogation of certain of the provisions of these Conditions and certain of the provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds, or at any adjourned such meeting not less than one-third, of the principal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders will be binding on all Noteholders, whether or not they are present at the meeting, and on all Couponholders.
15.2 Modification, Waiver, Authorisation and Determination
The Trustee may agree, without the consent of the Noteholders or Couponholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of
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TERMS AND CONDITIONS OF THE NOTES the provisions of the Trust Deed, or determine, without any such consent as aforesaid, that any Event of Default or Potential Event of Default (as defined in the Trust Deed) will not be treated as such (provided that, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the Noteholders) or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest or proven error.
15.3 Trustee to have Regard to Interests of Noteholders as a Class
In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee must have regard to the general interests of the Noteholders as a class but must not have regard to any interests arising from circumstances particular to individual Noteholders or Couponholders (whatever their number) and, in particular but without limitation, must not have regard to the consequences of any such exercise for individual Noteholders or Couponholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee will not be entitled to require, nor will any Noteholder or Couponholder be entitled to claim, from the Issuer, the Guarantor, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders except to the extent already provided for in Condition 7 and/or any undertaking given in addition to, or in substitution for, Condition 7 pursuant to the Trust Deed.
15.4 Notification to the Noteholders
Any modification, waiver, authorisation, determination or substitution agreed to by the Trustee will be binding on the Noteholders and the Couponholders and, unless the Trustee agrees otherwise, any modification or substitution will be notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition 13.
16. INDEMNIFICATION OF THE TRUSTEE AND ITS CONTRACTING WITH THE ISSUER AND THE GUARANTOR
16.1 Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified to its satisfaction.
16.2 Trustee Contracting with the Issuer and the Guarantor
The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (a) to enter into business transactions with the Issuer and/or the Guarantor and/or any of the Guarantor’s Subsidiaries and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to, the Issuer and/or the Guarantor and/or any of the Guarantor’s Subsidiaries, (b) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Noteholders or Couponholders, and (c) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith.
17. GOVERNING LAW AND SUBMISSION TO JURISDICTION A13.4.3
17.1 Governing law
The Trust Deed, the Notes and the Coupons, and any non-contractual obligations arising out or in connection with the Trust Deed, the Notes or the Coupons, are governed by and must be construed in accordance with, English law, with the exception that Conditions 2.2 and 3.2 must be construed in accordance with the laws of Australia.
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17.2 Jurisdiction of English courts
(a) Each of the Issuer and the Guarantor has, in the Trust Deed, irrevocably agreed for the benefit of the Trustee, the Noteholders and the Couponholders that the courts of England are to have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed, the Notes or the Coupons (including any dispute relating to any non-contractual obligations arising out of or in connection with the Trust Deed, the Notes or the Coupons) and has accordingly submitted to the non-exclusive jurisdiction of the English courts.
(b) Each of the Issuer and the Guarantor has, in the Trust Deed, waived any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum. The Trustee, the Noteholders and the Couponholders may take any suit, action or proceeding arising out of, or in connection with the Trust Deed, the Notes or the Coupons respectively (including any suit, action or proceeding relating to any non-contractual obligations arising out of or in connection with the Trust Deed, the Notes or the Coupons respectively) (referred to as Proceedings) against the Issuer or the Guarantor in any other court of competent jurisdiction and concurrent Proceedings in any number of jurisdictions.
17.3 Appointment of process agent
Each of the Issuer and the Guarantor has, in the Trust Deed, irrevocably and unconditionally appointed Law Debenture Corporate Services Limited at the latter’s registered office for the time being as its agent for service of process in England in respect of any Proceedings and has undertaken that in the event of such agent ceasing so to act it will appoint such other person as the Trustee may approve as its agent for that purpose.
18. RIGHTS OF THIRD PARTIES
No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act.
19. DEFINITIONS
Unless the context otherwise requires, the following terms will have the following meanings in these Conditions:
Accounting Event has the meaning specified in Condition 5.4(c).
Additional Amounts has the meaning specified in Condition 7.1.
Adjusted Comparable Yield has the meaning specified in Condition 5.5.
Agency Agreement has the meaning specified in the preamble to these Conditions.
Authorised Signatory has the meaning given to it in the Trust Deed.
Business Day means a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET2) System is open.
Calculation Agency Agreement means any agreement entered into by the Issuer, the Guarantor and the Calculation Agent in respect of the appointment of the Calculation Agent to perform the functions expressed to be performed by the Calculation Agent under these Conditions.
Calculation Agent means the independent investment bank or financial institution, appointed on the terms of a Calculation Agency Agreement selected by the Issuer for the purposes of performing the functions expressed to be performed by it under these Conditions.
Capital Event has the meaning specified in Condition 5.4(c).
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Change of Control Event has the meaning specified in Condition 5.3(d).
Change of Control Notice has the meaning specified in Condition 5.7(a).
Change of Control Period has the meaning specified in Condition 5.7(e).
Conditions means these terms and conditions of the Notes.
Corporations Act means the Corporations Act 2001 (Cth).
Couponholders has the meaning specified in the preamble to these Conditions.
Date of Announcement has the meaning specified in Condition 5.7(e).
Day Count Fraction has the meaning specified in Condition 4.2(d).
Deferred Interest Payment has the meaning specified in Condition 4.3(a).
Early Redemption Amount has the meaning specified in Condition 5.5.
The Early Redemption Date is the date on which the Notes are to be redeemed as specified in any notice of redemption given to Noteholders pursuant to Condition 5.
First Supplemental Trust Deed has the meaning specified in the preamble to these Conditions.
Fixed Interest Amount means the amount due on each Note on a Fixed Interest Payment Date.
Fixed Interest Payment Date has the meaning specified in Condition 4.1(a).
Fixed Rate of Interest means 8.25 per cent. per annum.
Floating Interest Amount has the meaning specified in Condition 4.2(d).
Floating Interest Payment Date means, subject to Condition 4.2(b), 22 March, 22 June, 22 September and 22 December in each year, commencing on the first such date following the Optional Redemption Date.
Floating Interest Period means each period from and including the Optional Redemption Date to but excluding the first Floating Interest Payment Date and, thereafter, from and including each Floating Interest Payment Date to but excluding the immediately following Floating Interest Payment Date.
Floating Margin has the meaning specified in Condition 4.2(c).
Floating Rate of Interest has the meaning specified in Condition 4.2(c).
Gross-up Event has the meaning specified in Condition 5.3(d) .
Guarantee has the meaning specified in Condition 3.1.
Guarantor means Santos Limited.
Interest Amount means the Fixed Interest Amount and the Floating Interest Amount, as the case may be, and will include any interest accrued on such Interest Amount pursuant to Condition 4.3(a) and Condition 4.3(b).
Interest Calculation Agent has the meaning specified in the preamble to these Conditions.
Interest Determination Date means the second Business Day prior to the commencement of the relevant Floating Interest Period.
Interest Payment Date means any Fixed Interest Payment Date and any Floating Interest Payment Date, as the case may be.
Issuer means Santos Finance Limited.
Make-Whole Amount has the meaning specified in Condition 5.5.
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Maturity Date has the meaning specified in Condition 5.1.
Noteholder Claims means:
(a) when used in Condition 2.2, the rights and claims of the Trustee (in respect of the principal of and interest on the Notes) and of the Noteholders and the Couponholders in respect of the Notes and the Coupons; and
(b) when used in Condition 3.2, the rights and claims of the Trustee (in respect of the principal of and interest on the Notes) and of the Noteholders and Couponholders in respect of the Guarantee.
Noteholders has the meaning specified in the preamble to these Conditions.
Notes has the meaning specified in the preamble to these Conditions.
Optional Redemption Date has the meaning specified in Condition 5.2.
Original Issue Date means 22 September 2010.
Original Notes has the meaning specified in the preamble to these Conditions.
Parity Creditor means, with respect to the Issuer or the Guarantor, any creditor of the Issuer or the Guarantor, as the case may be, whose claim is expressed to rank pari passu with the Issuer’s obligations under the Notes or, as the case may be, the Guarantor’s obligations under the Guarantee.
Parity Shares means preference shares in the capital of the Issuer or the Guarantor (as the case may be) that are expressed to rank equally with the Notes or the Guarantee (as the case may be) for return of capital.
Paying Agent has the meaning specified in the preamble to these Conditions.
Payment Business Day has the meaning specified in Condition 6.5.
Payment Reference Date has the meaning specified in Condition 4.4(b).
Present Values has the meaning specified in Condition 5.5.
Principal Agency Agreement has the meaning specified in the preamble to these Conditions.
Principal Amount has the meaning specified in Condition 1.1.
Principal Paying Agent has the meaning specified in the preamble to these Conditions.
Proceedings has the meaning specified in Condition 17.2(b).
Put Date has the meaning specified in Condition 5.7(e).
Put Notice has the meaning specified in Condition 5.7(b).
Rating Downgrade has the meaning specified in Condition 5.7(e).
Redemption Calculation Date has the meaning specified in Condition 5.5.
Redemption Date means the day on which the Notes become due for redemption in accordance with these Conditions.
Reference Banks means four major banks in the euro-zone inter-bank market.
Relevant Date has the meaning specified in Condition 7.2.
Relevant Jurisdiction has the meaning specified in Condition 7.2.
Relevant Person has the meaning specified in Condition 5.3(d).
Relevant Potential Change of Control Announcement has the meaning specified in Condition 5.7(e).
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S&P Rating Criteria has the meaning specified in Condition 4.3(d).
Screen Page has the meaning specified in Condition 4.2(c).
Senior Creditors means, with respect to the Issuer or the Guarantor, all creditors (including subordinated creditors) of the Issuer or the Guarantor (as the case may be) other than the Trustee (in respect of the principal of and interest on the Notes), the Noteholders and the Couponholders, any Parity Creditors of the Issuer or the Guarantor (as the case may be) and the holders of the Issuer’s or the Guarantor’s (as the case may be) shares.
Solvent Reorganisation means, with respect to the Issuer or the Guarantor (as the case may be), solvent winding-up, deregistration, dissolution, scheme of arrangement or other reorganisation of the Issuer or the Guarantor (as the case may be) solely for the purposes of a consolidation, amalgamation, merger or reconstruction, the terms of which have been approved by the shareholders of the Issuer or the Guarantor (as the case may be) or by a court of competent jurisdiction under which the continuing or resulting corporation effectively assumes the obligations of the Issuer under the Notes and the Trust Deed or of the Guarantor under the Guarantee and the Trust Deed (as the case may be).
Standard & Poor’s means Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies Inc. or any successor in business thereto from time to time.
Subsidiary has the meaning given in the Corporations Act.
Talon has the meaning specified in the preamble to these Conditions.
Tax Act means the Income Tax Assessment Act 1936 of Australia.
Tax Event has the meaning specified in Condition 5.4.
Trigger Event has the meaning specified in Condition 4.3(c).
Trust Deed has the meaning specified in the preamble to these Conditions.
Trustee has the meaning specified in the preamble to these Conditions.
Wholly Owned Subsidiary has the meaning given in the Corporations Act.
Winding-Up has the meaning specified in Condition 2.2.
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SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE REPRESENTED BY THE GLOBAL NOTES
The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes and in the Global Notes which will apply to, and in some cases modify, the Terms and Conditions of the Notes while the Notes are represented by the Global Notes.
1. Exchange
The Notes will be represented initially by a Temporary Global Note in bearer form without Coupons or Talons which will be deposited outside the United States for a common depositary for Euroclear and Clearstream, Luxembourg on or about the Issue Date. The Temporary Global Note will be exchangeable in whole or in part (free of charge to the holder) for interests in a Permanent Global Note in bearer form without Coupons or Talons on or after a date which is 40 days after the Issue Date, upon certification as to non-U.S. beneficial ownership as required by U.S. Treasury regulations and as described in the Temporary Global Note.
The Permanent Global Note will be exchangeable in whole but not in part (free of charge to the holder) for definitive Notes only:
(a) upon the happening of any of the events defined in the Trust Deed as “Events of Default”;
(b) if the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and no successor clearing system satisfactory to the Trustee is available; or
(c) if the Issuer has or will become subject to adverse tax consequences which would not be suffered were the Notes represented by the Permanent Global Note in definitive form and a certificate to such effect signed by one Authorised Signatory of the Issuer is given to the Trustee.
Thereupon (in the case of (a) and (b) above) the holder of the Permanent Global Note (acting on the instructions of one or more of the Accountholders (as defined below)) or the Trustee may give notice to the Issuer and (in the case of (c) above) the Issuer may give notice to the Trustee and the Noteholders, of its intention to exchange the Permanent Global Note for definitive Notes on or after the Exchange Date (as defined below).
On or after the Exchange Date the holder of the Permanent Global Note may or, in the case of (c) above, shall surrender the Permanent Global Note to or to the order of the Principal Paying Agent. In exchange for the Permanent Global Note the Issuer will deliver, or procure the delivery of, an equal aggregate principal amount of definitive Notes (having attached to them all Coupons in respect of interest which has not already been paid on the Permanent Global Note), security printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in the Trust Deed. On exchange of the Permanent Global Note, the Issuer will procure that it is cancelled and, if the holder so requests, returned to the holder together with any relevant definitive Notes.
For these purposes, Exchange Date means a day specified in the notice requiring exchange falling not less than 60 days after that on which such notice is given and being a day on which banks are open for general business in the place in which the specified office of the Principal Paying Agent is located and, except in the case of exchange pursuant to (b) above, in the place in which the relevant clearing system is located.
2. Payments
On and after 7 December 2010, no payment will be made on a Temporary Global Note unless exchange for an interest in the Permanent Global Note is improperly withheld or refused. Payments
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SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE REPRESENTED BY THE GLOBAL NOTES
of principal and interest in respect of Notes represented by a Global Note will, subject as set out below, be made to the bearer against presentation of such Global Note and, if no further payment falls to be made in respect of the Notes, against surrender of such Global Note to the order of the Principal Paying Agent or such other Paying Agent as shall have been notified to the Noteholders for such purposes. A record of each payment made will be endorsed on the appropriate part of the schedule to the relevant Global Note by or on behalf of the Principal Paying Agent, which endorsement shall be prima facie evidence that such payment has been made in respect of the Notes. Payments of interest on a Temporary Global Note (if permitted by the first sentence of this paragraph) will be made only upon certification as to non-U.S. beneficial ownership unless such certification has already been made.
3. Notices
For so long as all of the Notes are represented by a Global Note and such Global Note is held on behalf of Euroclear and/or Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg (as the case may be) for communication to the relative Accountholders rather than by publication as required by Condition 13. Any such notice shall be deemed to have been given to the Noteholders on the second day after the day on which such notice is delivered to Euroclear and/or Clearstream, Luxembourg (as the case may be) as aforesaid.
Whilst any of the Notes held by a Noteholder are represented by a Global Note, notices to be given by such Noteholder may be given by such Noteholder (where applicable) through Euroclear and/or Clearstream, Luxembourg and otherwise in such manner as the Principal Paying Agent and Euroclear and Clearstream, Luxembourg may approve for this purpose.
4. Accountholders
For so long as all of the Notes are represented by a Global Note and such Global Note is held on behalf of Euroclear and/or Clearstream, Luxembourg, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of such Notes (each an Accountholder) (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the principal amount of such Notes standing to the account of any person shall, in the absence of manifest error, be conclusive and binding for all purposes) shall be treated as the holder of such principal amount of such Notes for all purposes (including but not limited to, for the purposes of any quorum requirements of, or the right to demand a poll at, meetings of the Noteholders and giving notice to the Issuer pursuant to Condition 10 and Condition 5.7) other than with respect to the payment of principal and interest on such principal amount of such Notes, the right to which shall be vested, as against the Issuer and the Trustee, solely in the bearer of the relevant Global Note in accordance with and subject to its terms and the terms of the Trust Deed. Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the bearer of the relevant Global Note.
5. Prescription
Claims against the Issuer and the Guarantor in respect of principal and interest on the Notes represented by a Global Note will be prescribed after 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date (as defined in Condition 7).
6. Cancellation
Cancellation of any Note represented by a Global Note and required by the Terms and Conditions of the Notes to be cancelled following its redemption or purchase will be effected by endorsement by or on behalf of the Principal Paying Agent of the reduction in the principal amount of the relevant Global Note on the relevant part of the schedule thereto.
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SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE REPRESENTED BY THE GLOBAL NOTES
7. Put Option
For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, the option of the Noteholders provided for in Condition 5.7 may be exercised by an Accountholder giving notice to the Principal Paying Agent in accordance with the standard procedures of Euroclear and Clearstream, Luxembourg (which may include notice being given on his instructions by Euroclear or Clearstream, Luxembourg or any common depositary for them to the Principal Paying Agent by electronic means) of the principal amount of the Notes in respect of which such option is exercised and at the same time presenting or procuring the presentation of the relevant Global Note to the Principal Paying Agent for notation accordingly within the time limits set forth in that Condition.
8. Euroclear and Clearstream, Luxembourg
References in the Global Notes and this summary to Euroclear and/or Clearstream, Luxembourg shall be deemed to include references to any other clearing system approved by the Trustee.
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USE OF PROCEEDS
The proceeds of the issue of the Notes will be applied by the Issuer for its general corporate purposes and (in whole or in part) to fund its growth strategy.
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DESCRIPTION OF THE ISSUER
Introduction A9.4.1.1 A9.4.1.2 Santos Finance Ltd (ACN 002 799 537) (the Issuer) was incorporated with limited liability in Sydney, New A9.4.1.3 South Wales on 6 July 1984 and is registered under the Corporations Act 2001 of Australia. Its principal A9.4.1.4 and registered office is located at Ground Floor, Santos Centre, 60 Flinders Street, Adelaide, South Australia 5000, Australia. The telephone number of its registered office is +61 8 8116 5000.
The issued share capital of the Issuer is AUD234,470,555 which is fully paid up and divided into 234,470,555 ordinary shares which are fully held by the Guarantor.
Business
The Issuer is a wholly owned subsidiary of the Guarantor and acts as the principal finance company for the A9.5.1.1 Group. Its sole business is raising debt to be on-lent to companies within the Group to fund their investment A9.6.1 programmes and to manage cash generated from Group operations. The Issuer has issued bonds and notes A9.6.2 previously and has had no other industrial or commercial activities.
Board of Directors of the Issuer
Board of Directors Other Directorships and principal activities outside the Group –––––––––––––––– ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– A9.9.1 Peter Coates Minara Resources Limited (Chairman) Amalgamated Holdings Limited Member of the NSW Minerals Ministerial Advisory Council Member of the Business Council of Australia
Kenneth Dean BlueScope Steel Limited Fellow of the Australian Society of Certified Practising Accountants Member of the LaTrobe University Council
David Knox Botanic Gardens and State Herbarium, South Australia Fellow of the Australian Institute of Mechanical Engineering
There are no potential conflicts of interest between the duties to the Issuer of the persons listed above and A9.9.2 their private interests or other duties.
The business address of each of the Directors is Ground Floor, Santos Centre, 60 Flinders Street, Adelaide, A9.10.1 South Australia 5000, Australia.
Major Shareholder
The sole shareholder of the Issuer is the Guarantor.
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DESCRIPTION OF THE GUARANTOR A6.3
Please refer to “Glossary” for definitions of technical terms used but not otherwise defined in this section.
Introduction
Santos Ltd (ACN 007 550 923) (the Guarantor or Santos) was incorporated with limited liability in A9.4.1.1
Adelaide, South Australia on 18 March 1954 and is registered under the Corporations Act 2001 of A9.4.1.2 Australia. Its principal and registered office is located at Ground Floor, Santos Centre, 60 Flinders Street, A9.4.1.3 Adelaide, South Australia 5000, Australia. The telephone number of its registered office is +61 8 8116 5000. A9.4.1.4
Santos has its ordinary shares listed on the Australian Securities Exchange (ASX). As at 8 September 2010, Santos had a market capitalisation of A$11.5 billion, making it one of Australia’s 30 largest listed companies by market capitalisation.
History and Development
Founded in 1954, Santos was originally South Australia Northern Territory Oil Search and has been active in the energy business for more than 50 years. Santos acquired exploration leases covering over 325,000 square kilometres in South Australia and South West Queensland in 1954.
Santos made its first significant discovery of natural gas in the Cooper Basin with the Gidgealpa 2 well in 1963. The Moomba 1 discovery in 1966 confirmed this region as a major petroleum province. As a result of these discoveries, Santos had a commercially viable quantity of gas and entered into Gas Sales Agreements with the South Australian Gas Company, the Electricity Trust of South Australia and the Australian Gas Light Company. Gas supplies commenced in 1969.
The 1980s saw Santos develop a major liquids business following the discovery of oil at Tirrawarra in the early 1970s. A liquids recovery plant was built at Moomba, along with a fractionation and load-out facility at Port Bonython.
By the 1990s Santos had become a major Australian operating enterprise with interests beyond the Cooper Basin in emerging areas such as the Timor Sea and Carnarvon Basin in Western Australia. A number of acquisitions in the 1990s provided Santos with additional opportunities onshore and offshore Australia, Indonesia and Papua New Guinea.
Since 2000, Santos has continued to build its business in South East Asia and Australia, while undertaking exploration activities and developing new projects to drive production and earnings growth.
More recently, Santos has focussed on expanding its LNG portfolio. The first of the LNG projects, the ConocoPhillips operated Darwin LNG project commenced first export of LNG in 2006. In 2009, the ExxonMobil operated PNG LNG project was formally approved for development. The project has signed binding long-term LNG sales agreements with four Asian buyers and first sales are expected in 2014. A final investment decision is expected in late 2010 for the Gladstone Liquefied Natural Gas (GLNG) project. A fourth proposed LNG project, the Bonaparte floating LNG project, was announced in partnership with GDF SUEZ in 2009. An investment decision in respect of this project is expected in 2014.
Santos’ strategy is further outlined below under “Business Operations and Strategy“.
Business Overview A9.5.1.1
Santos’ business involves oil and gas exploration and production with interests in every major Australian petroleum province, and in Indonesia, Papua New Guinea (PNG), Vietnam, India, Bangladesh and Kyrgyz Republic.
Santos is the largest producer of gas sold in Australia, supplying 17 per cent. of the Australian domestic gas market in 2010. Santos supplies sales gas to all mainland Australian states and territories and ethane to Sydney. It sells oil and gas liquids to a number of domestic and international customers. As at 31 December
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DESCRIPTION OF THE GUARANTOR
2009, Santos’ assets totalled A$11,361 million. Santos produced approximately 54.4 mmboe during 2009 and, as at 31 December 2009 had a substantial reserve base of approximately 1,440 mmboe on a 2P basis. Current production is approximately 600 mmscf/d of gas and approximately 40 kbbls/d of liquids.
As at 31 December 2009, Santos had 2,096 employees excluding contractors working across its operations and offices in Adelaide, Brisbane, Perth, Gladstone, Roma, Gunnedah and country offices in Jakarta, Port Moresby, Hanoi, New Delhi, Bishkek and Dhaka.
Figure 1 below shows the location of Santos’ main operations and assets referred to in this document.
Figure 1: Guarantor’s main operations and assets referred to in this document
Business Operations and Strategy
Santos’ vision is to be a leading energy company in Australia and Asia. Santos’ strategy is to drive performance from its existing base business, deliver a suite of LNG projects and pursue focussed opportunities in Asia.
Australian Oil & Gas Operations.
Santos’ Australian base business comprises gas and oil production assets in all mainland states and the Northern Territory. Solid production combined with sanctioned projects and the potential of untapped reserves firmly places Santos in a position to serve the growing demand for natural gas and help Australia move towards a cleaner energy future.
Eastern Australian Gas
Santos’ business in Eastern Australia includes interests and joint ventures in the Cooper/Eromanga Basins in central Australia, Surat/Bowen CSG Basins in south-eastern Queensland and Otway/Gippsland Basins in offshore southern Australia. These basins are the primary source of gas supply into Victoria, NSW, ACT, South Australia and Queensland.
The Cooper Basin has been the heartland of Santos for more than four decades and still retains significant development potential. Santos believes gas demand in Australia’s eastern states will grow significantly as the region seeks cleaner energy through gas-fired power plants and a gas export channel is created through
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DESCRIPTION OF THE GUARANTOR projects like Santos’ GLNG project. Established infrastructure and access to extensive pipeline networks positions the Cooper Basin to play a large role in meeting that demand. Santos is working to unlock its significant gas resources through enhanced recovery and infill drilling and by exploiting unconventional reservoirs.
Development work is also progressing on the ExxonMobil operated Kipper project in Victoria with first production expected in second half of 2011.
Santos took the next major step in its CSG strategy when it acquired significant additional acreage in the Gunnedah Basin of New South Wales and invested in leading local CSG Company Eastern Star Gas. Santos and Eastern Star’s total combined area of petroleum permits in the Gunnedah Basin in about 45,000 square kilometres.
Western Australian Oil and Gas
Santos is a leading gas supplier in Western Australia, having supplied gas there for over 20 years through interests in the Carnarvon Basin, offshore Western Australia, together with several small producing oil fields in the Timor Sea and Timor Gap. John Brookes is Santos’ major producing gas asset in the Carnarvon Basin and has been producing since 2005.
In addition to the producing assets, Santos has a portfolio of quality growth opportunities. Development of the Reindeer project offshore Western Australia was approved in 2008, with first gas scheduled for the fourth quarter of 2011. On 30 August 2010, Santos announced the development of the Halyard field, the latest Western Australian domestic gas project with production targeted to start in mid 2011.
LNG Projects:
Strong economic growth and primary energy demand in Asia alongside the desire for security of supply, a scarcity of hydrocarbon reserves in importing nations and the need for clean burning fuels has resulted in growing demand in the region for LNG. Santos has a strategic portfolio of four LNG projects in Asia at various stages of appraisal, development and operation to service this demand.
The Asia Pacific LNG market is characterised by binding offtake contracts between buyers and producers with a duration typically between 15 to 25 years and with pricing formulae agreed prior to production.
Darwin LNG – In operation since 2006
The Darwin LNG Project, operated by ConocoPhillips, is Santos’ first producing LNG asset. The project involves the export of gas from the Bayu-Undan fields, situated in 80 metres of water approximately 500 kilometres north-west of Darwin to a 3.6 mtpa LNG plant in Darwin. LNG production commenced in February 2006 with a contract to supply leading Asian utilities. Santos holds an 11.5 per cent. stake in the project. The Bayu-Undan fields in the Timor Gap produce approximately 1,100 MMscf/d of raw gas (gross) and approximately 103,000 bbl/d of liquids (gross).
PNG LNG – Approved in 2009
The PNG LNG Project, operated by ExxonMobil, was formally approved by Santos and project partners in December 2009 with financial close being achieved in March 2010. The PNG LNG project will develop the gas and condensate resources in the Hides, Angore and Juhu fields and the associated gas resources in the currently operating oil fields of Kutubu, Agogo, Gobe and Moran in the Southern Highlands and Western Provinces of Papua New Guinea. The gas will be transported by pipeline to a two train LNG facility with an initial capacity of 6.6 mtpa located northwest of Port Moresby on the coast of the Gulf of Papua. PNG LNG is the largest ever investment in PNG and is expected to double the country’s gross domestic product.
Santos has a 13.5 per cent. stake in the PNG LNG Project and a U.S.$2 billion share of the estimated total project capital cost which is funded as to approximately 70 per cent. by a completed project financing debt facility. The first LNG cargo is expected to be shipped in 2014 with plateau production of approximately 9 mmboe per annum net to Santos. Offtake agreements have been signed for all expected production, and will
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DESCRIPTION OF THE GUARANTOR supply Sinopec, TEPCO, Osaka Gas and CPC Taiwan. Early works construction commenced prior to sanction and continues at the upstream and LNG plant locations and for supporting infrastructure. Further growth could arise from debottlenecking or from additional resources giving rise to a potential third LNG train.
GLNG – Expected approval in 2010 A9.4.1.5
Santos’ proposed GLNG Project involves the production of LNG using CSG sourced from the GLNG gas fields in the Bowen and Surat Basins in Queensland. The Fairview Field in the Bowen Basin has been producing gas since 1995.
GLNG is making significant progress towards a final investment decision in 2010 and Santos will provide updated project information to the relevant listing authorities prior to or at final investment decision. There is no certainty that a final investment decision will be reached for GLNG. The design contemplates a two- train development with a capacity of 7.2 mtpa of LNG.
In May 2010, GLNG became Australia’s first major CSG to LNG project to receive environmental approval from the Queensland Government. On 22 October 2010, the Project received environmental approval from the Federal Government. The approval is conditional upon GLNG maintaining certain environmental standards in constructing and maintaining the Project. Engineering design works for the project are nearing completion.
In September 2010, Santos announced that it had entered into an agreement to sell 15 per cent. equity in GLNG to Total E&P Australia. Additionally, Santos announced the sale of 1 mtpa of LNG from Train 1 and 0.5 mtpa of LNG from Train 2 to Total E&P Australia and the further sale of LNG to PETRONAS along with a re-configuration of the LNG volumes previously sold to PETRONAS such that PETRONAS’ offtake from GLNG would be 2.33 mtpa from Train 1 and 1.17 mtpa from Train 2. In parallel, PETRONAS also entered into an agreement to sell a 5% interest in GLNG to Total E&P Australia.
Upon completion of the Santos and PETRONAS sale transactions, the ownership structure of GLNG will be: Santos 45 per cent.; PETRONAS 35 per cent.; and Total E&P Australia 20 per cent. Australian Foreign Investment Review Board approval for the Total acquisition has been granted and it is anticipated that the sale transaction will be completed in the near term.
Santos and GLNG remain in detailed ongoing discussions with a number of Asian parties in relation to further potential LNG sales and equity in the project. These parties include KOGAS, the world’s largest LNG buyer.
Bonaparte LNG – Expected approval in 2014
Santos has partnered with France’s GDF SUEZ, to develop Bonaparte LNG, a proposed 2 mtpa floating LNG project, located in the Timor Sea off the northern coast of Australia.
As part of the partnership, GDF SUEZ has bought 60 per cent. of the Petrel, Tern and Frigate gas fields from Santos for up to U.S.$370 million, and will carry all of Santos’ share of the costs until a final investment decision, expected in 2014. The resource is approximately 2.1 trillion cubic feet (TCF) gross.
Asia
Santos has built a strong and reliable production business in Indonesia and is further developing its Asian business through development projects and exploration investment in Indonesia, Vietnam, India, Bangladesh and Kyrgyz Republic.
PNG
In addition to its interest in the PNG LNG development, Santos has interests in PNG that produced 0.1 mmboe net to Santos in 2009.
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DESCRIPTION OF THE GUARANTOR
Indonesia
Santos first acquired interests in Indonesia in 1993. Santos holds a 67.5 per cent. operating interest in the Madura Offshore Production Sharing Contract (PSC), located in offshore east Java which contains the Maleo field. Production commenced from the Maleo gas project in September 2006, which now has gross gas production of approximately 110 mmscf/d.
Santos also holds a 45 per cent. operating interest in the Sampang PSC, also located in offshore East Java. The Oyong field was discovered in 2001 and oil production commenced in 2007. The existing offshore facilities have been modified with the construction of a 60 kilometre pipeline to a new onshore gas processing facility and first gas production commenced in October 2009.
Santos is expected to approve the Wortel Project in 2010, which is a tie back to Oyong, with first gas forecasted in second half of 2011.
Vietnam
In 2006, Santos entered Vietnam via a farm-in to the Nam Con Son and Hong Song Basins. The Chim Sao field in the Nam Con Son basin was discovered in the same year and approved for development in 2009. The development of this field is proceeding on track with first oil expected in the second half of 2011 with a net plateau production of approximately 8,000 bbl/d.
India and Bangladesh
During May 2007, Santos was awarded a 100 per cent. working interest and operatorship of blocks covering approximately 16,500 square kilometres in the Bengal Basin, in the northern Bay of Bengal, offshore India. An extensive 3D seismic program began in 2008 and is largely complete. Santos’ ability to conduct operations (including the completion of the 3D seismic program) in certain areas within the blocks has, however, been directly affected by circumstances arising in connection with the maritime boundary dispute between India and Bangladesh. Bangladesh commenced arbitration proceedings (under the United Nations Convention on the Law of the Sea) against India with respect to its maritime boundary claims in October 2009. The award of the tribunal will be binding on each of the States and the arbitration proceedings are expected to take approximately 3 to 5 years to finish. This timing is not certain, however, and it is also possible that negotiations between India and Bangladesh may result in a binding settlement being reached with respect to the dispute prior to the conclusion of the arbitration proceedings.
Santos acquired assets in Bangladesh in October 2007 from Cairn Energy PLC (Cairn). Santos acquired a 37.5 per cent. non-operating interest in the producing Sangu Development Area and a 37.5 per cent. Non operating interest in the Block 16 exploration acreage.
Kyrgyz Republic
Santos has established a substantial acreage position in the Fergana Basin in the south of the Kyrgyz Republic. Santos holds interests in six prospecting licences covering approximately 2,700 square kilometres in the proven oil and gas province. 2D seismic work has been completed and shallow drilling occurred in 2009. Deeper drilling is planned for 2011 to further evaluate the potential of these assets.
The Fergana Basin covers an area of 63,000 square kilometres and has been producing hydrocarbons since the early 1900s.
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DESCRIPTION OF THE GUARANTOR
Production Statistics
Details of Santos’ production statistics for 2009 are set out in Table 1 below:
Table 1: Production statistics – 2009 Total 2009 Total 2008 –––––––––––––––––––– –––––––––––––––––––– Field Units mmboe Field Units mmboe ––––––––– ––––––––– ––––––––– ––––––––– Sales gas, ethane and LNG (PJ) Cooper ...... 79.9 13.7 90.2 15.5 Surat/Bowen/Denison ...... 31.9 5.5 32.8 5.6 Amadeus...... 10.6 1.8 12.2 2.1 Otway/Gippsland ...... 20.5 3.5 21.0 3.6 Carnarvon ...... 43.5 7.5 27.3 4.7 Bonaparte ...... 16.3 2.8 16.3 2.8 Indonesia ...... 30.2 5.2 24.2 4.2 Bangladesh ...... 5.7 1.0 6.3 1.1 ––––––––– ––––––––– ––––––––– ––––––––– Total production...... 238.6 41.0 230.3 39.6 ––––––––– ––––––––– ––––––––– ––––––––– Total sales volume ...... 268.2 46.1 237.9 40.9 ––––––––– ––––––––– ––––––––– ––––––––– Total sales revenue (A$ million) ...... 1,098.2 1,051.6 ––––––––– ––––––––– Crude oil (‘000 bbls) Cooper ...... 3,598.4 3.6 3,945.7 4.0 Surat/Denison ...... 62.5 0.1 71.1 0.1 Amadeus...... 106.3 0.1 127.9 0.1 Legendre...... 288.7 0.3 299.6 0.3 Thevenard...... 305.7 0.3 339.8 0.3 Barrow ...... 573.5 0.6 617 0.6 Stag...... 1,643.9 1.6 1,627.9 1.6 Mutineer-Exeter ...... 995.0 1.0 1,254.6 1.3 Jabiru-Challis ...... 105.9 0.1 142.0 0.1 Indonesia ...... 560.3 0.6 983.4 1.0 SE Gobe ...... 148.1 0.1 188.2 0.2 ––––––––– ––––––––– ––––––––– ––––––––– Total production...... 8,388.3 8.4 9,597.2 9.6 ––––––––– ––––––––– ––––––––– ––––––––– Total sales volume ...... 8,604.5 8.6 9,796.8 9.8 ––––––––– ––––––––– ––––––––– ––––––––– Total sales revenue (A$ million) ...... 678.3 1,150.6 ––––––––– ––––––––– Condensate (‘000 bbls) Cooper ...... 1,095.2 1.0 1,295.1 1.2 Surat/Denison ...... 7.6 0.0 17.4 0.0 Amadeus...... 46.6 0.1 67.4 0.1 Otway...... 23.4 0.0 22.1 0.0 Carnarvon ...... 435.5 0.4 291.4 0.3 Bonaparte ...... 1,552.6 1.5 1,594.7 1.5 Bangladesh ...... 0.9 0.0 1.2 0.0 ––––––––– ––––––––– ––––––––– ––––––––– Total production...... 3,161.8 3.0 3,289.3 3.1 ––––––––– ––––––––– ––––––––– ––––––––– Total sales volume ...... 3,505.8 3.3 3,173.9 3.0 ––––––––– ––––––––– ––––––––– ––––––––– Total sales revenue (A$ million) ...... 233.2 321.2 ––––––––– –––––––––
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DESCRIPTION OF THE GUARANTOR
Total 2009 Total 2008 –––––––––––––––––––– –––––––––––––––––––– Field Units mmboe Field Units mmboe ––––––––– ––––––––– ––––––––– ––––––––– LPG (‘000 t) Cooper ...... 151.2 1.3 162.0 1.4 Surat/Denison ...... 0.3 0.0 1.3 0.0 Bonaparte ...... 88.6 0.7 88.1 0.7 ––––––––– ––––––––– ––––––––– ––––––––– Total production...... 240.1 2.0 251.4 2.1 ––––––––– ––––––––– ––––––––– ––––––––– Total sales volume ...... 252.6 2.1 250.5 2.1 ––––––––– ––––––––– ––––––––– ––––––––– Total sales revenue (A$ million) ...... 170.8 238.4 ––––––––– ––––––––– Total Production (mmboe) ...... 54.4 54.4 Sales volume (mmboe) ...... 60.1 55.8 Sales revenue (A$ million) ...... 2,180.5 2,761.8 Reserves and Resources
Santos has in place an evaluation and reporting process that is in line with international industry practice and is in general conformity with reserves definitions and resource classification systems published by the Society of Petroleum Engineers, World Petroleum Congress and the American Association of Petroleum Geologists.
Santos has the largest Australian exploration portfolio by area (133,800 square kilometres) and a substantial Asian asset base. At the end of 2009, Santos had 2P reserves of 1,440 mmboe. Over the past five years Santos has more than doubled 2P reserves despite producing almost 300 million barrels of oil equivalent in this period. At the current rate of production, Santos has an average reserve life of approximately 26 years based upon 2P reserves. Santos has added reserves and resources at a compound annual growth rate of 14% from 2004 to 2009.
Santos now has almost half of its reserves targeted at the higher margin LNG business, and about a third of those are conventional reserves at PNG LNG and Darwin LNG.
Details of Santos’ 2009 Reserves statistics are set out in Table 2 below.
Table 2: Reserves statistics – 2009
Proven plus probable reserves (Santos share) by activity
Sales gas (incl. ethane Crude Oil Condensate LPG ‘000 Total & LNG) PJ mmbbl mmbbl tonnes mmboe –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Reserves year end 2008...... 5,039 83 42 2,989 1,013 Production ...... (239) (8) (3) (240) (54) Additions ...... 2,857 2 32 109 525 Acquisitions/divestments ...... (197) (3) (7) (10) (44) Estimated reserves year end 2009 ...... 7,460 74 64 2,848 1,440
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Proven plus probable reserves (Santos share) year end 2009 by area
Sales gas (incl. ethane Crude Oil Condensate LPG ‘000 Total & LNG) PJ mmbbl mmbbl tonnes mmboe –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Area Eastern Australia Cooper Basin...... 762 31 11 1,607 186 Southern Australia ...... 465 0 5 398 88 Qld CSG ...... 3,024000520 Qld conventional...... 5600010 NSW CSG...... 53200091 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total EA ...... 4,839 31 16 2,005 895 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Western Australia and Northern Territory Carnarvon...... 742 24 5 0 155 Bonaparte ...... 278 0 17 843 71 Amadeus ...... 9551023 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total WA and NT...... 1,115 29 23 843 249 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Asia Pacific PNG ...... 1,130 1 25 0 218 Indonesia...... 16810030 Vietnam...... 9 12 0 0 14 Bangladesh ...... 70001 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total AP ...... 1,314 14 25 0 263 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Total ...... 7,268 74 64 2,848 1,407 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Beneficial interests(*) ...... 19200033 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Grand total ...... 7,460 74 64 2,848 1,440 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– Reserves (Santos share)
Year end Year end 2008 Production Additions Acq/Div 2009 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– (mmboe) 1P reserves ...... 518 54 230 (46) 647 2P reserves ...... 1,013 54 525 (44) 1,440 2C contingent resources ...... 2,849 0 (260) (92) 2,497
Group Structure
As at 30 June 2010, the Guarantor was the parent of 85 wholly-owned subsidiaries, and eight partly-owned A9.6.1 subsidiaries: CJSC South Petroleum Company (70%); CJSC KNG Hydrocarbons (54%); Zhibek Resources limited (75%); Easternwell Drilling Services Holdings Pty Ltd and its subsidiaries (50%); Lohengrin Pty Ltd (50%) and GLNG Operations Pty Ltd (60%); Darwin LNG Pty Ltd (11.5%); and Papua New Guinea Liquefied Natural Gas Global Company LDC (13.5%).
The Group structure comprises four asset-based business units: • Eastern Australia; • Western Australia and Northern Territory; • Asia; and • GLNG.
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DESCRIPTION OF THE GUARANTOR
These business units are backed by a corporate centre comprising: Strategy and Corporate Development; Finance; Legal; and Human Resources. In addition, Santos has two specialist disciplines: Technical; and Exploration.
Applicable Regulatory Issues
Australia
Taxation
Excise and royalty on the production of hydrocarbons is levied via a regime of excise, royalties and petroleum resource rent tax.
Onshore, federal excise is levied on the net volume of oil and condensate removed (after removal of water and gas) from a producing field in excess of the first 30 mmbbL of production, which is excise free. Thereafter, excise is charged on an annual sliding scale of marginal rates for oil ranging from nil (up to 3.15 mmbbL) to 30 per cent. (above 5.03 mmbbL). Lesser rates of excise apply to condensate. State royalty is payable as a percentage of the wellhead value of all production (gross value of petroleum less approved post wellhead costs). The royalty rate currently payable by the Issuer in South Australia, Queensland and the Northern Territory is 10 per cent.
In relation to its offshore operations, excise and royalty of 10 per cent. apply to production licences on Thevenard Island. Barrow Island is covered by the Resource Rent Royalty (RRR) tax regime which is unique to the island and replaced the well-head royalty and excise regime described above. RRR is charged at a rate of 40 per cent. of the net cashflow from annual production (the accumulated value of sales less eligible deductions).
In addition, the Petroleum Resource Rent Tax (PRRT) applies in all Commonwealth waters, other than the North West Shelf permits. PRRT is charged at a rate of 40 per cent. of the taxable profit of a project. For further details, see “Risk Factors - Mineral Resources Rent Tax and other Australian taxes”.
Exploration and Production Licences
Petroleum resources within Australia are the property of the Crown and rights to explore and produce are conferred by statutory titles granted by legislation of the relevant State or Territory, the most significant of which are exploration and production leases or licences.
The ownership and operation of gas transportation pipelines is regulated by State, Territory and Commonwealth legislation. Petroleum operations in Australian territorial waters are subject to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGSA) in respect of operations in Commonwealth waters and the various State and Territory Acts in respect of operations in areas adjacent to the respective State or Territory. These legislations regulate exploration and development operations including the grant of key titles, such as Exploration Permits, Retention Leases, Production Licenses and Pipeline Licences.
Exploration licences are usually subject to the condition that a prescribed minimum work programme be carried out, and to progressive acreage relinquishment after the elapse of prescribed periods. Production licences generally enure for the full productive life of all fields, including those developed after the production licence is granted.
Joint Petroleum Development Area
The Joint Petroleum Development Area (formerly known as the Timor Gap Zone of Co-operation) is subject to an international agreement between Australia and the Timor-Leste.
Under the Bayu-Undan PSCs, Santos and its contractors are entitled to a share of first tranche petroleum, which is a 10 per cent. portion of gross revenue “distributed” prior to cost recovery, equal to 60 per cent. of revenue from LPG and gas and 50 per cent. of revenue from condensate, an investment credit equal to 127 per cent. of eligible exploration and capital costs, recovery of costs (operating costs, intangibles
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DESCRIPTION OF THE GUARANTOR expensed and depreciation of tangibles at 20 per cent. straight line) and a share of remaining “profit oil or gas”. Profit oil is split on a sliding scale from 50 per cent. of the first 50,000 barrels per day to 30 per cent. over 150,000 barrels per day, contractors’ share. Profit gas and LPG is 60 per cent. and profit condensate is 50 per cent. contractors’ share. In addition, income tax and additional profits tax is applicable in Timor Leste on 90 per cent. of income and income tax is applicable in Australia on 10 per cent. of income.
Indonesia
The development of Indonesia’s natural resources is based on the philosophy enshrined in Article 33 of the Constitution that all natural resources fall under the jurisdiction of the State. Upon being granted a PSC, the contractor is committed to a minimum level of exploration activity. If commercial hydrocarbons are found, the contractor must apply for commerciality of the block to the government and will be required to submit a plan of development.
Post tax profit share for oil is typically 85:15 in favour of the State, and for gas 70:30 or 65:35 in favour of the State. At tax rates of 44 per cent. to 48 per cent., these splits generate a pre tax profit share to the contractor of between 26.8 per cent. and 28.8 per cent. for oil and between 53.6 per cent. and 62.5 per cent. for gas.
All PSCs in Indonesia are subject to a domestic market obligation (DMO) for oil. This obligation occurs five years after first oil production for new fields and the contractor is required to supply a percentage of oil to the domestic market at a reduced price. No DMO is applicable on gas production. The price at which the domestic crude is sold depends on the date of signing the PSC and is typically between 10 per cent. and 25 per cent. of the export price.
Vietnam
Santos is a party to a number of PSCs entered into with Vietnam Oil and Gas Corporation (PetroVietnam), the State owned national oil company with authority under Article 14 of the Petroleum Law (1993) to enter into PSCs.
Contractors are subject to income tax of 32 per cent. and export duty of 4 per cent. on oil exports. The contractors are also required to make bonus payments to PetroVietnam upon commercial discovery and on reaching various production rates.
The Board and Management of the Guarantor A9.9.1
The directors of the Guarantor, and a brief description of their activities outside the group, as at the date of this Prospectus, are as follows:
Other Directorships and principal activities outside the Group Peter Coates (Chairman) Minara Resources Limited (Chairman) Amalgamated Holdings Limited Member of the NSW Minerals Ministerial Advisory Council Member of the Business Council of Australia David Knox (Chief Executive Botanic Gardens and State Herbarium, South Australia Officer and Managing Director) Fellow of the Australian Institute of Mechanical Engineering Peter Wasow (Chief Financial APPEA Limited Officer)* Fellow of the Australian Society of Certified Practising Accountants Kenneth Borda Fullerton Funds Management Ithmaar Bank (Bahrain) Leighton Contactors Plc Ltd Talent2 International Ltd Asian Advisory Board of Aviva Pte Ltd (Singapore) Kenneth Dean BlueScope Steel Limited
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DESCRIPTION OF THE GUARANTOR
Fellow of the Australian Society of Certified Practising Accountants Member of the LaTrobe University Council Roy Franklin Keller Group plc (Chairman) StatoilHydro ASA Richard Harding Clough Ltd Downer EDI Limited Gregory Martin Energy Developments Limited Australian Energy Market Operator Limited Everest Financial Group Gas Valpo S.A. (Chile) Chairman of The Royal Botanic Gardens & Domain Trust of New South Wales Jane Hemstritch Commonwealth Bank of Australia The Global Foundation Tabcorp Holdings Ltd Member of the Research and Policy Council and Advisory Committee for Economic Development of Australia Fellow of the Institutes of Chartered Accountants in Australia and in England and Wales David Lim (Company Secretary) Member of Chartered Secretaries Australia Member of Australian Corporate Lawyers Association
*Mr Wasow will retire from the Guarantor on 31 December 2010 and will be replaced by Andrew Seaton.
There are no potential conflicts of interest between the duties to the Guarantor of the persons listed above A9.9.2 and their private interests or other duties.
The business address of each of the Directors is Ground Floor, Santos Centre, 60 Flinders Street, Adelaide, South Australia 5000, Australia.
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TAXATION
Australian Taxation
The following is a general summary of the taxation treatment under the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (together, the “Tax Act”) and any relevant regulations, rulings or judicial or administrative pronouncements, at the date of this Prospectus, of payments of interest and certain other amounts on the Notes and certain other matters.
Tax considerations which may arise for investors who are in the business of trading or dealing in securities, or otherwise hold Notes on revenue account have not been considered in this tax summary.
This summary is not exhaustive and is not intended to be, nor should it be construed as, legal or tax advice to any particular investor. Prospective Noteholders should consult their professional advisers on the tax implications of an investment in the Notes in their particular circumstances.
1. Interest withholding tax
Absent the exemptions discussed below, payments of interest on the Notes would be within the scope of Australia’s rules on interest withholding tax. Division 11A of Part III of the Tax Act provides that a payment of interest by an Australian resident, not acting through a permanent establishment outside Australia, to a non-resident, not acting through a permanent establishment in Australia; or to an Australian resident acting through a permanent establishment outside Australia, is ordinarily subject to withholding tax at the rate of 10%.
For the purposes of Division 11A, subsection 128(1AB) provides that interest includes amounts in the nature of interest. A premium on redemption of a security would generally be treated as an amount in the nature of interest. A payment by the Guarantor to a Noteholder in respect of accrued interest on a Note may also be interest, or in the nature of interest, for these purposes.
A payment in consideration of the transfer of certain securities can be deemed to be interest: • under section 128AA where the transfer price of a ‘qualifying security’ exceeds the issue price; or • where the security is disposed of to an Australian resident prior to the payment of interest with the sole or dominant purpose of avoiding withholding tax on that interest (a ‘washing arrangement’).
Section 128F exemption
Under section 128F of the Tax Act, an exemption from Australian interest withholding tax applies provided all prescribed conditions are met. The exemption under section 128F extends to interest under subsection 128(1AB) paid by an issuer and, where applicable, deemed interest on transfer of a qualifying security under section 128AA.
The relevant conditions to be satisfied in respect of the Notes are: • the Issuer is a resident of Australia when it issues the Notes and when interest is paid in respect of the Notes; • interest is not paid to an associate of the Issuer of the kind described below; • the Notes are debentures; and • the Notes are offered for issue in a manner which satisfies the public offer test. In broad terms, an issue of the Notes will satisfy the public offer test where there are: • offers to 10 or more unrelated financiers or securities dealers;
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• offers to 100 or more persons that are reasonable to regard as having acquired similar instruments in the past, or as being likely to be interested in acquired the Notes; • offers of Notes as a result of them having been accepted for listing on a stock exchange; • offers via publicly available information sources; or • offers to a dealer, manager or underwriter who offers to sell those Notes within 30 days by one of the preceding methods.
The public offer test will not be satisfied if, at the time of issue, the Issuer knew or had reasonable grounds to suspect that the Notes were being or would later be acquired directly or indirectly by an associate of the Issuer (within the meaning of subsection 128F(9)) that is: • a resident of Australia that would acquire the Note through a permanent establishment outside Australia, or a non-resident that would not acquire the Note through a permanent establishment in Australia; and • is not acting in the capacity of a dealer, manager or underwriter in relation to the placement of the relevant Notes, or a clearing house, custodian, funds manager or responsible entity of a registered managed investment scheme.
Even if the public offer is satisfied, a payment of interest will not be exempt from withholding tax if it is in fact paid to an associate of the Issuer within the meaning of subsection 128F(9) that is: • a resident of Australia that would acquire the Note through a permanent establishment outside Australia, or a non-resident that would not acquire the Note through a permanent establishment in Australia; and • is not acting in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered managed investment scheme.
The Commissioner of Taxation accepts that where payments by a guarantor would be interest for withholding tax purposes, the exemption in section 128F will be available in respect of such payments (provided the requirements of section 128F are satisfied).
Although the section 128F interest withholding tax exemption does not apply to deemed interest under a ‘washing arrangement’ where interest in respect of the Notes is otherwise exempt from interest withholding tax, a Noteholder could not be taken to have a purpose of avoiding withholding tax by transfer of the Notes and so these provisions should not apply.
The taxation of financial arrangements (TOFA) provisions in Division 230 of the Tax Act do not affect the availability of the section 128F interest withholding tax exemption.
Compliance with the section 128F exemption
The Issuer intends to issue the Notes in a manner that will satisfy the conditions for the application of the interest withholding tax exemption in section 128F. In particular, and pursuant to an agreement between the Issuer and the Managers, it is expected that Notes will not be issued or sold to an associate of the Issuer in a manner that would cause the failure of the public offer test in the section 128F exemption.
Where section 128F applies, payments of interest (and principal) on the Notes will not be subject to Australian interest withholding tax, where the Noteholder is a non-resident and does not hold the Notes in the course of carrying on a business through a permanent establishment in Australia.
Other exemptions
In the event that the section 128F exemption did not apply to a payment of interest in respect of the Notes, a payment to a person outside Australia may nonetheless be exempt from interest withholding tax if:
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• the Noteholder is a pension or superannuation fund for non-residents that is exempt from income tax in its country of residence; • the Noteholder is entitled to the benefit of the sovereign immunity doctrine; or • the Noteholder is a resident of a country with which Australian has concluded a double tax treaty and is entitled to the benefits of an exemption under that treaty.
Payment of additional amounts
As set out in more detail in the Terms and Conditions, if the Issuer or the Guarantor is at any time required by law to deduct or withhold an amount in respect of any withholding taxes imposed or levied by the Commonwealth of Australia in respect of the Notes, the Issuer or Guarantor must, subject to certain exceptions, pay such additional amounts as may be necessary in order to ensure that the net amounts received by the holders of those Notes after such deduction or withholding are equal to the respective amounts which would have been received had no such deduction or withholding been required.
A payment of an additional amount in these circumstances is not itself interest, or in the nature of interest, and so should not be subject to additional withholding tax.
If the Issuer or Guarantor is compelled by law in relation to any Notes to deduct or withhold an amount in respect of any withholding taxes, the Issuer will have the option to redeem those Notes in accordance with the Terms and Conditions.
2. Income Tax
Non-residents
Where a Noteholder is a non-resident, and the Noteholder does not hold the Notes through a permanent establishment in Australia, interest paid in respect of the Notes should not be included in the assessable income of the Noteholder.
A gain arising to a non-resident Noteholder from disposal of Notes should only be subject to Australian tax, and a loss should only be deductible, if: • the non-resident Noteholder is resident of a country with which Australia has concluded a comprehensive double tax treaty and the Notes are held through a permanent establishment through which the Noteholder is doing business in Australia; or • the non-resident Noteholder is not resident of a country with which Australia has concluded a comprehensive double tax treaty and the gain has an Australian source. Where a non-resident Noteholder makes a gain from a disposal of a Note to another non-resident, and the relevant negotiations are undertaken and the transaction is documented outside of Australia, the gain would not ordinarily an have an Australian source.
Australian residents
Interest derived by an Australian resident Noteholder in respect of the Notes, and any gains upon disposal or redemption, should be included in their assessable income, subject to any specific exemption applicable to that Noteholder.
The manner and timing of inclusion of such amounts in assessable income will depend upon the specific tax rules applying to the Noteholder, including whether and how the TOFA rules in Division 230 of the Tax Act apply to the Noteholder. Where the TOFA rules do not apply, a Noteholder will need to consider the application of the rules dealing with ‘traditional securities’ and the foreign exchange tax rules in Division 775 and Subdivision 960-C of the Tax Act.
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3. Other Australian tax matters
Debt interests
The Notes should be ‘debt interests’, rather than ‘equity interests’, for the purposes of Australian debt/equity tax rules. Accordingly, interest paid on the Notes should not be treated as dividends for the purposes of Australia’s dividend imputation (franking) system and dividend withholding tax rules.
Stamp duty
Subject to the Notes being ‘debt interests’ as described above, no ad valorem stamp, issue, registration or similar taxes are payable in Australia on the issue or transfer of any Notes.
Goods and services tax (GST)
Neither the issue of the Notes, the payment of interest in respect of the Notes, nor the redemption of the Notes will give rise to a liability for GST in Australia. Dealings in respect of the Notes will comprise either an input taxed financial supply or (in the case of an offshore Noteholder) a GST-free supply.
Bearer debentures withholding tax
Where a company pays interest on a bearer debenture to an Australian resident, or to a non-resident holder that holds the bearer debenture through a permanent establishment in Australia, and the issuing company does not give the Commissioner of Taxation the name and address of the holder, then the issuing company is liable to pay tax on that interest at the rate of 45%, pursuant to section 126 of the Tax Act to non- residents. No such tax is payable where the section 128F exemption applies to payments of interest. If section 126 applies to a Note, the Issuer is authorized by subsection 126(2) of the Tax Act to deduct the amount of this tax from the interest otherwise payable to the Noteholder.
For these purposes, the Issuer intends to treat the operator of a clearing system that holds the physical Notes as being the holder of the Notes for these purposes.
TFN Withholding tax
A Noteholder that does not provide their tax file number, Australian Business Number or exemption category may have an amount of tax deducted from any interest in respect of the Notes equal to the top marginal tax rate for individuals plus the Medicare levy (currently 46.5%). A Noteholder that is a non- resident and does not hold the Notes through a permanent establishment in Australia is exempt from quoting a tax file number.
Supply withholding tax
Payments in respect of the Notes can be made free and clear of the “supply withholding tax” imposed under section 12-190 of Schedule 1 to the Taxation Administration Act 1953 of Australia (Taxation Administration Act).
Additional withholdings from certain payments to non-residents
Section 12-315 of Schedule 1 to the Taxation Administration Act gives the Governor-General power to make regulations requiring withholding from certain payments to non-residents of Australia. However, section 12 315 expressly provides that the regulations will not apply to interest and other payments which are already subject to Division 11A of Part III of the Tax Act or specifically exempt from those rules. Further, regulations may only be made if the responsible Minister is satisfied the specified payments are of a kind that could be reasonably related to the assessable income of foreign residents. The existing regulations made pursuant to section 12-315 are not relevant to any payments in respect of the Notes and it is not anticipated that any future regulations would apply in respect of such payments.
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TAXATION
Garnishee notices
The Commissioner of Taxation may issue a notice requiring any person who owes, or who may later owe, money to a taxpayer who has a tax-related liability, to pay to him the money owed to the taxpayer. If the Issuer or the Guarantor is served with such a notice in respect of a Noteholder, then the Issuer or the Guarantor (as the case may be) will comply with that notice.
Death duties
No Notes will be subject to death, estate or succession duties imposed by Australia, or by any political subdivision or authority therein having power to tax, if held at the time of death.
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SUBSCRIPTION AND SALE
UBS Limited and Deutsche Bank AG, London Branch (the Managers) have, pursuant to a Subscription Agreement (the Subscription Agreement) dated 26 October 2010, jointly and severally agreed to subscribe or procure subscribers for the Notes at the issue price of 101.00 per cent. of the principal amount of the Notes plus accrued interest from, and including, the Original Issue Date to, but excluding, the Issue Date. The Issuer will pay to the Managers a combined selling, management and underwriting commission. The Issuer will also reimburse the Managers in respect of certain of their expenses, and has agreed to indemnify the Managers against certain liabilities, incurred in connection with the issue of the Notes. The Subscription Agreement may be terminated in certain circumstances prior to payment of the Issuer.
United States
The Notes and the Guarantee have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act.
The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and regulations thereunder.
Each Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes and the Guarantee (a) as part of their distribution at any time or (b) otherwise until 40 days after the later of the commencement of the offering and the Issue Date within the United States or to, or for the account or benefit of, U.S. persons and that it will have sent to each dealer to which it sells any Notes and the Guarantee during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes and the Guarantee within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes or the Guarantee within the United States by any dealer that is not participating in the offering may violate the registration requirements of the Securities Act.
United Kingdom
Each Manager has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Guarantor; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Commonwealth of Australia
No prospectus or other disclosure document (as defined in the Corporations Act of Australia 2001 (Corporations Act)) in relation to the Notes has been or will be lodged with the Australian Securities & Investments Commission (ASIC). Each Manager has represented and agreed that it:
(a) has not (directly or indirectly) offered, and will not offer for issue or sale and has not invited, and will not invite, applications for issue, or offers to purchase, the Notes (including interests or rights in Notes held in Euroclear or Clearstream, Luxembourg or any other clearing system) in, to or from Australia (including an offer or invitation which is received by a person in Australia); and
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SUBSCRIPTION AND SALE
(b) has not distributed or published, and will not distribute or publish, any information memorandum, advertisement or other offering material relating to the Notes in Australia, unless (i) the aggregate consideration payable by each offeree or invitee is at least A$500,000 (or its equivalent in any other currency, but disregarding moneys lent by the offeror or its associates) or the offer or invitation otherwise does not require disclosure to investors in accordance with Part 6D.2 or 7.9 of the Corporations Act or Australia, (ii) such action complies with all applicable laws, regulations and directives (including without limitation the licensing requirements set out in Chapter 7 of the Corporations Act), (iii) such action does not require any document to be lodged with ASIC and (iv) the offer or invitation is not made to a person who is a “retail client” within the meaning of section 761G of the Corporations Act.
General
No action has been taken by the Issuer, the Guarantor or any of the Managers that would, or is intended to, permit a public offer of the Notes in any country or jurisdiction where any such action for that purpose is required. Accordingly, each Manager has undertaken that it will not, directly or indirectly, offer or sell any Notes or have in its possession, distribute or publish any offering circular, prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms.
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AUSTRALIAN ACCOUNTING STANDARDS AND FINANCIAL A9.11.1 STATEMENTS
The Guarantor and the Issuer prepare financial statements in accordance with Australian Accounting Standards which are compliant with International Financial Reporting Standards as issued by the International Accounting Standards Board, with the exception of certain disclosure exemptions applicable to the Issuer which are detailed in Note 1(a) of the financial statements of the Issuer incorporated by reference in the Prospectus. Under Australian law, the Issuer has been classified as a “non-reporting entity” which must prepare its financial statements in accordance with Australian Accounting Standards, and therefore IFRS standards generally, but is exempted from making all of the detailed disclosures required by Australian Accounting Standards and IFRS in the notes to its financial statements. There are no differences between the Issuer’s reported results, financial position or cash flows prepared under Australian Accounting Standards and the results, financial position or cash flows the Issuer would have reported under IFRS because the measurement and recognition criteria of IFRS and Australian Accounting Standards are consistent. Following the issue of the Original Notes, the Issuer is no longer considered a “non-reporting entity” and is required to prepare general purpose financial statements incorporating all of the presently exempted financial statement note disclosure requirements.
The Guarantor and the Issuer prepare annual financial statements as at 31 December each year which are subject to audit by the Group’s auditors. The Guarantor also prepares six-month consolidated financial statements as at 30 June each year which are subject to review by the Group’s auditors.
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GENERAL INFORMATION
Authorisation
1. The issue of the Notes was duly authorised by a resolution of the Board of Directors of the Issuer A13.4.12 dated 6 October 2010 and the giving of the Guarantee was duly authorised by a resolution of the Board of Directors of the Guarantor dated 6 October 2010.
Listing
2. It is expected that official listing in respect of the Notes will be granted on or about 28 October 2010, A13.4.2 subject only to the issue of the Temporary Global Note. Application has been made to the UK Listing Authority for the Notes to be admitted to the Official List and to the London Stock Exchange for the Notes to be admitted to trading on the London Stock Exchange’s regulated market. The total A13.6.1 expenses related to the admission to trading are estimated to be £4,200.
Clearing Systems
3. The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The A13.4.2 ISIN for this issue is XS0543710395 and the Common Code is 054371039.
The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brusssels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L 1855 Luxembourg.
No significant change
4. Save as disclosed under the heading “Acquisition and divestment activities” on page 11 and under the A9.11.6 heading “GLNG – Expected approval in 2010” on page 49 of this Prospectus, there has been no significant change in the financial or trading position of the Issuer since 31 December 2009 or of the A9.7.1 Group since 30 June 2010 and there has been no material adverse change in the prospects of either the Issuer or the Group since 31 December 2009.
Litigation
5. Neither the Issuer nor the Guarantor nor any other member of the Group is or has been involved in A9.11.5 any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer or the Guarantor are aware) in the 12 months preceding the date of this document which may have or have in such period had a significant effect on the financial position or profitability of the Issuer, the Guarantor or the Group.
Auditors
6. The auditors of the Issuer and the Guarantor are Ernst & Young, whose audit partners are members A9.2.1 of the Institute of Chartered Accountants in Australia, who have audited the financial statements of A9.11.3.1 both the Issuer and the Guarantor, without qualification, in accordance with Australian Auditing A9.11.4.1 Standards for each of the two financial years ended on 31 December 2009 and 31 December 2008. The auditors of the Issuer and the Guarantor have no material interest in the Issuer or the Guarantor. Australian auditing requirements have no significant departures from International Standards on Auditing.
U.S. tax
7. The Notes and Coupons will contain the following legend: “Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code.”
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GENERAL INFORMATION
Documents Available A9.14
8. For the period of 12 months following the date of this Prospectus, copies of the following documents A6.4.1 will be available for inspection from the registered office of the Issuer and from the specified office of the Paying Agent for the time being in London:
(a) the constitution of the Issuer and the constitution of the Guarantor;
(b) the audited financial statements of the Issuer and the Guarantor in respect of the years ended 31 December 2008 and 31 December 2009 and the consolidated financial statements of the Guarantor in respect of the financial years ended 31 December 2008 and 31 December 2009 and the consolidated financial statements of the Guarantor for the half-year end 30 June 2010 (unaudited);
(c) the most recently published audited annual financial statements of the Issuer and the Guarantor and the most recently published unaudited interim financial statements (if any) of the Guarantor, together with any audit or review reports prepared in connection therewith. The Issuer currently prepares audited financial statements on an annual basis and the Guarantor currently prepares audited consolidated and non consolidated accounts on an annual basis and unaudited financial statements for each half-year;
(d) the Trust Deed and the Agency Agreement; and
(e) this Prospectus and the prospectus relating to the Original Notes.
Managers transacting with the Issuer and the Guarantor
9. Certain of the Managers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer, the Guarantor and/or their affiliates in the ordinary course of business.
Replacement Capital Covenant A9.4.1.5 10. The Issuer and the Guarantor intend to enter into an amended and restated deed poll to be dated the Issue Date containing a replacement capital covenant for the benefit of one or more designated series of the Guarantor’s debt securities. It is anticipated that the terms of such replacement capital covenant will provide that neither the Issuer nor the Guarantor, during the period from the Original Issue Date until the termination of the replacement capital covenant (and subject to certain circumstances in which it shall cease to apply), will redeem or purchase any Notes, and the Guarantor will not permit any Subsidiary to purchase any Notes, unless and to the extent that the aggregate redemption or purchase price is no greater than the net proceeds received by the Issuer, the Guarantor or any Subsidiary during the twelve months prior to such redemption or purchase date, from new issuances of certain qualifying securities described in the replacement capital covenant and that the covenant will terminate on the redemption of the Notes if not terminated earlier in accordance with its terms. The replacement capital covenant will continue to be effective following any substitution or variation of the Notes in accordance with their terms.
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GLOSSARY barrel/bbl The standard unit of measurement for all production and sales. One barrel = 159 litres or 35 imperial gallons. boe Barrels of oil equivalent. The factor used by Santos to convert volumes of different hydrocarbon production to barrels of oil equivalent. condensate A natural gas liquid that occurs in association with natural gas and is mainly composed of propane, butane, pentane and heavier hydrocarbon fractions. contingent resources Those quantities of hydrocarbons which are estimated, on a given date, to be potentially recoverable from known accumulations, but which are not currently considered to be commercially recoverable. Contingent resources may be of a significant size, but still have constraints to development. These constraints, preventing the booking of reserves, may relate to lack of gas marketing arrangements or to technical, environmental or political barriers. crude oil A general term for unrefined liquid petroleum or hydrocarbons.
CSG Coal seam gas. exploration Drilling, seismic or technical studies undertaken to identify and evaluate regions or prospects with the potential to contain hydrocarbons. hydrocarbons Solid, liquid or gas compounds of the elements hydrogen and carbon. liquids A sales product in liquid form; for example, condensate and LPG.
LNG Liquefied natural gas. Natural gas that has been liquefied by refrigeration to store or transport it. Generally, LNG comprises mainly methane.
LPG Liquefied petroleum gas, the name given to propane and butane in their liquid state. market capitalisation A measurement of a company’s stock market value at a given date. Market capitalisation is calculated as the number of shares on issue multiplied by the closing share price on that given date. mmbbl Million barrels. mmboe Million barrels of oil equivalent. mtpa Million tonnes per annum. oil A mixture of liquid hydrocarbons of different molecular weights.
PJ Petajoules. Joules are the metric measurement unit for energy. A petajoule is equal to 1 joule x 1015. proven plus probable reserves (2P) Reserves that analysis of geological and engineering data suggests are more likely than not to be recoverable. There is at least a 50% probability that reserves recovered will exceed Proven plus Probable reserves.
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GLOSSARY proven reserves (1P) Reserves that, to a high degree of certainty (90% confidence), are recoverable. There is relatively little risk associated with these reserves. Proven developed reserves are reserves that can be recovered from existing wells with existing infrastructure and operating methods. Proven undeveloped reserves require development. sales gas Natural gas that has been processed by gas plant facilities and meets the required specifications under gas sales agreements. tcf Trillion cubic feet.
Conversion Crude oil 1 barrel = 1 boe
Sales gas 1 petajoule = 171,937 boe
Condensate/naphtha 1 barrel = 0.935
LPG 1 tonne = 8.458
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THE ISSUER Santos Finance Limited Ground Floor Santos Centre 60 Flinders Street Adelaide, South Australia 5000 Australia
THE GUARANTOR Santos Limited Ground Floor Santos Centre 60 Flinders Street Adelaide, South Australia 5000 Australia
JOINT LEAD MANAGERS UBS Limited Deutsche Bank AG, London Branch 1 Finsbury Avenue Winchester House, London EC2M 2PP 1 Great Winchester Street United Kingdom London EC2N 2DB (Structuring Adviser) United Kingdom
TRUSTEE BNY CORPORATE TRUSTEE SERVICES LIMITED One Canada Square London E14 5AL United Kingdom
PRINCIPAL PAYING AGENT A13.5.2 THE BANK OF NEW YORK MELLON, LONDON BRANCH One Canada Square London E14 5AL United Kingdom
LEGAL ADVISERS To the Issuer and the Guarantor To the Issuer and the Guarantor as to Australian law as to English law Freehills Linklaters LLP MLC Centre, 19 Martin Place One Silk Street Sydney NSW 2000 London EC2Y 8HQ Australia United Kingdom
To the Managers and the Trustee as to English law Allen & Overy LLP One Bishops Square London E1 6AD United Kingdom Level: 5 – From: 5 – Monday, October 25, 2010 – 09:39 – eprint6 – 4278 Section 06
TAX ADVISER To the Issuer and the Guarantor as to Australian taxation law Greenwoods & Freehills MLC Centre, 19 Martin Place Sydney NSW 2000 Australia
AUDITORS A9.2.1 To the Issuer and the Guarantor Ernst & Young Ernst & Young Building 121 King William Street Adelaide SA 5000 Australia Level: 5 – From: 5 – Monday, October 25, 2010 – 09:39 – eprint6 – 4278 Section 06
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