Santos Shareholder Review 2017 1 Shareholder Review 2017 Transform Build Grow
Inside 2 3 4–5 6 7 8
Message from the Financial overview Asset performance Transform Build Grow Board of Directors Investor information Chairman and the The role of natural gas Santos Executive Shareholder calendar Managing Director and in a lower-carbon future Committee Chief Executive Officer Glossary
Santos is an Australian natural gas company. An Australian Established in 1954, the company’s purpose is to provide sustainable returns for our shareholders by supplying reliable, affordable and cleaner energy to Energy Pioneer improve the lives of people in Australia and Asia.
FIVE CORE LONG-LIFE PAPUA Five core long-life natural gas assets sit at the + Be a leading regional LNG supplier by NATURAL GAS ASSETS NEW GUINEA heart of a three phase strategy to Transform, increasing LNG sales to our Asian customers Build and Grow the business: Northern Australia, to over 4.5 million tonnes per annum Papua New Guinea, Western Australia Gas, + Be recognised as the safest and lowest NORTHERN Port Moresby Queensland and the Cooper Basin. Each of our cost onshore gas developer in Australia AUSTRALIA core assets provide stable production, long-term Darwin revenue streams and significant upside + Become the market leader in running the opportunities. safest and lowest cost facilities and WESTERN infrastructure operations With one of the largest exploration and AUSTRALIA GAS + Contribute positively to the communities production acreages in Australia, a significant in which we operate by providing jobs, and growing footprint in Papua New Guinea, and energy supply and local partnerships a strategic infrastructure position, Santos is well + Develop our people and culture to deliver QUEENSLAND positioned to benefit from the growing global demand for energy. our vision
COOPER Brisbane To deliver our vision to be Australia’s leading Santos is now a stronger, more resilient organisation with the capacity to execute and BASIN energy company by 2025, we will aspire to: bring on-line growth opportunities across the Perth + Reduce emissions and improve air quality core asset portfolio. As a low-cost, reliable and
Sydney across Asia and Australia by displacing coal high performance business, we are proud to Adelaide with natural gas, and support the economic deliver the economic and environmental benefits development of combined gas and renewable of natural gas to homes and businesses Melbourne energy solutions throughout Australia and Asia. + Be the leading national supplier of domestic Santos acreage gas in Australia Hobart 2 Santos Shareholder Review 2017 Message from the Chairman and Managing Director and Chief Executive Officer
Dear Shareholder, In 2017 our strategy to Transform, Build and Grow delivered ahead of expectations. Whilst there is still more to be done, the business has been re-set. Santos is now a stronger, more resilient company with the capacity to execute and bring on-line growth opportunities across our core asset portfolio. Keith Spence, Chairman Kevin Gallagher, Managing Director & Chief Executive Officer
Over the course of 2017 we: has provided the focus and discipline required to RELIABLE, AFFORDABLE AND Disclosures (“TCFD”) and is available on our adopt innovative, lean principles and drive quick- SUSTAINABLE ENERGY SUPPLY website at www.santos.com/sustainability + Reduced our free cash flow breakeven cycle learnings. In 2017 Santos delivered on its commitment to to US$32 per barrel oil price BOARD RENEWAL meet domestic gas demand while also honouring As a result of these efforts, Santos is now + Generated $618 million in free cash flow, our long-term LNG contractual obligations. We Progressive renewal of the Board continued in Australia’s lowest-cost onshore operator, before asset sales worked closely with our joint-venture partners 2017 as we acknowledged the services of Roy a significant point of differentiation that and industry to support the Federal Government Franklin OBE, Greg Martin and Scott Sheffield + Reduced net debt by $761 million to is not easy to replicate. To leverage these in bringing more supply into the domestic market following their retirements and welcomed $2.7 billion, and capabilities, we are working hard to be the to help mitigate gas supply concerns. Over the Eugene Shi and Dr Vanessa Guthrie. In February + Reported an underlying net profit after tax “go-to” upstream operator of choice as course of the year we signed agreements to 2018, Peter Coates stepped down as Chairman of $336 million we seek to enter new plays and capture facilitate the delivery of more than 140 PJ of and also retired from the Board. incremental value for shareholders. gas into the east coast domestic market. A strong operating performance across our core We would like to thank Peter and the retiring assets resulted in sales volumes of 83.4 million In addition to the significant cost-out and In Eastern Queensland we signed transport Board members for their valuable counsel and barrels of oil equivalent (mmboe) exceeding efficiency gains across our onshore operations, agreements to unlock significant gas reserves guidance. Their support for our new senior the top end of guidance, and production of our high-margin conventional assets continued that sit outside the GLNG project. This allows executive team and three phase strategy to 59.5 mmboe. LNG sales volumes were up to perform strongly in 2017. Santos to meet contractual obligations to supply Transform, Build and Grow the business has 10% to a record 3.1 million tonnes following gas to GLNG while freeing up Cooper Basin gas set the strong foundations required to create continued strong performance from PNG LNG PNG LNG operated 20% above nameplate for domestic east coast markets. We are also long-term shareholder value. and the ramp-up of GLNG. LNG sales revenues capacity to produce 8.3 million tonnes (gross) using our Moomba infrastructure and pipeline were up 33% to a record US$1.2 billion. of LNG in 2017, shipping a total of 110 cargoes. LOOKING AHEAD Our core asset position was strengthened with capacity positions to assist in the delivery of In 2017 we re-structured the business to focus At our half-year results we announced a the Muruk exploration well drilling program in the gas to the east coast. on five, core long-life natural gas assets, and change in the asset and macro assumptions Southern Highlands confirming the discovery Santos will continue to proactively pursue embedded our lean, disciplined operating model. that determine the carrying value of our assets. of a potentially significant new gas field. Muruk transactions that capture value for our Through operational efficiency we dramatically This triggered a non-cash net impairment is situated only 21 kilometres from the existing shareholders and extend our long and proud decreased costs, improved free cash flow and charge of $689 million after tax. The impairment PNG LNG Hides gas conditioning plant and an history of delivering competitive wholesale reduced debt. We also invested in improving our reflected a write-down of our GLNG asset appraisal well is due to be drilled in the first half gas supply to east coast domestic gas market systems and governance processes with a focus and the undeveloped Ande Ande Lumut oil of 2018. We also announced two new farm-in end users. on safety and operational integrity. field in Indonesia, predominantly due to lower agreements. We are excited about our growth oil price assumptions. This was offset by a prospects in PNG, and will continue to explore In February 2017 we lodged the Environmental 2018 will be an exciting year for Santos. We positive net write-back on our Cooper Basin and develop opportunities that further align Impact Statement (“EIS”) for the Narrabri are at an inflection point, poised to start our asset due to higher assumed development partner interests over the coming year. Gas Project and in November announced that journey to growth. We will increase our capital activity and production supported by significant the project would re-enter the core portfolio. investment across our core Australian assets In Northern Australia, Darwin LNG consistently improvements in costs, particularly across our The project will be managed under our onshore and increase exploration and appraisal activities demonstrated excellent reliability and availability, drilling operations. Additional impairment charges upstream business, where we will apply our in Queensland and the Cooper Basin as well delivering its 600th cargo since start-up in 2006. of $14 million after tax were recorded against low cost “drill–complete–connect” model to as drill more production wells. We will continue A two-well appraisal campaign in the Barossa field other assets in the second half, resulting in a improve the commercial outlook for the project. to work through the approvals process on our resulted in a significant increase in 2C resources full-year net loss after tax of $360 million. We believe that the east coast of Australia Narrabri Gas Project in New South Wales, with a and positioned the field as the lead candidate for requires more gas and that Narrabri could play view to leveraging our low-cost operating model CAPITAL MANAGEMENT backfill to Darwin LNG. Good progress is being a significant role in meeting this demand outlook. to make this project a reality. We also expect made on the proposed development and we In 2017 we made strong progress to strengthen Any significant capital expenditure will only occur to start Front End Engineering and Design on expect to approve Front End Engineering and the balance sheet. By year end net debt was when the project has the necessary approvals in the Barossa offshore gas project which is the Design (“FEED”) in the second quarter of 2018 $2.7 billion, down from $3.5 billion twelve place to facilitate development. lead candidate for backfilling the Darwin LNG with a Final Investment Decision (“FID”) currently months prior. Debt repayment continues to Project. In PNG we will be drilling the Muruk scheduled for the third quarter of 2019. be a key priority for the company as we target Our natural gas portfolio strategically aligns with 2 appraisal well and potentially the Karoma the global transition to a low-carbon economy. $2 billion in net debt by the end of 2019. In Western Australia we signed two new exploration prospect. And we will look to the Offering both reliability and lower emissions, gas domestic supply agreements. Our low-cost future with our new Energy Solutions business Given the current focus on debt reduction, the is a natural complement to renewables that can operations are well positioned with the for ways to develop integrated gas, solar and Board did not declare a final dividend. While be quickly turned up and down to deal with the capacity and reserves to meet short- and energy storage projects. this decision will be disappointing for some intermittency of solar and wind. When used for long-term demand in the region. shareholders, we are confident that prioritising power generation, natural gas is also 50% less We enter 2018 from a position of strength and debt repayment is the right course of action at DISCIPLINED OPERATING MODEL emissions intensive than coal. would like to thank you, our shareholders, for this time and will position the company to fund your continued support. growth opportunities from a position of strength In 2017 we continued to evolve and implement Global greenhouse gas emissions are around and generate sustainable shareholder returns. our operating model to ensure Santos remains 50 billion tonnes per year, about half of which Yours sincerely focused on maximising free cash flow through come from Asia. A large portion of this is from In light of the substantial turnaround in the the oil price cycle. Portfolio rules have now coal-fired power generation. This makes natural underlying business, should market conditions been ingrained in our day-to-day operations. gas a clear choice for the Asian region. Gas remain supportive and the company achieves At the heart of this model is the requirement demand in Asia is forecast to double by 2040, its debt reduction target ahead of plan, the for each of our core assets to generate positive and Santos is well positioned to take advantage KEITH SPENCE Board will consider capital management free cash flow at ≤US$40 per barrel oil price, of this growth. Chairman strategies to return value to shareholders. pre major-growth spend. Budgets across our Exploration, Development, Production and In 2017 Santos set up an Energy Solutions TRANSFORMING OUR OPERATIONS Marketing activities will only be approved if this team to actively assess opportunities to Core to the transformation of Santos has been criteria is met. This approach ensures we remain reduce Santos’ footprint and prepare for a lower- the turnaround in our onshore “drill–complete– disciplined in a rising oil price environment and carbon future and in early 2018 we released our KEVIN GALLAGHER positioned to benefit from higher margins to pay connect” operations across the Cooper Basin inaugural Climate Change Report. This report Managing Director and Chief Executive Officer and GLNG acreage. Running our onshore down debt, fund exploration, grow the business is aligned with the recommendations of the upstream operations as a separate business and deliver shareholder returns. G20’s Task Force on Climate-Related Financial Santos Shareholder Review 2017 3 Financial overview
STRONG OPERATING PERFORMANCE Sales volume Production Sales revenue mmboe mmboe US$million
83.4 4 59.5 9.5 3,107 3,641 84.1 3,483 57.7 61.6 64.3 54.1 58.5 63.7 51.0 2,442 2,594
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 017 2013 2014 2015 2016 2017
CASH FLOW TRANSFORMED AND UNDERLYING PROFIT INCREASING Operating cash flow Free cash flow Underlying net profit after tax US$million US$million US$million
1,248 1,248 618 618 336 206 523 1,574 1,633 -2,545 -1,591 -739 487
811 840 49 63 2015 2016 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2017
COSTS REDUCED AND BALANCE SHEET STRENGTHENED Unit production costs Capital expenditure Net debt US$ per boe US$million US$million
8.07 7 682 682 2,731 14.14 13.15 4,004 6,128 10.35 3,300 8.45 4,381 4,749 3,492 1,288 625 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
2017 Sales volumes 2017 Production 2017 Sales revenue mmboe mmboe US$million Third-party product 25.0 LPG 1.2 Sales gas and ethane 26.7 LPG 88 Sales gas, Condensate 3.1 Condensate 235 ethane and LNG Oil 6.4 Oil 579 2,205
Own product 58.4 LNG 22.1
2017 Results
2013 2014 2015 2016 2017 Average realised oil price US$ per barrel Sales volume mmboe 58.5 63.7 64.3 84.1 83.4 Production mmboe 51.0 54.1 57.7 61.6 59.5 57.8 Average realised oil price US$/bbl 116.4 103.4 53.8 46.4 57.8 116.4 Net profit after tax US$million 499 -630 -1,953 -1,047 -360 103.4 Underlying net profit after tax US$million 487 523 49 63 336 53.8 Sales revenue US$million 3,483 3,641 2,442 2,594 3,107 46.4
Operating cash flow US$million 1,574 1,633 811 840 1,248 2013 2014 2015 2016 2017 EBITDAX1 US$million 1,926 2,076 1,454 1,199 1,428
Total assets US$million 18,407 18,281 15,949 15,262 13,706 1 EBITDAX (earnings before interest, tax, depreciation, depletion, exploration, evaluation and impairment), EBIT (earnings before interest and tax) and underlying profit are non-IFRS Earnings per share US cents 51.6 -64.4 -169.5 -58.2 -17.3 measures that are presented to provide an understanding of the performance of Santos’ operations. Underlying profit excludes the impacts of asset acquisitions, disposals and Dividends declared AUD cents 30 35 20 - - impairments, as well as items that are subject to significant variability from one period to the next including the effects of fair value adjustments and fluctuations in exchange rates. Number of employees 3,502 3,636 2,946 2,366 2,080 The non-IFRS financial information is unaudited, however, the numbers have been extracted from the audited financial statements. 4 Santos Shareholder Review 2017
Asset performance
Five core long-life natural gas assets
Cooper Basin Queensland Papua New Guinea
Spanning the borders of north-east South Australia GLNG incorporates the development of natural gas resources The PNG LNG project is an integrated development that and south-west Queensland, the Cooper and Eromanga in the Surat and Bowen Basins in south-east Queensland, a includes gas production and processing facilities that extend Basins house Australia’s largest onshore oil and gas field 420 kilometre underground gas transmission pipeline and a from the Hela, Southern Highlands, Western and Gulf development. Santos discovered the first commercial two-train liquefaction and storage facility on Curtis Island. provinces to Port Moresby in Central Province. The facilities natural gas resource here in 1963 and first oil in 1970. The first cargo was shipped in October 2015 and the plant is are connected by over 700 kilometres of onshore and offshore expected to ramp-up LNG sales to 6 mtpa by the end of 2019. pipeline and include a gas conditioning plant at Hides and a Santos now produces sales gas, ethane, crude oil and gas liquefaction and storage facility near Port Moresby. liquids from these basins. As operator, Santos is focussed on building gas supply by drilling more wells to increase production, seeking Liquefied Natural Gas (LNG) production began in April 2014. The Cooper Basin asset is strategically important, housing opportunities to extract value from our infrastructure key processing infrastructure at Moomba integral to the and driving efficiencies to operate at lowest cost. Santos continues to strengthen its position in PNG by working processing and transportation of gas around the east coast with our partners to align interests to support and participate of Australia, supported by substantial underground In addition to the GLNG acreage, Santos holds large in backfill and expansion opportunities at PNG LNG. storage facilities. uncontracted gas reserves in the Surat and Bowen Basins supportive of medium-term growth opportunities. The Muruk 2 appraisal well, 21 kilometres from the Hides Santos is committed to building production, investing in new gas conditioning plant, and the adjacent Karoma exploration technology and increasing the utilisation of our infrastructure prospect are expected to be drilled in 2018. to drive efficiencies and continue to deliver a low-cost, cash flow positive business.
Asset KPIs 2017 2016 Asset KPIs 2017 2016 Asset KPIs 2017 2016 Production (mmboe) 14.4 15.1 Production (mmboe) 11.5 9.5 Production (mmboe) 12.6 12.2 Sales volume (mmboe) 21.0 23.5 Sales volume (mmboe) 22.7 19.2 Sales volume (mmboe) 12.0 11.8 Revenue (US$m) 833 768 Revenue (US$m) 764 540 Revenue (US$m) 532 444 Production cost (US$/boe) 9.32 10.71 Production cost (US$/boe) 5.92 6.44 Production cost (US$/boe) 4.37 4.59 EBITDAX (US$m) 328 258 EBITDAX (US$m) 329 191 EBITDAX (US$m) 430 350 Capex (US$m) 199 173 Capex (US$m) 178 228 Capex (US$m) 18 8
+ EBITDAX 27% higher due to lower cost operations, + EBITDAX 72% higher due to increased upstream + EBITDAX 23% higher due to higher LNG prices, improved productivity and higher oil prices production, higher third-party volumes, lower cost strong operating performance and lower unit costs + Improved drilling cycle times have led to embedded operations and higher LNG prices + PNG LNG maximum day-rate of 8.9 mtpa achieved, and sustainable cost reductions + 89 LNG cargoes shipped 30% above nameplate capacity • Drill-stimulate-complete gas well costs down + Lowest cost operator in Queensland + 110 LNG cargoes shipped 33% to $2.8 million • Roma drill-complete-connect well costs down 44% + PNG LNG reserves upgrade due to continued strong Hides • Unit production costs down 13% to US$9.32/boe to $0.9 million field performance and improved LNG plant performance + Lower costs and renewed exploration focus expected • Unit production costs down 8% to $5.92/boe + Western area and Aure Fold Belt farm-ins announced, to lead to reserves additions over time + Agreements executed to evacuate uncontracted Eastern further aligning Santos’ interests in PNG with its joint- • 5 mmboe increase in 2P reserves before production Queensland gas venture partners in 2017 + Expect to drill 250 GLNG wells in 2018, up from 172 in 2017 + Muruk exploration well drilling program confirmed + Expect to drill 70–80 wells in 2018, up from 61 in 2017 the discovery of a potential new gas field
Queensland 0 100 200 km Gas pipeline Oil pipeline Rockhampton P’nyang South Australia Blackwater GLNG acreage GLNG Muruk & Karoma Papua New Guinea Emerald Mount Morgan Gladstone Juha Hides Santos Eastern Angore Eromanga " Queensland acreage Kutubu Mahalo Rolleston Ballera " Barikewa
"
Innamincka" Arcadia
" Thargomindah Gayndah " Fairview Taroom Moomba Injune Spring Gully Wandoan Scotia Roma PNG LNG Queensland Pandora Plant Wallumbilla Mitchell Roma Miles Chinchilla Proposed pipeline Port Moresby Gas pipeline Oil pipeline Gas pipeline Brisbane San os acreage Oil pipeline 0 100 200 km Santos acreage 0 100 200km Santos Shareholder Review 2017 5
Other
Northern Australia Western Australia Gas Asia, New South Wales
Located at Wickham Point, the Darwin LNG plant is a single Santos made its first discovery in the Carnarvon Basin in and Western Australia Oil train liquefaction and storage facility that commenced 1984 and today is well-positioned to leverage its established Santos’ Asian, New South Wales and Western Australia oil production in 2006. The Bayu-Undan production facility, which domestic gas hubs and strong portfolio position through assets are run separately as a standalone business. supplies gas to the plant via a 26-inch subsea pipeline, is uncontracted reserves and capacity to meet short- and located approximately 500 kilometres north-west of Darwin long-term demand. In Indonesia, gas from offshore East Java is sold for domestic in the Joint Petroleum Development Area of the Timor Sea. power generation and distribution and oil piped to a Floating Gas and condensate from the John Brookes and Spar fields Storage and Offloading (FSO) vessel for storage and export. The opportunity to backfill Darwin LNG is currently being is piped to the Varanus Island processing facility where the assessed by the partners in the project with the Barossa condensate is removed and the raw gas processed. The sales In Vietnam, oil is exported on crude offtake tankers and gas field in the Bonaparte Basin being progressed as the lead gas is then transported to mainland Western Australia via two transported via subsea pipelines for power generation to meet candidate. 100-kilometre pipelines and supplied to major mining and domestic demand from the offshore Chim Sáo and Dua fields industrial customers. via a Floating Production Storage & Offloading (FPSO) facility. Santos’ extensive offshore discovered resource positions across Northern Australia include the Crown-Lasseter Gas and condensate from the offshore Reindeer field is In the Carnarvon Basin, offshore Western Australia, Santos discoveries in the Browse Basin and the Petrel–Tern transported to the onshore Devil Creek processing plant via a produces oil from the Fletcher Finucane / Mutineer-Exeter discoveries in the Bonaparte Basin. This discovered resource 105-kilometre pipeline. Sales gas is then compressed and sent and Barrow assets. base is well positioned for backfill or expansion of existing to the Western Australia domestic gas market. infrastructure. In February 2017 an Environmental Impact Statement (EIS) was lodged for the Narrabri Gas Project and in November it was announced that the Project would re-enter the core portfolio on the 1 January 2018.
Asset KPIs 2017 2016 Asset KPIs 2017 2016 Asset KPIs 2017 2016 Production (mmboe) 4.0 4.2 Production (mmboe) 9.2 8.9 Production (mmboe) 7.7 11.8 Sales volume (mmboe) 4.0 4.2 Sales volume (mmboe) 9.4 8.8 Sales volume (mmboe) 7.7 11.7 Revenue (US$m) 153 145 Revenue (US$m) 262 184 Revenue (US$m) 346 411 Production cost (US$/boe) 18.95 17.58 Production cost (US$/boe) 5.82 5.11 Production cost (US$/boe) 15.91 14.06 EBITDAX (US$m) 87 86 EBITDAX (US$m) 201 206 EBITDAX (US$m) 223 246 Capex (US$m) 55 14 Capex (US$m) 37 24 Capex (US$m) 81 84
+ Darwin LNG continues to achieve excellent reliability + Higher production, sales volumes and revenues + Production and sales volumes lower primarily due to the and availability + Production costs higher primarily due to statutory sale of our Victorian, Mereenie (NT) and Stag (WA) assets + 51 LNG cargoes shipped shutdowns at Varanus Island and Reindeer + 8 mmboe 2P reserves increase in Asian assets + Capital expenditure higher due to a successful two-well + Two new gas sales agreements signed with Wesfarmers + Narrabri Gas Project Environmental Impact Statement appraisal campaign strengthening the Barossa field as lead commencing in 2018 submitted February 2017 and approvals process underway candidate for Darwin LNG backfill + Low cost operations with capacity and reserves to meet • Re-entered the core portfolio 1 January 2018 • Significant increase in 2C resource short- and long-term demand + Portfolio to be continually optimised to maximise value • Front End Engineering and Design (FEED) targeted for the second quarter of 2018 + Development study of the Petrel–Tern fields initiated
020 40 60 80 100km
Kupang Barossa Caldita
Bayu-Undan Reindeer
John Brookes Darwin
Petrel Darwin LNG Spar Dampier Tern East Spar Varanus Island Karratha Crown
Lasseter Devil Creek
Gas pipeline Gas pipeline Barossa proposed pipeline Onslow Oil pipeline
Facility acility 050 100 200km Santos acreage Santos acreage Non-core assets 6 Santos Shareholder Review 2017
The Transform phase focuses the business on The Grow phase focuses on opportunities to Our three-phase strategy to Transform, five core long-life natural gas assets. Portfolio execute and bring on-line growth opportunities Build and Grow the business continues to simplification coupled with a new disciplined across our core portfolio and explore new high- operating model has provided the business the value targets. In 2017 in Northern Australia we drive improved performance and further platform to focus on maximising production, initiated a development study of our offshore productivity gains. We remain committed driving down costs and increasing gas supply. Petrel–Tern fields in the Bonaparte Basin; in New As a result of these initiatives and higher South Wales we submitted the Environmental to this strategy and have been pleased to commodity prices, we have already witnessed Impact Statement for the Narrabri Gas Project witness significant progress ahead of plan. a substantial turnaround in free cash flow, and announced the reintroduction of the up 200% in 12 months. asset to the core portfolio; in PNG discussions continued with our joint-venture partners The Build phase identifies and develops regarding the potential expansion of PNG LNG; a portfolio of exploration and development and in the Cooper basin in 2018 we intend to opportunities around our five core assets. drill between 70 and 80 wells with three rigs to In 2017 we continued to strengthen our core grow production and in GLNG, we plan to drill asset positions. In PNG we increased our ~250 wells and ramp-up LNG sales to 6 million footprint by signing two farm-in agreements; tonnes by the end of 2019. in Northern Australia we successfully completed a two-well appraisal campaign which has positioned the offshore Barossa field as lead-candidate for Darwin LNG backfill; Transform and in Eastern Queensland we executed agreements to evacuate uncontracted Build gas from our non-GLNG acreage. Grow
+ Execute and bring on-line growth opportunities across the core portfolio + Focused exploration strategy to identify new high-value targets Grow and unlock future core assets + Generate new revenue through low-carbon Energy Solutions projects
+ Identify and develop growth opportunities across the five core long-life natural gas assets Build + Develop the lowest cost onshore drill-complete-connect business + Establish facilities and infrastructure operations strategic capability + Maximise margin through Marketing and Trading business
+ Focus on five core, long-life natural gas assets + Implement disciplined low-cost operating model to maximise cash flows Transform + Maximise production, drive down costs and increase gas supply + Implement effective governance and risk management framework to enable new operating model
The role of natural gas in a lower-carbon future
LOWERING EMISSIONS AND In addition, natural gas is used as a feedstock for Australia is one of the world’s largest exporters IMPROVING AIR QUALITY critical industries such as chemicals, fertilisers of natural gas via LNG. Assuming all of Santos understands the need to limit emissions. and plastics, and common household items such Australia’s forecast 85 million tonnes of LNG As global energy demand grows, the world must as food packaging and plastic bottles. Natural exports in 2020 have replaced legacy coal-fired support the twin objectives of limiting climate gas can displace higher-emission fuels such as power generation in Asia, then Australian LNG change and providing affordable energy to a diesel and marine fuels in road and rail transport reduces 300 million tonnes of global greenhouse growing and urbanised population. and shipping. gas emissions every year. To put this in context, 2018 Climate this emission reduction is three times the size Change Report MEETING GROWING ENERGY DEMAND Santos’ purpose is to provide sustainable returns of Australia’s 2030 annual emissions reduction for our shareholders by supplying reliable, As population grows and urbanisation provides target under the Paris Agreement. affordable and cleaner energy to improve the more people with access to electricity, demand lives of people in Australia and Asia. We believe for energy will continue to grow. The IEA When considering local air pollutants, such as that natural gas has a critical role to play in estimates that there are still 1.1 billion people in particulates, NOX and SOX, burning of natural To view Santos’ inaugural Climate providing energy in a lower-carbon future. the world who do not have access to electricity gas is significantly cleaner than coal and diesel. and 2.8 billion currently without access to clean Improving air quality is a priority for governments Change Report, please visit our website Natural gas is abundant, less emissions cooking facilities1. Around half of these people around the world as approximately 6.5 million at www.santos.com/sustainability intensive than other fossil fuels and can premature deaths each year can be attributed to are in developing Asia, where LNG (liquefied The Report outlines our approach to significantly improve air quality in urban air pollution.3 natural gas) imports from countries including climate change and is aligned with the centres due to its negligible particulate and Australia and PNG, will help to increase the recommendations of the G20’s Task Sulphur Oxides (SOX) emissions, and low Santos’ scale of natural gas operations in supply of reliable, affordable and cleaner energy. Force on Climate-Related Financial Nitrogen Oxides (NOX) emissions. Australia, low-cost onshore business model and CLEANER SUPPLY TO MEET DEMAND proximity to Asian markets makes Santos well Disclosures (TCFD). Natural gas provides the flexible, scalable placed to help meet Asian energy demand while Today, around half of the world’s 50 billion dispatchable energy required to support the lowering emissions and improving air quality. tonnes of greenhouse gas emissions come from 1. IEA, Energy Access Outlook 2017. integration of renewable power generation. 2. APPEA, How natural gas can minimise greenhouse emissions. Asia. When used in power generation, natural 3. IEA, World Energy Outlook Special Report 2016: gas is 50% less carbon intensive than coal.2 Energy and Air Pollution. Santos Shareholder Review 2017 7 Board of Directors
1 3 5 7
2 4 6 8
INTRODUCING served on Board of Verve and During his 13-year tenure with appointed alternative director of Technological Sciences and COMMITTEES OF THE BOARD 1. KEITH SPENCE Synergy, which operate in the Woodside, Kevin led the drilling Woodside between 1992 and 1995. Engineering. Audit and Risk Committee Chairman West Australian energy market. organisation through rapid growth, In addition, through his role delivering several Australian and Guy had a 23-year career with Vanessa was the former MD & Keith joined the Santos Board on Mr G Cowan (Chair) as Chairman of Geodynamics international development projects Shell International including CFO CEO of Toro Energy Limited and 1 January 2018 and was appointed Ms Y Allen Limited, he has developed a good and exploration campaigns. He and Director of Shell Oil US and VP Sustainable Development at Chairman on 19 February 2018. Mr H Goh CFO of Shell Nigeria. He was also Woodside Energy. knowledge of renewable energy also led the Australian Oil Business Mr E Shi CFO of Fonterra Co-operative Ltd. Keith has over 40 years’ technologies. and was the CEO of the North 7. PETER HEARL experience in managing and West Shelf Venture at Woodside, Nomination Committee Keith was also Chairman 5. HOCK GOH governing oil and gas operations where he was responsible for Peter has been a Director since of NOPSEMA, the National in Australia, Papua New Guinea, production on Australia’s largest Hock has been a Director since May 2016. Mr K Spence (Chair) Offshore Petroleum Safety and the Netherlands and Africa. resource project. October 2012. Ms Y Allen Environmental Management Peter is a current Director of Mr H Goh A geologist and geophysicist by regulator, for seven years from Kevin joined Clough Limited as Hock is the current Chairman of Telstra Ltd and former Director Mr P Hearl training, Keith commenced his 2010-2017. CEO and Managing Director in MEC Resources Ltd and Advent of Treasury Wine Estates and career as an exploration geologist 2011, and during his 4-year tenure Energy Ltd, and a Director of Stora Goodman Fielder. People and Remuneration Keith led the Commonwealth with Woodside Petroleum Limited he implemented strategies that Enso Oyj, AB SKF, Harbour Energy Committee government’s Carbon Storage in 1977. He subsequently joined transformed the business. and Vesuvius PLC. Hock was Peter had an 18-year career in Taskforce reporting to the Ms Y Allen (Chair) Shell (Development) Australia, formerly a Director of BPH Energy the oil industry with Exxon in Minister for Resources, Energy 3. YASMIN ALLEN Mr P Hearl where he worked for 18 years. Ltd, an Operating Partner of Baird Australia and the USA and was and Tourism. He also chaired the Mr E Shi In 1994 he was seconded to Yasmin has been a Director Capital Partners Asia and Director also the global Chief Operating Independent Assessment Panel Woodside to lead the North West since October 2014. of Xaloy Holding Inc. & Development officer for YUM for the Carbon Capture and Environment, Health, Safety Shelf Exploration team in making Brands (formerly PepsiCo) based Storage Flagships programme. and Sustainability Committee seven consecutive commercial Yasmin is a current Director of Hock has more than 30 years’ in the USA. discoveries, including the giant Cochlear Limited, ASX Limited, experience in the global oil and gas Keith also has a deep knowledge 8. EUGENE SHI Mr P Hearl (Chair) Perseus gas field. In 1998, he left the ASX Clearing and Settlement industry, having spent 25 years in workforce development, having Mr K Gallagher Shell to join Woodside. He retired boards, the National Portrait with Schlumberger Limited, Eugene has been a Director since served as a member of the Mr H Goh from Woodside in 2008 after a Gallery and is a member of including as President of Network June 2017. Board of Australian Workforce Dr V Guthrie 14-year tenure in top executive the George Institute for Global and Infrastructure Solutions and Productivity Agency, the positions in the company, including Health Board and the Australian division in London, President Eugene has more than 20 years State Training Board of Western Chief Operating Officer and Acting Government Takeovers Panel. of Asia, and Vice President and of professional experience Australia, the Curtin University Chief Executive Officer. Upon General Manager of China. covering Energy, Health Care, Council and the Industry Advisory his retirement he took up several Yasmin was former Chair of Retail and Finance in Europe and Board of the Australian Centre for 6. DR VANESSA GUTHRIE board positions, including Clough Macquarie Global Infrastructure the Asia-Pacific. His specialties Energy and Process Training. Limited, where he served as Funds and Director of EFIC Vanessa has been a Director include capital operation, M&A (Export, Finance and Insurance and restructuring, strategy, Chairman from 2010-2013 and Oil 2. KEVIN GALLAGHER since July 2017. Corporation), Insurance Australia value management, and cost Search Limited, where he served Managing Director & Group Limited and the Australian Vanessa is the current Chair of optimisation. as a Non-executive director from Chief Executive Officer 2012 to 2017. Institute of Company Directors. the Minerals Council of Australia, Kevin joined Santos as Managing Deputy Chair of the WACA, Eugene is currently Vice Keith has a broad knowledge of Director & Chief Executive Officer 4. GUY COWAN a Director of the Australian President of ENN Ecological and the oil and gas industry, having in February 2016. Guy has been a Director since Broadcasting Corporation and General Manager of Investment worked across most aspects of May 2016. Vimy Resources Limited, and Management Department the oil and gas business cycle A turnaround specialist with Council member of Curtin ENN Group. He is the former from exploration and appraisal to a track record in transforming Guy is currently Chair of University. She is also a member Department Head of Business development and construction, underperforming operations, Kevin Queensland Sugar Limited and of the Australian Institute of Performance Service with KPMG operations and oil and gas commenced his career as a drilling former Director of UGL Limited, Company Directors and Chief China and Transformation Service marketing. He has experience engineer with Mobil North Sea, Coffey International and Ludowici Executive Women, and a Fellow with KPMG Europe. in the energy sector, having before joining Woodside in 1998. Limited. He was also the Shell of the Australian Academy of
Santos Executive Committee 2 4 6 8
1 3 5 7 9
1. KEVIN GALLAGHER 2. PHILIP BYRNE 4. ANGUS JAFFRAY 6. ANTHONY NEILSON 8. VINCE SANTOSTEFANO Managing Director & CEO Executive Vice President, Executive Vice President, Chief Financial Officer Chief Operations Officer, Marketing, Trading & Strategy & Corporate Services Operations Services Please see Board of Directors. Joined Santos in 2016 and is Commercial Joined Santos in 2016 and is responsible for the finance, tax, Joined Santos in 2016 and is Joined Santos in August 2017 and responsible for the delivery of treasury and investor relations responsible for the provision of is responsible for the marketing the organisation’s long-term functions. technical and operational services and trading of all Santos gas, LNG strategic plan while maintaining to increase the scale and strategic and liquid hydrocarbon products as quality corporate support services 7. BILL OVENDEN value of Santos’ assets. well as the commercial function. including human resources and Executive Vice President, information systems. Exploration & New Ventures 9. BRETT WOODS 3. BRUCE CLEMENT Executive Vice President, Joined Santos in 2002 and is Executive Vice President, 5. NAOMI JAMES Onshore Upstream Division responsible for developing and Conventional Oil & Gas Executive Vice President, executing a targeted exploration Joined Santos in 2013 and is EHS & Governance Joined Santos in 2016 and is and appraisal strategy across responsible for the development Full Director and Santos responsible for building and Joined Santos in 2016 and is Santos’ core asset hubs, while and growth of Santos’ onshore Executive Committee growing Santos conventional responsible for Santos’ risk and identifying new high value upstream assets including the biographies are available assets across Papua New Guinea, audit, legal, company secretary, exploration targets. Cooper Basin, GLNG and Narrabri. on the Santos website: Northern Australia, Western environment and access and Australia and Asia. safety functions, and Chairs the GLNG Project Operating www.santos.com Committee. 8 Santos Shareholder Review 2017 Investor information Shareholder calendar
Santos Limited SHAREHOLDING ENQUIRIES 2017 Fourth Quarter Activities Report 24 Jan 2018 ABN 80 007 550 923 Boardroom Pty Limited 2017 Full-year results 21 Feb 2018 REGISTERED AND HEAD OFFICE GPO Box 3993 Sydney NSW 2001 2018 First Quarter Activities Report 19 Apr 2018 Ground Floor Santos Centre Annual General Meeting 3 May 2018 60 Flinders Street Website: www.boardroomlimited.com.au Adelaide SA 5000 Shareholder Access: www.investorserve.com.au 2018 Second Quarter Activities Report 19 Jul 2018 Australia Telephone: 1300 096 259 (within Australia) 2018 Half-year results 23 Aug 2018 + 61 2 8016 2832 (International) GPO Box 2455 2018 Third Quarter Activities Report 18 Oct 2018
Adelaide SA 5001 INVESTOR ENQUIRIES Dates are subject to change Telephone: +61 8 8116 5000 Investor Relations, Santos Ltd Facsimile: +61 8 8116 5050 GPO Box 2455 Website: www.santos.com Adelaide SA 5001
SECURITIES EXCHANGE LISTING Telephone: 08 8116 5000 Email: [email protected] STO Website: www.santos.com
SANTOS WEBSITE UPDATE YOUR DETAILS ONLINE To view news announcements, company To update your address, payment instructions, reporting and presentations please visit the dividend reinvestment plan options, tax file Investors page at www.santos.com/investors number, e-communication preferences, 2017 ANNUAL REPORT email address and more, please visit www.investorserve.com.au or telephone To view a copy of our 2017 Annual Report 1300 096 259 (within Australia) or please visit our website at www.santos.com or + 61 2 8016 2832 (International) alternatively, printed copies can be requested from the Share Registrar either by email at [email protected] or by telephone 1300 096 259 (within Australia) or + 61 2 8016 2832 (International)
To download the 2017 Annual Report please visit the Santos website: www.santos.com
Glossary
barrel/bbl crude oil LPG CONVERSION FACTORS The standard unit of measurement for all oil and A general term for unrefined liquid petroleum or Liquefied petroleum gas. A mixture of light Sales gas and ethane 1 PJ = 171.937 boe x 10³ condensate production. One barrel = 159 litres or hydrocarbons. hydrocarbons derived from oil-bearing strata Crude oil 1 barrel = 1 boe 35 imperial gallons. EBITDAX which is gaseous at normal temperatures but barrel of oil equivalent/boe Earnings before interest, tax, depreciation, which has been liquefied by refrigeration or Condensate 1 barrel = 0.935 boe A unit of energy approximately equal to the depletion, exploration and impairment. pressure to store or transport it. Generally, LPG LPG 1 tonne = 8.458 boe comprises mainly propane and butane. energy released by burning one barrel (159 litres) free cash flow LNG 1 PJ = 18,040 tonnes of crude oil. proven plus probable reserves (2P) Cash flow from operating activities less cash LNG 1 tonne = 52.54 mmBtu condensate flow from investing activities. Reserves that analysis of geological and A natural gas liquid that occurs in association engineering data suggests are more likely than For a comprehensive online conversion free cash flow breakeven not to be recoverable. There is at least a 50% calculator tool, please visit our homepage at with natural gas and is mainly composed of The average annual oil price at which cash flow pentane and heavier hydrocarbon fractions. probability that reserves recovered will exceed www.santos.com from operating activities (including hedging) proven plus probable reserves. contingent resources (2C) equals cash flows from investing activities. Those quantities of hydrocarbons which are Excludes one-off restructuring and redundancy Sales gas estimated, on a given date, to be potentially costs, and asset divestitures and acquisitions. Natural gas (methane) that has been processed recoverable from known accumulations, but by gas plant facilities and meets the required joules specifications under gas sales agreements. which are not currently considered to be Joules are the metric measurement unit commercially recoverable. Contingent resources for energy. A petajoule (PJ) is equal to Train (LNG) may be of a significant size, but still have 1 joule × 1015. The infrastructure that purifies and cools natural constraints to development. These constraints, gas to a liquid state ready for transport. preventing the booking of reserves, may relate LNG to lack of gas marketing arrangements or to Liquefied natural gas. Natural gas that has been technical, environmental or political barriers. liquefied by refrigeration to store or transport it. Generally, LNG comprises mainly methane.
Designed and produced by www.twelvecreative.com.au