Santos Limited · ASX:STO
Santos — Investor Day (December 2016)
65 slides from Santos's investor day presentation, Dec 8, 2016
Slide 1: ASX / Media Release
ASX / Media Release 8 December 2016 Santos announces new strategy to drive shareholder value Santos today outlined its new strategy to drive sustainable shareholder value by becoming a low-cost, reliable and high performance business. Speaking at the company’s I nvestor Day in Sydney, Santos Managin
Slide 2: Santos 2016 Investor Day
Santos 2016 Investor Day 8 December 2016 1
Slide 3: Disclaimer and important notice
Disclaimer and important notice This presentation contains forward looking statements that are subject to risk factors associated with the oil and gas industry. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a range of variables which c
Slide 4: Introduction and overview
Introduction and overview Kevin Gallagher Managing Director and CEO 3
Slide 5: Overview
Overview Driving sustainable shareholder value by becoming a low-cost, reliable and high performance business. Strategy summarised as three stories + Turnaround story starting to deliver + free cash flow breakeven1 US$39/bbl, down from US$47/bbl + Portfolio simplification story and focus to drive im
Slide 6: Agenda
Agenda Session 1 Strategy, Markets and Finance Presenter 9:00 Welcome Andrew Nairn 9:05 Overview Kevin Gallagher 9:15 Strategy Kevin Gallagher 9:50 Marketing John Anderson 10:05 Finance & Capital Management Andrew Seaton 10:20 Q&A - Session 1 Kevin Gallagher 10:35 Morning Tea Session 2 5 Core Long-L
Slide 7: 2016 in review
2016 in review Strong progress made to stabilise the business, reduce costs and strengthen the balance sheet. More to be done Stabilise the business Reduce costs Strengthen the balance sheet + Excom appointed + Free cash flow breakeven + Net debt reduced by US$39/bbl, down from US$455 million1 + Foc
Slide 8: GLNG update
GLNG update Transforming GLNG to deliver steady-state operations and a cash flow positive business CEO Asset Review 2016 Historical Improved Right team and upstream understanding of field development Ramp-up development field performance plans in place + Upstream + Fairview production + Strong techn
Slide 9: Turnaround strategy starting to deliver
Turnaround strategy starting to deliver Free cash flow breakeven reduced to US$39/bbl, down from US$47/bbl + Santos free cash flow 2016 YTD free cash flow (before asset sales) as at 30 November 2016 US$million positive for each of the last seven months 150 + Strong operating -US$164m US$266m perform
Slide 10: Strong safety performance has been maintained
Strong safety performance has been maintained Lowest three-year rolling average lost time injury frequency rate (LTIFR) in five years, with a number of operations achieving record LTI free periods Lost Time Injury Frequency Rate three year rolling average January 2012 – November 2016 Rate per millio
Slide 11: Strategy
Strategy Kevin Gallagher Managing Director & CEO 10
Slide 12: Three phase strategy
Three phase strategy Disciplined, focused strategy to drive shareholder value Grow + Develop and execute new Build exploration plays + find and unlock sixth core Transform + Develop core portfolio long-life natural gas asset + progress growth opportunities + Focus on five core long-life natural gas
Slide 13: Focus on five core long-life natural gas assets
Focus on five core long-life natural gas assets Portfolio simplification to drive improved performance and further productivity gains Cooper Basin GLNG PNG Northern Australia WA Gas + Five core long-life natural gas assets provide: + stable production + a portfolio that targets free cash flow breake
Slide 14: Operating model
Operating model Establish midstream facilities and infrastructure business. Target lowest-cost Australian onshore operations Exploration Development Production Commercial Non-core assets Core asset Non-operated Operated facilities & Marketing & Upstream onshore focus LNG & domestic gas infrastructur
Slide 15: Creating a low-cost business
Creating a low-cost business Transform GLNG and Cooper Basin upstream cost base and improve returns from existing infrastructure. Focus on maximising operating cash flow to reduce debt Upstream onshore Operated facilities & infrastructure + Establish low-cost, highly efficient ‘drill- + Establish mi
Slide 16: Maximise operating cash flow to reduce debt
Maximise operating cash flow to reduce debt Targeting US$1.5 billion reduction in net debt by end 2019 + Net debt reduced by US$455 million to Net debt profile US$4.3 billion as at 30 November 2016 US$billion + Target US$1.5 billion reduction in net 0.5 debt by end 2019 via: + growth in operating ca
Slide 17: Run non-core assets for value
Run non-core assets for value Packaged and run separately as a standalone business + Bruce Clement appointed Vice President to run standalone non-core assets, based in Onshore Offshore Sydney Asia Australia Australia + Producing assets provide near- + Indonesia + Narrabri + Mutineer Exeter / term po
Slide 18: Build and grow
Build and grow Develop core portfolio and focused exploration strategy and capability Develop core portfolio Focused exploration + Progress brownfield + Identify additional gas growth opportunities supply to drive value from across higher margin five core long-life gas conventional assets assets + P
Slide 19: Summary
Summary Driving sustainable shareholder value by becoming a low-cost, reliable and high performance business. Strategy summarised as three stories + Turnaround story starting to deliver + free cash flow breakeven1 US$39/bbl, down from US$47/bbl + Portfolio simplification story and focus to drive imp
Slide 20: Marketing
Marketing John Anderson Executive Vice President Commercial & Business Development 19
Slide 21: Global oil – supply and demand outlook
Global oil – supply and demand outlook Global oil demand is growing faster than supply, the market is returning to balance + Global supply growth Global oil supply and demand million barrels/day Forecast has slowed in 2016, driven by cuts in capital Supply 97.4 spending Demand 97.0 + Demand growth i
Slide 22: Global LNG – supply and demand outlook
Global LNG – supply and demand outlook Strong demand growth into the next decade will quickly counter short-term oversupply. Asia Pacific demand growth driven by non-traditional markets Global LNG supply and demand + Santos’ contracted LNG mtpa position minimises exposure to weak spot 500 prices dur
Slide 23: LNG pricing
LNG pricing Santos’ LNG portfolio is underpinned by long-term, high value contracts with quality Asian buyers Santos 2016 YTD October LNG cargoes by project Santos LNG contract pricing US$/MMBtu FOB 16 24% 31% 45% 12 US$/MMBtu GLNG PNG LNG DLNG Santos 2016 YTD October LNG cargoes by type 8 7% 7% 4 8
Slide 24: Santos LNG projects
Santos LNG projects Established relationships and reliable performance provide the foundation to grow Santos’ supply of LNG into Asia Upstream Midstream Growth Cost competitive brownfield Field production greater than Additional LNG sales due to expansion PNG LNG forecast performance above nameplate
Slide 25: Australian domestic gas
Australian domestic gas Santos has opportunities in both Eastern and Western markets with existing infrastructure and supply portfolio Western Australia Eastern Australia + Robust domestic demand + Gas critical to electricity system supported by large mining security and industrial buyers + Supply d
Slide 26: Finance and Capital Management
Finance and Capital Management Andrew Seaton CFO 25
Slide 27: Improving cash flow and reducing debt
Improving cash flow and reducing debt Net debt reduced by US$455 million to US$4.3 billion as at November 2016 + Free cash flow positive for each of the last seven months (US$266 million) 2016 YTD movement in net debt + Free cash flow breakeven at <US$40/bbl US$million + Cash balance US$1.3 billion1
Slide 28: Limited drawn debt maturities until 2019
Limited drawn debt maturities until 2019 Debt structure provides flexibility Drawn debt maturity profile as at 30 November 20161 Breakdown of drawn debt facilities US$million as at 30 November 2016 1,800 Euro hybrid notes mature in 2070, with Santos option to 1,600 1,572 redeem on 22 September 2017
Slide 29: Hedging reduces impact of commodity price volatility
Hedging reduces impact of commodity price volatility Significant oil price leverage remains 2017 Zero-cost three-way collar hedge + 11 million barrels hedged in 2017 using zero-cost three- $65 way collars Long Put $60 US$50 Short Put 4,385 + Hedging structure provides US$40 Realised Price (US$/bbl)
Slide 30: Guidance
Guidance After adjusting for asset sales, 2017 sales volumes expected to be between 73 and 80 mmboe and production to be between 55 and 60 mmboe 2016 Guidance 2016 Guidance Sales volumes 81-83 mmboe + sales volumes expected to be at the top end of the range and production Production 60-62 mmboe expe
Slide 31: Capital expenditure guidance
Capital expenditure guidance 2016 capex guidance reduced to US$640 million from US$700 million 2017 capex guidance US$700-750 million Full-year capital expenditure US$million 2016F 2017F US$million 3,500 Cooper Basin 175 200-225 GLNG - upstream 105 150-1751 3,300 3,000 GLNG – pipeline and plant 100
Slide 32: Development – GLNG & Cooper
Development – GLNG & Cooper Brett Woods Vice President Development
Slide 33: GLNG upstream overview
GLNG upstream overview Driving a culture of rapid learning and lowest cost execution Efficiencies and Strong Fairview Field development Increased drilling activity cost out performance + Subsurface led + 66% reduction in + Drilling rig count + Production remains development plan drilling costs, 74%
Slide 34: Roma development
Roma development 2014-2016 development pace impacted by capital deferral + Historical development infrastructure led + high proportion of edge wells + Roma East contains the best quality coal and this is yet to be developed + Gas ramp-up delayed due to + capital deferral in 2014-2016 + 50% of drille
Slide 35: Roma developed area simulation 2006-2016
Roma developed area simulation 2006-2016 34 | Santos 2016 Investor Day
Slide 36: Roma reservoir development plan
Roma reservoir development plan Subsurface led development plan in place Raslie + Strong gas fundamentals in Raslie Raslie well remediation + Independent reserves assessment shows Gas rate (mscf/day)/water rate (bbl/day) no change in the Raslie area 1,500 + Remediation plans being executed + Future
Slide 37: Fairview development
Fairview development Fairview production performing well, planning underway for additional enhancements in future developments + Fairview is a world-class gas field with areas Fairview production of high deliverability Average gas rate mmscf/day 500 + The change in optimum field capacity has no impa
Slide 38: GLNG development
GLNG development Right team and improved development plans in place to deliver highest productivity at lowest unit cost Roma drill, complete and connect costs per well + Future development plans Cost reference comparison (%) + subsurface led + concentric development to optimise learnings and acceler
Slide 39: Cooper development
Cooper development Cooper cost-out creates opportunity for higher future reserves Wells drilled with 2 rigs 2015 – 2017 Gas program performance1 No of wells Well cost (US$million) Initial rate (mmscf/day) 7 2.0 6 +74% 1.5 5 4 47 1.0 6.6 39 3 31 4.8 27 2 4.2 3.2 0.5 1 0 0.0 2014A 2015A 2016F 2017F 20
Slide 40: Operations – GLNG & Cooper
Operations – GLNG & Cooper Vincent Santostefano Chief Operations Officer
Slide 41: Target lowest-cost onshore Australian operations
Target lowest-cost onshore Australian operations Transforming Cooper & GLNG to low cost, efficient drill-complete-connect-operate businesses + Long term, disciplined approach to integrated asset management Discipline + Competitive capital allocation mechanism focused on value creation + All assets r
Slide 42: GLNG upstream operations
GLNG upstream operations Driving efficiencies and reducing costs to develop and operate at lowest cost Upstream unit production cost1 US$/GJ + 75% reduction in upstream unit production cost + 95% uptime for field and compression -75% + 35% reduction in workover unit costs 2.98 + Updated operating mo
Slide 43: GLNG midstream operations
GLNG midstream operations 64 LNG cargoes delivered in first 12 months of operation + Train 2 + start-up delivered to schedule May 2016 + practical completion achieved August 2016 + Train 1 shutdown successfully completed to plan October 2016 + High plant reliability (Train 1 95% / Train 2 86% Sept Y
Slide 44: Cooper operations
Cooper operations Transforming the Cooper to deliver a low cost, cash flow positive business Facilities & infrastructure capex Production cost US$million (gross) US$million (gross) US$/boe 400 18 16 16 350 12.8 14 300 11 12 -83% 250 9.8 10 203 200 390 8 138 150 292 250 6 100 204 4 50 2 39 35 0 0 201
Slide 45: PNG, Northern Australia and WA Gas
PNG, Northern Australia and WA Gas Brett Woods Vice President Development 44
Slide 46: Papua New Guinea
Papua New Guinea Working with partners to align interests to support expansion opportunities + Strengthen and consolidate Santos position + acreage footprint supportive of long-term commitment to the region Muruk Hides + ExxonMobil continues to deliver excellent Papua New Guinea PNG LNG operating pe
Slide 47: Northern Australia
Northern Australia Darwin LNG operating at record capacity, backfill opportunities being progressed + ConocoPhillips continues to deliver strong DLNG production + DLNG operating at record annualised capacity of ~4 mtpa + Detailed plans for infill drilling in Bayu Undan to deliver additional feed gas
Slide 48: Northern Australia
Northern Australia Extensive discovered resource to backfill and expand existing LNG infrastructure + Santos’ extensive discovered resource position across Northern Australia includes Barossa Caldita Potential + Barossa-Caldita (Santos 25%) Bayu-Undan B-C Pipeline NT/P 85 + Petrel-Tern (Santos 35-40
Slide 49: WA Gas
WA Gas Established domestic gas hubs provide capacity to meet short and long-term demand + Santos in two WA domestic gas hubs: Varanus Island and Devil Creek + Strong relationship with operator Quadrant Energy + Robust domestic demand supported by large industrial buyers – supply deficit emerging ea
Slide 50: Exploration
Exploration Bill Ovenden Vice President Exploration Muruk-1 PNG Highlands 49
Slide 51: 2016 Exploration drilling activity
2016 Exploration drilling activity Successful near field exploration drilling program in WA, Cooper and Indonesia. Strickland-1 (PNG) P&A, Muruk-1 drilling Muruk-1 Recent entry. Material gas prospect proximal to Hides field Melewis-1 Near field gas discovery for backfill of Maleo facilities in East
Slide 52: Exploration strategy
Exploration strategy Emphasis on five core assets Support 5 PNG core gas assets Nth Aus Core through high value exploration McArthur Unlock next WA Gas core gas Exploration Growth asset for GLNG Strategy longer term Amadeus growth Cooper Leverage & develop Capability core exploration expertise Santo
Slide 53: Papua New Guinea
Papua New Guinea Seeking alignment with PNG LNG partners in every tcf+ scale opportunity P’nyang Muruk Strickland Hides Juha Angore Barikewa Elk-Antelope + Exceptional yet-to-find potential + Pre-drill alignment with PNG LNG partners Pandora PNG LNG + Muruk: recent Santos entry, material gas prospec
Slide 54: Northern Australia - offshore
Northern Australia - offshore Grow existing resource position to underpin core LNG growth Barossa Caldita Potential Bayu-Undan NT/P 85 B-C Pipeline + Brownfield LNG backfill and expansion space DLNG Ichthys + Strong growth portfolio to Petrel Fishburn leverage position Frigate Crown Prelude Tern + E
Slide 55: WA Gas
WA Gas Exploration opportunities aligned to WA domestic gas infrastructure + Recent high-value near field exploration success + Davis-1, adjacent to John Davis John Brookes Brookes Spartan + Spartan-1, within tie-back range Varanus Island to Varanus Island WA-510-P Devil + Aligned strategy with Quad
Slide 56: Onshore Australia exploration
Onshore Australia exploration Focused strategy to find new resources for Cooper and GLNG core assets McArthur Queensland + Ongoing alignment in + Multi-tcf prospective resource exploration with GLNG position analogous to US shale partners plays Santos + Scale to satiate east coast demand acreage McA
Slide 57: Onshore Australia - McArthur Basin
Onshore Australia - McArthur Basin Very large in-place gas resource in mid-Velkerri shale play Potential east coast gas supply DLNG EP 189 EP 162 McArthur Basin EP 161 56 | Santos 2016 Investor Day
Slide 58: Onshore Australia – Amadeus Basin
Onshore Australia – Amadeus Basin Target Amadeus conventional sub-salt play opener Potential east coast gas supply South Murphy-1 North Detached Petermann Orogeny faults Petermann Unconformity Gillen Salt Central Near Top Heavitree High Lead 10 km + Proven sub-salt petroleum system (gas flows from A
Slide 59: 2017 Exploration program
2017 Exploration program 2017 capex focused on core business positions Magnama-2 + Wells + Muruk-1 + Magnama-2 Muruk-1 + Cooper NFE + Seismic PNG 2D & 3D Nth Aus Seismic + Bonaparte 2D and 3D + Carnarvon 3D Carnarvon 3D + Amadeus 2D WA Gas GLNG Amadeus 2D + Cooper 2D and 3D Cooper Ongoing NFE Progra
Slide 60: Wrap-up
Wrap-up Kevin Gallagher Managing Director and CEO 59
Slide 61: Appendix
Santos 2016 Investor Day Appendix 60
Slide 62: Liquidity and net debt as at 30 November 2016
Liquidity and net debt as at 30 November 2016 US$3.6 billion in cash and committed undrawn debt facilities Liquidity (US$million) 30 November 2016 Cash 1,258 Undrawn bilateral bank debt facilities 2,341 Total liquidity 3,599 Debt (US$million) Export credit agency supported loan facilities Senior, un
Slide 63: GLNG reference data – infrastructure & commercial
GLNG reference data – infrastructure & commercial + Midstream infrastructure + ConocoPhillips Optimised Cascade Liquefaction technology + 2 x 3.9 mtpa LNG trains (7.8 mtpa nameplate capacity) GLNG plant + 2 x 140,000m3 storage tanks + 360 metre loading jetty; 4 loading arms + Train 1 September 2015
Slide 64: GLNG reference data - upstream
GLNG reference data - upstream + Wells Production area Total development wells drilled Total wells connected to sales Fairview 438 435 Roma 379 295 Scotia 38 26 Arcadia 13 13 Total 868 769 as at 30 November 2016 + Drilling Steady state operations Average drilling rate ~250-300 wells per annum Averag
Slide 65: GLNG reference data – third party gas supply
GLNG reference data – third party gas supply + Third party gas supply Quantity Rate Supplier From Term Price basis PJ TJ/day Santos portfolio 750 140 2015 15 years Oil-linked ‘Horizon’ Origin 365 100 2015 10 years Oil-linked Origin 1941 50-1001 2016 5 years Oil-linked 10-15 2015 7 years Other suppli