Slide 1: Santos 2003 Interim Results
Introduction Santos 2003 Interim Results John Ellice-Flint Managing Director Santos Ltd 20 August 2003
Slide 2: First Half Results — A Period of Significance for Santos
Slide 1 — First Half Results — A Period of Significance for Santos Good morning everyone. | would also like to add my warm welcome to everyone listening to today’s results presentation. The past half-year has been a period of significance for Santos. The progress with cornerstone projects and gas co
Slide 3: Bayu-Undan
Slide 2 - Bayu-Undan As you walked in you saw pictures of the progress on Bayu-Undan. The 1.5 billion US dollar LNG stage of the project was approved only two months ago. Santos, with a 10.6 percent interest, is the only Australian company involved. This cements Santos’ position on the world LNG mar
Slide 4: Mutineer Exeter Development
Slide 3 — Mutineer Exeter Development Solid progress was also made on the Mutineer-Exeter oil field project in the Carnarvon Basin off Western Australia. Within the next two months we expect to select the major contract for the Floating, Production, Storage and Offtake Facility, or FPSO for short. M
Slide 5: East Java Drilling
Slide 4 — Slide of East Java Drilling Another significant development for Santos was in South East Asia, with the first gas sales agreement for our new energy business. This breakthrough came early in the half year when we entered into a Memorandum of Understanding for the sale of the entire gas res
Slide 6: Underlying Profit and Cash Flow Up
Slide 5 — Underlying Profit and Cash Flow Up This slide shows the financial scorecard for the half. The bottom line was a fall in net profit of 17 percent to 136 million dollars, mainly due to exploration write-downs. This net result is not an accurate reflection of the continuing underlying strengt
Slide 7: In summary, it's a mixed scorecard
In summary, it’s a mixed scorecard. The exploration write-offs have masked the progress we are making but a more material program is essential for growth. The result does however show the strength of our base business and our strong cash flow, which is being assisted by the continuing strength in oi
Slide 8: Oil Price Remains Strong
Slide 6 — Oil Price Remains Strong This chart shows the Tapis oil price, which is our benchmark, in both US and Australian dollars. While US dollar prices have eased somewhat since the Iraq war, they are still around 30 dollars a barrel. In Australian dollar terms, the oil price is still over 45 dol
Slide 9: Significant Operational Achievements
Slide 7 — Significant Operational Achievements Turning to our operational scorecard, gas commercialisation has been the highlight of the year to date, with 350 petajoules of gas, Santos share, contracted since the first of January 2003. This does not include the 300 petajoules Santos share in the AG
Slide 10: Onshore gas deliverability, OCA divestment and cost savings
Onshore we also added 27 terajoules per day of net gas deliverability. The highlight in acquisitions and divestments, achieved last month, was shaking loose our holding in Oil Company of Australia. This is a passive investment which Santos has held since 1987. We are currently assessing the bid from
Slide 11: Bayu Undan Project
Slide 8 - Bayu Undan Project As | have mentioned, we made significant progress during the half with our two largest development projects, Bayu-Undan and Mutineer-Exeter. The Bayu-Undan project is running smoothly and we are well on our way to achieving our target of first liquids production in the s
Slide 12: Bayu-Undan DPP
Slide 9 - Bayu-Undan DPP The slide on the screen shows the Blue Marlin back in Korea loading the even heavier deck, the 14,000 tonne Drilling, Production and Processing deck or DPP, which is currently in transit to Bayu Undan. Good progress has also been made on drilling the first of the project's 1
Slide 13: Progress on the LNG Project
Progress is already being made on the LNG Project. Manufacture of the 500 kilometre pipeline has commenced, with the first shipment scheduled for next month. Clearing and levelling of the Wickham Point site for the LNG Plant is also underway. The first cargo is scheduled for the first half 2006. 13
Slide 14: Mutineer-Exeter
Slide 10 — Mutineer-Exeter We have also made good progress on the Mutineer Exeter oil field development. As you can see from this schematic, we will be using a stand alone FPSO with the capacity to hold between 600 thousand and a million barrels of oil. Two suppliers have been shortlisted for the FP
Slide 15: Safeguarding earliest start-up dates
In order to safeguard the earliest possible start-up dates, commitments have already been made for long lead equipment such as subsea wellhead systems. This will allow development drilling to commence by second quarter 2004. 15
Slide 16: Contracting More Gas
Slide 11 — Contracting More Gas | mentioned earlier that we have commercialised 350 petajoules of gas since January. If we take this back to December the total is 650 petajoules, Santos share. This is the largest volume of gas contracted by the Company in any 12 month period since the original AGL c
Slide 17: Maleo and Casino gas commercialisation
Another priority is to commercialise the Maleo gas field in Indonesia, which will add around 180 petajoules. In addition, the successful appraisal of the Casino field in the Otway Basin will result in commercialisation. A well is scheduled later in the year. 17
Slide 18: Cooper Basin
Slide 12 —- Cooper Basin Santos is distinguished from its oil and gas peers by the strength of our domestic gas franchise. It’s more than a legacy asset. Its extended value is reflected in the optionality it gives us through market position, infrastructure, ownership, strategic storage capacity and
Slide 19: Free cash flow and production costs in the Cooper Basin
This means that annual free cash flow will remain around current levels over the next few years, even as production declines. Close control is also being kept over production costs which are targeted to stay around four dollars Australian per barrel of oil equivalent over the medium term. The Basin
Slide 20: Oil Production
Slide 13 — Oil Production Turning to oil and liquids production, the projects we have progressed over the last six months, Bayu-Undan and Mutineer-Exeter, will have a material impact on our production commencing from 2004. In the meantime we are working to offset natural production decline. The Coop
Slide 21: Earnings outlook and oil prices
The overall earnings outlook for the year will also obviously depend on oil prices. 21
Slide 22: Acquisitions
Slide 14 — Acquisitions As you can see, we have had an active six months transforming the Company organically; rather than through acquisitions, and what Acquisition and Divestment activity we have had, has been in divesting rather than acquiring. Acquisitions are part of our overall strategy, but o
Slide 23: Santos summary
Slide 15 — Santos In summary, the first half of the year has been a period of significance for Santos. We have made enormous progress in a number of areas. The base business continues to perform well as evidenced by our cash flow. We have a range of growth projects which are transforming the Company
Slide 24: Finance
Finance Santos 2003 Interim Results Peter Wasow Executive General Manager ~ Finance & Accounting Santos Ltd 20 August 2003 24
Slide 25: 2003 Interim Results
Slide 1- 2003 Interim Results Thank you John, and good morning. Today, | will talk about how Santos is performing against our objectives, with a special emphasis on capital allocation. In summary, e We are tracking right where we said we would be, e and although we can’t report production growth, we
Slide 26: Sales Grow
Slide 2 - Sales Grow There are a couple of stories here. On the gas front, its good news all around. Prices are up in both the US and Australia. At home, we are starting to see the impact of higher prices for Cooper gas, with the overall average Australian gas price exceeding $3 per gigajoule for th
Slide 27: Production delays and volume impacts
production delays in the Carnarvon Basin cost a further 600kbbl decreased condensate volumes of 300kbb!I was due to lower gas production in the Cooper Basin and from East Spar. And finally, liquid volumes were further reduced by 100kbblis, due to the timing of liftings. 27
Slide 28: Production Cost Falls
Slide 3 - Production Cost Falls We have made some significant gains in cost performance, notwithstanding bringing new fields onto production, and the effects of some non production related items. We have reclassified our cost definitions, and included in the back up pack is a slide detailing how our
Slide 29: Cost savings offsets and netback impact
These savings were offset in part by: e New production coming on stream (Patricia Baleen, Scotia and Esenjay (together more than $3 million)), e Increased insurance costs ($3 million), and e One off costs associated with the Moonie pipeline leak (another $3 million). On a $/boe basis, production cos
Slide 30: Netback Climbs
Slide 4 - Netback Climbs Let’s combine these elements and examine the effect on margins. This chart tries to break out the effect of commodity market movements on the one hand, and management actions on the other, which together impact margin, or netback. If we look at all the commodity market effec
Slide 31: Improvement Program Delivers
Slide 5 - Improvement Program Delivers One other area in which we see good results is our business improvement program. You will recall that we made the original commitment to deliver $50 million in saving by the end of this year, and then doubled that target at the full year results presentation. |
Slide 32: DD&A is on Track
Slide 6 - DD&A is on Track As forecast at the full year results presentation, DD&A is being charged at about the same rate as for the full year 2002. This slide breaks down the main elements of DD&A, and shows that while our depletion charge is higher when compared to the first haif last year, when
Slide 33: EBITDA Steady, Exploration Results
Slide 7 - EBITDA Steady, Exploration Results And so, to the bottom line. We've talked about the elements impacting our operating profit, so | guess it is enough to point out that EBITDA is over $500 million for the half, that our work on gas prices and production costs contributed $46 million, while
Slide 34: Cash Flow Growth is Strong
Slide 8 - Cash Flow Growth is Strong But the real Santos story is best told by this chart. The company’s investment and operating performance is neatly rolled into this single metric, which demonstrates a decade of sustained 12 percent compound growth in operating cash flow. A lot of people have ask
Slide 35: Continuing FCF Strength
Slide 9 - Continuing FCF Strength And so we come to the final test: has the business been able to grow, and been able to reward its shareholders with free cash flow? In summary, Santos has spun off almost $800 million in dividends, while reducing debt by $350 million, in the past four years. After a
Slide 36: Asset portfolio as a source of funds
But there is one other source of funds for Santos: its asset portfolio. You will have noted the sale of some of our interest in Oil Company of Australia. When we see the independent experts report we will consider selling the rest of our holding into Origin’s offer. What you have seen is the first e
Slide 37: Superior capital management
Slide 10 - Superior capital management | guess it’s a fact of life that investors are keen to understand how we allocate capital, particularly when the operating cash flow is growing so strongly and when EBITDA margins are 60 to 70 percent. Many E&P companies have a poor track record with the cash t
Slide 38: Capital allocation decision tools
[build 4] What comes next is a better tool than NPV to decide when to invest. We have developed processes, tools, and language to help us understand the captured and option value inherent in projects, and importantly how they contribute to our strategic goals to help us decide what to invest in. The
Slide 39: Portfolio management and funding growth
You can see the evidence of us managing our portfolio in the way we've essentially swapped Bayu Undan LNG and additional optimization projects for our interest in OCA: both being funded by the proceeds we expect from the sale. Sure we could have just spent the extra capital, we have the cash flow th
Slide 40: Exploration
Exploration Santos 2003 Interim Results John Ellice-Flint Managing Director Santos Ltd 20 August 2003 40
Slide 41: Exploration Title Slide
Slide 1 — Exploration Title Slide Thank you Peter. | will now explain our exploration program in more detail. Our aim at Santos is to have the people and the processes to allow us not only to replace production but to find the next flagship field for the Company. In our portfolio we already have the
Slide 42: Calypso and Titan well results
The other major contributors to the writedown were the results of the Calypso and Titan wells in Indonesia. These wells found one and a half trillion cubic feet of gas but unfortunately it was 80 percent carbon dioxide. This wasn’t expected as the wells are 60 kilometers apart and are surrounded by
Slide 43: New Exploration Acreage
Slide 2 —- New Exploration Acreage During the first half we continued to build a more meaningful exploration program through high grading our existing acreage and adding new opportunities through farmins and new acreage awards. During the first seven months of 2003 we acquired or farmed into eight p
Slide 44: Exploration Program
Slide 3 — Exploration Program This makes our forward exploration program one of the most exciting programs that Santos has embarked upon and if successful will provide the next platform for growth after the Bayu Undan and Mutineer Exeter developments. The program involves some high risk but high pot
Slide 45: Kutei Basin
Slide 4 - Kutei Basin During the first half we farmed into the petroliferous Kutei Basin off East Kalimantan, Indonesia. Over 4 billion barrels of oil have been discovered to date in this basin, as well as over 40 trillion cubic feet of gas. The Kutei Basin contains a late Tertiary delta system with
Slide 46: Gehem discovery and West Seno field
Just two weeks ago Unocal announced the Gehem gas and oil discovery immediately to the west of the Papalang PSC. This is a resource of 350 to 550 million barrels of oil equivalent. The West Seno oil field, which is due to come onstream this month, will be Indonesia’s first deepwater producing oil fi
Slide 47: Popodi PSC Prospect & Seismic Map
Slide 5 —- Popodi PSC Prospect & Seismic Map The Popodi PSC covers an area of 5,396 square kilometres with multiple prospects in a variety of play types. Several prospects have been high graded and are ready to be drilled in line with our work program. The first prospect to be drilled is Pohon 1 whi
Slide 48: East Java Basin
Slide 6 — East Java Basin Further south in Indonesia, we are attracted to East Java by the burgeoning domestic energy market and the significant growth in demand for gas. Electricity demand in Indonesia has grown by over 10 percent per annum over the last decade, despite two Asian recessions. The re
Slide 49: East Java Basin emerging opportunity
The east Java Basin is an emerging opportunity with multiple plays, both oil and gas, with significant discoveries in recent years in both onshore and offshore. Over one and a half billion barrels of oil and 15 trillion cubic feet of gas has been discovered. We will also remain active in evaluation
Slide 50: Otway Basin
Slide 7 — Otway Basin Turning to Australia, the offshore Otway Basin is a high risk frontier exploration play containing the potential for significant discoveries. The offshore Basin is a rift play. Similar plays have been successful on other continental margins. Our interest is driven by the possib
Slide 51: Amrit Prospect
Slide 8 — Amrit Prospect | will focus here on the first well to be drilled in the program, which is the first of the key tests of the deep water acreage trend in the Otway Basin. This is Santos’ first operated deep water exploration campaign and is a milestone for the Company. Specific technical exp
Slide 52: Carnarvon Basin
Slide 9 — Carnarvon Basin Moving to Western Australia, our Carnarvon Basin operations remain the cornerstone of our oil business. Last year over 60 percent of our oil production came from this Basin. Our current exploration program focuses on high value opportunities which can be tied to existing fa
Slide 53: Ajax
Slide 10 — Ajax One of our most interesting plays is the Ajax prospect, which will be drilled in the current half. This well is a high risk stratigraphic trap in Oxfordian sands with a resource range of up to 70 million barrels of oil. As you can see from the slide there is clear evidence of a mound
Slide 54: Cooper Basin Strat Plays
Slide 11 — Cooper Basin Strat Plays During the second half we also plan to recommence the Cooper Basin wildcat program with the largest true exploration program in five years. This program will target stratigraphic traps. We are leveraging off our success in 2001 with Beckler Bow and Wellington, whi
Slide 55: Exploration Summary
Slide 12 - Exploration Summary Altogether we have an active exploration program before us with a number of high risk but potential high reward plays. The key to our program is the fact that we are exposing our investors to the opportunity of substantial upside while managing risk. There will inevita
Slide 56: Portfolio of Growth Options
Slide 13 — Portfolio of Growth Options In closing, it is clear that Santos is on the move. We have a good base business that generates a strong cash flow to fund growth and reward share holders through dividends. Santos continues to expand its growth profile as more developments are committed to or