Santos Limited · ASX:STO
Santos — Investor Presentation (November 2015)
60 slides from Santos's investor presentation, Nov 9, 2015
Slide 1: Strategic Review completed: $3.5 billion capital initiatives strengthen balance sheet
Strategic Review completed: $3.5 billion capital initiatives strengthen balance sheet Appointment of CEO 9 November 2015 STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 2: Disclaimer and important notice
Disclaimer and important notice Disclaimer This investor presentation (Presentation) has been prepared by Santos Limited (ABN 80 007 550 923) (Santos). This Presentation has been prepared in relation to a fully underwritten pro-rata accelerated renounceable entitlement offer of new Santos ordinary s
Slide 3: Disclaimer and important notice
Disclaimer and important notice Not investment advice Each recipient of this Presentation should make its own enquiries and investigations regarding all information in this Presentation including but not limited to the assumptions, uncertainties and contingencies that may affect future operations of
Slide 4: Disclaimer and important notice
Disclaimer and important notice Financial data All financial information in this Presentation is in Australian Dollars ($ or AUD) unless otherwise stated. Investors should note that this Presentation contains historical and pro forma historical financial information, comprising the historical statem
Slide 5: Disclaimer and important notice
Disclaimer and important notice Future performance This Presentation contains certain ‘forward looking statements’, including statements regarding the results of the Entitlement Offer, the private placement to an affiliate of Hony Capital and the sale of Kipper and the use of the proceeds thereof, a
Slide 6: Disclaimer and important notice
Disclaimer and important notice Disclaimer None of the underwriters, nor any of their or Santos’s respective affiliates or related bodies corporate, nor any of each of their respective advisers, directors, officers, partners, employees, contractors or agents, have authorised, permitted or caused the
Slide 7: Contents
Contents 1 Overview page 8 2 Capital initiatives page 13 3 Financial impact page 18 4 Business update and outlook page 23 5 Entitlement Offer details page 30 6 Appendix page 33 A1 Key risks page 34 A2 Selling restrictions page 51 7 | STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE I
Slide 8: 1. Overview
1. Overview STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 9: Summary: Strategic Review completed, $3.5 billion capital initiatives strengthen balance sheet
Summary Strategic Review completed $3.5 billion capital initiatives strengthen balance sheet $3.5 billion reduction of net debt ─ $520 million proceeds from sale of interest in Kipper gas field to Mitsui E&P Australia Pty Ltd ─ $500 million private placement to affiliate of the China-based internati
Slide 10: Financial impact: $3.5 billion net debt reduction to strengthen balance sheet
Financial impact $3.5 billion net debt reduction to strengthen balance sheet Proceeds from sale of Kipper, private placement and Entitlement Offer to be used to pay down outstanding debt Santos net debt reduced to $6.2 billion1 Significant liquidity position with $5.5 billion in cash and undrawn fac
Slide 11: Capital preservation initiatives
Capital preservation Continued focus on driving operating and capital initiatives efficiency gains to maximise shareholder value through the cycle The Board considers it will be appropriate in future to set dividends as a payout ratio of earnings. Subject to business conditions, this is expected to
Slide 12: Appointment of CEO
Appointment of CEO Kevin Gallagher, currently CEO of engineering services group Clough Limited, has been appointed as the new Managing Director and CEO of Santos Kevin Gallagher has nearly 25 years of experience in managing oil and gas operations in Australia, the USA and North and West Africa He is
Slide 13: 2. Capital initiatives
2. Capital initiatives STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 14: Sale of Kipper to Mitsui for $520 million in cash
Asset sale Sale of Kipper to Mitsui for $520 million in cash Agreement with Mitsui E&P Australia Pty Ltd for the sale of Santos’ 35% non-operated interest in the Kipper gas field, located in the Gippsland Basin, offshore Victoria Sale of Kipper Proceeds of $520 million in cash The sale is subject to
Slide 15: Hony Capital investment: $500 million private placement
Hony Capital investment $500 million private placement at a 15% premium to an affiliate of Hony Capital Placement of approximately 73.5 million shares to an affiliate of Hony Capital, at a price of $6.80 per share Price represents 15% premium to Santos’ closing price of $5.91 on 6 November 2015 Hony
Slide 16: $2.5 billion fully underwritten renounceable Entitlement Offer
Entitlement Offer $2.5 billion fully underwritten renounceable Entitlement Offer Fully underwritten 1 for 1.7 accelerated pro-rata renounceable Entitlement Offer with retail entitlements trading (PAITREO) to raise approximately $2.5 billion New shares to rank equally with existing shares Offer size
Slide 17: Dividend framework
Dividend framework A revised dividend framework to reflect Santos’ exposure to oil-linked LNG pricing and the cyclical characteristics of global oil markets In response to lower global oil prices, Santos intends to pay 5 cents per 2015 final share for the 2015 final dividend on the expanded capital
Slide 18: 3. Financial impact
3. Financial impact STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 19: Significant reduction in net debt
Significant reduction in Adjusted pro forma net debt reduced to $6.2 billion at net debt 30 September 2015 Lower A$ increases debt, but also increases cashflow $billion 10 8 8.8 2.5 6 0.5 0.8 6.2 0.5 0.1 5.3 4 2 0 30 June 2015 Entitlement Private Kipper sale Pro forma Net cash Foreign Adjusted pro f
Slide 20: Debt maturity profile
Debt maturity profile Following the capital initiatives, Santos has limited drawn debt maturities until 2019 Santos drawn debt maturity profile as at pro forma 30 June 2015 $million 2,500 Notes mature in 2070, with Santos option to redeem on 22 September 2017 and at each interest payment 2,000 date
Slide 21: Pro forma historical statement of financial position
Pro forma historical The table presents the impact of the capital initiatives statement of financial as if they had occurred on 30 June 2015 position Pro forma historical after Historical Entitlement Private In progress asset $million 30 June 20151 Offer2,3 placement4 sale5 capital raisings, debt re
Slide 22: 4. Business update and outlook
4. Business update and outlook STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 23: Santos portfolio
Santos portfolio Committed to driving capital discipline and operating efficiencies LNG sales contracts underpin long-term sustainable cash flow Capital intensive LNG construction phase complete LNG ─ PNG LNG production exceeding nameplate capacity Leveraging existing and ─ GLNG delivered on schedul
Slide 24: Operating efficiencies and cost savings
Operating efficiencies and Repositioning the company in a low oil price cost savings environment Production up 10% Capital expenditure down 55% Unit production costs down 15% mmboe $ million $/boe 42.8 16.3 39.0 2.8 13.8 1.2 Sep YTD 2014 Sep YTD 2015 Sep YTD 2014 Sep YTD 2015 Sep YTD 2014 Sep YTD 20
Slide 25: GLNG LNG Train 1 performing well
GLNG LNG Train 1 performing well and has produced at nameplate capacity during commissioning period Project provides positive free cash flow at US$40/bbl First LNG from Train 1 on 24 September 2015, on schedule and within budget ─ LNG production from Train 1 expected to ramp-up over 3-6 months ─ Two
Slide 26: All guidance for 2015 is maintained
Guidance All guidance for 2015 is maintained Production in 2016 is expected to be in the range of 57 to 63 mmboe and capex is expected to be $1.2 billion 2015 guidance 2016 production guidance of 57 to 63 mmboe: ─ 51 to 55 mmboe from Eastern Australia, WA&NT and Asia Pacific Production 57-59 mmboe c
Slide 27: Capital expenditure guidance
Capital expenditure 2015 capex guidance maintained at $1.8 billion guidance 2016 capex guidance $1.2 billion $million 2015 2016 Full-year capital expenditure Eastern Australia 600 375 $billion GLNG 500 300 4 4.1 Asia Pacific 150 150 3.6 WA&NT 150 150 3 NSW, Combabula, Spring Gully 100 75 Exploration
Slide 28: Impact of volatility in commodity prices on asset book values
Impact of volatility in Potential for non-cash asset value impairment in 2015 commodity prices on full-year accounts due to lower oil and gas prices asset book values 31 December 2014 impairment analysis used oil price estimates as follows: ─ US$55/bbl in 2015, US$70/bbl in 2016, US$80/bbl in 2017,
Slide 29: Summary
Summary Strategic Review completed $3.5 billion capital initiatives strengthen balance sheet $3.5 billion reduction of net debt Capital preservation initiatives Strategic Review completed Kevin Gallagher appointed Managing Director and CEO 29 | STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION O
Slide 30: 5. Entitlement Offer details
5. Entitlement Offer details STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 31: Entitlement Offer overview
Entitlement Offer Raising $2.5 billion through an Entitlement Offer to overview strengthen balance sheet and capital structure Fully underwritten 1 for 1.7 accelerated renounceable pro-rata Entitlement Offer with retail entitlement trading (PAITREO) to raise approximately $2.5 billion Entitlement Of
Slide 32: Indicative offer timetable
Indicative offer timetable Entitlement Offer Event Date1 Trading halt and announcement of Entitlement Offer Monday 9 November 2015 Institutional Entitlement Offer Monday 9 November 2015 to Tuesday 10 November 2015 Institutional Shortfall Bookbuild Wednesday 11 November 2015 Trading halt lifted and r
Slide 33: Appendix
Appendix STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 34: A1. Key risks
A1. Key risks STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 35: Key risks
Key risks This section includes details of the key risks attaching to an investment in shares in Santos. These risks may affect the future operating and financial performance of Santos and the value of Santos shares. Before deciding whether to invest in Santos shares, you should consider whether suc
Slide 36: Key risks
Key risks Volatility in oil and gas prices (continued) • Fluctuations in the global oil and global and domestic gas markets, in particular, any extended or substantial decline in oil and gas prices or demand for oil and gas, may materially affect Santos’ financial condition and results of operations
Slide 37: Key risks
Key risks Possible asset value impairment due to the oil and gas price (continued) • In the impairment assessment undertaken in relation to its half-year financial statements to 30 June 2015, Santos used similar future oil price estimates to that used in relation to its 2014 full-year financial stat
Slide 38: Key risks
Key risks Possible asset value impairment due to the oil and gas price (continued) Indicative total non-cash impairment across the entire Santos portfolio (assuming only a change in oil price) Pre-tax Post-tax Reduction in future oil price assumptions A$ million A$ million US$5/bbl in all years Up t
Slide 39: Key risks
Key risks Growing competition in the LNG supply market • Santos is exposed to competition in the international LNG markets and could be adversely impacted by cheaper future LNG supply from North America or other sources, in particular, potentially reducing the price of any uncontracted LNG produced
Slide 40: Key risks
Key risks Project delivery Project development risk • Santos undertakes investments in a variety of oil and gas projects to extract, process and supply oil and gas to a variety of customers including long term high volume contracts to supply feedstock gas to the GLNG project. Such projects may be de
Slide 41: Key risks
Key risks Reserves Oil and gas reserves risk • A failure to successfully develop existing reserves, including due to a reduction in exploration and appraisal expenditure, and/or a failure to find and develop additional reserves may require Santos’ projects to source further gas from other sources at
Slide 42: Key risks
Key risks Demand for energy and market risk • The demand for oil, gas, LNG and other products of Santos may be adversely affected by downturns in economic activity, competition from alternative sources of oil, gas and LNG, competition from other sources of energy supply, technological developments i
Slide 43: Key risks
Key risks Exploration and production licences may be withdrawn • Santos’ 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 li
Slide 44: Key risks
Key risks Environmental risks (continued) • 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 retroac
Slide 45: Key risks
Key risks Financial risks Foreign currency risk • Santos is exposed to foreign currency risk principally through the sale of products denominated in US dollars, borrowings denominated in US dollars and euros, and foreign currency capital and operating expenditure. • Santos has certain investments in
Slide 46: Key risks
Key risks Interest rate risk • Santos’ interest rate risk arises from its borrowings. Borrowings issued at variable rates expose Santos to cash flow interest rate risk. Borrowings issued at fixed rates expose Santos to fair value interest rate risk. Increases in interest rates, either through increa
Slide 47: Key risks
Key risks Liquidity risk • Santos seeks to maintain sufficient liquid assets and available committed credit facilities to meet short-term and medium-term liquidity requirements. While Santos considers that it currently has adequate liquidity, if it fails to properly manage its liquidity position in
Slide 48: Key risks
Key risks • Santos 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. A number of Santos’ interests are located within areas that are the subject of one or mor
Slide 49: Risks associated with an investment in shares
Key risks Risks associated with an investment in shares There are general risks associated with investments in equity capital. The trading price of Santos shares may fluctuate with movements in equity capital markets in Australia and internationally. This may result in the market price for the new
Slide 50: Risks associated with renouncing retail rights under the Offer
Key risks Risks associated with renouncing retail rights under the Offer Prices obtainable for retail rights may rise and fall over the rights trading period. If you sell your rights at one stage in the retail rights trading period, you may receive a higher or lower price than a shareholder who sell
Slide 51: A2. Selling restrictions
A2. Selling restrictions STRATEGIC REVIEW NOVEMBER 2015 - NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
Slide 52: Selling restrictions
Selling restrictions International Offer Restrictions This document does not constitute an offer of entitlements ("Entitlements") or new ordinary shares ("New Shares") of the Company in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person,
Slide 53: Selling restrictions
Selling restrictions Statutory rights of action for damages and rescission Securities legislation in certain of the Provinces may provide purchasers with, in addition to any other rights they may have at law, rights of rescission or to damages, or both, when an offering memorandum that is delivered
Slide 54: Selling restrictions
Selling restrictions China The information in this document does not constitute a public offer of the Entitlements or the New Shares, whether by way of sale or subscription, in the People's Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau S
Slide 55: Selling restrictions
Selling restrictions Hong Kong WARNING: This document has not been, and will not be, registered as a prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong, nor has it been authorised by the Securities and Futures Commission in Hong Kong pursuant to
Slide 56: Selling restrictions
Selling restrictions Italy The offering of the Entitlements and the New Shares in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, "CONSOB") pursuant to the Italian securities legislation and, accordingl
Slide 57: Selling restrictions
Selling restrictions Malaysia This document may not be distributed or made available in Malaysia. No approval from, or recognition by, the Securities Commission of Malaysia has been or will be obtained in relation to any offer of Entitlements or New Shares. The Entitlements and the New Shares may no
Slide 58: Selling restrictions
Selling restrictions Singapore This document and any other materials relating to the Entitlements and the New Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document and any other document or materi
Slide 59: Selling restrictions
Selling restrictions United Arab Emirates Neither this document nor the Entitlements and the New Shares have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or any other governmental authority in th
Slide 60: Contact information
Contact information Head Office Adelaide Andrew Nairn Ground Floor, Santos Centre Group Executive Investor Relations 60 Flinders Street Direct: + 61 8 8116 5314 Adelaide, South Australia 5000 Email: andrew.nairn@santos.com GPO Box 2455 Andrew Hay Adelaide, South Australia 5001 Telephone: +61 8 8116