Slide 1: Accelerating the Pace of Change
Accelerating the Pace of Change Santos 2003 Full Year Results John Ellice-Flint Managing Director Santos Ltd 24 February 2004
Slide 2: Highlights
Title Slide - Highlights Welcome everyone to the Santos’ full year results presentation for 2003 and thank you for coming. As many of you know, | have been in the chair at Santos now for three years. Today — as well as discussing the 2003 results - | will outline what we've achieved over the past th
Slide 3: People, systems and growth tools
We now have the people, and risk management systems in place and the understanding that allows us to make superior portfolio decisions. We have the acreage, the structure and we are ready to take off. Having said that, there are still plenty of challenges. | was pleased with the increase in 1P reser
Slide 4: 2003 at a Glance
Slide 3 — 2003 at a Glance Now — a look at the headline financials. e Net operating profit after tax at $327 million was virtually steady, with lower production but higher gas prices. We also benefited from once-off tax changes ($55 million). e For Santos, Cash Flow is the REAL measure of the underl
Slide 5: 2003 Operational Performance
Slide 4 — 2003 Operational Performance As | mentioned earlier, there are four main tools in our growth arsenal — Exploration, Production Optimisation, Gas Commercialisation and Mergers and Acquisitions. In 2003, the star performance came from gas commercialisation which contributed an additional 69
Slide 6: 2003 Gas Commercialisation
Slide 5 — 2003 Gas Commercialisation e Gas Commercialisation in 2003 was an outstanding result for the Company. e In fact, it was our largest year of Gas Commercialisation since the 1970s. e A total of 510 PJ of new contracts and agreements were signed in 2003, the highlight being Bayu Undan LNG e T
Slide 7: 2003 Exploration Review
Slide 6 — 2003 Exploration Review Looking at our exploration portfolio, we had a balanced approach in 2003, comprising the drilling of both high risk/high reward (HRHR) and low risk/low reward (LRLR) wells. e The LR/LR exploration is traditionally our bread & butter whereas HR/HR is ground-breaking.
Slide 8: Oil Program Success
Slide 7 - Oil Program Success. In the Cooper Basin the vision for our oil program in 2003 was to increase returns from the existing assets. The vision was achieved via a two pronged approach e Firstly, secondary and tertiary recovery from existing fields. The JALBU project included 17 wells, a pilot
Slide 9: 1P Reserves Review
Slide 8 - 1P Reserves Review e Turning to reserves in 2003 we achieved 148% iP reserves replacement rate, adding 80 mmboe. e Gas commercialisation contributed 69 mmboe and acquisitions contributed 14 mmboe e Our ratio of developed to undeveloped proven reserves is continuing to improve. e In 2003 pr
Slide 10: 2P Reserves Review
Slide 9 - 2P Reserves Review e Now, to changes in our 2P reserves, where we had mixed results. e We benefited from two growth levers (gas commercialisation and acquisitions) but, whereas exploration contributed 47 million boe in 2002, there was no exploration impact in 2003. e 2P reserves were also
Slide 11: Moomba Critical Path
Slide 10 - Moomba Critical Path e Turning to our Moomba plant, the incident in the early hours of New Year’s Day was clearly an unwelcome development. e The good news is that we are well on track to get Moomba back up to full production. e We have resumed gas injection into storage and we now expect
Slide 12: Moomba Incident Impact
Slide 11 - Moomba Incident Impact The impact of the Moomba incident on Santos’ production in 2004 is expected to be around 3.8 million boe, of which 2.7 mmboe is sales gas and ethane and 1.0 mmboe natural gas liquids Remember that we have insurance cover for property damage over and above $1.5 milli
Slide 13: Accelerating the Pace of Change
Slide 12 - Accelerating the Pace of Change 2003 saw the completion of my first three years at Santos — my initial period of undertaking the “turnaround” process. Greater emphasis has been placed on exploration, gas margins have been improved, and we have achieved active production optimisation and p
Slide 14: Development Profile 2001
Slide 13 — Development Profile 2001 Our development profiles reflect the “Changing Santos’. When | first joined the Company in 2001, the development conveyor belt was broken. The development cupboard was bare. We have spent the past three years fixing it. We were faced with two main challenges. We f
Slide 15: Development Profile 2003
Slide 14 - Development Profile 2003 e | am pleased to report - as you see from this slide — that the situation at Santos is now significantly better. e Since the beginning of 2001 we have achieved sanction or close to sanction on six new projects. This has been achieved through exploration, gas comm
Slide 16: Timor initiative: Petrel-Tern, Hides and Evans Shoal
For instance, Petrel-Tern, Hides and Evans Shoal could add over 100 PJ or 20 mmboe to annual production towards the latter part of the decade. These fields are part of our Timor initiative. Another part of this initiative will be drilling the Melville well later this year.
Slide 17: Major Projects
Slide 15 - Major Projects | would now take some time updating you on recent developments in our key projects, Mutineer-Exeter and Bayu Undan by showing you a video.
Slide 18: 2004 Exploration
Slide 16 - 2004 Exploration Today we have announced that Santos is maintaining a balanced exploration program in 2004 with budgeted expenditure of $134 million for the drilling of 23 wells This is REAL straight-out exploration. They are all “wildcat” exploration wells. We don’t include appraisal and
Slide 19: Strategic Domestic Gas Exploration Focus
Slide 17 - Strategic Domestic Gas Exploration Focus Part of our strong focus on gas exploration is to expand our effort around known strategic gas markets. This slide relates our gas exploration program to core gas markets. e The high impact wells are the Nuri well in the Madura PSC, East Java, with
Slide 20: High Margin Oil Exploration
Slide 18 - High Margin Oil Exploration e Now to oil, where 2004 will be the first year that we see the impact of our increased exposure to high impact oil exploration. e 2003 was the year that we acquired acreage in oil prone hydrocarbon basins e 2004 will be the year we test the materiality of this
Slide 21: Sustainability
Slide 19 — Sustainability I'll now switch track to say a few words on sustainability. This is an important issue. | believe that sustainability should be an important part of the glue of the Company, part of its culture. While Santos has always been environmentally responsible, we are now taking a m
Slide 22: Sustainability Initiatives
Slide 20 — Sustainability Initiatives Our approach to sustainability is similar to our approach to other priorities. We are implementing a performance culture and you get what you measure. We have avoided first publishing an environment report and then adding health, safety and community impact. We
Slide 23: SCIP
Slide 21 —- SCIP e We are also accelerating the pace of change internally at Santos, as we drive the Company to capture more opportunities. e This slide shows our journey to date. We began in 2001 by defining our strategy and launching the Business Improvement Process, which has yielded gains of $18
Slide 24: Looking Ahead
Slide 22 — Looking Ahead Now, quickly summarising our achievements since 2001. co We have maximised returns from our base business while increasing the number of strategic options. co We have delivered a growing production profile over the medium term through exploration success in 2001 and 2002 and
Slide 25: Finance
Finance Santos 2003 Full Year Results Peter Wasow Chief Financial Officer Santos Ltd 24 February 2004
Slide 26: Introduction
Slide 1 Introduction Thank you John, and good morning. It’s great to see you all here today. We are at the end of our first strategic period. What we set out to achieve in 2001 as we embarked on that journey, was to build a top quartile E&P company. To guide our way we put in place a set of strategi
Slide 27: Successful in Creating Value
Slide 2- Successful in Creating Value Here are our strategic goals [build] e Production e Margin e Replacement cost e reserves as we set them in 2001 [build] The measures we used, reflect the challenges we face as an E&P company, which are largely around generating sufficient high quality investment
Slide 28: Exploration write-offs and capital costs
Secondly, we have been exploring in riskier non producing areas and doing some housekeeping on carried forward exploration costs where, due to the introduction of stricter carry forward guidelines, we now have very little remaining dry hole costs on the balance sheet for non producing areas. Over th
Slide 29: Gas prices up
Slide 3 - Gas prices up Gas prices are up, offsetting the volume decline we faced in 2003. The highlight of this chart, and it's a welcome change for a resources company, is our ability to drive gas prices higher. Most resources companies are price takers. But our concerted efforts to be a price mak
Slide 30: Turning the corner on production costs
Slide 4 — Turing the corner on production costs We're turning the corner in cost performance. This chart shows how we have been able to make savings in our controllable costs, notwithstanding the fact that we've brought new fields into production and that we’ve had to incur some one-off costs associ
Slide 31: Netback per barrel climbs
Slide 5 — Netback per barrel climbs Nonetheless, our margins are improving, and not just because of oil prices. On this chart we break up movements in our netback, or cash margin, into the component which is driven by market movements and the component which is the result of management action. On th
Slide 32: Minor Exposure to US Dollars
Slide 6 — Minor Exposure to US Dollars Returning to exchange rates, the message from this slide is that Santos has very limited cash exposure to US dollar weakness. On the face of it, our US dollar revenue exposes us to potentially large fluctuations on account of exchange rates, and we’ve seen half
Slide 33: EBITDAX exceeds $1bn for fourth year
Slide 7 - EBITDAX exceeds $1bn for fourth year Let's move a little further down the profit statement and consider some of the other things that are important to our results. Let me start by saying that EBITDAX exceeded $1 billion for the fourth year. We have already talked about higher prices, lower
Slide 34: Profit After Tax - Marginal Increase
Slide 8 — Profit After Tax - Marginal Increase Moving on to net profit, we were up a couple of percent. As you can see on this chart there were a few contributing factors. First our exploration write downs were lower than last year at $60 million. This constituted the write-off of practically all ou
Slide 35: Cash Flow Growth is Strong
Slide 9 - Cash Flow Growth is Strong And so our profit number, while up, contains a number of items which are not recurring. So what is the bottom line? As | said last time, the real measure of this business is how we've been able to build a machine that has generated 12% on average compound annual
Slide 36: Business Improvement Program
Slide 10 - Business Improvement Program Let's start with capital operations where we have delivered significantly more than promised. This chart details elements of the Business Improvement Program which was launched in 2001, and initially promised a $50 million savings. Listed here are the projects
Slide 37: Drilling Continues to Improve
Slide 11 — Drilling Continues to Improve The story in drilling is one of continuous improvement, to the point where we now use drilling performance as part of our competitive positioning. In 1998, our performance was pretty ordinary. With the introduction of new methods, the story has changed. In 20
Slide 38: Capital efficiency improves
Slide 12— Capital efficiency improves As a result of better capital operations we can spend more on higher margin new business and less on our traditional business. This chart shows how our capital spending efficiency has improved. In 2001 we spent about 45% of our total capital spend on Cooper gas.
Slide 39: Capital spending and production outlook
Slide 13 — Capital spending and production outlook We showed these charts at the investor seminar in November, and | think they answer this question very well. Our sanctioned capital spend of just under $800 million for 2004 and associated spend in later years, delivers a better go forward business,
Slide 40: Affordability of Development Program
Slide 14— Affordability of Development Program What's more, we have the financial capacity to meet this spend and continue to pay dividends at the current level. Over the past few years we have been disciplined with your cash, and have been squirreling away the excess returns that have come from hig
Slide 41: New Targets 2004-06
Slide 15 — New Targets 2004-06 And so to conclude. We have completed the first stage of our strategic journey, largely where we said we would be: not yet growing production, but with the largest development program in the company’s history ahead of us we are well positioned for the future, on target
Slide 42: New Targets 2004-06
Slide 15 — New Targets 2004-06 Thank you Peter. Peter has outlined our scorecard for the last three years. What do we believe we can achieve going forward? We released new targets in November which set us on course for the next three years. [Build] As far as production growth is concerned, we believ