1 1 Meeting the Challenge 2004 Interim Results 24 August 2004 2 Disclaimer & 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 variety of variables which could cause actual results or trends to differ materially, including but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, gas commercialisation, development progress, operating results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial markets conditions in various countries, approvals and cost estimates. All references to dollars, cents or $ in this document are to Australian currency, unless otherwise stated.
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1
1
Meeting the Challenge2004 Interim Results
24 August 2004
2
Disclaimer & 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 variety of variables which could cause actual results or trends to differ materially, including but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, gas commercialisation, development progress, operating results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial markets conditions in various countries, approvals and cost estimates.
All references to dollars, cents or $ in this document are to Australian currency, unless otherwise stated.
2
3
Program
• Overview - John Ellice-Flint
• Harvesting value from existing assets - Jon Young
• Financial performance - Peter Wasow
• Creating value from new assets - John Ellice-Flint
• Q&A
4
Meeting the Challenge
John Ellice-FlintManaging Director
OverviewOverview
Harvesting value from existing assets
Financial performance
Creating value from new assets
Close
Q&A
3
5
Safety - Recordable Injuries Reduce
• Major focus
• Embedding new culture
• Applying a range of programs
Total Recordable Case Frequency Rate(12 month rolling average)
0
2
4
6
8
10
Jun02
Month / Year
TRC
FR(p
er m
illio
n ex
posu
re h
ours
)
Aug02
Oct02
Dec02
Feb03
Apr03
Jun03
Aug03
Oct03
Dec03
Feb04
Apr04
Jun04
Full Year2002 Full Year
2003
6
Positioned for High Oil PricesTapis (AU$)
0
10
20
30
40
50
60
70
80
1992 1994 1996 1998 2000 2002 2004
A $/
bbl
Average $26.5/bbl
Average $48.9/bbl
1st half 2003
average $45.91
1st half 2004
average $46.76
4
7
Results Reflect Moomba
Produced volume (mmboe) 21.2 26.8
Sales volume (mmboe) 22.0 26.5
Net profit after tax & write downs ($m) 86.5 135.6
HarvestingHarvesting value from existing assetsvalue from existing assets
Financial performance
Creating value from new assets
Close
Q&A
6
11
1H 2004 Productionmmboe
10
12
14
16
18
20
22
24
26
28
30
21.2
(4.0)26.8
New Projects
(1.6)25.20.3
Natural Decline
(0.3)
Field Performance
1st Half 2003 1st Half 2004
MoombaIncident
12
January JuneFebruary March April May
Stage 1 & 2• Storage gas
3 Jan (100 TJ/d)
• Storage + field gas 4 Jan (200 TJ/d)
Stage 3• Gas rate
500 TJ/d
• Oil at 90%
Stage 4• Full gas
processing capacity
• LRP rebuild
Stage 5 • LRP A
resumes May
• Liquids at 70%
July
Stage 6• Complete
recovery August
August
Moomba Incident
• Liquids Recovery Plant (LRP) B recommissioning underway• Minimal production impact in 2nd half• Minimal impact on longer term costs• No reserves impact
Moomba re-streaming is nearing completion
7
13
• Decline in deliverability due to water breakthrough
• Recent drilling outcomes
• Accelerated John Brookes development
East Spar
14
Stag
• Field decline increased
• Mechanical reliability
• Workovers commenced
• Infill sidetracks imminent
• Waterflood optimisation ongoing
8
15
Cost ManagementSantos Continuous Improvement Program is on track to deliver substantial cost savings through process redesign
• Strategic sourcing
• Maintenance strategy
• Drilling and completions
• Asset utilisation
• Engineering
• Headcount reduction
Improvement10% 20% 30% 40%
SantosPre-2001
SantosNow
Santos2005
1st tier
2nd tier
3rd tier
4th tier
Continuousprocess
improvement
Process Benchmarking
16
• Pinpoint fraccing
• Coiled tubing underbalanced drilling
• Improved real time production data capture
• Moomba plant control systems upgrade
• Wellhead telemetry
… to increase reserves, productivity and reduce costs
New technologies continue to be implemented…
Technology
9
17
…is on track to deliver ~ $100 million NPV 10
Moomba HubLeveraging Moomba’s commercial and infrastructure position…
• Gas swaps
• Spot sales
• Third party processing
• Price review
Spot sales
Peaking services
3rd party gas
Gasswaps
3rd party oil
HUB
18
Meeting the Challenge
Overview
Harvesting value from existing assets
Financial performanceFinancial performance
Creating value from new assets
Close
Q&APeter Wasow
Chief Financial Officer
10
19
200
250
300
350
400
450
500
550
600
650
700
750 71688
590Gas Volumes
Moomba Incident
Aust Gas
Prices
(103)*693
Sales Revenue
Liquids Prices
(30)(5)
USA Gas
Prices
1st Half 20041st Half 2003
Bayu-Undan
start-up
16
Natural DeclineControllable
ItemsCommodity
Prices
Liquids Volumes
(20)
$m
* Reflects the 2004 volume variance based on 2003 prices
20
50
60
70
80
90
100
110
120
130
140
150
1st Half 2003Production Cost
$4.78/boe
1st Half 2004Production Cost
$6.18/boe
128 (8) 131
Moomba Incident
1238
Cost savings
Production Costs
(3)
Bayu-Undan
start-up
$m
1st Half 2004Production Cost
$4.88/boe
11
21
($/boe)
15
16
17
18
19
20
21
US$Commodity
Prices MoombaIncident
18.66
(1.93)2.03
1st Half 2003 1st Half 2004
Market Movements
FX
18.76
17.78
19.13 (1.35)
Bayu-Undan
Start up
0.37(0.66)
AustGas
Prices
Volume/Mix
0.30
Cost savings
0.36
Netback
Controllable Items
22
0
25
50
75
100
125
150
175
200
225
250 230209
11 20
Moomba Incident
229
Depreciation, Depletion & Amortisation
1st Half 2004$9.86/boe
1st Half 2003$8.58/boe
Volume 2003 Revisions
(24)
AppraisalSuccess
14
2003 Reserve Movements
$m
12
23
0
25
50
75
100
125
150 31
Aust gas prices
Moomba Incident
136(62)
87
(28)
Field decline
5Write-downs
NPAT
(14)
Restructure
2
Other
1st Half 20041st Half 2003
Bayu-Undan start-up
77
Cost savings
149
Commodity prices
3
$m
24
Capital Expenditure
1st Half 2003 - $344m1st Half 2004 - $390m
0 20 40 60 80 100100 80 60 40 20 0
Exploration
Bayu-Undan Liquids
Bayu-Undan LNG
Mutineer-Exeter
Cooper Gas Devt
Cooper Oil D&D
Moomba LRP Rebuild
USA
Southern Aust
Corporate & Other
41
35
66
53
64
26
36
25
10
36
61
81
20
3
9913
0
21
11
35
13
25
750
875
1,000
1,125
1,250
Operating cash flow ($m)
150
250
350
450
MoombaIncident
422
193
(106)Sales
volumes
(49)
(74)
Working capital & tax
payments
299
1st Half 2003 1st Half 2004 Year End 2003
Gearing 22.5%
1st Half2004
Gearing 28.7%
898
142
1,097
MoombaIncident
120
Net Cash flow
79
FX on Debt
1,239
1st Half 2004(exc. Moomba)Gearing 25.9%
Net Debt ($m)
Cash Flow & Net Debt
26
Capital Management
• Funding the growth program
• Redeeming existing Resets of $350m
• Offering FUELS $500m
• FUELS more equity-like
• Improves capital structure
14
27
“Grandfathering” issued as a standard?
International Accounting Standards (IFRS)
time elapsed
IFRS half year reports – including
comparatives
1 Jan 04 30 Jun 04 30 Jun 05 31 Dec 05
parallel accountsrequired
Effective 1 January 2005
“Grandfathering” exposure draft issued
ED6
IFRS full year reports – including
comparatives
31 Dec 04
No extractive industry standard
available
28
Meeting the Challenge
Overview
Harvesting value from existing assets
Financial performance
Creating value from new assetsCreating value from new assets
Close
Q&AJohn Ellice-Flint
Managing Director
15
29
Production commences
Bayu-Undan Liquids
Minerva
Developing New AssetsProject Start-ups 2004–2006
2004
Mutineer-Exeter
John Brookes
Maleo
2005
Bayu-Undan LNG
Casino
Oyong
2006
Sanctioned Pre-sanctioned
100%
90%
60%
20%
10%
50%
20%
10%
1Q
4Q
Mid
4Q-05/1Q-06
1Q
1Q
1Q
1Q
Mid
30
• Sole
• Golden Beach
• Kipper
• US exploration
• Onshore Aust oil
• Onshore Aust gas
• Hides
• Indonesia exploration
• Otway exploration
• Petrel-Tern
• Evans Shoal
• Indonesia exploration
• Egypt exploration
• Otway exploration
Developing New AssetsPotential Projects 2007–2010+
2010+2008 - 20092007
16
31
Bayu-Undan
• Liquids project complete ahead of schedule, on budget
• LNG project over 50% complete on schedule on budget
32
Mutineer-Exeter
• On track for mid 2005
start-up
• FPSO topsides
construction and
installation in progress
• Subsea equipment
ready for delivery from
September
17
33
• Gas Sales Agreement signed
• Major facilities contracts in place
• Platform fabrication commenced
John Brookes – Varanus Hub
John BrookesJohn BrookesWellhead PlatformWellhead Platform
(water depth ~ 47m)(water depth ~ 47m)
East SparEast Spar
East Spar Gas PlantEast Spar Gas PlantGas ProcessingGas Processing& Compression& Compression
Varanus IslandVaranus Island
PipelinePipelineto Mainlandto Mainland
John BrookesJohn BrookesWellhead PlatformWellhead Platform
(water depth ~ 47m)(water depth ~ 47m)
East SparEast Spar
East Spar Gas PlantEast Spar Gas PlantGas ProcessingGas Processing& Compression& Compression
Varanus IslandVaranus Island
PipelinePipelineto Mainlandto Mainland
John BrookesJohn BrookesWellhead PlatformWellhead Platform
(water depth ~ 47m)(water depth ~ 47m)
East SparEast Spar
East Spar Gas PlantEast Spar Gas PlantGas ProcessingGas Processing& Compression& Compression
North Zeit BayNorth Zeit BaySouth East JulySouth East July
Ras Abu DaragRas Abu Darag
Khefren 1Khefren 1
Egypt
Osage 1XOsage 1X
Gulf of SuezGulf of Suez
48
Gulf of Suez
Khefren 1Khefren 1
Khefren 1BP Saqqara discovery
2003, 80 mmbo
BP Edfu discovery2001, 63 mmbo
Khefren 1Khefren 1
25
49
Meeting the Challenge
Harvesting value from existing assetsHarvesting value from existing assets
Price
Costs
Technology
Creating value from new assetsCreating value from new assets
Development projects
Exploration
50
Meeting the Challenge
Overview
Harvesting value from existing assets
Financial performance
Creating value from new assets
Close
Q&AQ&AJohn Ellice-Flint
Managing Director
1
1
Reference slides
215 August, 2000Reference No.
Prices & Exchange Rates
+3.12.943.03Australian Gas Prices (AUD/gj)
-4.36.075.81USA Gas Price (USD/mcf)
+1.945.9146.76Realised Oil Price (AUD/bbl)
-11.90.62360.6978AUD/USD Exchange Rate
(after hedging)
+14.028.6332.63Realised Oil Prices (USD/bbl)
Half Year Half Year Change2004 2003 %
2
315 August, 2000Reference No.
Cost Definition US Peer Oil Companies* Santos Group Reporting
* Source: J S Herold 36th Annual Reserve Replacement Cost Analysis** Includes selling and corporate administration expenses*** Plus exploration expense for successful efforts companies
Other Income /Expenses **
Write downs
Sales Revenue
Borrowing Costs
Production Costs
Tariffs & TollsRoyalties, Excise & RRT
DD&A
Product Stock Movements
Income taxes
Net Profit After Tax
Gas Purchases
Operating Costs
Sales Revenue
Production Costs
Transport’n/Handling Expenses
Taxes other than Income
DD&A***
Write downs
Other Operating Income / Expenses
Income taxes
Profit fromOil & Gas Operations
Exploration Expensenet back
cost of sales
415 August, 2000Reference No.
Cost of Sales
-3.6442426Cost of Sales
-8.7230210D,D&A
(6)-Inventory Movement
23Gas Purchases
-1.4216213Total Operating Costs
2526PRRT
4639Royalties
1717Pipeline Tariffs
2.3128131Production Costs
Half Year Half Year Change2004 2003 %
3
515 August, 2000Reference No.
2004 First Half Results
-36.013687Net Profit after Tax(34)(4)Write downs (after tax)