annual report2000 Santos CONTENTS Port Bonython Liquids Processing Plant Cover The year 2000 was an outstanding one for Santos. One of the many achievments was that the Company delivered record gas from south-west Queensland. Santos’ people are the drivers of technological innovation in developing the Company’s resources. Through the efforts of Rod McArdle and his team in Queensland, coal bed methane in the Scotia field is now being developed to supply up to 120 PJ of gas to CS Energy’s new gas fired power station at Swanbank, west of Brisbane. John Ellice-Flint Managing Director Pictured on the cover are Ray Johnson, Team Leader Petroleum Engineering, Brett Doherty, Area Superintendent Eastern Queensland and Pipelines, Bonnie Lowe-Young, Exploration Supervisor, Queensland and Northern Territory Business Unit and the Ballera Gas Plant in south-west Queensland. United States Stag Production Facility Cooper Basin Company Overview Chairman’s Review Managing Director’s Review 1 2 4 Financial Highlights & Overview 7 Business Unit Operations 12 Review of Performance Exploration Development Reserves Australian Gas Production Environment & Safety Community Board of Directors Corporarte Governance Group Interests Glossary Santos’ Areas of Operation 10 Year Summary Directors Statutory Report Financial Report Stock Exchange and Shareholder Information 14 16 18 19 20 22 23 26 28 30 32 34 36 38 42 72 United States Exploration Acreage > Offshore – Gulf of Mexico > Onshore – Texas and Louisiana Gulf Coast and Arkoma Basin in Oklahoma Production > Texas Gulf Coast > Gulf of Mexico Heytesbury Gas Plant Visit the Santos website www.santos.com.au Santos Ltd ABN 80 007 550 923 Incorporated in Adelaide, South Australia on 18 March 1954. Quoted on the official list of the Australian Stock Exchange Ltd and the New Zealand Exchange. Santos American Depository Receipts issued by Morgan Guaranty in the USA are sponsored and are quoted on the NASDAQ system in the USA. Bentu Korinci-Baru Indonesia Sampang Irian Jaya Warim Papua New Guinea Exploration Acreage > SE Gobe field Production > SE Gobe field Papua New Guinea Indonesia Exploration Acreage > Warim > Bentu > Korinci-Baru > Sampang Offshore Australia Exploration Acreage > Carnarvon Basin > Browse Basin > Timor Sea Production > Carnarvon Basin – Oil (Stag, Chervil, and Barrow and Thevenard Islands’ fields) and sales gas and condensate (East Spar field) Carnarvon > Timor Sea – Oil (Elang/Kakatua/Kakatua North fields (Timor Gap); Jabiru and Challis (Timor Sea) Moomba Plant East Spar Timor Sea Browse Amadeus South Australia Exploration Acreage > Cooper/Eromanga Basins (South Australia) Production > Moomba Gas, Oil and Liquids Processing > Port Bonython Oil and Liquids Processing Queensland and Northern Territory Exploration Acreage > Cooper/Eromanga Basins (south-west Queensland) > Surat/Bowen Basins > Amadeus Basin Production > Ballera Gas Processing > Jackson Oil Processing > Amadeus Oil & Gas Processing > Surat/Bowen Oil & Gas Processing Surat/Bowen Ballera and Jackson Moomba Victoria Exploration Acreage > Onshore and Offshore Otway Basins > Offshore Bass Basin > Offshore Gippsland Basin Production > Heytesbury Gas Processing Port Bonython Otway Gippsland Bass Barrow Island SE Gobe Production Facility 2 CHAIRMAN’S REVIEW A New Era Begins for Santos Chairman John Uhrig reports to shareholders Dear Shareholder, There have been many important developments at Santos over the past year. Santos delivered higher levels of production and earnings than at any time in its history. Gearing fell to its lowest level in 20 years. Santos’ share price increased by 45%. The Company’s long-standing investment in coal was sold. The South Australian Government commenced a review of the Company’s shareholding restriction. A new Managing Director, Mr John Ellice-Flint, was appointed. This marks the start of a new era for the Company. Santos was not unusual among oil and gas companies in achieving record earnings in 2000. However, with record production of oil and liquids, the Company was well positioned to benefit from high oil prices. Gas production also continued to grow by a further 6.4%. Altogether, 30% of the increase in revenue came from higher production. With significantly increased production, Santos should be able to achieve higher earnings than it has in the past, even if oil prices return to more normal levels. Workplace safety and good environmental management are priorities for the Board. I am pleased to report that, in the context of increased production, the Company achieved a 20% improvement in its safety performance during 2000. Furthermore, there were no significant environmental incidents. During the year, the Board formed the view that the Company’s investment in QCT Resources Limited was no longer a core interest. This holding was subsequently sold in October, realising a small profit. This investment had been held for over a decade and its disposal marks a major change. In another development, the South Australian Government announced that it was reviewing the legislation restricting shareholdings in Santos to a maximum of 15%. At the Annual General Meeting in May 2000, the Board stated its view that this restriction is not in the long-term interest of Santos shareholders. While the Government’s review will inevitably involve broader considerations than those relevant to Santos shareholders, the Board and Company are planning on the assumption that, sooner or later, the restriction will be removed. As at the time of writing, the Government had not yet announced the outcome of the review. 3 I would also like to pay tribute to the former Managing Director, Mr Ross Adler, who, over 16 years, built Santos up to become the major Company it is today. The Board has great confidence in the future of the Company under the leadership of Mr Ellice- Flint and I thank shareholders for your support over my period as Chairman. J A Uhrig, Chairman 9 March 2001 The appointment of Mr John Ellice-Flint to succeed the previous Managing Director, Mr Ross Adler, ensures that Santos continues to have strong management and leadership going forward. Mr Ellice-Flint joined Santos in December, bringing impressive international credentials in the oil and gas industry, plus other qualities that the Board rates highly. Among them are his leadership capacity, ability to motivate people, a strong focus on performance, and a commitment to building shareholder value. He returns to Australia after a successful career around the world with the American oil company, Unocal, where he was Senior Vice President Global Exploration and Technology. His mandate at Santos is for growth in shareholder returns. A strategic review of Santos’ activities is underway, the main purpose of which is to put in place a plan for further growth under the new Managing Director. The review includes an assessment of the Company’s ongoing capital management, taking into account funding requirements for the growth program, changes to taxation law affecting shareholders and the Company’s current surplus of franking credits. Directors have declared a final dividend of 15 cents per share, increasing the total ordinary dividend to 30 cents for the year. This is a three-cent increase over the total 1999 dividend payment. The dividend continues to be fully franked. In view of the record profit result Directors have also decided to pay a fully franked special dividend of 10 cents per share. Historically Santos has been relatively late to report its results and to make its dividend payments. From the 2001 Interim Result, Santos intends to both report its results and pay its dividends earlier than in the past. The Company expects to announce its 2001 Interim Result on 22 August 2001 (previously 5 September in 2000) and to pay its interim dividend on 28 September 2001 (previously 17 November in 2000). I will be retiring at the conclusion of the forthcoming Annual General Meeting. The present Deputy Chairman, Mr Stephen Gerlach, who has served on the Santos Board for over 11 years, will succeed me. Santos is well positioned to continue growing. It has good acreage, a strong balance sheet and a dynamic new Managing Director. As you can see as you read through this report, Santos’ employees made a great contribution during the year and, on behalf of the Board, I wish to record our appreciation to all employees for their efforts. In particular I would like to record our appreciation of the contribution made over many years by Mr John McArdle, Executive General Manager Commercial, who acted as Managing Director prior to John Ellice-Flint’s appointment and who has announced his intention to retire in mid-2001. MANAGING DIRECTOR’S REVIEW 2000 4 John Ellice-Flint sums up 2000 and talks about his first impressions of Santos A Great Result Among oil and gas companies the year 2000 will be remembered as the year of record high oil prices. These developments increased the Company’s production of oil and liquids from 14.5 million barrels of oil equivalent (boe) in 1999 to 19 million boe in 2000. With growing oil production, Santos was in the right place at the right time to benefit from this favourable environment. However, this was not just a matter of luck. Santos has been actively increasing its oil production in recent years and four developments in particular made it possible to substantially increase oil production in 2000: > Successful development work on the Stag oil field; > Acquisition of interests in the Barrow and Thevenard Islands oil fields; > Successful development work on the Elang oil fields; and > Onshore oil exploration success. Gas production also grew, from 202 petajoules (PJ) in 1999 to 215 PJ in 2000. Santos continues to produce more domestic gas than any other company in Australia. Growing production and high oil prices came together to produce record earnings of $487 million or 80 cents per share. This is a great result. Return on Average Capital Employed was 16.7%, well above the Weighted Average Cost of Capital. Importantly too, increased cash flow and the disposal of the Company’s interest in QCT Resources Limited reduced gearing (net debt to equity) to 38% by the year’s end. Santos’ earnings outlook is currently better than at any time in the recent past. While the result in any one year is sensitive to oil prices, an average oil price of around A$45 per barrel in 2001 would enable Santos to achieve 2001 earnings similar with those in 2000. Looking further forward, baseline production at around current levels would deliver earnings substantially higher than those prior to 2000, even if oil prices fall to around the long-term average level. As a new Managing Director, one can’t have a much better start than this and I would like to acknowledge my predecessor, Mr Ross Adler, and his contribution to building this strong platform. My brief from the Board is to drive the Company forward in seeking further growth and I am very excited about this. 5 In this overview I would like to share my first impressions of Santos. Since I was appointed at the end of 2000 I have met and spoken to hundreds of people across the Company, as well as externally, getting their views on Santos’ growth potential. I have been impressed by the energy and enthusiasm of the people in the Company and by their technical knowledge. Optionality I have also been impressed by the optionality available to the Company. By optionality I mean having many options available to choose from. > Santos has a good acreage position. > It has further potential in the Cooper Basin. > It has one of the best gas marketing footprints in Australia. > It has a strong balance sheet. The Three Buckets Although people can over- complicate the oil and gas business, successful exploration and production companies essentially add value in three ways, through: > Exploration; > Acquisitions; and > Reservoir Management. In any good exploration and production (E&P) company, all three buckets, as I call them, need to contribute to a growing reserves, production, and earnings profile, which should in turn translate into higher shareholder value. In addition, there are other ways of adding value that exist in all companies, such as capital management. Exploration A successful exploration program is a key part of the value equation. While Santos has been successful onshore in Australia, the Cooper Basin is unlikely to yield future 100 million barrel discoveries. This is reflected in the Company’s 2000 exploration and appraisal results, which had a good success rate at 52%, but which only yielded 24 million boe of new reserves. At the same time Santos has substantial acreage, particularly in the Carnarvon Basin, which has potential for larger discoveries but where I believe drilling has probably been under-funded. Outside Australia, there were some interesting results in 2000. Runnells-3 discovered a new play type in the onshore Texas Gulf coast and Anggur-1 discovered shallow gas offshore Java. Both of these discoveries have created options for growth. I believe that Santos should be able to get better returns from its exploration investment. In particular I believe in having a sustained exploration program in each of the Company’s main areas of interest. This makes it possible to accumulate and apply the lessons learned from past drilling to reduce drilling costs and therefore get more drilling done with more well completions from the money spent. Acquisitions Good E&P companies balance reserve additions through exploration with growth from acquisitions, the second value bucket. These can, if properly done at the right prices, create additional option platforms for value capture. In my view, Santos is one of the E&P companies that does acquisitions reasonably well. The Company’s major transaction in 2000 was buying Shell’s interests in Barrow and Thevenard Islands in the Carnarvon Basin. As a result of the high oil prices during the year, this acquisition has performed substantially better than originally expected. Acquisitions will continue to be an ongoing part of Santos’ strategy. Reservoir Management The third value bucket is reservoir management. When I use this term I mean it in its broadest sense, covering all activities associated with maximising the value of an asset through its production life. Reservoir management initiatives tend to be low risk/low return but they do not require much capital and can also have a quick impact on the bottom line. I believe that Santos has substantial potential to improve day-to-day production efficiency, particularly through use of current technology. For example, in the Cooper Basin there is potential from optimisation of completions, remote telemetry, more seismic and more production logging over time to understand how our wells are behaving and why. Increases in recovery factors could also have substantial potential, not only to lower cost, but also to improve the reserve position. Costs Cost control is also an important aspect of reservoir management for a low-margin producer such as Santos. My attitude to costs is that there is always scope to do better and there should be no sacred cows. In the oil and gas industry, I believe there is unnecessary emphasis on custom designing and building and not enough on standardisation, which has the potential for significant cost reduction. For Santos, there is scope to reduce cost through standardisation, greater collaboration with suppliers, and more efficient procurement, increased use of remote monitoring, and better measurement systems. I also intend to focus effort on more timely well completions over the next year, along with all of our reservoir management processes and practices including reserves estimation. Priorities I have three immediate priorities: > To review Santos’ strategy, based on inputs from across the Company; > Cultural change and performance improvement; and > To create more win-win external relationships. MANAGING DIRECTOR’S REVIEW CONTINUED 6 Strategy It is important to have a clearly articulated strategy that everyone in the Company can identify with and that investors can understand. Santos’ strategy is currently under review, with the aim of making appropriate statements to shareholders about our direction in the second quarter of 2001. Cultural Change and Performance Improvement The value of any oil and gas company is far more than the value of its acreage. I believe that Santos has scope to gain more from the knowledge and creativity of its employees. Oil and gas is an ideas business and that makes it a people business. Getting the best from your people is critical. We will win or lose based on the calibre of our people. Information sharing, teamwork and constructive debate are important too. My second immediate priority is to start creating a more productive internal culture, leading to performance improvement. I believe in performance-based management. This means being able to benchmark the Company as a whole against its peers, as well as being able to benchmark specific operations against world’s best practice. This will require development of the Company’s information management systems and performance measurement processes to improve value focus throughout the organisation. I also believe in performance- based remuneration. However, the right business processes need to be in place before that is introduced. Speed of decision-making is also important, provided that it is fact- based. The aim is not only to make the right decisions but to make them quickly. Santos has the assets of a major company; it needs to have the nimbleness of a small operator. I have been impressed by the energy and enthusiasm of the people I have met across the Company and their desire to see change. External Relationships My third priority is to build our relationships with other industry players, our customers, suppliers and investors. These relationships need to be as productive as possible. We also need to build stronger relationships with our customers and suppliers, and work with them to add value to all our collective organisations. This may require greater sophistication in our commercial arrangements and changes in practices to foster cooperation and enable Santos to be solution providers and not just bulk sellers of products. Lastly, investors ultimately determine the fate of any company, whether they are large institutions or small shareholders. Thus, good relationships with providers of our capital are also important. Conclusion I have been with Santos for less than three months and the achievements made during 2000 reflect the work of everyone across the Company. I would like to thank all employees for providing such a solid base from which to start. My vision for Santos is that it becomes the most admired E&P company, with the best people and best performance in an environment that is challenging for all. I look forward to reporting back regularly on how we are going. J C Ellice-Flint, Managing Director 9 March 2001 AN OUTSTANDING YEAR 2000 FINANCIAL HIGHLIGHTS & OVERVIEW 7 7 2000 – OUR OBJECTIVES Total production to exceed 51 million boe before acquisitions. Grow Australian gas sales through finding additional gas reserves and securing new and extending existing contracts. Increase exploration effort and review and upgrade the exploration portfolio. Add further value to the business through acquisitions. 2000 – WHAT WE ACHIEVED In 2000 total production was 53 million boe or 4% above the 2000 target after excluding the acquisition of Barrow and Thevenard Islands. Santos was able to grow total domestic gas sales by 8% to 210 PJ. Santos signed a gas contract with CS Energy to supply 120 petajoules over 10 to 15 years. Offshore Australia Business Unit developed an inventory of 20 prospects and leads for drilling in 2001 and 2002. Santos acquired Shell Australia’s Barrow and Thevenard Islands interests adding 3 million boe to annual production and 43 million boe to reserves. Profit to exceed $300 million. Santos achieved a record $487 million profit. > Record sales of $1,497 million, up 59% > Net profit of $487 million, up 122% > Total dividend of 40 cents KEY FINANCIAL RESULTS 2000 1999 Sales $ millions Operating Profit before Income Tax $ millions Net Profit after Tax before abnormals Cashflow from Operations $ millions 1,497 726 487 1,023 945 340 219 530 > 30 cent ordinary dividend, fully franked > 10 cent special dividend, fully franked Earnings per Share Dividends per Share Cash Flow per Share > 22% return on equity > Record production of 56 million barrels of oil equivalent > Gearing fell to 38% Total Shareholders’ Funds $ millions Return on Average Equity Gearing net debt/equity Net Interest Cover > QCT Resources Limited investment Santos’ Five Year Share Price Performance 80 cents 40 cents 36 cents 27 cents $1.68 2,311 22% 38% $0.87 2,057 11% 63% 9.1 times 5.2 times sold in October 2000 > Acquisition of a number of Carnarvon Basin oil and gas assets from Shell Australia > Successful private placement of US$290 million of notes to US institutions 100 80 60 40 20 0 -20 t n e c r e p 1996 1997 1998 1999 2000 Santos All Ords Energy Index 2000 FINANCIAL HIGHLIGHTS & OVERVIEW 8 Sales Revenue a Santos Record Santos Delivers Profit Growth • Sales revenues increased to $1,497 million, up 59%. • Santos reported a 122% rise in profitability to $487 million. • 30% of the increase in sales • Higher sales volumes and Higher Production Delivered in 2000 • Production grew by 14% to 56 million barrels of oil equivalent. revenue came from an increase in sales volumes and 70% from an increase in average realised prices. • The average realised crude oil price was up 69% to A$46.54 in 2000. • Sales volumes increased by 15% to 55.7 million barrels of oil equivalent. higher realised prices drove the profit increase in 2000. • 2000 is the fifth successive year Santos has increased production. • With an A$45 per barrel average oil price, Santos would expect to be able to equal the 2000 result in 2001. • Crude oil production grew by 48% driven by the Barrow and Thevenard Islands acquisitions and increased Stag production. • Gas production increased by 6% to 215 PJ as a result of increased production in Queensland, Western Australia and Victoria. Operating Cashflow a Record • Operating cashflow of $1,023 million is a Santos record. • Surplus cash flow was used to reduce debt. • Proceeds from the sale of the QCT Resources Limited stake ($326 million) contributed to debt reduction. Sales Revenue Net Profit After Tax Production by Product Operating Cash Flow 1600 1600 1400 1200 1000 800 600 400 200 0 n o i l l i m $ 945 769 487 1497 Price 70% Volume 30% 500 400 300 219 200 176 n o i l l i m $ 100 0 1998 1999 2000 1998 1999 2000 60 50 40 30 20 10 0 e o b m m 56 49 46 1023 530 458 1200 1000 800 600 400 200 0 n o i l l i m $ 1998 1999 2000 1998 1999 2000 Sales Gas & Ethane Crude Oil & Liquids Sales Gas Sales Gas Condensate Condensate Crude Oil LPG 2000 FINANCIAL HIGHLIGHTS & OVERVIEW 9 Strong Shareholder Returns Return on Equity Above 20% • Santos shareholders benefited from a 45% increase in the share price during 2000. • Earnings per share increased by 121%. • Total ordinary dividend of 30 cents was declared in 2000, fully franked. • Return on average equity increased to 22% from 11%. • Higher return on equity reflects higher attributable profits in 2000. • Shareholders’ equity increased to $2,311 million from $2,057 million. • A 10 cents special dividend was also declared, fully franked. • Return on average capital employed was 16.7% Strong Balance Sheet • Gearing (net debt to equity) fell to 38%. • Higher cash flow and the proceeds from the sale of the QCT Resources Limited shares were used to reduce net debt to $867 million. • Low gearing provides Santos with the flexibility to grow. • Successful private placement of a US$290 million bond to US institutions. Bond issue oversubscribed by US$90 million. Exploration and Development Expenditure • Total exploration and development expenditure was $441 million, up 48%. • Exploration expenditure increased by 28% to $100 million. • Higher exploration expenditure reflects a focus on increased drilling program in both onshore and offshore Australia. • Development expenditure increased by 55% to $341 million. • Average debt maturity 5.0 years. • Increased development activity in the Cooper Basin and offshore Australia drove the higher spending. • Santos expects to increase development expenditure in 2001 to meet the needs of significant development projects (Bayu/Undan, Legendre, Barrow and Thevenard Islands). Returns Return on Average Equity Net Debt and Gearing Exploration and Development 90 80 70 60 50 40 30 20 10 0 e r a h s r e p s t n e c 40 36 29 25 27 22 11 9 80 25 20 15 10 5 0 t n e c r e p 1998 1999 2000 1998 1999 2000 Earnings per share Dividends per share 1400 1200 1000 800 600 400 200 0 n o i l l i m $ 1280 1301 66.0 63.0 867 37.5 1998 1999 2000 Net Debt Gearing 140 120 100 80 60 40 20 0 t n e c r e p n o i l l i m $ 600 500 400 300 200 100 0 505 441 294 1998 1999 2000 Development Exploration “Securing this facility was a significant and fulfilling challenge for my team.” Dean Bowman Group Treasurer Dean Bowman, Group Treasurer, pictured here with Bronte Hollow, Treasury Administrator DELIVERING FINANCE FLEXIBILITY Graeme Bethune General Manager, Finance & Investor Relations The securing of the US$290 million note facility gives Santos greater flexibility in financing going forward. DELIVERING HIGHER PRODUCTION John Armstrong General Manager, Offshore Australia Business Unit The Barrow Island assets have added significant oil reserves and production at a time of high oil prices. They bring long-term stable production with upside through enhanced oil recovery projects and in unproduced oil zones and undeveloped oil and gas discoveries.We are also pleased with the Thevenard Island fields and are investigating opportunities to improve their performance. “It is exciting to be working on assets for which we were part of the successful bid team” Tom Paspaliaris, Staff Petroleum Engineer and Ian Pedler, Senior Staff Reservoir Engineer, Offshore Australia Business Unit BUSINESS UNIT OPERATIONS 12 BUSINESS UNIT GENERAL MANAGER OPERATIONAL PROFILE South Australia Jon Young Queensland and Northern Territory Rod McArdle Cooper/Eromanga Basins (South Australia) > Exploration acreage > Production of sales gas and ethane, oil, condensates and LPG Port Bonython Liquids Processing Plant > LPG extraction and liquids processing Onshore and Offshore Otway Basins > Exploration acreage > Production of sales gas and condensates Offshore Bass Basin > Exploration acreage Offshore Gippsland Basin > Exploration acreage Cooper/Eromanga Basins (South-West Queensland) > Exploration acreage > Production of sales gas, oil and condensates Surat/Bowen Basins > Exploration acreage Amadeus Basin > Exploration acreage > Production of sales gas, oil and condensates > Production of sales gas and oil Offshore Australia John Armstrong Exploration acreage > Timor Sea > Carnarvon Basin > Browse Basin Production > Oil (Stag, Chervil, and Barrow and Thevenard Islands fields) and sales gas and condensate (East Spar field) > Oil – Elang/Kakatua/ Kakatua North fields (Timor Gap); Jabiru and Challis (Timor Sea) South East Asia Bob Hall United States President To be appointed Production > SE Gobe field (oil) Exploration acreage Indonesia > Warim > Bentu > Korinci-Baru > Sampang Papua New Guinea > SE Gobe field Exploration acreage Offshore > Gulf of Mexico Onshore > Texas and Louisiana Gulf Coast; and Arkoma Basin in Oklahoma Production > Texas Gulf Coast (gas – Runnells–3 and Mew–1) > Gulf of Mexico (gas and oil) 13 GEOGRAPHIC SALES KEY BUSINESS UNIT INFORMATION(A) Sales gas and ethane > South Australia, New South Wales, ACT, and Victoria Oil and condensate > Domestic and international LPG > International Sales gas and ethane > South Australia, Northern Territory and Queensland Oil and condensate > Domestic and international Reserves > Gas – 1575 PJ > Oil – 16 (mmbbl) > Condensate – 20.8 (mmbbl) > LPG – 2637 (’000 tonnes) Production > Gas – 105 PJ > Oil – 1.8 (mmbbl) > Condensate – 1.5 (mmbbl) > LPG – 178 (’000 tonnes) Sales revenue – $511 million Net assets – $918 million Reserves > Gas – 1585 PJ > Oil – 14.6 (mmbbl) > Condensate – 19.8 (mmbbl) > LPG – 1357 (’000 tonnes) Production > Gas – 87.5 PJ > Oil – 1.9 (mmbbl) > Condensate – 1.0 (mmbbl) > LPG – 85.7 (’000 tonnes) Sales revenue – $430 million Net assets – $363 million Sales gas and ethane > Western Australia Oil and condensate > Domestic and international Reserves > Gas – 745 PJ > Oil – 61.4 (mmbbl) > Condensate – 40.7 (mmbbl) > LPG – 1510 (’000 tonnes) Production > Gas – 19 PJ > Oil – 9.3 (mmbbl) > Condensate – 1.1 (mmbbl) Sales revenue – $359 million Net assets – $359 million Oil > International Reserves > Gas – 146 PJ > Oil – 3.1 (mmbbl) Production > Gas – no production in 2000 > Oil – 0.4 (mmbbl) Sales revenue – $21 million Net assets – $8 million Sales gas and ethane > United States Oil and condensate > United States Reserves > Gas – 34 PJ > Oil – 1.5 (mmbbl) Production > Gas – 3.7 PJ > Oil & condensate – 0.1 (mmbbl) Sales revenue – $26 million Net assets – $130 million (A) Excludes group net assets of $533 million. REVIEW OF PERFORMANCE EXPLORATION 14 KEY FACTS Santos’ Exploration Strategy > Successful appraisal of the Scotia Field in the Bowen Basin (eastern Queensland) resulting in a decision to commercialise the field. > Two significant new field discoveries in onshore US. > Encouraging results in South Australia from Moomba oil exploration. > A new gas discovery in the onshore Otway Basin with promising indications from 3D seismic. > 3-year rolling average exploration finding cost of $4.11 > 52% exploration success rate. Exploration Allocation by Business Unit 2000 14% 3% 18% 14% 27% 24% South Australia Queensland & Northern Territory Offshore Australia South East Asia United States Other (low deliverability gas) > Build upon accumulated knowledge and experience in the Cooper/Eromanga Basins to add value via the discovery of additional reserves. > Pursue diversification of the business outside the Cooper/Eromanga Basins via participation in offshore Australia and focussed exploration opportunities in Papua New Guinea, Indonesia and the USA. > Actively manage the risk profile of exploration expenditure. > Actively and rigorously manage the exploration acreage portfolio through farm-outs, farm-ins and relinquishment to optimise the expenditure and exposure of the exploration program. > Cost effectively apply modern technologies using skilled people. Exploration 2000 The year 2000 was a year of consolidation for Santos exploration, with a focus on seismic acquisition and interpretation, and reviewing the exploration target portfolio, especially in offshore Australia. During 2000 Santos drilled 42 wells. Santos’ exploration program targeted lower risk prospects reflected by the fact that exploration was primarily focussed on the gas program, representing 74% of total expenditure. The oil program was centred on offshore Australia and consisted of 11 wells in an effort to define fairways and ultimate prospectivity, plus substantial investment in 2D and 3D seismic. The Company booked 24 million boe of oil and gas reserves at the end of the year: > The South Australia Business Unit drilled ten wells achieving a 90% success rate and discovered 11.3 million boe. This included the Moomba 104 and 119 oil discoveries. Two of the exploration highlights of the year were the Moomba 104 oil discovery in the South Australian Cooper Basin and Runnells–3 gas and liquids discovery in the United States. > The Queensland and Northern Territory Business Unit participated in nineteen wells, achieved a 53% success rate and discovered 9.2 million boe. > The Offshore Australia Business Unit drilled five wells, all targeting oil, but without success. > The South East Asia Business Unit drilled one well, Anggur-1, in Indonesia. This well encountered gas at a shallow depth and will be followed up in 2001. > Seven wells were drilled in the USA with a 43% success rate. Total discoveries amounted to 3.4 million boe. Moomba 104, which was drilled in February 2000, penetrated a nine metre oil column in the Jurassic Hutton Sandstone and was cased and suspended as an oil producer. The well was brought into production in March 2000. Runnells–3 was a wildcat onshore discovery. The well was drilled to test deep, geopressured Frio Sands. The well did not reach target depth but a total of 168 feet of net pay was logged in four Frio pay intervals. The well was pressure tested at an unstimulated daily flow rate of 22 million cubic feet of natural gas and 494 barrels of condensate. Further follow-up drilling will occur in 2001. 2000 EXPLORATION RESULTS Wells Drilled Successful Wells South Australia Queensland Offshore Australia South East Asia US Total Gas 8 15 0 1 7 31 (A) encountered gas, to be appraised Oil 2 4 5 0 0 11 Gas 7 9 0 0 3 19 Oil 2 1 0 0 0 3 Success Rate % 90 53 (A) 0 43 52 15 2000 SEISMIC PROGRAM 2 Dimensional (km) 3 Dimensional (km2) SABU QNTBU 238 296 1120 193 OABU 4215 928 SEABU SUSAC 54 0 47 631 2000 Seismic Program 5,674 kilometres of 2D and 2,048 kilometres of 3D seismic were acquired in 2000 in onshore and offshore Australia enhancing Santos’ ability to assess future exploration prospects. Future Exploration Program Oil and gas companies aim to more than replace production each year through exploration. Santos has not achieved this in recent years, resulting in a fall in reserves. Part of this outcome is the result of the increased levels of gas production the Company has achieved. However, rectifying this situation is a priority. Top performing companies typically have a production replacement ratio of 150%. Some of the steps Santos plans to take are: > High grading acreage through regional studies; > Reducing drilling costs to increase the number of wells drilled for a given budget; > Improving risk management; and > Taking a more programmed approach to exploration. Exploration success is closely related to an organisation’s depth of knowledge of the areas being worked. Success is achieved by maintaining a focus on key geographical areas. Santos is primarily focussed on opportunities in Australia (Cooper Basin, Surat/Denison Trough and North West Shelf); South East Asia (Indonesia and Papua New Guinea foldbelt); and North America (onshore and offshore Gulf Coast). 3-Year Rolling Average Finding Costs 4.1 3.2 2.8 1998 1999 2000 5 4 3 2 1 0 e o b r e p s r a l l o d REVIEW OF PERFORMANCE DEVELOPMENT 16 2000 DEVELOPMENT EXPENDITURE ($million) South Australia Queensland Offshore Australia South East Asia US Other Total 1999 85 84 33 2 3 12 219 2000 135 109 72 9 5 11 341 2000 Development Program Santos spent $341 million on development in 2000, with significant spending increases in the Cooper Basin and on major Offshore Australia projects. In South Australia 49 development wells were drilled (13 in 1999), five compression facilities were installed and 55 fracture stimulations were executed (20 in 1999). A large part of the 2000 South Australian program focussed on gas development to meet continuing strong gas demand. In 2000 Santos conducted several studies and field trials aimed at commercialisation of low deliverability gas reservoirs in the Nappamerri Trough. Progress was made on fracture placement and effectiveness through the Kirby-2 and Wantana-1 fracture stimulation projects. Studies also focussed on developing techniques to locate and exploit areas of enhanced reservoir quality, or sweet spots, within tight gas regions. During the year the Moomba 104 oil pool was also developed. In Queensland 20 development wells were drilled (10 in 1999), five compression facilities installed and 22 gas well projects executed (6 in 1999). As in South Australia, most of the Queensland program was focussed on gas. Total gas deliverability by the Business Unit exceeded 500 TJ per day in winter 2000. The south-west Queensland gas drilling program had good results. One of the highlights was a three-well program of multilateral high-angle wells in the Challum field. Initial production from one of these wells was the highest ever recorded from a Queensland well (36 TJ per day). The Barrolka appraisal drilling program recommenced in 2000 with a three-well underbalanced drilling program. Barrolka 4 provided useful reservoir information and allowed testing of the underbalanced drilling system and procedures. Barrolka 5DW was cased and completed as a gas producer. A total of $72 million was spent on development in Offshore Australia during the year. This included: > Additional drilling activity at Stag (which lifted production to a peak of over 30,000 barrels of oil per day). > Drilling of five development wells at Barrow and Thevenard Islands. > Development of the Bayu- Undan Project (liquids phase) on which Santos spent $29 million during 2000. The Company’s share of remaining expenditure from 2001 to first production is around $290 million. This field is scheduled to commence production in early 2004. > Development of the Legendre oil field, on which Santos spent $12 million in 2000. Expenditure on Legendre in 2001 is expected to be $13 million, scheduled to come onstream mid-2001. 2001 Development Program The 2001 development budget is $500 million, up 47% on 2000. Spending on onshore Australia is expected to remain at high levels. Gas expenditure in South Australia and south- west Queensland is expected to continue at current levels reflecting the high level of production. The Queensland development program also reflects the cost of developing the Scotia field in the Denison Trough at a total cost to Santos of $15 million. The Offshore Australia Business Unit development program will focus on oil development activities and will involve the drilling of four Legendre development wells together with one reinjection well; two, possibly three wells at Stag and three Thevenard and 12 Barrow infill wells. Thevenard oil development includes $17 million for the replacement and repair of the Roller pipeline. Legendre expenditure is forecast to incur $13 million in addition to the $12 million spent in 2000 and production is expected to commence mid-2001. The Bayu-Undan gas liquids scheme is forecast to incur $88 million in 2001. The project will develop 33 mmboe of reserves and will add 3.4 mmboe to Santos’ production in the first 12 months of production, beginning in 2004. Cost Savings (cid:212) Moomba North Field development program A major development program was undertaken in the Moomba North Field. The development activities included a 17-well drilling program that delivered an incremental 49 MMscf/d gas, developed reserves of 68 PJ (13.7 mmboe) and realised over 25% in cost savings compared with previous best practice. This successful campaign gas development sets new benchmarks for onshore field development. Profitability (cid:212) Optimal exploitation of Moomba thin oil reservoirs Santos has demonstrated with Moomba 102DW that high-angle wells are the optimum method for developing single well oil pools with thin oil columns of less than 15 feet. The high-angle section is able to maximise oil rate and increase recovery sweep efficiency, increasing project profitability. Previous uneconomic oil pools are being re-assessed in 2001 using this technology. Opening New Frontiers and extracting Hidden Value through Innovative Technology Santos has focussed on continued application of technology to extract maximum benefits for the company through: Resource Commercialisation (cid:212) coal-bed methane from Scotia Field The major development work program to bring gas on line from the Scotia Field by January 2002 will commence in 2001. Deliverability (cid:212) Challum Field high angle multilateral drilling program Three high-angle multilateral wells were drilled in the Challum Field. This is the first time this type of well has been drilled in onshore Australia, with the implementation of this technology reducing unit development costs and providing more gas deliverability than conventional vertical fracture stimulated wells. The implementation of high-angle and dual-stacked lateral well technology to the Challum Field has improved the Field’s profitability by reducing both the cost of development and the cost of deliverability. 17 Improving Existing Technology Fracture Stimulation Fracture stimulation is a core business in the Cooper Basin, with a record 55 fracture stimulation projects to increase deliverability executed in 2000. Santos has made significant advances in its fracture stimulation practices, cost reduction initiatives and technologies. This is crucial to developing the gas resource in the Nappamerri Trough and other regions of the Cooper Basin, as well as optimising the exploitation of significantly depleted reservoirs previously considered too difficult to fracture stimulate. The success of this technology has considerable scope to improve the performance of other low pressure, currently producing, wells. Extracting maximum value from existing tools (cid:212) Seismic multi-attribute analysis Seismic multi-attribute analysis is a new statistical procedure that attempts to predict geological properties away from well control by combining the seismic response with known well data. Geological properties derived from this technique have been used by geologists in developing depositional models and as a tool in refining drilling locations to maximise reservoir intersection. This methodology has been further advanced in 2000 in combination with recent well results, and is now gaining recognition as an important tool in extracting the maximum reservoir information from seismic response. Challum Multilateral Well Configuration 9 5/8” Casing @ approx. 3300 ft • Approx. 1500 ft in Middle/Lower Toolachee Sands • Approx. 1100 ft in Upper Sand 6” Open Hole 7” Casing P2 Coal Reservoir “A” Coal Reservoir “B” Coal Reservoir “C” (cid:212) REVIEW OF PERFORMANCE RESERVES 18 Resources potential Resources potential excluded from the year end reserves figures is discovered oil and gas accumulations which currently fall outside the definition of proved and probable reserves. This resource is known to exist and will become reserves if technical, infrastructure and market issues are resolved. The Company’s most significant resources in its portfolio include the Hides and Petrel/Tern gas fields, oil and gas at Barrow Island, other gas in the Carnarvon Basin and low deliverability gas in the Cooper Basin. KEY FACTS > Total proved and probable reserves of 921 million boe. > Average reserve life of 16.5 years. > 49 million boe added through acquisitions. > 24 million boe added through exploration and appraisals. > Revisions reduced reserves by 37 million boe. Reserves 1000 966 941 921 800 21 19 25 20 600 400 200 0 e o b m m 16 15 10 5 0 ) s r a e y ( e f i l e v r e s e r e g a r e v a 1998 1999 2000 Reserves/production ratio Reserves Santos has proved and probable reserves of 921 million boe. Gas reserves are equivalent to an average of 19 years of 2000 production and oil and liquids reserves are equivalent to 11.5 years. Wildcat exploration additions comprised 14.4 million boe from 2000 activity. The South Australia Business Unit contributed 5.4 million boe, Queensland and Northern Territory 5.6 million boe, and Santos USA 3.4 million boe. Appraisal activity on existing fields added 9.9 million boe comprising 5.8 million boe in the South Australia Business Unit and 4.1 million boe in the Queensland and Northern Territory Business Unit. The 49 million boe added from acquisitions reflects the acquisition of Shell’s assets in Barrow and Thevenard Islands (43 million boe) and an extra 7% share in the Kipper Field offshore in east Gippsland. The positive results of a redetermination of reserves in SE Gobe (PNG) are also included, offsetting small divestments in the United States. Reserves in existing fields were revised downwards by 37.2 million boe primarily in the Cooper Basin and Northern Territory. PROVED & PROBABLE HYDROCARBON RESERVES Sales Gas Condensate (incl Ethane) (PJ) Million barrels Million barrels Crude Oil LPG (‘000 tonnes) Total (mmboe) Estimated reserves at 31/12/99 2000 Production Additions from 2000 Exploration Appraisal existing fields Revisions existing fields Acquisitions/Divestment Estimated reserves at 31/12/00 4338 (215) 62 51 (202) 50 4084 70 (13) 2 – (2) 40 97 86 (4) 1 1 (3) 0 81 5326 (263) 71 63 256 52 5505 941 (56) 14 10 (37) 49 921 REVIEW OF PERFORMANCE AUSTRALIAN GAS 19 KEY FACTS > Santos sold a record 210 PJ of sales gas and ethane to Australian customers. > Santos signed a contract with CS Energy for 120 PJ of gas over a 10 to 15 year period. > East Spar sales increased by 68% to 17 PJ. > Victorian Otway Basin delivered five PJ of gas in its first full-year of production. Australian Gas & Ethane Sales by Business Unit 8% 51% 41% South Australia Queensland & Northern Territory Offshore Australia Australian Gas Sales 195 210 176 1998 1999 2000 250 200 150 100 50 0 Santos’ ability to compete in Eastern Australian gas was highlighted during 2000 by the new contract with CS Energy in Queensland. In 2000 Santos delivered a record 210 PJ of gas to the Australian market. All business units increased gas sales reflecting growing demand for domestic gas during 2000. Offshore Australia gas sales grew to 17 PJ. Steadily growing demand for Cooper Basin gas resulted in eastern Australia gas sales growing to 193 PJ. 2000 was the first full year of delivery of gas to WMC Fertilisers. Santos announced an agreement to supply up to 120 PJ of gas from the Scotia Field over 10 to 15 years to CS Energy Ltd, a Queensland Government- owned electricity generator. Santos also commenced supply under an additional East Spar gas contract to the South West Cogeneration Project. Santos Gas Operations Onshore Australia gas operations account for 89% of gas sales. The core operations are located in the South Australian Cooper Basin and south-west Queensland. Gas from the Cooper Basin is distributed to customers in South Australia, the Australian Capital Territory, Victoria and New South Wales via the Moomba facility and in Queensland via the Ballera facility. Ethane is also sold to Qenos Ltd in New South Wales. Santos has other gas producing areas located in the Northern Territory, Western Australia and Victoria. Deregulation in the Australian Gas Market Creating new opportunities for gas deliveries During the year approximately 8 PJ of Cooper Basin gas was sold into Victoria. The Eastern Gas Pipeline (EGP) from Longford in Victoria to Sydney in New South Wales was completed in September 2000. The impact of commencement of supply by the EGP on Santos’ gas sales in NSW was as expected. Competition in the Australian gas market is expected to rise over the coming years. Santos expects that the Cooper Basin will remain a competitive and strong supplier of gas to south-eastern Australia. SANTOS INTEREST IN UNCONTRACTED GAS RESERVES(A) PJ AS AT DEC 2000 South Australia Minerva Kipper SW Queensland Surat/Bowen Amadeus East Spar Reindeer Bayu/Undan Barrow Island/Thevenard Island Total Gas Reserves in Santos Acreage 2466 309 371 1894 256 496 430 256 3609 110 Sub-total Australian areas Other areas Total (A) Includes ethane 10197 272 10469 Santos Share of Gas Reserves 1469 31 74 1125 160 300 193 92 427 33 3904 180 4084 Uncontracted Santos Share of Uncontracted Gas in Santos Gas Acreage 730 1238 31 309 74 371 668 1133 83 147 215 354 53 119 92 256 427 3609 33 110 7646 238 7884 2406 146 2552 l s e u o a t e p j REVIEW OF PERFORMANCE PRODUCTION 20 Production benefits from the Development Program > The Elang/Kakatua oil field reached a milestone 20 million barrels of cumulative production during 2001. > The Stag oil field reached a milestone 18 million barrels of cumulative production during 2000 benefiting from the development program. KEY FACTS > Production reached a record 56 million boe. > Stag oil production averaged 23,000 bopd for the year. > Elang/Kakatua production averaged 18,000 bopd for the year. > East Spar gas production rose to 19 PJ for the year. > Carnarvon Basin acquisition boosted 2000 oil production by 3 million boe. > Santos produced a record 215 PJ of gas and ethane. In 2000 Santos produced a record 56 million boe, up 14%. The increase in production is attributable to the benefits of the ongoing exploration and development program and Santos’ corporate development activities. Total production from the Offshore Australia Business Unit doubled to 14 million boe (7 million boe in 1999) while production from the Queensland/ Northern Territory Business Unit increased 6% to 19 million boe. A highlight for the year was oil and liquids production reaching a record 19 million boe, boosted by higher oil production from the Stag and Elang/Kakatua oil fields and the Barrow and Thevenard Islands acquisition. Other highlights were the significant contribution from the Stag oil field where oil production averaged over 23,000 bopd and peaked over 30,000 during 2000. The improved performance and extension of well life of the Stag Field can be directly attributed to the development program that involved successful water injection in 1999 and additional remedial drilling during 2000. A further example of success through development is the Elang/Kakatua Field where remedial development work that involved the drilling of a sidetrack hole, workover and use of 3D seismic led to improved production. Elang/Kakatua performance improved significantly and averaged Pacific Ocean Korinci-Baru Bentu Indonesia Sampang Warim Irian Jaya Timor Gap Timor Sea Darwin Papua New Guinea SE Gobe Browse Basin Bonaparte Gulf Carnarvon Basin Amadeus Basin McArthur River Mt Isa Indian Ocean Perth Kalgoorlie Cooper/ Eromanga Basins Adelaide Australia Melbourne 0 1000 kilometres Otway Basin Southern Ocean Surat Basin & Denison Trough Gladstone Brisbane Sydney Canberra Gippsland Basin Bass Basin Hobart Exploration Oil pipeline Ethane pipeline Production Gas pipeline 18,000 bopd during 2000. The Elang/Kakatua Field reached a significant milestone during January 2001 when cumulative production exceeded 20 million boe. Santos expects 2001 production to be 2% to 3% above the record level achieved in 2000. Offshore Australia is expected to continue to contribute to Santos’ production profile in a significant way with new projects such as the Legendre oil field. Significant investment in development during 2000 will help Santos grow its production profile. 60 50 40 30 20 e 10 o b m m 0 Production 56 49 46 1998 1999 2000 Sales gas & ethane Crude oil & liquids PRODUCTION STATISTICS Field Units South Australia Cooper/Eromanga Otway Total Queensland & Northern Territory SW Queensland Surat/Denison Amadeus Total Offshore Australia Timor Sea Timor Gap Carnarvon Thevenard/Barrow Total South East Asia Seram PNG Total US Total Sales Gas & Ethane PJ Crude Oil ’000 bbls Condensate ’000 bbls 2000 1999 2000 1999 2000 1999 LPG ’000 tonnes 2000 1999 21 100.0 4.8 104.8 105.7 1.6 107.3 1800.4 – 1800.4 1860.4 – 1860.4 1440.1 53.2 1493.3 1573.9 19.0 1592.9 177.5 – 177.5 198.9 – 198.9 65.7 11.2 10.6 87.5 – – 18.9 0.1 19.0 – – – 56.3 11.9 11.3 79.5 – – 10.3 – 10.3 1442.4 107.9 343.1 1893.4 1705.6 133.8 399.2 2238.6 947.8 21.8 – 969.6 333.2 1397.7 4648.3 2898.4 9277.6 403.6 1701.5 2378.7 – 4483.8 – – 1079.9 – 1079.9 – – – – 425.2 425.2 – 448.5 448.5 – – – 941.3 35.4 – 976.7 – – 609.3 – 609.3 – – – 85.6 0.1 – 85.7 79.5 1.8 – 81.3 – – – – – – – – – – – – – – – – 3.7 215.0 4.9 75.2 202.0 13471.8 92.8 9124.1 19.3 3562.1 37.6 3216.5 – 263.2 – 280.2 Million Barrels of Oil Equivalent Sales Gas & Ethane Crude Oil 2000 1999 2000 1999 Condensate 2000 1999 LPG Total 2000 1999 2000 1999 South Australia Cooper/Eromanga Otway Total Queensland & Northern Territory SW Queensland Surat/Denison Amadeus Total Offshore Australia Timor Sea Timor Gap Carnarvon Thevenard/Barrow Total South East Asia PNG Total US Total 17.20 0.83 18.03 11.30 1.93 1.82 15.05 – – 3.25 0.02 3.27 – – 18.17 0.28 18.45 9.68 2.05 1.94 13.67 – – 1.77 – 1.77 – – 0.64 36.99 0.84 34.73 1.80 – 1.80 1.44 0.11 0.34 1.89 0.33 1.40 4.65 2.90 9.28 0.43 0.43 0.08 13.48 1.86 – 1.86 1.71 0.13 0.40 2.24 0.40 1.70 2.38 – 4.48 0.45 0.45 0.09 9.12 1.35 0.05 1.40 0.89 0.02 – 0.91 – – 1.01 – 1.01 – – 0.02 3.34 1.47 0.02 1.49 0.88 0.03 – 0.91 – – 0.57 – 0.57 – – 0.04 3.01 1.50 – 1.50 0.72 – – 0.72 – – – – – – – 1.68 – 1.68 0.67 0.02 – 0.69 – – – – – – – – 2.22 – 2.37 21.85 0.88 22.73 14.35 2.06 2.16 18.57 0.33 1.40 8.90 2.90 13.53 0.43 0.43 0.74 56.00 23.18 0.30 23.48 12.94 2.23 2.34 17.51 0.40 1.70 4.72 – 6.82 0.45 0.45 0.97 49.23 REVIEW OF PERFORMANCE ENVIRONMENT & SAFETY 22 Safety Performance Environment 19 20 18 16 14 12 10 8 6 4 2 0 ) e t a r ( F C R T 10 8 1998 1999 2000 Santos operates in many varied environmental settings throughout Australia. The Company has a long history of conducting its activities in a way that avoids and minimises potential impacts on the environment. Santos’ first environmental professional was employed in 1980. Since that time, the Company has established a core team of dedicated environmental advisors as well as incorporating environment into the line management function. As with safety, the environment is everyone’s responsibility – be they employee or contractor, operator or manager. The Company’s environmental policy was updated in 1997 and it is used as the basis of a comprehensive environmental management system tailor-made for Santos. The Corporate component of the Santos Australian Environmental Management System incorporates corporate requirements which are reflected in the more detailed Business Unit sub-systems. This ensures that the differing, specific regulatory requirements of the various States within which Santos operates can be reflected in sufficient detail to enable easy comprehension and compliance with State and Territory requirements. Santos has achieved high standards of environmental performance – illustrated by the many awards it has received. Relationships with regulatory bodies are robust and positive and focussed on an evolving process of co-regulation. Emergency contingency plans have been established for all key operating areas. These are tested and updated on a regular basis. All environmental incidents are reported and rectified. Issues identified as causal factors are incorporated into ongoing risk management and modified procedures aimed at preventing reoccurrence in all similar circumstances. During 2000 Santos was not fined or prosecuted, nor did it receive any notices of non-compliance. This process of continual improvement underlies the Santos Environmental Management System, which in itself is subject to constant evolution, amendment and change – reflecting both external and in-company changes over time. The ultimate aim is to achieve a level of excellence by constantly bridging the gap between admirable rhetoric and the realities of the harsh, remote natural environmental in which the majority of Santos’ operations are located. Safety Santos investigates and reports all accidents, near misses and hazards. The measure of safety performance used is the Total Recordable Case Frequency rate (TRCF) which is defined as the number of Recordable Cases (Medical Treatment and Lost Time Injuries) per million hours worked by Santos employees and contractors. In 2000, Santos recorded a continued improvement in its safety performance achieving a further reduction of 20%, following an almost 50% reduction in 1999, in its TRCF rate. The Company strives for the highest standard of occupational health and safety (OH&S) and is fully committed to a work environment free of injuries. While this has not yet been achieved, the progress for the past two years indicates continual improvement and progress toward this. Under Santos’ OH&S policy, all employees and contractors have specific responsibilities for observing and maintaining a safe working environment. Of particular emphasis for safety programs has been the intent that contractor safety performance should match that of Santos’ employees. Many contractors now achieve safety performance matching that of Santos employees. 23 Santos has commenced a program of community support in the Western District of Victoria including support to the Timboon and District Healthcare Service for the purchase of an essential piece of equipment and to the Port Campbell Surf Life Saving Club’s building appeal. REVIEW OF PERFORMANCE COMMUNITY In 2000 Santos continued its program of providing support to cultural, educational and not- for-profit organisations within the communities in which the Company operates. The Art Gallery of South Australia, the Queensland Art Gallery, the Adelaide, Brisbane, and Darwin Festivals, the Santos School of Petroleum Engineering and Management, and the Anti- Cancer Foundation, are among the many institutions and events that benefit from this program. For the past two years Santos has been the Principal Sponsor of the Adelaide Symphony Orchestra and continues this in 2001. The orchestra plays a vital role in the cultural life of South Australia, performing an extensive concert program as well as supporting the performances of the State Opera of South Australia and the Australian Ballet. One of the highlights of the orchestra’s season is the annual Santos Symphony under the Stars, a free public concert held in Elder Park. This is a summertime institution in Adelaide and is attended by more than 30,000 people. In 2000 Santos supported the Save the Bilby organisation by donating a 4WD vehicle to be used in a feral animal eradication program. This program will secure a habitat for the Greater Bilby in the Currawinya National Park in south-west Queensland, ensuring the survival of this almost extinct Australian icon for future generations to see and enjoy. For many years, Santos has contributed to a number of events and organisations in the Whyalla region of South Australia. This year the Company will assist the establishment of new premises for the Air Sea Rescue Squadron. DELIVERING NEW OPPORTUNITIES Jon Young General Manager, South Australia Business Unit The Otway project team proved that there are economic prospects in Victoria which can be readily developed and marketed in Eastern Australia’s largest market place. “The Otway project was an extreme challenge for the small dedicated team working in a geographical area new to Santos.” Graeme Parsons Senior Staff Geologist, South Australia Business Unit “Frontier exploration in PNG offers satisfying challenges both technically and on the ground” Jan Hulse Senior Geologist, South East Asia Business Unit DELIVERING FUTURE GROWTH Bob Hall General Manager, South East Asia Business Unit Papua New Guinea is a challenging area with great potential that can deliver significant value to Santos. John Allan Uhrig AC, BSc, DUniv, Hon. DEcon, FAIM John Charles Ellice-Flint BSc (Hons) Stephen Gerlach LLB Peter Charles Barnett FCPA John Walter McArdle FCPA Age 60. Director since 31 October 1995 and member of the Environmental Committee of the Board. Director of Mayne Nickless Ltd and AMCIL Ltd. Former Managing Director and Chief Executive Officer of Pasminco Ltd and Chief Executive Officer of EZ Industries Ltd. Age 54. Executive Director since 5 September 1995 and Executive General Manager - Commercial of Santos Ltd. Director of Santos Ltd subsidiary companies. Former Managing Director of Delhi Petroleum Pty Ltd and former Chairman of Australian National Railways Commission. Age 72. Director since 3 December 1991 and Chairman since 15 February 1994. Former Chairman of Westpac Banking Corporation, of Rio Tinto Ltd and former Deputy Chairman of Rio Tinto plc. Until 1985 was Managing Director of Simpson Holdings Ltd. Age 50. Managing Director since 19 December 2000, member of the Environmental Committee of the Board and also Chairman of other Santos Ltd subsidiary companies. Twenty-six years experience in the international oil and gas industry with Unocal, including as Senior Vice President: Global Exploration and Technology and Vice President: Corporate Planning and Economics. Age 55. Director since 5 September 1989 and Deputy Chairman since 20 June 2000. Chairman of the Environmental Committee of the Board and also Chairman of Santos Finance Ltd. Chairman of Amdel Ltd, Equatorial Mining Ltd, Elders Australia Ltd and Beston Pacific Vineyard Management Ltd. Director of Southcorp Holdings Ltd, Futuris Corporation Ltd, Challenger Beston Limited and Elders Rural Services Ltd. Former Managing Partner of the Adelaide legal firm, Finlaysons. BOARD OF DIRECTORS Ian Ernest Webber AO, BE, ATS, FCIT, FAIM Michael Anthony O’Leary DipMinE, BSc, FAusIMM, FAIM Professor Judith Sloan BA (Hons), MA, MSc Frank John Conroy BCom, MBA, FAIM, FAICD, FAIBF Age 65. Director since 16 February 1993 and member of the Audit Committee of the Board. Director of Pacific Dunlop Ltd and WMC Ltd. Former Managing Director and Deputy Chairman of Chrysler Australia Ltd and Managing Director of Mitsubishi Motors Australia Ltd. Former Chairman of Mayne Nickless Ltd Group. Age 65. Director since 15 October 1996 and member of the Environmental Committee of the Board. Deputy Chairman of Bank of Western Australia Ltd. Former Chairman of Hamersley Iron, Argyle Diamonds, Dampier Salt and former Director of Rio Tinto Ltd and Rio Tinto plc. Age 46. Director since 5 September 1994 and member of the Audit Committee of the Board. Chairman of SGIC Holdings Ltd and Director of Mayne Nickless Ltd and a Board member of the Australian Broadcasting Corporation. Former Professor of Labour Studies at the Flinders University of South Australia and Director of the National Institute of Labour Studies. Age 58. Director since 19 October 1999 and director of Santos Finance Ltd. Chairman of Howard Smith Ltd, St George Bank Ltd and ORIX Australia Corporation Ltd. Director of Futuris Corporation Ltd and Australian Pharmaceutical Industries Limited. Former Managing Director of Westpac Banking Corporation. Graeme William McGregor AO, BEc, FCPA, FCA, FAIM, FAICD Age 62. Director since 3 September 1999, Chairman of the Audit Committee of the Board and director of Santos Finance Ltd. Director of Foster’s Brewing Group Ltd, Nufarm Ltd, Were Securities Ltd and Community Foundation Network Ltd. Member of the Financial Reporting Council. Former Executive Director Finance of The Broken Hill Proprietary Company Limited. CORPORATE MANAGEMENT Managing Director John Ellice-Flint Executive General Manager – Commercial John McArdle General Manager – Accounting Don Priestley General Manager – Engineering Denis Dare General Manager – Finance & Investor Relations Graeme Bethune Group General Counsel & Company Secretary Michael Roberts General Manager – Petroleum Development & Planning Ashok Khurana CORPORATE GOVERNANCE 28 Corporate Governance Statement The purpose of this statement is to provide details of the main corporate governance practices the Company had in place during the past financial year. The Board of Santos Limited is committed to good corporate governance and to this end has had in place, for a number of years, formal guidelines recording the Board’s policy on: Board composition and appointment of chairman; Board membership and attendance; the appointment and retirement of Directors; independent professional advice; compensation arrangements; external auditors; risk management; and ethical standards. References in this statement to the “Board guidelines” are to the formal guidelines in force during the past financial year. The Board guidelines are reviewed by the Board on an annual basis and as required. Board of Directors and its Committees The Board is responsible for the overall corporate governance of the Company including its strategic direction and financial objectives, establishing goals for management and monitoring the attainment of these goals. To assist in the effective execution of its responsibilities, the Board has established a number of Board Committees, including a Nomination and Remuneration Committee, an Audit Committee and an Environmental Committee. The Nomination and Remuneration Committee comprises all non- executive Directors and each of the Audit and Environmental Committees comprises a majority of non-executive Directors and is chaired by a non-executive Director. The Board guidelines prescribe that the Board is to meet at least 10 times a year. All current non-executive Directors, including the Chairman, are considered to be ‘independent’ Directors, as defined in the 1999 guidelines of the Australian Investment and Financial Services Association. Composition of the Board The names and details of the experience, qualifications, age, special responsibilities and shareholdings of each Director of the Company are set out on pages 26, 27 and 38 of this Annual Report. The composition of the Board is determined in accordance with the Company’s Constitution and the Board guidelines including: the Board is to comprise a minimum of five and a maximum of ten Directors (exclusive of the Managing Director); the Board should comprise a substantial majority of non-executive Directors (currently the Board comprises eight non-executive and two executive Directors); there should be a separation of the roles of Chairman and Chief Executive Officer of the Company; and the Chairman of the Board should be a non- executive Director. Under the Board guidelines, it is the responsibility of the Nomination and Remuneration Committee to devise the criteria for, and review membership of, and nominations to, the Board. The primary criteria adopted in selection of suitable Board candidates is their capacity to contribute to the ongoing development of the Company having regard to the location and nature of the Company’s significant business interests and to the candidates’ age and experience by reference to the age and diversity of experience of existing Board members. When a Board vacancy exists or where it is considered that the Board would benefit from the services of a new Director with particular skills, the Nomination and Remuneration Committee has responsibility for proposing candidates for consideration by the Board and, where appropriate, engages the services of external consultants. Prior to appointment, each Director is provided with a letter of appointment which, inter alia, encloses a copy of the Board guidelines. The expectations of the Board in respect to a proposed appointee to the Board and the workings of the Board and its committees are conveyed in interviews with the Chairman and access provided to appropriate executives in relation to details of the business of the Company. Under the Company’s Constitution approximately one- third of Directors retire by rotation each year and Directors appointed during the year are required to submit themselves for election by shareholders at the Company’s next Annual General Meeting. The Board guidelines prescribe that, under normal circumstances, Directors should retire at the first Annual General Meeting after reaching the age of 72 years and not seek re-appointment. Independent Professional Advice The Board guidelines set out the circumstances and procedures pursuant to which a Director, in furtherance of his or her duties, may seek independent professional advice at the Company’s expense. Those procedures require prior consultation with, and approval by, the Chairman and assurances as to the qualifications and reasonableness of the fees of the relevant expert and, under normal circumstances, the provision of the expert’s advice to the Board. Remuneration Under the Board guidelines, the Nomination and Remuneration Committee is responsible for reviewing the remuneration policies and practices of the Company including: the compensation arrangements for executive Directors and senior management; the Company’s superannuation arrangements; employee share and option plans; and, within the aggregate amount approved by shareholders, the fees for non-executive members of the Board. Further information on these matters is included at pages 39 and 40 of this Annual Report and details of the Company’s employee share and option plans are provided in Note 18 of the Financial Report. No non-executive Director may participate in any of the Company’s share or option plans. Information in respect to indemnity and insurance arrangements for Directors and senior executives appears at page 41 of this Annual Report. The current members of the Nomination and Remuneration Committee, all of whom are non-executive Directors, are: Mr J A Uhrig (Chairman), Mr P C Barnett, Mr F J Conroy, Mr S Gerlach, Mr G W McGregor, Mr M A O’Leary, Professor J Sloan and Mr I E Webber. 29 Under the Company’s Delegation of Authority, the Board is responsible, inter alia, for the approval of the annual corporate budget and for significant: acquisitions and disposals of assets; expenditure decisions outside of the corporate budget; hedging of product sales; sales contracts; and financing arrangements. Ethical Standards In pursuance of the promotion of high standards of corporate governance, the Board has, without adopting a formal code of ethics, established and maintained various internal standards which extend beyond requirements prescribed by law and include guidelines relating to the dealing in securities by Directors and managers. Audit Committee Risk Management • Investment appraisal – the The Board guidelines require the Board to continue in existence an Audit Committee of the Board. The role of the Audit Committee is documented in a Charter approved by the Board. The Committee is required to meet at least three times per year and members may raise any matters considered desirable. The role of the Audit Committee includes: examining the accounting policies of the Company to determine whether they are appropriate and in accordance with all applicable reporting requirements; ensuring that truth and fairness is reflected in the preparation and publication of the Company’s financial reports; meeting regularly with the auditors to reinforce the independence of the auditors, to determine the appropriateness of internal and external audit procedures, to review the performance of the auditors and to provide the auditors with confidential access to the Board; and referring matters of concern to the Board, as appropriate, and considering risk management matters. Minutes and recommendations of the Audit Committee are distributed at the next Board Meeting. The current members of the Audit Committee are: Mr G W McGregor (Chairman), Professor J Sloan and Mr I E Webber. The Board has in place a number of arrangements and internal controls intended to identify and manage areas of significant business risk. These include the maintenance of: Board Committees; detailed and regular budgetary, financial and management reporting; established organisational structures, procedures, manuals and policies; audits (including internal and external financial, environmental and safety audits); comprehensive insurance programmes; and the retention of specialised staff and external advisors. • Management of environmental risk – environmental risk is managed through: comprehensive environmental management systems; environmental committees at Board and management levels; the retention of specialist environmental staff and advisers; regular internal and external environmental audits; and imposing environmental care as a line management responsibility. The current members of the Committee are: Mr S Gerlach (Chairman), Mr P C Barnett, Mr M A O’Leary and Mr J C Ellice-Flint. • Management of exploration risk – exploration risk is managed through internal control systems which include: formalised risk assessment procedures at the Business Unit level; Corporate review in both prospect and hindsight; Board approval of exploration budgets; and regular reporting on progress to the Board. External reviews are also undertaken as necessary. Company has clearly defined procedures for capital expenditure. These include: annual budgets; detailed appraisal and review procedures; levels of authority; and due diligence requirements where assets are being acquired. • Financial reporting – a comprehensive budgeting system exists with a five year financial plan and an annual budget approved by the Board. Monthly actual results are reported against budget and, where applicable, revised forecasts for the year are prepared and reported to the Board. Speculative transactions are prohibited. Further details relating to financial instruments and commodity price risk management are included in Note 31 of the Financial Report. • Functional speciality and business unit reporting – all significant areas of Company operations are subject to regular reporting to the Board. The Board receives regular reports on the performance of each business unit and on exploration, development, finance, liquids marketing, safety, government, investor relations and environmental matters. Senior management attend Board and Committee meetings, at which they report to Directors within their respective areas of responsibility. This assists the Board in maintaining its understanding of the Company’s business and assessing the senior management team. Where appropriate, advisers to the Company attend meetings of the Board and of its Committees. SANTOS GROUP INTERESTS AS AT 1 MARCH 2001 Licence Area 30 South Australia Cooper Basin (Fixed Factor Area) (PPLs 6-20, 22-25, 27-61, 63-75, 78-117, 119, 120, 124, 126-130, 132-140, 143-146, 148-151, 153-155, 157, 159-163 & 164-166) Queensland South-West Queensland ATP 259P Naccowlah (PLs 23-26, 35, 36, 62, 76-79, 82, 87, 105, 107, 109, 133 & 149) Total 66 (PLs 34, 37, 63, 68, 75, 84, 88, 110, 129, 130, 134, 140, 142-144 & 150) Wareena (PLs 113, 114, 141, 145, 148,153, 157 & 158) Innamincka (PLs 58, 80, 136, 137 & 159) Alkina Aquitaine A (PLs 86, 131 & 146) Aquitaine B (PLs 59-61, 81, 83, 85, 97, 106, 108, 111, 112, 132, 135, 139 & 147) Aquitaine C (PLs 138 & 154) 50/40/10 (PL 55) SWQ Unit ATP 267P (Nockatunga) (PLs 33, 50 & 51) ATP 269P (Bodalla) PLs 31, 32 and 47 (Bodalla) ATP 299P (Tintaburra) (PLs 29, 38, 39, 52, 57, 95 & 170) Surat Basin ATP 212P (Major) (PLs 30, 56 & 74) ATP 336P (Kalima) ATP 336P (Roma) (PLs 3-13, 93 & PPL2) ATP 336P (Waldegrave) (PLs 10-12, 28, 69 & 89) ATP 378P (Burunga) (PL 176) ATP 470P (Redcap) (PL 71) ATP 471P (Bainbilla) (PL 119) ATP 471P (Myall) ATP 552P (Grail North) Victoria Otway Basin PEP 153 PEP 154 PEP 160 VIC/RL7 (La Bella) VIC/RL8 (Minerva) Tasmania Bass Basin T/RL1 (Yolla) Northern Territory Amadeus Basin OL 3 (Palm Valley) OLs 4 and 5 (Mereenie) % Interest Licence Area % Interest Patchawarra East Joint Operating Area (PPLs 26, 76, 77, 118, 121-123, 125, 131, 142, 147, 152, 156, 158 & 167) 59.8 SA Unit and Downstream ATP 552P ATP 685P (Cockatoo Creek) Boxleigh PL 1 (Moonie) PL 1 (2) (Cabawin) PL 1 (2) (Cabawin Farm-out) PL 2 (Kooroon) PL 2C (Alton) PL 2C (Alton Farm-out) PL 5 (Barcoo) PL 5 (Drillsearch) PL 5 (Mascotte) PL 11 (Snake Creek East) PL 12 (Trinidad) PL 17 PL 17 (Bennett Exclusion) PL 17 (Leichardt Exclusion) PLs 21, 22, 27 and 64 (Balonne) Denison Trough ATP 337P (PLs 41-45, 54, 67 and 173) ATP 553P Facilities Wungoona Processing Facilities Moonie to Brisbane Pipeline Jackson Moonie Pipeline Ballera to Mt Isa Pipeline Gippsland Basin VIC/RL1 (Golden Beach) VIC/RL2 (Kipper) VIC/RL3 (Sole) 55.5 70.0 61.2 70.0 72.0 52.5 55.0 47.8 60.0 60.1 59.1 5.8 5.3 89.0 15.0 85.0 85.0 46.3 100.0 10.0 16.7 69.5 35.5 100.0 90.0 60.0 10.0 10.0 5.0 69.4 59.8 22.0 100.0 100.0 100.0 100.0 50.0 52.5 100.0 63.5 85.0 21.3 42.5 25.0 92.5 70.0 100.0 70.0 12.5 50.0 50.0 50.0 100.0 82.8 18.0 66.7 20.0 25.0 48.0 65.0 RL2 (Dingo) Mereenie-Brewer Estate Pipeline 65.7 65.0 Licence Area % Interest Licence Area % Interest 31 Offshore Northern Australia Carnarvon Basin EP 61 EP 62 EP 65 EP 66 EP 325 EP 357 L1H L1O TL/2 TL/3 T/L4 T/L7 TP/2 TP/3 (1 & 2) TP/3 (3) TP/7 (1-3) TP/7 (4) TP/13 TP/14 WA-1-P WA-7-L WA-8-L (Talisman) WA-13-L (East Spar) WA-15-L WA-15-L (Lower Area) WA-20-L (Legendre) WA-24-P (1) WA-24-P (2 & 3) WA-149-P WA-191-P WA-208-P Papua New Guinea PDL 1 PDL 3 PL 3 PPL 157 PPL 189 PPL 190 PPL 191 Indonesia Bentu Korinci-Baru United States of America Gulf of Mexico – EC 155 – EI 59 – EI 143 – EI 335 – VR 247 – WC 272 – WC 276 – WC 582 – WC 632 WA-209-P WA-214-P WA-261-P WA-264-P WA-298-P Browse Basin WA-206-P WA-239-P WA-242-P WA-281-P WA-282-P WA-283-P Bonaparte Basin NT/RL1 (Petrel) WA-6-R (West Petrel) WA-18-P (Tern) Timor Sea AC/L1 (Jabiru) AC/L2 (Challis) AC/L3 (Cassini) AC/L4 (Skua) AC/P15 Timor Gap ZOCA 91-01 ZOCA 91-12 Bayu-Undan Gas Field PPL 202 PPL 206 PPL 213 PRL 4 PRL 5 SE Gobe Unit 28.6 28.6 35.7 35.7 25.0 35.7 28.6 28.6 15.0 28.6 35.7 35.7 28.6 35.7 75.0 43.7 18.7 33.3 28.6 22.6 28.6 27.4 45.0 54.2 36.0 22.6 35.7 75.0 18.7 33.4 20.0 31.0 15.9 3.6 35.3 42.6 31.3 71.8 61.1 61.1 Sampang Warim Average working interest Arkoma Basin 80.0 20.0 20.0 20.0 75.0 80.0 75.0 80.0 50.0 South Texas – Aransas Bay – Ashland Deep (Runnells-3) – Birdie Porter Green – Fuhrken – Queen City (Mew-1) – Remmers – Suemar – Driscoll – West Rosita 36.0 20.0 29.6 66.7 20.0 100.0 10.0 33.3 27.5 42.5 27.5 95.0 95.0 100.0 10.3 10.3 10.3 37.4 33.3 25.0 21.4 11.8 45.0 48.0 35.0 35.3 35.3 9.4 45.0 20.0 Average working interest 32.0 25.0 30.0 50.0 25.0 47.0 55.0 25.0 25.0 25.0 32 GLOSSARY CRUDE OIL 1 barrel = 1 boe SALES GAS development well A well drilled to enable production from a known oil or gas reservoir. petroleum liquids Crude oil, condensate, or its derivative naphtha, and the liquefied petroleum gases propane and butane. 1 petajoule = 171.937 boe x103 CONDENSATE/NAPHTHA exploration well A wildcat or appraisal well drilled to find new reserves of oil or gas. 1 barrel = 0.935 boe LPG 1 tonne = 8.458 boe appraisal well An exploration well drilled for the purpose of identifying extensions to known fields or discoveries. barrel/bbl The standard unit of measurement for all production and sales. One barrel equals 159 litres or 35 imperial gallons. boe Barrels of oil equivalent. The factors used by Santos to convert volumes of different hydrocarbon production to barrels of oil equivalent are printed above. bopd Barrels of oil per day. the Company Santos Ltd and its subsidiaries. fracture stimulation A technique used to improve hydrocarbon recovery from reserves with poor permeability or porosity. Fracture stimulation involves the fracturing of the reservoir rock to encourage the flow of hydrocarbons. hydrocarbons Solid, liquid or gas compounds of the elements hydrogen and carbon. LPG Liquefied petroleum gas. mbbls Thousand barrels. mmbbls Million barrels. mmboe Million barrels of oil equivalent. OABU Offshore Australia Business Unit. SABU South Australia Business Unit. Santos Santos Ltd and its subsidiaries. SEABU South East Asia Business Unit. seismic survey A survey used to gain an understanding of rock formations beneath the earth’s surface. PJ Petajoules. Joules are the metric measurement unit for energy. A petajoule is equal to 1 kilojoule x 1012. The equivalent imperial measure to joules is British Thermal Units (BTU). One kilojoule = .9478 BTU. PSC Production sharing contract. SUSAC Santos USA Corp. TJ Terajoules. Joules are the metric measurement unit for energy. A terajoule is equal to 1 joule x 1012. TRCF Total recordable case frequency rate. wildcat well An exploration well drilled to identify new accumulations of oil or gas. QNTBU Queensland and Northern Territory Business Unit. reserves Proved and probable reserves as defined by the Australian Stock Exchange Ltd (ASX). Proved reserves are those reserves that, to a high degree of certainty, are clearly recoverable, at commercial rates, under currently anticipated production methods, operating conditions, prices and costs. Probable reserves are those reserves that may be reasonably assumed to exist because of geophysical or geological indications and drilling done in regions which contain proved reserves. Reserves reported are based on, and accurately reflect, information compiled by full-time employees of the Company who have the requisite qualifications and experience prescribed by the ASX Listing Rules. DELIVERING HIGHER EFFICIENCY Jon Young General Manager, South Australia Business Unit The 25% cost reduction achieved in the Moomba North Drilling Program ensures Cooper Basin gas is competitive and creates opportunities to develop additional gas reserves. 33 33 “The Moomba North Campaign has given us the opportunity to optimise our efforts both technically and operationally. The firm vision of the project has enabled the team, from office personnel to rig crews, to focus on building effective teamwork and achieving greater results” Sylvie Tran Drilling Engineer, South Australia Business Unit SANTOS’ AREAS OF OPERATION Santos’ Acreage – Bentu/Korinci Baru (Sumatra) Santos’ Acreage – Sampang PSC (Java) 34 Proposed Asamera Duri pipeline Sumatra Pekanbaru Baru P e r a k - K o ri n Bumi Korinci-Baru PSC Terusan c i T r e n d Perak Korinci/Perak Bentu Terusan Pulp & Paper Mill Mangan Seng Segat Besi Bentu PSC Java Sea Madura Island Surabaya Anggur Oyong Sampang PSC Dukuh Enau Flamboyan Wunut Madura Strait 0 25 kilometres 0 50 Kilometres Java Santos’ Exploration and Production Interests – South East Asia Sumatra Korinci-Baru Bentu Indonesia Java Sampang Pacific Ocean Irian Jaya Warim Papua New Guinea SE Gobe 0 1000 kilometres Australia Santos’ Acreage – Papua New Guinea Santos’ Acreage – United States of America Irian Jaya Kau 2 Warim PSC Papua New Guinea Texas PPL 202 PPL 213 Tumuli P’nang Stanley Juhu Elevala Hides PDL 1 Kutubu PPL 190 PPL 157 Bosavi PDL 3 SE Gobe SE Kanau PPL 206 Wasuma W Anesi Barikewa PPL 189 Houston Nordheim/Fuhrken Runnells WC272 WC276 Mew Gulf of Mexico 0 100 kilometres Kumul Offshore Facility Mountainside Mexico 0 200 kilometres Santos’ Acreage – Carnarvon Basin Santos’ Acreage – Bonaparte & Browse Basins 0 100 kilometres WA-1-P(1) WA-208-P WA-191-P(1) WA-8-L WA-191-P(2) WA-298-P WA-1-P(3) WA-209-P WA-214-P WA-20-L WA-1-P(2) Reindeer Stag WA-15-L WA-261-P WA-214-P WA-13-L East Spar TP/14 TP/2 EP 61 (1,2,3) TP/7 (4) WA-24-P(1) WA-149-P TP/13 EP 62 (1,2,3) Barrow Island L 1 H L 10 TP/7 (1) TL/2 TP/7 (2) WA-264-P TP/3(1) TP/7 (3) Thevenard Island TL/4 EP 65 TL/7 EP 357 TP/3 (2) EP 325 WA-24-P(2) WA-24-P(3) TP/3(3) Timor 91-01 Jahal AC/P15 Kakatua 91-12 Elang Bayu-Undan Zone of Co-Operation AC/RL2 AC/L1 Jabiru Challis AC/L4 Skua AC/L2 AC/L3 Territory of Ashmore & Cartier Islands Indian Ocean WA-283-P WA-206-P WA-281-P WA-239-P WA-282-P 35 Northern Territory Petrel NT/RL1 WA-6-R WA-18-P Tern Western Australia WA-242-P Western Australia Timor Gap Timor Sea Darwin Bonaparte Gulf Browse Basin McArthur River Carnarvon Basin Mt Isa Amadeus Basin Alice Springs Surat Basin & Denison Trough Gladstone Cooper/ Eromanga Basins Brisbane Indian Ocean Perth Kalgoorlie 0 1000 kilometres Southern Ocean Adelaide Sydney Melbourne Canberra Otway Basin Gippsland Basin Bass Basin Hobart 0 200 kilometres Legend Exploration Pr oduction Santos acreage Oil field Gas field Prospect Oil pipeline Gas pipeline Ethane pipeline Santos’ Acreage – Cooper Basin Santos’ Acreage – Otway Basin Queensland South Australia PEP 154 (B) Victoria Warrnambool PEP 154 (A) PEP 153 Cobden Ballera Jackson North Paaratte Gas Facility Moomba Southern Ocean Timboon PL 4 PL 5 Heytesbury Gas Facility Port Campbell VIC/RL8 0 50 kilometres 0 2 5 kilometres 10 YEAR SUMMARY 1991–2000 As at 31 December 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 36 Santos average realised oil price (A$/bbl) 28.00 28.65 27.64 23.64 24.96 27.43 27.42 20.95 27.57 46.54 Profit and Loss ($million) Sales revenue Total operating revenue Foreign currency gains/(losses) Operating profit before abnormal items Income tax on operating profit Operating profit after tax before abnormal items Abnormal items after tax Operating profit/(loss) after tax and abnormal items Outside equity interest in operating profit/(loss) Profit/(loss) attributable to shareholders Balance Sheet ($million) Total assets Net debt Total shareholders’ equity Exploration Expenditure Wells drilled (number) Expenditure ($million) Reserves (mmboe) Production (mmboe) Other Capital Expenditure ($million) Field developments Buildings, plant and equipment Share Information Share issues 655.9 702.0 (11.4) 223.5 106.8 116.7 (224.9) 689.8 741.5 (36.8) 245.1 104.9 140.2 (27.5) 680.2 931.6 (7.3) 289.2 104.8 184.4 34.9 640.0 716.6 66.3 295.9 116.2 179.7 10.7 671.6 740.1 (16.0) 241.0 101.1 139.9 (29.3) 729.2 804.0 25.0 331.9 136.0 195.9 – 778.5 859.5 3.6 322.3 116.1 206.2 – 769.4 1,000.8 2.0 267.3 91.0 176.3 – 944.5 995.6 0.3 339.6 120.4 219.2 89.9 1,497.1 1,555.2 2.7 725.9 239.1 486.8 – (108.2) 112.7 219.3 190.4 110.6 195.9 206.2 176.3 309.1 486.8 2.7 (110.9) – 112.7 – 219.3 – 190.4 – 110.6 – 195.9 – 206.2 – 176.3 – 309.1 – 486.8 2,797.6 755.0 1,215.1 2,821.8 797.4 1,231.7 2,831.2 711.2 1,380.6 2,897.2 619.9 1,532.2 2,915.5 642.0 1,519.3 3,443.4 938.6 1,586.3 4,036.2 1,114.2 1,919.0 4,236.1 1,280.0 1,939.2 4,338.7 1,301.1 2,056.7 4,659.8 866.6 2,310.9 80 79.8 623 34.2 51.9 69.1 41 76.7 670 34.6 33.2 75.6 66 79.6 675 36.3 40.0 80.6 63 91.9 663 37.2 52.2 30.5 66 87.9 703 36.8 91 121.1 860 39.2 112 190.1 1,009 41.1 81 180.7 966 45.6 34 78.1 941 49.2 42 100.1 921 56.0 53.9 40.1 105.8 150.3 179.7 205.4 158.1 165.7 116.8 102.5 187.1 153.5 Dividend Reinvestment Plan/ Executive Share Plan Dividend Reinvestment Plan Dividend Reinvestment Plan Dividend Reinvestment Plan/ Executive Share Plan – – 1 for 8 rights issue/ Employee Share Plan Employee Share Plan Employee Share Plan/ Executive Share Plan Number of issued shares at year end (million) Weighted average number of shares (million) Dividends per share – ordinary (¢) – special (¢) Dividends – ordinary ($million) – special ($million) Ratios and Statistics Earnings per share – before abnormal items (¢) – after abnormal items (¢) Return on total operating revenue (%) Return on average shareholders’ equity (%) Net debt/equity (%) Net interest cover (times) 473.0 477.5 19.0 – 88.5 – 23.9 (23.2) 16.6 9.2 62.1 4.1 498.6 495.7 21.0 – 102.7 – 28.3 22.7 18.9 11.7 64.7 5.9 517.9 518.8 22.0 5.0 112.3 25.8 35.5 42.3 24.3 14.1 51.5 7.0 539.6 539.2 22.0 – 117.2 – 33.3 35.3 25.1 12.3 40.5 8.3 539.6 553.3 23.0 – 123.6 – 25.3 20.0 18.9 9.2 42.3 5.8 539.6 553.4 24.0 – 129.0 – 35.4 35.4 24.4 12.6 59.2 6.2 607.3 583.7 25.0 – 151.3 – 35.3 35.3 24.0 11.8 58.1 5.4 607.8 605.6 25.0 – 151.4 – 29.1 29.1 17.6 9.1 66.0 4.4 608.2 606.1 27.0 – 163.7 – 36.2 51.0 22.0 11.0 63.3 5.2 General Number of employees Number of shareholders Market capitalisation ($million) 1,570 29,706 1,399.2 1,468 35,492 1,288.5 1,526 42,068 1,988.1 1,492 50,595 1,868.2 1,471 55,684 2,111.2 1,461 55,482 2,741.1 1,615 65,459 3,826.1 1,650 81,286 2,653.9 1,645 81,416 2,516.1 1,631 76,457 3,669.8 Prior year amounts have, where applicable, been adjusted to place them on a comparable basis with current year amounts. Employee Share Plan/ Executive Share Plan/ Restricted Shares/ Exercise of Options 610.4 608.3 30.0 10.0 182.7 61.2 80.0 80.0 31.3 22.3 37.5 9.1 FINANCIAL REPORT 37 CONTENTS Directors’ Statutory Report Financial Report Profit and Loss Statements Balance Sheets Statements of Cash Flows Notes to the Financial Statements 1 Statement of Accounting Policies 2 Revenue 3 Depreciation, Depletion and Amortisation Interest Expense 4 5 Operating Profit 6 Taxation 7 Dividends 8 Receivables Inventories 9 10 Other Assets Investments 11 12 Exploration and Development Expenditure 13 Land and Buildings, Plant and Equipment Intangibles 14 15 Accounts Payable 16 Borrowings 17 Provisions 18 Share Capital 19 Reserves 20 Earnings per Share 21 Investments in Controlled Entities Interests in Joint Ventures 22 23 Notes to Statements of Cash Flows 24 Related Parties 25 Executives’ and Directors’ Remuneration 26 Remuneration of Auditors 27 Segment Reporting 28 Commitments for Expenditure 29 Superannuation Commitments 30 Contingent Liabilities 31 Additional Financial Instruments Disclosure 32 Economic Dependency Directors’ Declaration Independent Auditors’ Report 38 42 43 44 45 48 48 48 49 49 50 50 50 50 51 51 51 52 52 52 53 54 56 56 57 59 61 62 63 64 65 65 66 67 67 69 70 71 Directors’ Statutory Report 38 The Directors present their report together with the financial report of Santos Ltd (“the Company”) and the consolidated financial report of the consolidated entity, being the Company and its controlled entities, for the financial year ended 31 December 2000, and the auditors’ report thereon. Information in this Annual Report referred to by page number in this report or contained in a Note to the financial statements referred to in this report is to be read as part of this report. 1. Directors, Directors’ Shareholdings and Directors’ Meetings The names of Directors of the Company in office at the date of this report and details of the relevant interest of each of those Directors in shares in the Company at that date are as set out below: Surname Other Names Shareholdings in Santos Ltd Uhrig Barnett Conroy Ellice-Flint Gerlach McArdle McGregor O’Leary Sloan Webber John Allan (Chairman) Peter Charles Francis John John Charles (Managing Director) Stephen (Deputy Chairman) John Walter (Executive Director) Graeme William Michael Anthony Judith Ian Ernest Beneficial Interest 16,875 16,250 1,900 1,000,000* 17,305 516,732** 10,000 4,725 2,500 26,250 Non-Beneficial Interest – – – – – 37,913 – – – – The above named Directors held office during and since the end of the financial year except for Mr J C Ellice-Flint, who was appointed a Director on 19 December 2000. Except where otherwise indicated, all shareholdings are of fully paid ordinary shares. * These shares are Restricted Shares issued on the terms described in Note 18 to the financial statements. ** Includes 160,000 partly paid Executive Share Plan shares. No Director holds shares in any related body corporate, other than in trust for the Company. At the date of this report, Mr J W McArdle holds 1,000,000 options issued pursuant to the Santos Executive Share Option Plan, approved by shareholders at the Annual General Meeting of the Company held on 15 May 1997. Mr J C Ellice-Flint holds 3,000,000 options under the Santos Executive Share Option Plan and subject to the further terms described in Note 18 to the financial statements. Details of the qualifications, experience and special responsibilities of each Director are set out on pages 26 and 27 of this Annual Report. Directors’ Meetings The number of Directors’ Meetings and meetings of committees of Directors held during the financial year and the number of meetings attended by each Director are as follows: Surname Other Names Directors’ Meetings Audit Committee Environmental Committee Nomination and Remuneration Committee Number of Number of Number of Number of Number of Number of Number of Number of Meetings Meetings Meetings Meetings Meetings Meetings Meetings Meetings Attended Attended Attended Attended Held* Held* Held* Held* Uhrig 1 Adler 2 Barnett Conroy Ellice-Flint 3 Gerlach 4 McArdle McGregor O’Leary Sloan Webber John Allan Norman Ross Peter Charles Francis John John Charles Stephen John Walter Graeme William Michael Anthony Judith Ian Ernest 11 8 11 11 1 11 11 11 11 11 11 11 8 10 11 1 11 10 11 11 11 10 3 3 3 3 3 3 3 3 3 3 2 2 3 – 3 1 3 2 2 2 – 3 1 3 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 6 * Reflects the number of meetings held during the time the Director held office, or was a member of the Committee, during the year. 1 Retired as member of Environmental Committee on 5 September 2000. 2 Retired as a Director of the Company on 30 September 2000. 3 Appointed as a Director of the Company on 19 December 2000. 4 Retired as a member of Audit Committee on 5 September 2000. As at the date of this report, the Company had an audit committee of the Board of Directors. Particulars of the Company’s corporate governance practices appear on pages 28 and 29 of this Annual Report. 2. Principal Activities 39 The principal activities of the consolidated entity during the financial year were: petroleum exploration; the production, treatment and marketing of natural gas, crude oil, condensate, naphtha and liquid petroleum gas; and the transportation by pipeline of crude oil. No significant change in the nature of these activities has occurred during the year. 3. Review and Results of Operations A review of the operations and of the results of those operations of the consolidated entity during the financial year are contained in pages 2 to 9 and 12 to 21 of this Annual Report. 4. Dividends In respect of the financial year: (a) the Directors on 9 March, 2001 declared a fully franked final dividend of 15 cents per fully paid share be paid on 27 April, 2001 to members registered in the books of the Company as at close of business on 3 April, 2001 and declared that such dividend be a Class C franked dividend to the extent of 100%. This final dividend amounts to approximately $91.7 million; (b) the Directors on 9 March, 2001 declared a fully franked special dividend of 10 cents per fully paid share be paid on 27 April, 2001 to members registered in the books of the Company as at close of business on 3 April, 2001 and declared that such dividend be a Class C franked dividend to the extent of 100%. This special dividend amounts to approximately $61.2 million; and (c) a fully franked interim dividend of $91 million (15 cents per share) was paid to members in November 2000. A fully franked final dividend of $91 million on the 1999 results (15 cents per share) was paid in April 2000. Indication of this dividend payment was disclosed in the 1999 Annual Report. 5. State of Affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year other than those referred to on pages 7 to 9 of this Annual Report. 6. Environmental Regulation The consolidated entity’s Australian operations are subject to various environmental regulations under Commonwealth, State and Territory legislation, including under applicable petroleum legislation and in respect to: its South Australian operations, some 34 State and Commonwealth Acts and licences (nos. EPA 2569, 1259, 888 and 2164) issued under the Environmental Protection Act, 1993; its Queensland operations, some 27 State and Commonwealth Acts and licence no. 150029 issued under the Environmental Protection Act, 1994; its Northern Territory operations, some 15 Territory and Commonwealth Acts; its offshore operations, some 29 State, Territory and Commonwealth Acts; and its Victorian operations, some 22 State and Commonwealth Acts. Applicable legislation and requisite environmental licences are specified in the entity’s relevant Environmental Compliance Manuals, which Manuals form part of the consolidated entity’s overall Environmental Management System. Compliance performance is monitored on a regular basis and in various forms, including environmental audits conducted by regulatory authorities and by the Company, either through internal or external resources. During the financial year: no fines were imposed; no prosecutions were instituted; and no notice of non-compliance with the above referenced regulations was received from a regulatory body. 7. Events Subsequent to Balance Date In the opinion of the Directors there has not arisen in the interval between the end of the financial year and the date of this report any matter or circumstance that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 8. Likely Developments Certain likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years are referred to at pages 2 to 9 and 12 to 20 of this Annual Report. Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. 9. Directors’ and Senior Executives’ Emoluments The Board’s Nomination and Remuneration Committee is responsible for reviewing the remuneration policies and practices of the Company, including the compensation arrangements for executive Directors and senior management, the Company’s superannuation arrangements and, within the aggregate amount approved by shareholders, the fees for non-executive members of the Board. This role also includes responsibility for the Company’s employee share and option plans. Executive and senior management performance review and succession planning are matters referred to and considered by the Committee. The Nomination and Remuneration Committee has access to independent advice and comparative studies on the appropriateness of remuneration arrangements. Non-executive Directors – As indicated above, within the aggregate amount approved by shareholders, the fees of the Chairman and non-executive Directors are set at levels which represent the responsibilities of and the time commitments provided by those Directors in discharging their duties. Regard is also had to the level of fees payable to non-executive Directors of comparable companies. Non-executive Directors are also entitled to receive a retirement payment upon ceasing to hold office as a Director. The retirement payment (inclusive of superannuation guarantee charge entitlements) is made pursuant to an agreement entered into with each Director in terms approved by shareholders at the 1989 Annual General Meeting. Directors’ Statutory Report continued 40 Senior Executives – Remuneration levels are competitively set to attract, retain and motivate appropriately qualified and experienced senior executives capable of discharging their respective responsibilities. Remuneration packages of senior executives include performance based components in the form of equity participation through the Santos Executive Share Option Plan. Options issued under the Plan are linked to the longer term performance of the Company and are only exercisable following the satisfaction of performance hurdles that are designed to maximise shareholder wealth. Details of the nature and amount of each element of the emoluments for the financial year of each Director and each of the five officers of the Company and the consolidated entity receiving the highest emoluments are: Non-Executive Directors Uhrig, John Allan (Chairman) Gerlach, Stephen (Deputy Chairman) Barnett, Peter Charles Conroy, Francis John McGregor, Graeme William O’Leary, Michael Anthony Sloan, Judith Webber, Ian Ernest Directors’ Fees Committee Superannuation $ 180,000 75,904 60,000 60,000 60,000 60,000 60,000 60,000 Fees $ 5,446 10,058 5,500 – 6,314 5,500 5,500 7,213 Contributions (1) $ – 6,447 4,913 4,500 4,974 4,913 4,913 5,041 Non-Cash Benefits $ 74,688 – – – – – – – Total $ 260,134 92,409 70,413 64,500 71,288 70,413 70,413 72,254 Position Base Bonuses Other Retirement Total Options (7) Remuneration (2) Benefits (3) Payments (4) Executive Directors $ $ $ CEO & Managing Director Director & Executive General Manager – Commercial Former Managing Director 52,055 78,082 201,837 (6) 686,926 – 231,695 $ – – $ 331,974 3,000,000 918,621 829,800 200,000 395,508 3,570,252 4,995,560 General Manager – Offshore Australia Business Unit General Manager – Queensland and NT Business Unit Former General Manager – Liquids Marketing Former President – Santos USA Corp Former General Manager – Exploration Review 481,448 350,000 170,377 589,615 160,683 – – – – – 165,766 146,184 – – 647,214 496,184 54,488 446,490 671,355 49,545 – 639,160 26,266 298,769 485,718 (1) Contributions made in accordance with the Company’s Superannuation Guarantee Charge obligations. (2) Base Remuneration includes base salary, packaged benefits and FBT (where applicable). (3) Other Benefits are non base remuneration benefits including Company contributions to superannuation and the cost to the Company of cars (including applicable FBT). Includes contractual and statutory payments made upon retirement. (4) (5) 1,000,000 Restricted Shares were issued on 13 December 2000 to a trustee in respect of Mr J C Ellice-Flint. The terms of issue of the Restricted Shares are set out in Note 18 to the financial statements. The Restricted Shares were valued by independent valuers as having a fair value of $5.60 per share. This value has not been included in the emoluments disclosed above as it is only a notional value and ultimately no benefit may accrue to Mr Ellice-Flint. (6) This amount includes a sign-on incentive payment. (7) Number of shares over which options were granted by the Company during the year. Options were granted pursuant to the Santos Executive Share Option Plan, details of which are described in Note 18 to the financial statements. The Options were valued by independent valuers using the Binomial option pricing model as follows: Ellice-Flint, John Charles (5) McArdle, John Walter Adler, Norman Ross Executive Officers Armstrong, John Dennis McArdle, Rodney Eric Lawrance, Brian Jeremy Baugh, Michael Arle Frost, Michael Francis – – – – – – – Grant Date Exercise Price Expiry Date 26 August 2000 $5.83 25 August 2010 1,000,000 options first exercisable on 26 August 2003: $0.77 per option 1,000,000 options first exercisable on 26 August 2004: $0.76 per option 1,000,000 options first exercisable on 26 August 2005: $0.75 per option Valuation 41 These values have not been included in the emoluments disclosed above as they are only notional values and ultimately no benefit may accrue. Note: The five officers (including former officers) disclosed above were those executive officers within the consolidated entity responsible for the strategic direction and operational management of major business units receiving the highest emoluments. No options have been granted since the end of the financial year. Information in relation to shares issued as a result of the exercise of options over unissued shares is contained in Note 18 to the financial statements. 10. Indemnification Article 177 of the Company’s Articles of Association provides that the Company indemnifies each person who is or who has been an “officer” (as defined in the Corporations Law) of the Company against any liability to another person (other than the Company or a related body corporate) arising from their position as such officer, unless the liability arises out of conduct involving a lack of good faith. The Company has insured against amounts which it is liable to pay pursuant to Article 177 or which it otherwise agrees to pay by way of indemnity. Article 177 also provides for an indemnity in favour of an officer or auditor (KPMG) in relation to costs incurred in defending proceedings in which judgement is given in their favour or in which they are acquitted or the Court grants relief. In conformity with Article 177, the Company is party to Deeds of Indemnity in favour of each of the Directors referred to in this report, who held office during the year and certain General Managers of the consolidated entity, being indemnities to the full extent permitted by law. There is no monetary limit to the extent of the indemnity under those Deeds and no liability has arisen thereunder during or since the financial year other than in respect of the legal costs referred to below. During the financial year, the Company and Mr J C Ellice-Flint, the Chief Executive Officer and Managing Director, entered into a Deed of Access, Indemnity and Insurance. Pursuant to the Deed, the Company agreed to: indemnify Mr Ellice-Flint as an officer to the extent permitted by law; obtain D & O insurance for Mr Ellice-Flint during the time he holds office and for 7 years after he ceases to hold office; and allow Mr Ellice-Flint access to documents in accordance with the Corporations Law. During the financial year, Mr N R Adler, former Managing Director, and Mr J W McArdle, an executive Director, were provided with a tax indemnity by the Company in relation to any liability to tax that may arise in respect of payments, the benefit of which have been passed on to the Company, made upon their retirement as the Company’s representatives on the Board of QCT Resources Limited. No liability has arisen under the indemnities during or since the end of the financial year. During and since the financial year up to the date of this report, legal costs of $232,153 have been paid by the Company in defending certain proceedings in relation to termination of employment brought by a former employee against: the Company; the former Managing Director, Mr N R Adler; another employee of the consolidated entity, Dr J D Armstrong; and a former employee of the consolidated entity. These costs, which insofar as they relate to the three personal defendants have been paid pursuant to the terms of the above Deeds of Indemnity, have not been apportioned among the Company nor the three indemnified personal defendants and therefore it is not possible to determine the amount paid on behalf of each of them. 11. Rounding Australian Securities and Investments Commission Class Order 98/100, dated 10 July 1998, applies to the Company and accordingly amounts have been rounded off in accordance with that Class Order, unless otherwise indicated. This report is made on 9 March, 2001 in accordance with a resolution of the Directors. J A Uhrig Director 9 March, 2001 J C Ellice-Flint Director Profit and Loss Statements for the year ended 31 December 2000 42 Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million note Revenue from operating activities Operating expenses Depreciation, depletion and amortisation Interest expense Share of associated company’s operating profit/(loss) after tax Proceeds from sale of associated company Book value of associated company sold Operating profit before income tax Income tax attributable to operating profit Abnormal income tax item Operating profit after income tax attributable to the shareholders of Santos Ltd Retained profits at the beginning of the year Adjustment to retained profits at the beginning of the year on initial adoption of revised AASB 1016 “Accounting for Investments in Associates” Total available for appropriation Dividends provided for or paid Retained profits at the end of the year (2) (3) (4) (2) (5) (5) (6) (6) (7) 1,555.2 (399.7) (354.9) (85.8) (18.7) 325.5 (295.7) 725.9 (239.1) – 486.8 495.2 – 982.0 (243.9) 738.1 995.6 (305.6) (278.5) (74.4) 2.5 – – 339.6 (120.4) 89.9 309.1 378.3 (28.5) 658.9 (163.7) 495.2 The profit and loss statements are to be read in conjunction with the notes to the financial statements. 722.1 (160.9) (116.4) (79.8) – 325.5 (351.7) 338.8 (72.1) – 266.7 522.3 – 789.0 (243.9) 545.1 576.2 (129.3) (103.9) (74.6) – – – 268.4 (54.3) 48.3 262.4 423.6 – 686.0 (163.7) 522.3 Balance Sheets at 31 December 2000 Current assets Cash Receivables Inventories Other Total current assets Non-current assets Investments Exploration and development expenditure Land and buildings, plant and equipment Intangibles Other Total non-current assets Total assets Current liabilities Accounts payable Borrowings Provisions Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Reserves Retained profits Total shareholders’ equity Consolidated 2000 $million 1999 $million Santos Ltd 43 2000 $million 1999 $million note (8) (9) (10) (11) (12) (13) (14) (10) (15) (16) (17) (16) (17) (18) (19) 182.5 234.7 98.8 20.8 536.8 33.8 2,623.7 1,344.0 35.6 85.9 4,123.0 4,659.8 285.9 61.5 416.5 763.9 987.6 597.4 1,585.0 2,348.9 2,310.9 1,572.6 0.2 738.1 2,310.9 97.9 153.7 90.1 – 341.7 349.3 2,358.0 1,185.9 44.6 59.2 3,997.0 4,338.7 121.6 0.4 183.7 305.7 1,398.6 577.7 1,976.3 2,282.0 2,056.7 1,562.6 (1.1) 495.2 2,056.7 12.7 1,176.5 45.1 – 1,234.3 1,838.9 841.5 570.6 – 5.3 3,256.3 4,490.6 1,845.0 – 247.9 2,092.9 – 280.0 280.0 2,372.9 2,117.7 1,572.6 – 545.1 2,117.7 2.8 1,267.8 46.0 – 1,316.6 1,931.9 802.8 548.9 – 8.1 3,291.7 4,608.3 2,078.0 – 168.8 2,246.8 – 276.6 276.6 2,523.4 2,084.9 1,562.6 – 522.3 2,084.9 The balance sheets are to be read in conjunction with the notes to the financial statements. Statements of Cash Flows for the year ended 31 December 2000 44 Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million note Cash flows from operating activities Receipts from customers Dividends received Interest received Overriding royalties received Pipeline tariffs and other receipts Payments to suppliers and employees Government royalties Interest and other costs of finance paid Income taxes paid Net cash provided by operating activities (23) Cash flows from investing activities Payments for: Exploration Development Land and buildings, plant and equipment Acquisitions of oil and gas assets Acquisitions of controlled entities Restoration Other investments Proceeds from: Sale of associated company Liquidation of controlled entity Disposal of non-current assets Other Net cash used in investing activities Cash flows from financing activities Dividends paid Proceeds from issues of shares Net (repayment)/drawdown of borrowings Advances to controlled entities Net cash used in financing activities Net increase/(decrease) in cash Cash at the beginning of the year Effects of exchange rate changes on the balances of cash held in foreign currencies Cash at the end of the year 1,533.8 1.4 9.0 15.0 17.9 (301.3) (94.7) (85.9) (72.2) 1,023.0 (93.7) (159.1) (138.6) (302.5) – (0.7) (0.4) 325.5 – 11.3 0.5 (357.7) (182.1) 10.0 (411.9) – (584.0) 81.3 97.9 3.3 182.5 912.7 12.0 3.8 12.2 13.7 (249.7) (45.6) (84.2) (45.0) 529.9 (95.0) (118.4) (95.1) (112.5) (15.3) (2.2) – – – 19.8 0.3 (418.4) (151.5) 1.9 18.0 – (131.6) (20.1) 117.8 0.2 97.9 The statements of cash flows are to be read in conjunction with the notes to the financial statements. 548.9 99.6 24.0 21.7 16.4 (118.7) (32.5) (80.8) (60.6) 418.0 (27.2) (61.4) (70.9) (0.1) (220.4) (0.5) (4.8) 325.5 14.1 0.5 0.5 (44.7) (182.1) 10.0 – (191.3) (363.4) 9.9 2.8 – 12.7 389.1 93.2 29.6 17.2 10.4 (96.1) (23.5) (75.1) (9.0) 335.8 (32.0) (52.0) (48.3) – (14.2) – (0.1) – – 0.1 – (146.5) (151.5) 1.9 – (71.5) (221.1) (31.8) 34.6 – 2.8 Notes to the Financial Statements for the year ended 31 December 2000 1 Statement of Accounting Policies The significant accounting policies that have been adopted in the preparation of this financial report are: (a) Basis of preparation The financial report is a general purpose financial report in accordance with applicable Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Law. It has been prepared on the basis of historical cost principles and does not take into account changes in the purchasing power of money or, except where specifically stated, current valuations of non-current assets. The accounting policies are consistent with those adopted in the previous financial year. (b) Principles of consolidation The consolidated financial statements include the financial statements of the Company, Santos Ltd being the parent entity, and its controlled entities (“the consolidated entity”). The balances and effects of all transactions between controlled entities included in the consolidated financial statements are eliminated. Interests in unincorporated joint ventures are recognised by including in the financial statements under the appropriate headings the consolidated entity’s proportion of the joint venture costs, assets and liabilities. Interests in associated companies are accounted for under the equity method in the consolidated financial statements. The equity method requires the carrying amount of investments in associated companies to be adjusted by the consolidated entity’s share of the associates’ net profit or loss after tax and amortisation of goodwill. These amounts are recognised in the consolidated profit and loss statement. Interests in associated companies are accounted for under the cost method in the Company’s financial statements. (c) Non-current assets With the exception of exploration expenditure carried forward pertaining to areas of interest in the exploration stage (refer note 1(j)), the carrying amounts of non-current assets are reviewed to determine whether they are in excess of their estimated recoverable amount at balance date. If the carrying amount of a non-current asset exceeds the estimated recoverable amount, the asset is written down to the lower value. In assessing recoverable amounts, the relevant cash flows have not been discounted to their present value. 45 (d) Acquisition of assets Assets acquired in arms length transactions are recorded at the cost of acquisition as represented by the purchase consideration which is the fair value of assets given. On acquisition of a controlled entity, the identifiable net assets acquired are recorded at their fair values. To the extent that there is excess purchase consideration representing goodwill, the goodwill is amortised using the straight line method over a period of 20 years. The unamortised balance of goodwill is reviewed at each balance date and charged to profit and loss to the extent that the balance exceeds the value of expected future benefits. Assets transferred between entities within the consolidated entity on restructuring may be transferred at other than fair value. The acquiring entity deems the purchase consideration to be the fair value of assets acquired and any difference from the fair value of assets given is brought to account as revenue or expense on restructuring. (e) Foreign currency Foreign currency transactions are translated to Australian currency at the rates of exchange in effect at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are translated at the rate of exchange existing on that date. Exchange differences relating to amounts receivable or payable in foreign currencies are brought to account in the profit and loss statement in the period in which they arise except that exchange differences on transactions entered into in order to hedge the purchase or sale of specific goods and services are deferred and included in the measurement of the purchase or sale. Financial statements of integrated foreign controlled entities are translated at balance date using the temporal method and any profit or loss on the translation of monetary assets and liabilities is brought to account in determining operating profit for the year. Financial statements of self-sustaining foreign controlled entities are translated at balance date using the current method and exchange differences are taken directly to the foreign currency translation reserve. Exchange differences relating to amounts receivable or payable in foreign currencies forming part of the net investment in a self-sustaining foreign operation are transferred on consolidation to the foreign currency translation reserve. Notes to the Financial Statements for the year ended 31 December 2000 46 1 Statement of Accounting Policies continued (f) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (“GST”), except where the amount of GST incurred is not recoverable from the Australian Tax Office (“ATO”). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (g) Revenue Product sales, equipment rentals and pipeline tariffs, overriding royalties and other income are recognised when the goods and services are provided and the consolidated entity has a legally enforceable entitlement to the proceeds. Interest revenue is recognised as it accrues. Dividend income from controlled entities is recognised as revenue as dividends are declared and from other parties as dividends are received. (h) Receivables Trade debtors and other receivables are recorded at amounts due. A provision is made for any doubtful debts based on a review of collectability of outstanding amounts at balance date. Bad debts are written off in the period they are identified. (i) Inventories Inventories are valued at the lower of cost and net realisable value after provision is made for obsolescence. Cost is determined as follows: (i) Drilling and maintenance stocks, which include plant spares, maintenance and drilling tools used for ongoing operations, are valued at average cost. (ii) Petroleum products, which comprise extracted crude oil, LPG, condensate and naphtha stored in tanks and pipeline systems and processed sales gas and ethane stored in subsurface reservoirs, are valued using the absorption cost method. (j) Exploration and development expenditure Exploration and development expenditures in respect of each area of interest are accumulated and carried forward if either: (i) such expenditure is expected to be recouped through successful development and commercial exploitation of the area of interest; or (ii) the exploration activities in the area of interest have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. When an area of interest is abandoned or if Directors consider the expenditure to be of reduced or no further value, accumulated exploration expenditure is written down or off in the period in which such a decision is made. (k) Borrowings Borrowings are carried on the balance sheet at their principal amount. Interest is accrued at the contracted rate. (l) Leases Finance leases, which effectively transfer to the lessee substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the present value of the minimum lease payments, disclosed as capitalised leases and amortised over the period the lessee is expected to benefit from the use of the leased assets. A corresponding liability is also established and each lease payment is allocated between the principal component and the interest expense. Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased items, are charged against operating profit in equal instalments over the lease term. (m) Capitalisation of finance costs Pre-production interest, finance charges and foreign currency exchange gains and losses relating to major plant and equipment projects under development and construction up to the date of commencement of commercial operations are capitalised and amortised over the expected useful lives of the facilities. Where funds are borrowed specifically for qualifying projects the actual finance costs incurred are capitalised. Where the projects are funded through general borrowings the finance costs are capitalised based on the weighted average borrowing rate, which for the year ended 31 December 2000 was 6.70% (1999: 5.60%). Finance costs incurred in respect of completed projects are expensed. 1 Statement of Accounting Policies continued 47 (n) Deferred income (q) Employee entitlements A liability is recorded for obligations under sales contracts to deliver natural gas in future periods for which payment has already been received. (o) Depreciation and depletion Depreciation charges are calculated to write-off the carrying value of buildings, plant and equipment over their estimated useful lives to the entity. Depreciation of onshore buildings, plant and equipment assets is calculated using the straight line method of depreciation. The estimated useful lives to the entity will vary for each asset depending on projected average rate of usage, degree of technical obsolescence, expected commercial life and the period of time during which the right or entitlement to the asset exists. The depreciation rates are reviewed and reassessed periodically in light of the technical and economic developments. The useful lives for each class of onshore asset will vary depending on their individual technical and economic characteristics but will generally fall within the following ranges: • Plant and equipment – Computer equipment – Motor vehicles – Furniture and fittings – Pipelines – Plant and facilities • Buildings 3 – 5 years 4 – 7 years 10 – 20 years 20 – 30 years 20 – 50 years 20 – 50 years Depreciation of offshore plant and equipment is calculated using a unit of production method which will proportionately depreciate the assets over the life of the reserves on a field by field basis. Depletion charges are calculated using a unit of production method which will amortise, over the life of the reserves, exploration and development expenditure together with future costs necessary to develop the hydrocarbon reserves in the respective areas of interest. Depletion is not charged on costs carried forward in respect of areas of interest in the development stage until production commences. (p) Restoration Provisions are made for environmental restoration where gas and petroleum production is undertaken. Such provisions recognise the estimated future restoration obligations incrementally over the life of the hydrocarbon reserves on a unit of production basis. The estimated future obligations include removing of facilities, abandoning of wells and restoring the affected areas. Estimates for the future restoration obligations are reviewed and reassessed regularly, based on current legal requirements and technology and are measured in current dollars on an undiscounted basis. Adjustments to the provisions are made on a prospective basis. The provisions for employee entitlements to wages, salaries, annual leave and sick leave are measured at undiscounted amounts based on current wage and salary rates and include related on-costs. Long service leave is provided in respect of all employees, based on the present value of the estimated future cash outflow to be made resulting from employees’ services up to balance date, and having regard to the probability that employees as a group will remain in the entity’s employ for the period of time necessary to qualify for long service leave. Contributions to defined benefit superannuation plans sponsored by the consolidated entity are charged against operating profit. Where the assets of a fund significantly exceed the liabilities and the fund’s actuary has so recommended, contributions are suspended until such time as the surplus is reduced. (r) Employee share ownership plans The Company operates a number of share ownership plans. Shares issued under the Santos Executive Share Plan, Santos Executive Share Option Plan and the Santos Employee Share Purchase Plan are treated as equity contributions to the extent the shares are paid up. The value of the shares issued to eligible employees under the Santos Employee Share Acquisition Plan is expensed over a three year period. (s) Income tax Tax effect accounting is applied whereby the income tax charged in the profit and loss statements is matched with the accounting profit after allowing for permanent differences. Income tax on timing differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is carried forward in the balance sheets as a future income tax benefit or deferred income tax liability. Future income tax benefits relating to entities which incur losses are brought to account where realisation of the benefits is considered to be virtually certain. (t) Derivative financial instruments Gains and losses on derivative financial instruments designated as hedges are accounted for on the same basis as the underlying exposures they are hedging. The gains and losses on derivative financial instruments hedging specific purchase or sale commitments are deferred and included in the measurement of the purchase or sale. (u) Comparatives Where applicable, prior year amounts have been adjusted to place them on a comparable basis with current year amounts. Notes to the Financial Statements for the year ended 31 December 2000 48 2 Revenue Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million Revenue from operating activities Product sales Overriding royalties Equipment rentals, pipeline tariffs and other Interest revenue: Controlled entities Other entities Dividends from: Other entities Controlled entities Associated company – ordinary dividend Proceeds from sale of non-current assets Net revenue on restructuring within the consolidated entity Revenue from outside operating activities Proceeds from sale of shares in QCT Resources Limited comprising $1.20 per share from MetCoal Holdings (Qld) Pty Ltd and $0.10 per share special dividend from QCT Resources Limited 3 Depreciation, Depletion and Amortisation Depletion of exploration and development expenditure Depreciation of plant and equipment Depreciation of buildings Future restoration costs Amortisation of capitalised leases Amortisation of goodwill Write-down of exploration expenditure 4 Interest Expense Interest expense: Controlled entities Other entities: On loans On finance leases Less interest capitalised 1,497.1 16.5 21.1 – 9.4 1.4 – – 9.7 – 1,555.2 944.5 13.3 13.8 – 3.8 0.7 – – 19.5 – 995.6 507.2 22.8 14.2 23.7 0.3 1.4 98.2 – 0.4 53.9 722.1 325.5 1,880.7 – 995.6 325.5 1,047.6 204.4 116.3 2.0 12.7 0.8 9.0 9.7 354.9 – 97.2 0.9 (12.3) 85.8 163.1 90.8 2.0 5.1 0.9 9.0 7.6 278.5 – 81.7 0.7 (8.0) 74.4 69.4 44.7 1.3 1.0 – – – 116.4 80.7 – – (0.9) 79.8 420.5 17.2 15.4 29.3 0.4 0.7 81.2 11.3 0.2 – 576.2 – 576.2 59.6 42.4 1.3 0.6 – – – 103.9 75.0 0.1 – (0.5) 74.6 5 Operating Profit Operating profit before income tax includes the following items: Government royalties Increase in provisions: Doubtful debts Stock obsolescence Employee entitlements and non-executive Directors’ retirement benefits Operating lease rentals Write-down of investment in controlled entity Loss on disposal of other non-current assets Sale of shares in QCT Resources Limited: (Surplus)/deficit of proceeds over book value Transaction costs Sale of shares in QCT Resources Limited On 17 October 2000 the Company sold its shares in its associated company, QCT Resources Limited. Total proceeds on sale were $325.5 million. The equity carrying value at the date of sale was $295.7 million which resulted in a surplus on sale in the consolidated profit and loss statement of $29.8 million. The cost of the shares sold was $351.7 million which resulted in a deficit on sale by the Company of $26.2 million. 6 Taxation Income tax attributable to operating profit The prima facie income tax attributable to operating profit differs from income tax expense and is calculated as follows: Prima facie income tax at 34% (1999: 36%) Tax effect of permanent and other differences which increase/(decrease) income tax expense: (Gain)/loss on sale of associated company Rebate on dividend income Net revenue on restructuring within the consolidated entity Other Consolidated 2000 $million 1999 $million Santos Ltd 49 2000 $million 1999 $million 98.5 0.4 0.6 12.4 30.1 – 0.1 (29.8) 1.8 48.8 0.1 0.1 3.8 25.1 – 0.4 – – 34.6 25.4 0.1 0.3 9.0 4.6 6.3 0.1 26.2 1.8 – – 2.7 2.1 7.7 0.3 – – 246.8 122.3 115.2 96.6 (1.6) (9.0) – 2.9 – (0.4) – (1.5) Income tax attributable to operating profit 239.1 120.4 Abnormal income tax item Restatement of net deferred income tax provision due to change in future income tax rates Income tax comprises amounts set aside to: Provision for current income tax Provision for deferred income tax Future income tax benefits – 239.1 231.6 7.6 (0.1) 239.1 (89.9) 30.5 95.3 (53.3) (11.5) 30.5 17.4 (42.4) (18.3) 0.2 72.1 – 72.1 68.9 3.2 – 72.1 – (33.5) – (8.8) 54.3 (48.3) 6.0 46.8 (40.8) – 6.0 Notes to the Financial Statements for the year ended 31 December 2000 50 7 Dividends Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million Dividends provided for or paid by the Company Interim dividend of 15.0 cents per share, fully franked (1999: 12.0 cents per share, fully franked) Final ordinary dividend of 15.0 cents per share, fully franked (1999: 15.0 cents per share, fully franked) Final special dividend of 10.0 cents per share, fully franked (1999: nil) Franking credits Balance of franking account credits at 34% (1999: 36%) available for future distribution of franked dividends, after adjusting for franking credits which will arise from the payment of the current income tax provision at 31 December 2000 and after deducting franking credits to be used in payment of the 2000 final dividends 8 Receivables Trade debtors Sundry debtors and prepayments Less provision for doubtful debts Amounts owing by controlled entities 9 Inventories Petroleum products Drilling and maintenance stocks Less provision for obsolescence 10 Other Assets Current Deferred foreign currency fluctuations on borrowings Non-current Security deposit Future income tax benefits Other loans Deferred foreign currency fluctuations on borrowings 91.0 91.7 61.2 243.9 72.7 91.0 – 163.7 91.0 91.7 61.2 243.9 72.7 91.0 – 163.7 359.6 179.3 57.4 61.1 192.4 44.1 (1.8) – 234.7 62.0 41.0 (4.2) 98.8 20.8 20.8 9.2 16.4 – 60.3 85.9 119.2 35.9 (1.4) – 153.7 58.0 35.9 (3.8) 90.1 – – 13.0 16.3 0.5 29.4 59.2 69.5 18.5 (0.9) 1,089.4 1,176.5 70.7 16.4 (0.8) 1,181.5 1,267.8 29.1 17.1 (1.1) 45.1 – – 5.3 – – – 5.3 30.4 16.6 (1.0) 46.0 – – 7.6 – 0.5 – 8.1 11 Investments Investments in controlled entities Investment in associated company: Equity accounted Listed shares at cost Investments in other listed shares at cost Market value of investments in listed shares 12 Exploration and Development Expenditure Areas in which production has commenced Cost at the beginning of the year Expenditure incurred during the year Acquisitions, net of disposals and foreign currency translation Expenditure transferred from areas in the exploration and development stage Expenditure written off during the year Cost at the end of the year Less accumulated depletion Areas in the exploration and development stage Cost at the beginning of the year Expenditure incurred during the year Acquisitions, net of disposals and foreign currency translation Expenditure transferred to areas where production has commenced Expenditure written off during the year Cost at the end of the year Total exploration and development expenditure 13 Land and Buildings, Plant and Equipment Land and buildings At cost Less accumulated depreciation Plant and equipment At cost Capitalised leases Less accumulated depreciation Total land and buildings, plant and equipment Consolidated 2000 $million 1999 $million Santos Ltd 51 2000 $million 1999 $million – – – 33.8 33.8 46.3 3,717.0 254.2 241.7 22.1 (4.7) 4,230.3 (1,909.2) 2,321.1 282.0 33.0 14.7 (22.1) (5.0) 302.6 2,623.7 68.4 (38.9) 29.5 2,677.3 16.9 2,694.2 (1,379.7) 1,314.5 1,344.0 – 314.4 – 34.9 349.3 261.6 3,563.0 170.5 (29.3) 12.8 – 3,717.0 (1,641.0) 2,076.0 169.3 24.4 108.7 (12.8) (7.6) 282.0 2,358.0 68.4 (36.4) 32.0 2,403.6 18.2 2,421.8 (1,267.9) 1,153.9 1,185.9 1,805.1 1,546.4 – – 33.8 – 351.7 33.8 1,838.9 1,931.9 46.3 261.6 1,214.8 96.5 1,153.5 61.3 – – – 1,311.3 (617.6) 693.7 136.3 11.5 – – – 147.8 841.5 39.6 (27.6) 12.0 1,374.5 – 1,374.5 (815.9) 558.6 570.6 – – – 1,214.8 (548.3) 666.5 123.3 13.0 – – – 136.3 802.8 39.6 (25.8) 13.8 1,310.9 – 1,310.9 (775.8) 535.1 548.9 Notes to the Financial Statements for the year ended 31 December 2000 52 14 Intangibles Goodwill, at cost Less accumulated amortisation 15 Accounts Payable Trade creditors Sundry creditors and accruals Amounts owing to controlled entities 16 Borrowings Current Lease liabilities Long-term notes Non-current Bank loans Commercial paper Medium-term notes Long-term notes Lease liabilities Santos Ltd 2000 $million 1999 $million – – – – – – 67.1 29.7 1,748.2 1,845.0 31.8 17.7 2,028.5 2,078.0 – – – – – – – – – – – – – – – – – – Consolidated 2000 $million 160.2 (124.6) 35.6 183.9 102.0 – 285.9 0.4 61.1 61.5 – 40.0 169.9 765.1 12.6 987.6 1999 $million 160.2 (115.6) 44.6 81.0 40.6 – 121.6 0.4 – 0.4 462.7 443.0 219.8 260.0 13.1 1,398.6 Amount A$million 5.0 100.0 50.0 175.0 200.0 100.0 200.0 830.0 Details of major credit facilities (a) Bank loans The consolidated entity has access to the following committed revolving facilities: Revolving facilities at 31 December 2000 Year of maturity Currency 2001 2001 2002 2003 2004 2005 2006 Australian dollars Multi option Multi option Multi option Multi option Multi option Multi option Bank loans bear interest at the relevant interbank reference rate plus 0.15% to 0.45%. The amount drawn at 31 December 2000 is nil (1999: US$90.0 million (A$137.7 million) and A$325.0 million). The weighted average annual effective interest rate at 31 December 1999 was 5.87%. 53 16 Borrowings continued (b) Commercial paper The consolidated entity has commercial paper programs based in Hong Kong and Australia. The programs which total US$200.0 million (1999: US$200.0 million) (Euro Commercial Paper) and A$800.0 million (1999: A$600.0 million) (Promissory Notes) are supported by the revolving facilities referred to in (a) above. At 31 December 2000, A$40.0 million (1999: A$443.0 million) equivalent of commercial paper is on issue and the weighted average annual effective interest rate is 6.82% (1999: 5.75%). (c) Medium-term notes The consolidated entity has a A$500.0 million (1999: A$500.0) domestic medium-term note program. At 31 December 2000, A$149.9 million (1999: A$149.8 million) of fixed rate notes have been issued at an annual effective interest rate of 6.55% (1999: 6.55%), maturing in 2002. In addition, A$20.0 million (1999: A$70.0 million) of medium-term notes have been issued at fixed rate and swapped into floating rates of interest of 7.18% (1999: 5.77%) at 31 December 2000, maturing in 2008. (d) Long-term notes US$170.0 million (A$305.3 million) (1999: US$170.0 million equivalent to A$260.0 million) of long-term notes were issued to institutional investors in 1993 at an annual effective interest rate of 6.95% and are repayable in five annual US dollar instalments commencing in December 2001. In addition, US$290.0 million (A$520.9 million) (1999: nil) of long-term notes were issued to institutional investors in 2000 at an annual effective interest rate of 8.41% and are repayable at varying maturity dates between 2007 and 2015. All facilities are unsecured and arranged through a controlled entity, Santos Finance Ltd, and are guaranteed by Santos Ltd. In addition, Santos Ltd has guaranteed the finance lease obligations of its controlled entities. 17 Provisions Current Dividends Employee entitlements Income tax Non-executive Directors’ retirement benefits Non-current Deferred income tax Future restoration costs Non-executive Directors’ retirement benefits Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million 152.9 47.2 215.5 0.9 416.5 518.2 78.2 1.0 597.4 91.0 36.8 55.9 – 183.7 510.6 65.6 1.5 577.7 152.9 36.6 57.5 0.9 247.9 251.9 27.1 1.0 280.0 91.0 28.3 49.5 – 168.8 248.7 26.4 1.5 276.6 Notes to the Financial Statements for the year ended 31 December 2000 54 18 Share Capital Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million Share capital 609,605,403 (1999: 606,340,553) fully paid ordinary shares 838,250 (1999: 1,845,750) ordinary shares paid to one cent Movement in fully paid ordinary shares Balance at the beginning of the year Santos Executive Share Plan Santos Employee Share Acquisition Plan Santos Employee Share Purchase Plan Transfer from capital reserve Shares issued: 1,000,000 Restricted Shares 850,000 shares issued on exercise of options 1,572.6 – 1,572.6 1,562.6 – 1,562.6 2000 No. of Shares 1999 No. of Shares note 606,340,553 1,007,500 237,150 170,200 – 1,000,000 850,000 (a) (b) (c) (f) (d) 605,909,045 84,000 281,808 65,700 – – – 1,572.6 – 1,572.6 2000 $million 1,562.6 3.2 1.4 0.7 – – 4.7 1,562.6 – 1,562.6 1999 $million 1,555.0 0.2 1.4 0.3 5.7 – – Balance at the end of the year 609,605,403 606,340,553 1,572.6 1,562.6 The market price of the Company’s shares on 31 December 2000 was $6.02 (1999: $4.15). (a) Santos Executive Share Plan The Santos Executive Share Plan was approved by shareholders in general meeting on 22 December 1987. In essence, the Plan involves the Company issuing to employees selected by the Board (“the Executives”), a number of ordinary shares in the capital of the Company determined by the Board. There are two categories of Plan Shares which have been issued to Executives, Plan 2 Shares and Plan 0 Shares, each initially issued as partly paid shares, paid to one cent. The Plan allows for calls to be made at the instigation of the Company in certain specified events or at the request of the Executive. While partly paid, the Plan Shares are not transferable, carry no voting right and no entitlement to dividend but are entitled to participate in any bonus or rights issue. The price payable for shares issued under the Plan varies according to the event giving rise to a call being made. Market price at the time of the call is payable on the issued Plan 2 Shares if the Executive resigns within two years from the date of issue or is dismissed. After a restriction period of two years, the price payable upon a call being made on the issued Plan 2 Shares is the lower of two-thirds of the market price on the date of allotment and the highest sale price on the day prior to the date of the call. The price payable on the issued Plan 0 Shares is the lowest of market price on the date of allotment, the date of the call and the date fourteen days thereafter. Since its inception, some 101 Executives have participated in the Plan and 2,012,500 Plan 0 and 1,999,500 Plan 2 Shares have been issued, principally in years 1987 and 1989. During the financial year, no issue of Plan Shares was made and at balance date no offer to an Executive was outstanding. During the financial year 663,750 Plan 0 and 343,750 Plan 2 Shares were fully paid and as at 31 December 2000 there were 25 holders of the outstanding 285,250 Plan 0 Shares and 24 holders of the outstanding 553,000 Plan 2 Shares. In 1997 the Board determined that the Plan be discontinued and, accordingly, there has been no further issues of shares under the Plan. (b) Santos Employee Share Acquisition Plan The Santos Employee Share Acquisition Plan was approved by shareholders at the Annual General Meeting on 15 May 1997 and its continuation, with amendment, approved at the Annual General Meeting on 5 May 2000. Broadly, permanent employees with at least a minimum period of service determined by Directors as at the offer date (one year of completed service for issues so far) are eligible to acquire shares under this Plan. Executives participating in the Santos Executive Share Option Plan (see below), casual employees and Directors of the Company are excluded from participating in this Plan. Employees are not eligible to participate under the Plan while they are resident overseas unless the Board decides otherwise. The Plan provides for free grants of fully paid ordinary shares in the capital of the Company up to a value determined by the Board, which, to date has been $1,000 per annum per eligible employee. A trustee is funded by the Company and its subsidiaries to acquire shares direct from the Company or on market. The shares are then allocated to eligible employees who have made applications under the Plan. The employee’s ownership of shares allocated under the Plan, and his or her right to deal with them, are subject to restrictions until the earlier of the expiration of the restriction period determined by the Board and the time when he or she ceases to be an employee. Shares are granted to eligible employees for no consideration. On 25 August 2000, the Company issued 237,150 ordinary shares to the trustee on behalf of 1,395 eligible employees under the Plan, being 170 shares for each employee. The total market value of those shares on the issue date was $1,370,727. At this time no offers remain outstanding under this Plan. At 31 December 2000, the total number of shares acquired under the Plan since its commencement was 1,021,687. 18 Share Capital continued (c) Santos Employee Share Purchase Plan 55 The Santos Employee Share Purchase Plan was approved by shareholders at the Annual General Meeting on 15 May 1997 and its continuation, with amendment, approved at the Annual General Meeting on 5 May 2000. The Plan is open to all employees (other than a casual employee or Director of the Company) determined by the Board who are continuing employees at the date of the offer. However, employees who are not resident in Australia at the time of an offer under the Plan will not be eligible to participate in that offer unless the Board otherwise decides. Under the Plan, eligible employees may be offered the opportunity to subscribe for or acquire fully paid ordinary shares in the capital of the Company at a discount to market price, subject to restrictions, including on disposal, determined by the Board. The subscription or acquisition price is Market Value (as defined in the Rules of the Plan) less any discount determined by the Board. At the discretion of the Board, financial assistance may be provided to employees to subscribe for or acquire shares under the Plan. On 30 March 2000, the Company issued 141,100 ordinary shares to 169 eligible employees at a subscription price of $3.72 per share under the Plan. The total market value of those shares on the issue date was $561,578 and the total amount received from employees for those shares was $524,892. On 29 September 2000, the Company issued 29,100 ordinary shares to 43 eligible employees at a subscription price of $5.76 per share under the Plan. The total market value of those shares on the issue date was $183,330 and the total amount received from employees for those shares was $167,616. At 31 December 2000, the total number of shares acquired under the Plan since its commencement was 530,700. (d) Santos Executive Share Option Plan The Santos Executive Share Option Plan was approved by shareholders at the Annual General Meeting on 15 May 1997 and its continuation, with amendment, approved at the Annual General Meeting on 5 May 2000. The Plan provides for the grant of options to subscribe for or purchase ordinary shares in the capital of the Company to eligible executives selected by the Board. Participation will be limited to those executives who, in the opinion of the Board, are able to significantly influence the generation of shareholder wealth. Directors envisage the Plan applying to up to 50 executives. Each option is a right to acquire one share, subject to adjustment in accordance with the Rules of the Plan. The options entitle the holder to participate in any bonus issue conducted by the Company, upon exercise of the options. The exercise price of each option will be adjusted in the event of a rights issue. The exercise price of the options and other conditions, including any performance hurdles, will be determined, and may be amended or waived, by the Board. No consideration is provided by executives for the options. The Plan provides for options with a life of up to ten years. During the financial year, the Company granted options over unissued shares as set out in the following table. The ability to exercise the options is generally conditional on the Company achieving a prescribed performance hurdle or exercise condition. To reach the performance hurdle, the Company’s Total Shareholder Return (broadly, growth in share price plus dividends reinvested) (“TSR Growth”) over a minimum three year period must equal or exceed 10% per annum calculated on a compound basis. If Total Shareholder Return does not reach the performance hurdle at the end of those respective periods, the options may nevertheless be exercisable if the hurdle is subsequently reached within the remaining life of the options. In assessing the performance against the hurdle, the Board may apply on a consistent basis an averaging method over a period of three months to allow for short-term volatility. Date of grant 18 April 2000 26 August 2000 Number of ordinary shares under option 2 Exercise price Date first exercisable 1 Expiry date 900,000 3,000,000 3 $3.92 $5.83 18 April 2003 17 April 2005 26 August 2003 4 25 August 2010 1. In limited circumstances described in the Plan or determined by the Board the options may be exercised before this date. 2. These comprise options granted to Mr J C Ellice-Flint and eight other participating eligible executives. 3. Three tranches, each for 1,000,000 options, were granted to Mr J C Ellice-Flint on the terms described above. 4. First exercisable as to 1,000,000 on 26 August 2003; further 1,000,000 on 26 August 2004; and final 1,000,000 on 26 August 2005. At 31 December 2000, the total number of options acquired under the Plan since its commencement was 18,350,000, some of which have lapsed or have been exercised. During the year, 850,000 fully paid ordinary shares were issued to former executives as a result of the exercise of options. The total market value of those shares on the issue date was $5,295,500 and the total amount received from the former executives for those shares was $4,676,500. Notes to the Financial Statements for the year ended 31 December 2000 56 18 Share Capital continued (d) Santos Executive Share Option Plan continued At the date of the Directors’ Statutory Report, unissued ordinary shares of the Company under option are: Expiry date of options Issue price of shares Number of ordinary shares under option 24 July 2002 30 April 2003 15 June 2003 14 June 2004 17 April 2005 25 August 2010 $6.32 $5.59 $4.84 $5.12 $3.92 $5.83 4,500,000 900,000 2,025,000 2,475,000 900,000 3,000,000 During or since the end of the financial year, 300,000 fully paid ordinary shares in the Company were issued as a result of the exercise of options at prices per share of: $4.84; $5.12; $5.59; and $6.32. (e) Maximum number of shares that may be acquired under share and option schemes The aggregate number of: (i) shares issued under and for the time being outstanding and subject to the terms of each employee share plan of the Company; and (ii) unissued shares to which options are granted and for the time being outstanding under any employee or executive share option plan of the Company; cannot exceed 5% of the issued shares of all classes of the Company. (f) Restricted Shares On his appointment as Chief Executive Officer on 13 December 2000, 1,000,000 Restricted Shares were issued to Mr J C Ellice-Flint. The Restricted Shares were issued for nil consideration and are held under a trust structure. The Restricted Shares carry rights to dividends and bonus issues and allow Mr Ellice-Flint to instruct the trustee as to the exercise of voting rights. Legal title in the Shares will not pass to Mr Ellice-Flint until he has completed 5 years continuous service with the Company or his employment is earlier terminated by the Company (other than for cause). 19 Reserves Foreign currency translation Movements during the year Balance at the beginning of the year Transfers to/(from) foreign currency translation reserve arising from exchange rate fluctuations on: Overseas net assets Foreign currency borrowings Balance at the end of the year 20 Earnings per Share Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million 0.2 0.2 (1.1) 18.5 (17.2) 0.2 (1.1) (1.1) – (7.6) 6.5 (1.1) Consolidated 2000 1999 – – – – – – – – – – – – Basic earnings per share (cents) 80.0 51.0 Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share (million) 608.3 606.1 Santos Ltd has potential ordinary shares on issue being 838,250 (1999: 1,845,750) ordinary shares paid to one cent issued to senior executives of the Company under the Santos Executive Share Plan and options over 15,950,000 (1999: 13,850,000) unissued ordinary shares granted to senior executives of the Company under the Santos Executive Share Option Plan, the dilutive impacts of which are not material. Diluted earnings per share are therefore not materially different to basic earnings per share. 21 Investments in Controlled Entities 57 Name Place of incorporation Name Place of incorporation Santos Ltd (Parent Entity) Controlled entities 1: Alliance Petroleum Australia Pty Ltd 2 Australasian Eagle Petroleum Pty Ltd Controlled entity of Australasian Eagle Petroleum Pty Ltd Castend Pty Ltd Boston L.H.F. Pty Ltd Bridge Oil Developments Pty Ltd 2 Canso Resources Pty Ltd 2 Doce Pty Ltd Farmout Drillers Pty Ltd 2 Kipper GS Pty Ltd Controlled entity of Kipper GS Pty Ltd Crusader (Victoria) Pty Ltd Moonie Pipeline Company Pty Ltd Controlled entities of Moonie Pipeline Company Pty Ltd Candolia Pty Ltd Australian Interstate Pipeline Company Pty Ltd Controlled entity of Australian Interstate Pipeline Company Pty Ltd Bridgefield Pty Ltd Reef Oil Pty Ltd Santos Asia Pacific Pty Ltd Controlled entities of Santos Asia Pacific Pty Ltd Santos (Bentu No. 2) Pty Ltd Santos (Korinci-Baru No. 2) Pty Ltd Santos (Sampang) Pty Ltd Santos (Warim) Pty Ltd Santos Australian Hydrocarbons Pty Ltd Santos (BOL) Pty Ltd 2 Controlled entities of Santos (BOL) Pty Ltd Bridge Gas Queensland Pty Ltd Bridge Oil Exploration Pty Ltd Bridge Oil International Finance Pty Ltd Bridge Oil Investments Pty Ltd Santos Facilities Pty Ltd Santos Finance Ltd Santos (Halph) Pty Ltd Santos (Korinci-Baru) Pty Ltd Santos (N.T.) Pty Ltd Controlled entity of Santos (N.T.) Pty Ltd Bonaparte Gas & Oil Pty Limited Santos Offshore Pty Ltd Santos Petroleum Pty Ltd Santos Resources Pty Ltd Santos (Varanus) Pty Ltd SA VIC NSW NSW VIC NSW NSW QLD NSW WA VIC QLD ACT NSW QLD NSW QLD QLD SA SA SA QLD NSW QLD ACT ACT NSW SA NSW ACT ACT ACT NSW VIC NSW QLD WA Santos International Holdings Pty Ltd Controlled entities of Santos International Holdings Pty Ltd Barracuda Limited Lavana Limited Peko Offshore Ltd Santos Americas and Europe Corp Controlled entities of Santos Americas and Europe Corp SAE Management Services Corp Santos Colombia Exploration Inc Santos USA Corp Controlled entity of Santos USA Corp Santos USA Pipeline Corp Santos (Bentu) Pty Ltd Controlled entity of Santos (Bentu) Pty Ltd Santos (Bangko) Pty Ltd Santos Niugini Exploration Limited Santos Petroleum (NZ) Ltd Zan Star Ltd Santos QNT Pty Ltd Controlled entities of Santos QNT Pty Ltd Santos QNT (No. 1) Pty Ltd Controlled entities of Santos QNT (No. 1) Pty Ltd Santos Petroleum Management Pty Ltd Santos Petroleum Marketing Pty Ltd Santos Petroleum Operations Pty Ltd TMOC Exploration Pty Ltd Santos QNT (No. 2) Pty Ltd Controlled entities of Santos QNT (No. 2) Pty Ltd Alliance Minerals Australia Pty Ltd Associated Petroleum Pty Ltd Moonie Oil Pty Ltd Petromin Pty Ltd Santos (299) Pty Ltd Santos Exploration Pty Ltd Santos Gnuco Pty Ltd Transoil Pty Ltd Santos (Zoca 91-01) Pty Ltd Santos (Zoca 91-12) Pty Ltd Vamgas Pty Ltd Alliance Oil Development Australia Pty Ltd (in liquidation) Santos Oil Exploration (Malaysia) Sdn Bhd (in liquidation) Western Australian Capital Holdings Pty Ltd (in liquidation) ACT PNG PNG BER USA USA USA USA USA NSW WA PNG NZ PNG QLD QLD QLD QLD QLD QLD QLD VIC QLD QLD QLD QLD VIC QLD QLD ACT ACT VIC VIC MAL WA 1. Beneficial interests in all controlled entities is 100% except for Kipper GS Pty Ltd in which two shares of the total issued capital of 9,246,353 shares are owned by a third party. 2. Controlled entities acquired by Santos Ltd in restructuring within the consolidated entity. Notes to the Financial Statements for the year ended 31 December 2000 58 21 Investments in Controlled Entities continued Notes (a) Disposal of controlled entities During the financial year Alliance Oil Development Australia Pty Ltd was placed into voluntary liquidation. (b) Place of incorporation ACT – Australian Capital Territory NSW – New South Wales QLD – Queensland SA – South Australia VIC – Victoria WA – Western Australia NZ – New Zealand BER – Bermuda MAL – Malaysia PNG – Papua New Guinea USA – United States of America Consolidated Santos Ltd 2000 $million 1999 $million 2000 $million 1999 $million (c) Acquisitions of controlled entities During the financial year, the Company acquired a number of controlled entities as identified above as part of restructuring within the consolidated entity. The financial impact of the restructure has been eliminated on consolidation. Details of the acquisitions are as follows: Fair value of net assets acquired Working capital Investment in controlled entities Exploration and development Land and buildings, plant and equipment Provisions Fair value of net assets acquired Outflow of cash to acquire net assets, net of cash acquired Total consideration Payment relating to 1998 acquisition Outflow of cash – – – – – – – – – – – 10.3 – – 10.3 10.3 5.0 15.3 (255.3) 45.4 460.1 191.9 (72.7) 369.4 220.4 – 220.4 – – 9.2 – – 9.2 9.2 5.0 14.2 22 Interests in Joint Ventures 59 (a) Santos Ltd and its controlled entities have combined interests in unincorporated joint ventures in the following major areas: Joint venture/area Principal activities Average interest % Amadeus Basin Mereenie Mereenie Pipeline Palm Valley Bass Basin Browse Basin Carnarvon Basin Cooper Basin Downstream Cooper Basin Unit South Australia Queensland Cooper/Eromanga Basins South Australia Queensland, ATP 259P Other Eromanga Ballera to Mt Isa Pipeline Jackson Moonie Pipeline Eastern Queensland Denison Trough Surat Basin Gippsland Basin Indonesia Offshore Northern Australia Bonaparte Basin Timor Gap Timor Sea Otway Basin Papua New Guinea PDL1 (Part Hides Field) Other interests USA Onshore/Gulf Coast Gulf of Mexico Oil and gas production Oil transportation Gas production Oil and gas exploration Oil and gas exploration Oil and gas exploration and production Liquid hydrocarbon transportation and processing Oil and gas production Oil and gas production Oil and gas exploration and production Oil and gas exploration and production Oil and gas exploration and production Gas transportation Oil transportation Gas exploration and production Oil and gas exploration and production Oil and gas exploration Oil and gas exploration Oil and gas exploration Oil and gas exploration and production Oil and gas exploration and production Oil and gas exploration and production Oil and gas exploration Oil and gas exploration and production Oil and gas exploration and production Oil and gas exploration and production 65 65 48 5 22 31 60 60 60 60 60 40 18 83 50 48 37 47 95 18 20 42 31 35 33 52 (b) The sales revenue received from the consolidated entity’s share of petroleum products produced by the joint ventures is $1,486.2 million (1999: $936.0 million) and the contribution of joint venture business undertakings to operating profit before interest and tax of the consolidated entity is $820.9 million (1999: $427.6 million). Notes to the Financial Statements for the year ended 31 December 2000 60 22 Interests in Joint Ventures continued Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million (c) Santos Ltd and its controlled entities’ share of assets and liabilities employed in the joint ventures are included in the balance sheets under the following classifications: Current assets Cash Receivables Inventories Total current assets Non-current assets Exploration and development expenditure Land and buildings, plant and equipment Other Total non-current assets Total assets Current liabilities Accounts payable Non-current liabilities Provisions Total liabilities 39.5 32.5 34.4 106.4 2,407.6 1,222.5 9.2 3,639.3 3,745.7 129.5 74.6 204.1 21.6 24.9 30.7 77.2 2,323.2 1,128.5 13.0 3,464.7 3,541.9 73.9 63.9 137.8 16.1 13.1 16.0 45.2 798.7 563.2 5.3 1,367.2 1,412.4 52.3 26.7 79.0 4.0 11.5 15.1 30.6 778.4 524.2 7.6 1,310.2 1,340.8 28.2 26.3 54.5 Net investments in joint ventures 3,541.6 3,404.1 1,333.4 1,286.3 (d) The amount of capital expenditure commitments, minimum exploration commitments and contingent liabilities in respect of unincorporated joint ventures are: Capital expenditure commitments Minimum exploration commitments Contingent liabilities 128.7 209.0 15.7 100.5 225.5 14.2 24.1 69.5 10.1 45.5 78.4 9.1 23 Notes to Statements of Cash Flows Consolidated 2000 $million 1999 $million Santos Ltd 61 2000 $million 1999 $million Reconciliation of net cash provided by operating activities to operating profit after income tax Operating profit after income tax Add/(deduct) non-cash items: Depreciation, depletion and amortisation Write-down of controlled entity Net revenue on restructuring within the consolidated entity Increase in income taxes payable Net increase/(decrease) in deferred tax payable and future income tax benefits Capitalised interest Foreign currency fluctuations Share of associated company’s operating loss/(profit) after tax Ordinary dividends received from associate Net (profit)/loss on sale of non-current assets Net cash provided by operating activities before change in assets or liabilities Add/(deduct) change in operating assets or liabilities net of acquisitions of businesses: Increase in receivables (Increase)/decrease in inventories Decrease in other assets Increase in accounts payable Increase in provisions Net cash provided by operating activities 486.8 354.9 – – 159.6 7.5 (12.3) 2.7 18.7 – (29.7) 309.1 278.5 – – 50.4 (64.8) (8.0) (0.2) (2.5) 11.3 0.4 266.7 116.4 6.3 (53.9) 8.0 3.2 (0.9) – – – 26.3 262.4 103.9 7.7 – 37.9 (40.9) (0.5) – – – 0.3 988.2 574.2 372.1 370.8 (83.2) (1.5) 2.4 105.4 11.7 1,023.0 (39.5) (13.9) 2.8 5.6 0.7 529.9 (0.8) 1.5 2.3 34.0 8.9 418.0 (32.9) (8.0) 1.9 2.4 1.6 335.8 Notes to the Financial Statements for the year ended 31 December 2000 62 24 Related Parties The names of each person holding the position of Director of Santos Ltd during the financial year are: UHRIG John Allan ADLER Norman Ross: retired 30 September 2000 BARNETT Peter Charles CONROY Francis John ELLICE-FLINT John Charles: appointed 19 December 2000 GERLACH Stephen McARDLE John Walter McGREGOR Graeme William O’LEARY Michael Anthony SLOAN Judith WEBBER Ian Ernest Santos Ltd and its controlled entities engage in a variety of related party transactions in the ordinary course of business. These transactions are conducted on normal terms and conditions, the effects of which are eliminated on consolidation. Details of related party transactions and amounts are set out in: Note 2 as to dividends received from controlled entities; Note 4 as to interest paid to controlled entities; Note 8 as to amounts owing by controlled entities; Note 15 as to amounts owing to controlled entities; Note 16 as to guarantees by Santos Ltd of the financing facilities and lease obligations of controlled entities; Note 17 as to non-executive Directors’ retirement benefits; Notes 11 and 21 as to investments in controlled entities; Notes 2, 5 and 11 as to investments in associated company and dividends received from associated company; Note 18 as to shares and options granted to executive Directors; and Note 25 as to Directors’ remuneration, including amounts paid or prescribed benefits given in respect of the retirement of Directors. In addition: (i) Agreements exist with the non-executive Directors providing for the payment of a sum on retirement from office as a Director in accordance with shareholder approval at the 1989 Annual General Meeting. The amount provided for the year was $340,230 (1999: $375,335). (ii) An amount of $506,000 was received from Mr N R Adler, former Managing Director, in repayment of a loan previously made in accordance with the provisions of the Loan Scheme approved at the 1990 Annual General Meeting. Interest received during the year on this loan totalled $32,359 (1999: $32,890). (iii) The aggregate number of shares acquired by Directors during the financial year was 750,000 fully paid ordinary shares acquired by Mr N R Adler, former Managing Director, upon the exercise of options previously granted pursuant to the Santos Executive Share Option Plan. The aggregate number of shares and options held directly, indirectly or beneficially by Directors of Santos Ltd and their director-related entities in Santos Ltd as at the balance sheet date was 1,491,450 fully paid ordinary shares (1999: 588,700) including 1,000,000 Restricted Shares referred to in note 18, 160,000 Executive Share Plan Shares paid to one cent (1999: 930,000) and 4,000,000 options granted under the Santos Executive Share Option Plan (1999: 4,000,000). (iv) All amounts owing by or to controlled entities are for loans made on interest free terms for an indefinite period with the exception of: Amounts owing by controlled entities Amounts owing to controlled entities Santos Ltd 2000 $million 1999 $million 625.0 1,273.2 896.7 1,709.5 These loans were made in the ordinary course of business on normal market terms and conditions. (v) During the financial year, legal costs of $214,650 (1999: $351,339) have been paid by the Company in defending certain proceedings in relation to termination of employment brought by a former employee against: the Company; the former Managing Director, Mr N R Adler; another employee of the consolidated entity, Dr J D Armstrong; and a former employee of the consolidated entity. These costs, which in so far as they relate to the three personal defendants have been paid pursuant to the terms of Deeds of Indemnity entered into between the Company and each of them, have not been apportioned among the Company nor the three indemnified personal defendants and therefore it is not possible to determine the amount paid on behalf of each of them. 24 Related Parties continued 63 (vi) During the financial year, Mr N R Adler, former Managing Director, and Mr J W McArdle, an executive Director, were provided with a tax indemnity by the Company in relation to any liability to tax that may arise in respect of payments, the benefit of which have been passed on to the Company, made upon their retirement as the Company’s representatives on the Board of QCT Resources Limited. No liability has arisen under the indemnities during the financial year. (vii) During the financial year, the Company and Mr J C Ellice-Flint, the Chief Executive Officer and Managing Director, entered into a Deed of Access, Indemnity and Insurance. Pursuant to the Deed, the Company agreed to: indemnify Mr Ellice-Flint as an officer to the extent permitted by law; obtain D & O insurance for Mr Ellice-Flint during the time he holds office and for seven years after he ceases to hold office; and allow Mr Ellice-Flint access to documents upon terms contemplated by the Corporations Law. (viii) Mr N R Adler, who retired as Managing Director on 30 September 2000, acquired certain items of personal property upon his retirement including the purchase of a motor vehicle at book value. Mr J W McArdle, an executive Director, also purchased a motor vehicle during the year at the highest of independent valuations. These transactions occurred within a normal employee relationship on terms no more favourable than would have been adopted if dealing at arm’s length, do not have the potential to adversely affect decisions about the allocation of scarce resources and are trivial in nature. 25 Executives’ and Directors’ Remuneration Consolidated Santos Ltd 2000 $000 1999 $000 2000 $000 1999 $000 (a) Executives Amounts received from Santos Ltd or its controlled entities by Executive Officers domiciled in Australia whose income is $100,000 or greater Number of Executive Officers whose remuneration was within the following bands: $000 240 – 260 – 270 – 300 – 310 – 320 – 330 – 340 – 360 – 370 – 380 – 390 – 420 – 480 – 490 – 590 – 640 – 670 – 720 – 910 – 250 270 280 310 320 330 340 * 350 370 380 390 400 430 490 500 600 650 680 730 920 1,620 – 1,630 4,990 – 5,000 * refer note 25(d) 10,917 5,920 10,917 5,920 No. No. No. No. – 1 1 – – 1 1 1 – 1 1 1 – 1 1 – 1 1 – 1 – 1 2 – – 1 1 – – 2 1 1 – – 1 – – 1 – – 1 – 1 – – 1 1 – – 1 1 1 – 1 1 1 – 1 1 – 1 1 – 1 – 1 2 – – 1 1 – – 2 1 1 – – 1 – – 1 – – 1 – 1 – Executives disclosed above are those Executive Officers (including former executives) within the consolidated entity responsible for the strategic direction and operational management of major business units. Notes to the Financial Statements for the year ended 31 December 2000 64 25 Executives’ and Directors’ Remuneration continued (b) Directors Amounts received or due from Santos Ltd and its controlled entities by the Directors of Santos Ltd and Directors of each of its controlled entities Number of Directors whose remuneration was within the following bands: Consolidated Santos Ltd 2000 $000 1999 $000 2000 $000 1999 $000 7,319 3,275 7,018 2,982 $000 20 10 – 30 20 – 70 60 – 70 – 80 90 – 100 240 – 250 260 – 270 330 – 340 * 720 – 730 910 – 920 1,620 – 1,630 4,990 – 5,000 * refer note 25(d) (c) Retirement Benefits No. No. – – 1 5 1 – 1 1 – 1 – 1 1 1 1 4 – 1 – – 1 – 1 – There were no retirement benefits paid to non-executive Directors during the year (1999: nil). (d) Restricted Shares and Options 1,000,000 Restricted Shares were issued to a trustee on 13 December 2000 in respect of Mr J C Ellice-Flint. The terms of issue of the Restricted Shares are set out in note 18. The Restricted Shares were valued by independent valuers as having a fair value of $5.60 per share. 3,000,000 options were granted to Mr Ellice-Flint pursuant to the Santos Executive Share Option Plan, details of which are described in note 18. The options were valued by independent valuation using the binomial option pricing model as follows: Date of grant Exercise price Expiry date 26 August 2000 26 August 2000 26 August 2000 $5.83 25 August 2010 $5.83 25 August 2010 $5.83 25 August 2010 Number of options 1,000,000 1,000,000 1,000,000 Date first exercisable Valuation per option 26 August 2003 26 August 2004 26 August 2005 $0.77 $0.76 $0.75 The value for neither the Restricted Shares nor options has been included in the remuneration disclosed above as it is only a notional value and ultimately no benefit may accrue to Mr Ellice-Flint. 26 Remuneration of Auditors Amounts received or due and receivable by the auditors of Santos Ltd for: Audit of financial reports Other audit assurance services Other services Amounts received or due and receivable by auditors other than the auditors of Santos Ltd for: Audit of financial reports Other services Consolidated Santos Ltd 2000 $000 269 420 322 1,011 57 – 57 1999 $000 2000 $000 1999 $000 363 290 239 892 76 182 258 202 420 242 864 – – – 273 290 188 751 – – – 27 Segment Reporting 65 The consolidated entity operates predominantly in one industry, namely exploration, development, production, transportation and marketing of hydrocarbons and in one geographical segment, namely Australia. Operations are also conducted in Indonesia, Papua New Guinea and the United States of America but are not material to the consolidated entity results. Revenue is derived from the sale of gas and liquid hydrocarbons and transportation of crude oil. 28 Commitments for Expenditure Consolidated 2000 $million 1999 $million Santos Ltd 2000 $million 1999 $million The consolidated entity has the following commitments for expenditure: (a) Capital commitments Capital expenditure contracted for at balance date for which no amounts have been provided in the financial report: Due not later than one year Due later than one year but not later than two years Due later than two years but not later than five years (b) Minimum exploration commitments Minimum exploration commitments for which no amounts have been provided in the financial report or capital commitments: Due not later than one year Due later than one year but not later than two years Due later than two years but not later than five years Due later than five years The consolidated entity has certain obligations to perform minimum exploration work and expend minimum amounts of money pursuant to the terms of the granting of petroleum exploration permits in order to maintain rights of tenure. These commitments may be varied as a result of renegotiations of the terms of the exploration permits, licences or contracts or alternatively upon their relinquishment. The minimum exploration commitments are less than the normal level of exploration expenditures expected to be undertaken by Santos Ltd and its controlled entities. (c) Lease commitments Finance leases: Due not later than one year Due later than one year but not later than five years Total commitments under finance leases Less future finance charges Lease liabilities Operating leases: Due not later than one year Due later than one year but not later than five years Due later than five years Total commitments under operating leases 81.9 43.3 3.5 128.7 63.5 70.0 75.5 – 209.0 1.3 13.0 14.3 (1.3) 13.0 43.3 118.6 13.2 175.1 32.6 23.7 44.2 100.5 48.6 53.0 91.0 32.9 225.5 1.1 14.0 15.1 (1.6) 13.5 26.4 79.4 24.7 130.5 16.1 4.5 3.5 24.1 13.6 21.4 34.5 – 69.5 – – – – – 4.5 16.8 7.6 28.9 11.9 8.1 25.5 45.5 8.9 10.5 36.6 22.4 78.4 – – – – – 3.6 13.9 10.3 27.8 Notes to the Financial Statements for the year ended 31 December 2000 66 29 Superannuation Commitments Santos Ltd and certain of its controlled entities participate in a number of superannuation funds and pension plans in Australia and the United States of America which provide benefits either on a defined benefit or cash accumulation basis for employees or their dependants on retirement, resignation, total or permanent disablement or death. The employers and employee members make contributions as specified in the rules of the respective funds. Independent actuarial valuations of the company sponsored defined benefit plan are undertaken every three years as at 1 January. The following is a review of the significant employee benefit plans: Santos Petroleum Management Superannuation Fund and Santos Retirement Plan Santos Superannuation Fund Type of benefit Basis of contributions Cash accumulation Defined benefits and cash accumulation Percentage of member’s wage contributed by member and employer. Percentage of member’s salary contributed by member and employer. The employer’s percentage reflects the amount to provide an accumulation and the amount recommended by the actuary to provide the defined benefit. Employer’s legal obligation to contribute Enforceable subject to right to cease contributions on written notice to the Trustee. Enforceable subject to right to cease contributions on written notice to the Trustee. Last actuarial assessment: Date issued Name of valuer and qualifications Not applicable Not applicable 13 October 2000 M Wood BSc(Eng) FIA FIAA The assets of all funds were sufficient to satisfy all benefits which would have been vested in the event of termination of the fund, or in the event of voluntary or compulsory termination of the employment of each employee. The Santos Superannuation Fund has employee accrued benefits and assets as follows: Net market value of assets Less present value of employees’ accrued benefits as determined by triennial actuarial assessment as at 1 January 2000 (1999: 1 January 1997) Excess of assets held to meet future benefit payments Vested benefits at 1 January 2000 are $97.0 million. As at 30 June 2000 $million As at 30 June 1999 $million 109.1 93.0 (99.5) 9.6 (64.1) 28.9 30 Contingent Liabilities Consolidated 2000 $million 1999 $million Santos Ltd 67 2000 $million 1999 $million Santos Ltd and its controlled entities have the following contingent liabilities arising in respect of other persons: Performance guarantees Employee service agreements Claims have been lodged including the following: (a) claims under and for breach of contract and public liability (b) miscellaneous claims 7.3 7.6 8.4 – 23.3 7.0 3.3 7.1 0.1 17.5 5.1 7.6 5.0 – 17.7 5.0 3.3 4.0 0.1 12.4 Legal advice in relation to the claims lodged above indicates that on the basis of available information, liability in respect of these claims is unlikely to exceed $0.9 million on a consolidated basis. Guarantees provided by Santos Ltd for borrowings in respect of controlled entities are disclosed in note 16. A number of the Australian interests of the consolidated entity are located within areas the subject of one or more claims or applications for native title determination. Whatever the outcome of those claims or applications, it is not believed that they will significantly impact the consolidated entity’s asset base. The decision of the High Court of Australia in the “Wik” case has the potential to introduce delay in the grant of mineral and petroleum tenements and consequently to impact generally the timing of exploration, development and production operations. An assessment of the impact upon the timing of particular operations may require consideration and determination of complex legal and factual issues and on final resolution of the response of the States to the Commonwealth Native Title Amendment Act, 1998. 31 Additional Financial Instruments Disclosure The consolidated entity uses derivative financial instruments to hedge its exposure to changes in foreign exchange rates, commodity prices and interest rates arising in the normal course of business. The principal derivatives used are forward foreign exchange contracts, foreign currency option contracts, interest rate swaps and options, and commodity crude oil price swap and option contracts. Their use is subject to a comprehensive set of policies, procedures and limits approved by the Board of Directors. The consolidated entity does not trade in derivative financial instruments for speculative purposes. (a) Foreign exchange risk exposure The consolidated entity is exposed to foreign exchange risk principally through the sale of liquid petroleum products denominated in US dollars, US dollar borrowings and US dollar capital expenditure. In order to hedge this foreign exchange risk, the consolidated entity has from time to time entered into forward foreign exchange and foreign currency option contracts. At 31 December 2000 the consolidated entity has open forward foreign exchange and foreign currency option contracts with settlement/expiry dates up to 25 months. If closed out at balance date these contracts would have resulted in a loss of $2.2 million (1999: gain of $2.6 million) that has been deferred for inclusion as part of the underlying future sales transaction. US dollar denominated borrowings are either swapped into Australian dollar exposure or designated as a hedge of US dollar denominated investments in self-sustaining overseas controlled entities or as a hedge of future US denominated sales revenues. As a result, there were no net foreign currency gains or losses arising from translation of US denominated dollar borrowings recognised in the profit and loss statement in 2000. Accordingly, $81.1 million of unrealised foreign currency losses were deferred as at 31 December 2000 (1999: $29.4 million). The ultimate foreign currency gains or losses will be included in the measurement of the specific hedged US dollar denominated sales revenues to be realised in the years 2001 through 2005. The Australian dollar equivalents of foreign currency monetary items included in the balance sheet to the extent that they are not effectively hedged are: Current assets Current liabilities – United States dollars – United States dollars Consolidated Santos Ltd 2000 $million 83.0 6.9 1999 $million 91.2 6.4 2000 $million – – 1999 $million 28.4 – Notes to the Financial Statements for the year ended 31 December 2000 68 31 Additional Financial Instruments Disclosure continued (b) Interest rate risk exposure The consolidated entity enters into interest rate swap contracts with maturities up to 15 years to manage interest rate risk. At 31 December 2000 the consolidated entity has open interest rate swap contracts which if closed out would have resulted in a gain of $18.8 million (1999: loss of $6.0 million). The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rates for classes of interest-bearing financial assets and financial liabilities is set out below: Weighted average interest rate Floating interest rate Fixed interest repriced or maturing in Total Non interest bearing 1 year or less Over 1 to 5 years $million More than 5 years $million $million $million note $million $million 31 December 2000 Financial assets Cash Receivables Investments Other assets Financial liabilities Accounts payable Borrowings Interest rate swaps* 31 December 1999 Financial assets Cash Receivables Investments Other assets Financial liabilities Accounts payable Borrowings Interest rate swaps* * notional principal amounts 8 11 14 15 16 8 11 14 15 16 5.78% N/A N/A N/A N/A 7.64% 0.17% 4.66% N/A N/A 6.50% N/A 6.10% (0.12%) 182.5 – – – 182.5 – 13.0 13.0 – 97.9 – – – 97.9 – 13.5 13.5 – – – – – – – 101.1 101.1 100.1 – – – – – – 955.7 955.7 188.2 – – – – – – 394.2 394.2 (80.1) – – – – – – 357.8 357.8 – – – – – – 540.8 540.8 (20.0) – – – 0.5 0.5 – 72.0 72.0 (119.3) (68.9) – 234.7 33.8 – 268.5 285.9 – 285.9 – – 153.7 349.3 – 503.0 121.6 – 121.6 – 182.5 234.7 33.8 – 451.0 285.9 1,049.1 1,335.0 – 97.9 153.7 349.3 0.5 601.4 121.6 1,399.0 1,520.6 – 31 Additional Financial Instruments Disclosure continued (c) Commodity price risk exposure 69 The consolidated entity is exposed to liquid petroleum price fluctuations through the sale of liquid petroleum products denominated in US dollars. The consolidated entity enters into commodity crude oil price swap and option contracts to manage its commodity price risk. At 31 December 2000 the consolidated entity has open oil price swap contracts with settlement expiry dates up to twelve months. If closed out at balance date these contracts would have resulted in a gain of $32.6 million (1999: nil). (d) Credit risk exposure Credit risk represents the potential financial loss if counterparties fail to perform as contracted. The credit risk on financial assets, excluding investments, of the consolidated entity which have been recognised on the balance sheet is indicated by the carrying amount. The credit risk on off-balance sheet derivatives is the cost of replacing the contract if the counterparty were to default and is measured by their market value at balance date. As at 31 December 2000, counterparty default of interest rate swap and option contracts, foreign exchange contracts, foreign currency options and oil price swap and option contracts would result in a loss of $56.2 million (1999: $7.4 million). The consolidated entity controls credit risk on derivative financial instruments by setting exposure limits related to the credit worthiness of counterparties, all of which are selected banks or institutions with a Standard and Poor’s rating of A or better. (e) Net fair values of financial assets and liabilities The carrying amounts of all financial assets and liabilities including hedges approximate net fair value. At 31 December 2000 the consolidated entity has open derivative financial instruments contracts relating to future operating profit which if closed out at their market rates would have resulted in a gain of $49.2 million (1999: loss of $3.4 million). 32 Economic Dependency There are in existence long-term contracts for the sale of gas, but otherwise the Directors believe there is no economic dependency. Directors’ Declaration for the year ended 31 December 2000 70 In the opinion of the Directors of Santos Ltd: (a) the financial statements and notes, set out on pages 42 to 69, are in accordance with the Corporations Law, including: (i) giving a true and fair view of the financial position of the Company and consolidated entity as at 31 December 2000 and of their performance, as represented by the results of their operations and their cash flows, for the year ended on that date; and (ii) complying with Accounting Standards; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Dated this 9th day of March 2001. Signed in accordance with a resolution of the Directors: J A Uhrig Director J C Ellice-Flint Director Independent Auditors’ Report to the members of Santos Ltd Scope 71 We have audited the financial report of Santos Ltd for the financial year ended 31 December 2000, consisting of the profit and loss statements, balance sheets, statements of cash flows, accompanying notes, and the directors’ declaration set out on pages 42 to 70. The financial report includes the consolidated financial statements of the consolidated entity, comprising the Company and the entities it controlled at the end of the year or from time to time during the financial year. The Company’s Directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the Company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements and statutory requirements in Australia so as to present a view which is consistent with our understanding of the Company’s and the consolidated entity’s financial position, and performance as represented by the results of their operations and their cash flows. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In our opinion, the financial report of Santos Ltd is in accordance with: (a) the Corporations Law, including: (i) giving a true and fair view of the Company’s and the consolidated entity’s financial position as at 31 December 2000 and of their performance for the financial year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations; and (b) other mandatory professional reporting requirements. KPMG William J Stevens Partner Adelaide 9 March 2001 Stock Exchange & Shareholder Information 72 Listed on Australian Stock Exchange at 28 February 2001 were 611,539,203 fully paid ordinary shares. Unlisted were 283,250 partly paid Plan 0 shares, 551,000 partly paid Plan 2 shares and 170,200 fully paid ordinary shares issued pursuant to the Santos Employee Share Purchase Plan (‘SESPP’). There were 76,313 holders of all classes of issued shares (including 24 holders of Plan 0 shares; 23 holders of Plan 2 shares; and 189 holders of SESPP shares) compared with 82,113 a year earlier and there were 44 holders of the 13,850,000 options granted pursuant to the Santos Executive Share Option Plan. The listed issued ordinary shares plus the ordinary shares issued pursuant to SESPP represent all of the voting power in Santos. The holdings of the 20 largest holders of shares represent 46.45% of the total voting power in Santos (last year 44.85%). The 20 largest shareholders in Santos as shown in the Company’s Register of Members at 28 February 2001 were: Name Number of fully paid shares % of voting capital Chase Manhattan Nominees Limited National Nominees Limited Westpac Custodian Nominees Limited AMP Life Limited HSBC Custody Nominees (Australia) Limited MLC Limited Perpetual Trustees Nominees Limited Citicorp Nominees Pty Limited Queensland Investment Corporation The National Mutual Life Association of Australasia Limited ANZ Nominees Limited Westpac Custodian Nominees Limited (ADR Account) Cogent Nominees Pty Limited Perpetual Trustees Australia Limited National Australia Financial Management Limited Australian Foundation Investment Company Limited (Investment Portfolio Account) NRMA Nominees Pty Limited Government Superannuation Office (State Super Fund A/c) Commonwealth Custodial Services Limited Merrill Lynch (Australia) Nominees Pty Ltd 61,068,895 61,055,502 35,562,807 13,243,744 13,242,704 13,119,430 12,575,221 10,134,875 9,800,835 9,517,990 7,914,930 7,064,647 5,907,133 4,145,654 3,960,605 3,514,251 3,197,764 3,082,336 3,069,398 3,032,189 9.98 9.98 5.81 2.17 2.16 2.14 2.06 1.66 1.60 1.56 1.29 1.15 .97 .68 .65 .57 .52 .50 .50 .50 Substantial Shareholders, as at 28 February 2001, as disclosed by notices received by the Company: Name Number of voting shares held Maple-Brown Abbott Limited 56,878,652 284,210,910 46.45 Analysis of Fully Paid Ordinary Shares – range of shares held Fully paid ordinary shares (Holders) % of holders % of shares held 1,000 * 1 – 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 23,863 41,001 7,384 3,830 194 76,272 31.29 53.76 9.68 5.02 .25 2.35 16.39 8.63 12.61 60.02 100.00 100.00 * There were 980 shareholders who held less than a marketable parcel based on the market price as at 28 February 2001. For Directors’ Shareholdings see Directors’ Statutory Report as set out on page 38 of this Annual Report. Voting Rights Every member present in person or by an attorney, a proxy or a representative shall on a show of hands, have one vote and upon a poll, one vote for every fully paid share held. Pursuant to the Rules of the Santos Executive Share Plan, Plan 2 and Plan 0 shares do not carry any voting rights except on a proposal to vary the rights attached to Plan shares. Notice of Meeting The Annual General Meeting of Santos Ltd will be held in the Auditorium at The Adelaide Town Hall Function Centre, 128 King William Street, Adelaide, South Australia on Friday, 4 May 2001 at 11.00 a.m. TradeMarker-Light Final Dividend The 2000 final ordinary dividend and special dividend will be paid on 27 April 2001 to shareholders registered in the books of the Company at the close of business on 3 April 2001 in respect of fully paid shares held at record date. Shareholders’ Enquiries Enquiries from shareholders and other interested people should be directed to: Investor Relations, Santos Ltd, Santos House, Level 29, 91 King William Street, Adelaide, South Australia 5000 Email: investor.relations@santos.com.au Santos website: www.santos.com.au Share Registrar, Santos Ltd, Santos House, Level 29, 91 King William Street, Adelaide, South Australia 5000 Email: share.register@santos.com.au Directors J A Uhrig (Chairman), J C Ellice-Flint (Managing Director), P C Barnett, F J Conroy, S Gerlach (Deputy Chairman), J W McArdle (Executive Director), G W McGregor, M A O’Leary, J Sloan, I E Webber Secretary M G Roberts Registered and Head Office Level 29 Santos House 91 King William Street Adelaide South Australia 5000 Telephone (08) 8218 5111 Facsimile (08) 8218 5274 Telex AA82716 Share Register Level 29 Santos House 91 King William Street Adelaide South Australia 5000 Telephone (08) 8218 5111 Facsimile (08) 8218 5950 Offices Subsidiary Companies Port Bonython PO Box 344 Whyalla South Australia 5600 Telephone (08) 8640 3100 Facsimile (08) 8640 3200 Brisbane Santos House 14th floor, 60 Edward Street Brisbane Queensland 4000 Telephone (07) 3228 6666 Facsimile (07) 3228 6920 Brisbane Santos Asia Pacific Pty Ltd Level 2, Muruk Haus 230 Lutwyche Road Windsor Queensland 4030 Telephone (07) 3857 7088 Facsimile (07) 3857 7089 Representative office of Santos Asia Pacific Pty Ltd in Jakarta: Ratu Plaza Office Tower 10th floor Jalan Jendral Sudirman Kav 9 Jakarta 10270 Indonesia (PO Box 6221, JKS GN, Jakarta 12060) Telephone (62-21) 270 0410 Facsimile (62-21) 720 4503 United States of America Santos USA Corporation 2500 Tanglewilde Suite 160, Houston Texas 77063 USA Telephone (1-713) 986 1700 Facsimile (1-713) 986 4200 Papua New Guinea Barracuda Limited Level 8, Pacific Place Cnr Champion Parade and Musgrave Street Port Moresby PNG Telephone (675) 321 2633 Facsimile (675) 321 2847 i y n n a C & k a n r o H e s i r p r e t n E y b d e c u d o r p d n a d e n g s e D i