ANNUAL REPORT 2009
We’re not just an energy company.
We’re a company with energy.
ABOUT SANTOS
An Australian energy pioneer since 1954, Santos
is one of the country’s leading gas producers,
supplying Australian and Asian customers.
Santos has been providing Australia with natural
gas from the remote outback for more than 40
years. The company today is the largest producer
of natural gas to the Australian domestic
market, supplying 18% of the nation’s gas needs.
Santos has also developed major oil and
liquids businesses in Australia and operates
in all mainland Australian states and the
Northern Territory.
From this base, Santos is pursuing a
transformational liquefi ed natural gas (LNG)
strategy with interests in four exciting
LNG projects.
This strategy is led by the cornerstone GLNG®
project in Queensland – a leading project in
converting coal seam gas into LNG. Also in
Santos’ LNG portfolio are the PNG LNG project,
which was formally approved in December 2009,
Bonaparte LNG, a proposed fl oating LNG project
in the Timor Sea, and Darwin LNG, Santos’ fi rst
LNG venture, which began production in 2006.
Santos has built a strong and reliable production
business in Indonesia and is further developing
its Asian business through development
projects and exploration investment.
In 2009, Santos’ total production was 54.4 million
barrels of oil equivalent. We have the largest
Australian exploration portfolio by area of any
company – 133,800 square kilometres.
Santos has about 2,200 employees working
across its operations in Australia and Asia.
VISION AND STRATEGY
Santos’ vision is to be a leading energy company
for Australia and Asia by delivering the base
business, tapping our resource riches, being
a great place to work and doing it safely and
sustainably to deliver a superior shareholder
return.
Santos has a robust strategy to achieve
this through:
Reliable base business:
• Eastern Australia: margin growth
and resource conversion
• Indonesia: established business
with incremental growth
• Western Australia: growing a material
domestic gas business
VALUES
We are a team that:
• Discovers – by opening our minds to
new possibilities, thinking creatively and
having the courage to learn from successes
and failures, to take on new challenges,
to capture opportunities and to resolve
problems.
• Delivers – by taking personal responsibility
and pride in our work to deliver timely,
quality results that benefi t Santos and help
achieve our vision and strategy.
• Collaborates – by recognising the value
and power in diversity of thought and
communicating openly to understand the
perspectives of others; demonstrating
leadership by sharing what we know and
respectfully challenging each other to
achieve the best results for all.
• Cares – by taking the long-term view to
build a sustainable future for our company,
our people and the environments and
communities in which we operate.
Transformational LNG:
• GLNG: a leading CSG-to-LNG project
underpinned by quality reserves
• PNG LNG: approved in 2009 with fi rst
production in 2014
• Darwin LNG: LNG production since 2006,
mature brownfi eld growth
• Bonaparte LNG: innovative proposed
fl oating LNG project
Focused growth in Asia:
• Vietnam: develop Chim Sáo and
exploration-led growth
• India/Bangladesh: Bay of Bengal
exploration-led growth
• Kyrgyz Republic: exploration prospects
in proven oil and gas provinces
12 PRODUCTION STATISTICS 2009
22 BOARD OF DIRECTORS
2
2009 OPERATING AND FINANCIAL
HIGHLIGHTS
Key results for 2009 and fi ve-year
performance.
3 CONTINUING TO PROGRESS OUR
GROWTH STRATEGY IN 2009
Summary of production results for 2009.
13 RESERVES STATISTICS 2009
Summary of reserves movements
in 2009.
14 LNG PROJECTS
THE ENERGY TO TRANSFORM
Chairman Peter Coates comments
on Santos’ performance in 2009.
Santos’ transformational GLNG project,
progress on PNG LNG, Bonaparte LNG
and Darwin LNG.
24 SANTOS LEADERSHIP TEAM
26 CORPORATE GOVERNANCE
38 SANTOS GROUP INTERESTS
40 10-YEAR SUMMARY
43 DIRECTORS’ STATUTORY REPORT
52 REMUNERATION REPORT
70 FINANCIAL REPORT
151 SECURITIES EXCHANGE AND
SHAREHOLDER INFORMATION
16 AUSTRALIA
Growth in the Cooper Basin, New South
Wales coal seam gas exploration and
Reindeer gas project go-ahead.
153 GLOSSARY
154 INDEX
155 INFORMATION FOR
SHAREHOLDERS
156 MAJOR ANNOUNCEMENTS MADE
BY SANTOS DURING 2009
18 ASIA
Solid progress in Indonesia, Vietnam
drilling success and seismic surveys
offshore India.
20 SUSTAINABILITY
Sustainability policies, systems
and activities, including safety
and environmental performance,
employees and communities.
4
6
8
THE ENERGY TO DELIVER
Chief Executive Offi cer David Knox
reviews a year which marked a
signifi cant chapter in the ongoing
transformation of Santos.
STRONG BALANCE SHEET
TO FUND GROWTH
Chief Financial Offi cer Peter Wasow
puts the numbers in perspective and
explains the 2009 fi nancial results.
10 THE WORLD OF SANTOS
Locations of Santos’ exploration,
development and production activities.
Cover: Operator maintainer Bill Loof at Fairview
in Santos’ eastern Queensland fi elds.
This page: Drilling and completions rig, Arcadia Valley
coal seam gas fi elds, eastern Queensland.
We’re a company with energy
The energy to explore the remotest
and harshest terrain …
The energy to unlock vast resources in
places where many said nothing would
be found …
The energy to spearhead innovations
like CSG to LNG conversion …
The clean energy to fuel homes and
industry throughout Australia and Asia
as well as power nations now and into
the future …
The energy to take bold initiatives
to grow our own business.
In short, we have the energy
to make things happen.
2009 operating and
fi nancial highlights
(cid:129) SALES REVENUE $2,181 MILLION, DOWN 21%;
PRODUCTION 54.4 MMBOE, WITHIN GUIDANCE.
Sales ($million)
2009
2008
2,181.0 2,762.0
(cid:129) NET PROFIT AFTER TAX $434 MILLION.
(cid:129) UNDERLYING NET PROFIT AFTER TAX $257 MILLION,
COMPARED TO $548 MILLION IN 2008.
(cid:129) 2009 FULL YEAR DIVIDEND OF 42 CENTS PER SHARE,
UNCHANGED FROM 2008.
(cid:129) PROVEN AND PROBABLE (2P) RESERVES INCREASED
42% TO 1.44 BILLION BARRELS.
(cid:129) STRONG BALANCE SHEET: $2.2 BILLION OF CASH.
%
change
(21)
(72)
(17)
(79)
0
Operating profi t before tax ($million)
717.0 2,533.0
Cash fl ow from operations ($million)
1,155.0 1,385.0
Earnings per share (cents)
52.1
251.9
Ordinary dividends per share (cents)
42.0
42.0
Cash fl ow per share (cents)
148.2
216.5
(32)
Total shareholders’ funds ($million)
6,967.0 4,478.0
Return on average ordinary equity (%)
Return on average capital employed (%)
7.5
7.3
50.6
34.1
56
(85)
(79)
Net debt/(net debt plus equity) (%)
(9.5)
10.2
(193)
Net interest cover (times)
(45.4)
38.5
(218)
PRODUCTION BY PRODUCT
54.4 mmboe
SALES REVENUE
$2,181 million
OPERATING CASH FLOW
$1,155 million
60
56.0
61.0
59.1
54.4
54.4
40
20
0
3,000
2,500
2,000
1,500
1,000
500
0
2,750
2,762
2,463
2,489
1,500
1,458
1,550
2,181
1,200
1,385
1,214
1,155
900
600
300
0
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Sales gas & ethane
Condensate
Crude oil
LPG
LNG
Sales gas & ethane
Condensate
Crude oil
LPG
LNG
NET PROFIT AFTER TAX
$434 million
1,650
EARNINGS & DIVIDENDS PER SHARE
42 cents
SAFETY PERFORMANCE
3.6
Total recordable case frequency rate
(per millions hours worked)
1,500
1,200
900
600
300
0
762
643
359
434
252
115
95
36
40
51
40
42
52
42
250
200
150
100
50
0
8
6
4
2
0
6.4
5.8
5.3
4.9
3.6
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
Earnings per share
Dividends per share
2
Santos Annual Report 2009
Continuing to progress
our growth strategy in 2009
LNG projects
Page 15
• GLNG signs gas sales agreement with project partner PETRONAS
for up to three million tonnes per annum of LNG; submits
Environmental Impact Statement to Queensland Government.
• PNG LNG project formally approved.
• Bonaparte LNG: proposed fl oating LNG processing facility in
the Timor Sea.
Australia
Page 17
• Santos celebrates 40 years of natural gas delivery from Moomba
processing plant in the Cooper Basin. The basin retains signifi cant
development potential.
• Newly sanctioned projects offshore Victoria; Reindeer project
offshore Western Australia well underway.
• Acquisition of signifi cant new acreage in Gunnedah Basin, NSW.
Asia
Page 19
• Indonesia fi rmly established in Santos’ base business.
Continues incremental growth in producing assets.
• Oyong Phase-2 project in Indonesia online. Delivered safely
and ramped up to production within 20 days.
• Chim Sáo, Santos’ fi rst oil project in Vietnam, formally approved.
Operator maintainer Mark Bunker and operations
superintendent Belinda Wells near Scotia in Santos’
eastern Queensland coal seam gas fi elds.
The energy
to transform
Review by Peter Coates, Chairman
4
Santos Annual Report 2009
Santos made great progress in delivering
its growth strategy in 2009 and is well
equipped to meet the signifi cant challenges
ahead. It has a clear set of strategic
priorities, an exciting pipeline of growth
projects, a sound balance sheet, high
quality partners and a talented executive
team led by its Chief Executive Offi cer,
David Knox who, since becoming CEO
in 2008, has led a transformation of the
company’s perception by the investment
market and its shareholders.
While our underlying fi nancial performance
was down on 2008 due to lower oil prices,
our base business performed well with
consistent production, an improved cost
performance and excellent project delivery.
STRATEGIC PROGRESS IN 2009
Our strategy is underpinned by the twin
pillars of growing demand for primary
energy in Australia and Asia, and the role
that natural gas can play as a cleaner fuel
in meeting that demand.
Some of the signifi cant strategic
milestones achieved during 2009 were:
• In December, we sanctioned the Papua
New Guinea LNG project. PNG LNG will
provide Santos with long-term
production and cash fl ow when it
comes online in 2014 and create a
legacy asset for decades to come.
• Our Gladstone Liquifi ed Natural Gas
(GLNG) project took major steps
forward as it moves towards a fi nal
investment decision. In June, GLNG
signed a binding offtake agreement
to sell two million tonnes per annum
of LNG to project partner PETRONAS,
with an option for a further one
million tonnes per annum at GLNG’s
sole option. This agreement underpins
the fi rst LNG train, or processing unit,
of two planned for the initial phase
of the project.
• We focused the business, selling a
number of non-core assets and growing
our strategic position in the Gunnedah
Basin, Australia’s next major coal seam
gas (CSG) province.
SOLID FINANCIAL PERFORMANCE
BOARD RENEWAL
Santos recorded a net profi t of $434 million
in 2009. This compares with the $1.7
billion result reported for 2008 which
was boosted by a $1.2 billion profi t from
the sale of a 40% interest in the GLNG
project to PETRONAS.
Underlying net profi t in 2009 of $257
million compares with $548 million
in the prior year. Lower product prices
reduced sales revenue by nearly $600
million compared with 2008.
Production from the base business of
54.4 million barrels of oil equivalent
was the same as the previous year and
within the company’s guidance range.
Importantly, cost reduction initiatives in
the base business delivered early benefi ts.
In November, Santos celebrated the 40th
anniversary of the fi rst delivery of natural
gas from the Moomba processing plant in
the Cooper Basin. The Cooper Basin has
underpinned the growth of Santos for
four decades and will continue to play a
very important role in providing primary
energy for eastern Australia.
SUCCESSFUL EQUITY RAISING
Santos issued new equity in 2009 to raise
approximately $3 billion to fund PNG LNG,
future growth and redeem the FUELS
hybrid security. The equity raising was
very successful with strong support from
institutional and retail shareholders.
On behalf of the Board, I would like to
thank shareholders for their support.
DIVIDEND MAINTAINED
At a time when many companies were
cutting or eliminating their dividends,
the Board maintained the Santos dividend
at 42 cents per share fully franked, the
same as the previous year. This dividend
was paid on the expanded capital base
following the equity raising.
The ongoing process of Board renewal
has continued, with the retirement
of two longstanding directors and two
new appointments.
Jane Hemstritch and Greg Martin have
joined the Board and are already making
signifi cant contributions.
Judith Sloan retired from the Board
following the Annual General Meeting
in May after serving shareholders and
the company with distinction over her
14 years as a director.
Stephen Gerlach retired from the Board
in December after 20 years of service
as a Director and the last eight years
as Chairman.
Stephen oversaw the transformation
of Santos from a Cooper Basin focused
domestic business to one with a clear
vision of becoming a major energy
supplier to Australia and Asia. On behalf
of the Board and all shareholders, I thank
Stephen for his 20 years of service to
the company.
I am delighted to assume the Chairmanship
at this critical point in the company’s
history, when it is on the cusp of major
transformation from a domestic focused
natural gas producer into a leading
energy company for Australia and Asia.
On behalf of the Directors, I would like
to thank David and the team at Santos
for their hard work and dedication to
delivering value for shareholders.
Peter Coates AO
Chairman
Santos Annual Report 2009
5
The energy
to deliver
Review by David Knox,
Chief Executive Offi cer and Managing Director
Santos’ vision is to be a leading energy
company in Australia and Asia. We have
a simple and robust strategy to achieve
this: we will drive performance in our base
business, deliver a suite of LNG projects
and pursue focused opportunities in Asia.
In 2009, we demonstrated our
determination to deliver the vision,
making signifi cant progress on all
our strategic fronts.
MEETING AN ENERGY CHALLENGE
Australasia faces the challenge of
achieving energy security for its growing
economies in a carbon-constrained world.
Natural gas as a fuel for electricity
generation has the potential to underwrite
signifi cant cuts in greenhouse gas emissions
while meeting energy needs.
Importantly, natural gas is abundant,
affordable and available now.
We are Australia’s largest producer of gas
for domestic consumption, and 95% of
our proved and probable reserves are gas
or associated gas liquids.
There is suffi cient natural gas in eastern
Australia to meet domestic needs and,
at the same time, build a new LNG export
industry on the east coast.
Australia – and Santos in particular –
is poised to capture a signifi cant market
opportunity in LNG, demand for which
is expected to double in Asia in the next
15 years.
LNG GROWTH STRATEGY
Santos’ LNG growth portfolio is unique
for a company of our size.
We have made substantial progress on
our fl agship GLNG project and we are
moving towards a fi nal investment
decision in the middle of 2010. GLNG
has all the ingredients for success:
an ideal site, high quality reserves, a
binding sales contract and the experience
and expertise of our partner PETRONAS,
the largest LNG supplier in Asia.
Elsewhere, the PNG LNG project was
approved for development at the end
of 2009. The project has signed binding
long-term LNG sales agreements with four
Asian buyers and fi rst sales are expected
in 2014. The existing Darwin LNG project
– our fi rst LNG investment – delivered
another excellent year of production.
Finally, in 2009 we added our fourth LNG
project, Bonaparte LNG, in partnership
with GDF SUEZ. This project exposes
Santos to fl oating LNG technology and
GDF SUEZ is targeting 2013 for the fi nal
investment decision.
BASE BUSINESS PROGRESS
Our growth strategy is not all about
LNG. We have a pipeline of base business
projects that will grow production in the
near term before our LNG ventures deliver
a step change in production and earnings
from 2014.
In 2009, progress on the base projects
was excellent, with two reaching initial
production, three progressing to schedule
and the approval of a sixth, the Chim
Sáo oil project in Vietnam.
Our Oyong gas project in Indonesia
delivered fi rst gas in October 2009 on
schedule, on budget and with an excellent
safety record. In Vietnam, the Chim Sáo
oil project was approved – our fi rst in
that country.
In Australia, we completed the upgrade
of the Patricia-Baleen plant in Victoria
to process gas from the offshore Longtom
fi eld. The Kipper and Henry gas projects
in Victoria and the Reindeer project in
Western Australia progressed well, with
fi rst gas from Henry achieved on schedule
in early 2010.
SAFETY PERFORMANCE
Tragically, in August, a contractor was
killed during a drilling rig move in our
eastern Queensland fi elds. It was a
sobering reminder of the need to always
be conscious of risks in everything we do.
Overall in 2009, we achieved the lowest
injury rate in the company’s history, which
is pleasing. This result was built on strong
safety systems and a series of initiatives
that were implemented to improve our
focus on safety.
SUSTAINABILITY
Santos has reduced its carbon footprint
by 1.5 million tonnes of carbon dioxide
equivalent over the past fi ve years.
I encourage you to read our Sustainability
Report 2009 and fi nd out more about
what sustainability means to Santos
and what we are doing to achieve it.
It is important that we make meaningful
contributions to the communities in
which we operate. In 2009, we continued
to support many community, education,
arts, environment and indigenous
organisations and initiatives throughout
Australia, plus community programs
in Indonesia and Vietnam.
Our partnership with the Santos Tour
Down Under was the headline act of
our community sponsorship program.
The event attracted worldwide attention
and was watched by 750,000 spectators
over its six days.
LOOKING TO THE FUTURE
Looking forward, our excellent portfolio
of current and future projects positions
us well to achieve our growth strategies.
Our focus remains on executing our
transformational LNG growth projects
and delivering production from our base
businesses in Australia and Asia.
We are committed to doing all that safely
and sustainably to deliver maximum value
for our shareholders.
David Knox
Chief Executive Offi cer
and Managing Director
Santos Annual Report 2009
7
Strong balance sheet
to fund growth
Review by Peter Wasow, Chief Financial Offi cer
and Executive Vice President
In 2009, the company continued to deliver
on its strategy: improving performance
from the base business; commercialising
contingent resources and growing reserves;
and building a strong fi nancial position to
fund its future growth. Much of this growth
will result from realising our LNG ambitions,
progress against which was detailed in
the CEO’s Review.
BUILDING A BETTER BASE BUSINESS
Despite our efforts, we were not immune
from the effects of the economic downturn
which resulted in lower selling prices
across our portfolio and reduced profi ts
compared to last year.
Santos achieved a net profi t of $434 million
after tax in 2009. This compares to the
$1.7 billion result reported for 2008, which
was boosted by a $1.2 billion profi t from
the sale of a 40% interest in the GLNG
project to PETRONAS.
Underlying net profi t in 2009 of
$257 million compares to $548 million
in the prior year. Lower oil and gas
prices signifi cantly impacted the 2009
result, reducing sales revenue by
almost $600 million compared to
the previous year.
Production of 54.4 million barrels of oil
equivalent (mmboe) was the same as the
previous year and in the middle of the
company’s guidance range. Sales volumes
were up by 8% to 60.1 mmboe. Strong
gas production in Western Australia and
Indonesia, combined with new production
from Oyong Phase-2 in Indonesia, offset
natural fi eld decline in mature assets.
The company undertook a major cost
reduction program at the start of the year
and achieved improved performance in
both cost of sales and cost of production.
Pleasingly, we had a very good result
on our major expense item, depreciation
and depletion, where costs reduced by
almost $50 million compared to last year.
Operating cash fl ow of $1,155 million
was 17% lower, primarily due to product
prices, but was offset by lower cash costs
and income taxes paid.
We expect 2010 production to be between
51 and 54 mmboe. Production growth will
resume in 2011 as the company’s pipeline
of new projects, including Reindeer,
Kipper and Chim Sáo, come on stream.
RESERVES GROWTH AND RESOURCE
CONVERSION
Reserves growth and resource conversion
have been key features of our strategy.
Our track record of commercialising
contingent resources was again a feature
in 2009. In total we commercialised more
than 750 mmboe by either converting
these resources to reserves or divesting
them for cash.
Santos increased its proved and probable
(2P) reserves by 427 mmboe, taking the
company’s total 2P reserves to a record
1,440 mmboe. 2P reserve life, on 2009
production rates, has increased to over
26 years: around twice the reserve life
of fi ve years ago.
2P RESERVES
mmboe
1,440
774
819
1,013
879
1,500
1,200
900
600
300
0
2005
2006
2007
2008
2009
Five-year compound growth rate = 18%
8
Santos Annual Report 2009
The quality of the reserve base is also
improving. We now have almost half of
our reserves targeted at the higher margin
LNG business, and about a third of those
are conventional reserves at PNG LNG and
Darwin LNG.
STRONG BALANCE SHEET
Despite the uncertainty in fi nancial
markets which marked most of 2009,
we were able to successfully raise more
than $5 billion in new capital. This has
put us in a very strong position to
continue to advance our strategy.
Santos successfully issued new equity in
2009 to raise approximately $3 billion to
fund PNG LNG, future growth and redeem
the FUELS hybrid security.
Cash and term deposits at the end of
the year totalled more than $2.2 billion.
Santos has committed but undrawn
corporate debt facilities of $700 million.
In addition, the company has committed
debt facilities of $2.1 billion to fund the
PNG LNG project. Total funding capacity
therefore stood at $5 billion at year end.
As part of actively managing our
portfolio of assets, Santos generated
over $300 million in proceeds from
asset sales during 2009.
A total of US$200 million was realised
through the sale of 60% of the Petrel,
Tern and Frigate fi elds to GDF SUEZ as
part of the Bonaparte LNG transaction.
Santos also sold its interests in Petroleum
Retention Licence 5 in Papua New Guinea,
the Kakap Joint Venture in Indonesia, oil
and gas assets in Egypt and the Churchie
oil and gas assets in Queensland.
Santos also announced the acquisition
of signifi cant additional CSG acreage
in the Gunnedah Basin in northern New
South Wales and investment in leading
local CSG company Eastern Star Gas
Limited for $476 million. The acquisition
combines the proven CSG experience of
Santos and Eastern Star with the ability
of Santos to deliver major projects and
develop various channels to market.
Santos maintained its fully franked
dividend at 42 cents per share in 2009.
SANTOS VS ASX 200 INDEX FIVE-YEAR RELATIVE PERFORMANCE
$
25
20
15
10
5
0
John Brookes
gas start-up
GLNG
announced
PETRONAS appointed
GLNG partner
GDF SUEZ strategic
partnership announced
Mutineer-Exeter
oil start-up
Casino gas
start-up
Parliamentary approval
to remove 15% share cap
Equity raising
announced
Darwin LNG
start-up
Oyong oil
start-up
GLNG FEED
contractor appointed
PNG LNG
sanctioned
Tipperary
acquisition
Maleo gas
start-up
PNG LNG gas agreement
and FEED entry
GLNG signs binding
Heads of Agreement
for sale of 2 mtpa of LNG
2005
2006
2007
2008
2009
Santos (STO)
ASX 200
Santos Annual Report 2009
9
The world of Santos
Bishkek
1
Fergana Basin
New Delhi
Dhaka
North East Coast Basin
2
3
Bengal Basin
Hanoi
4
Beibuan Trough
5
Phu Khanh Basin
6
Nam Con Son Basin
Kutei Basin
7
Jakarta
8
East Java Basin
Timor
10
11
Browse Basin
13
Papua
New
Guinea
9
12
Darwin
Port Moresby
Carnarvon Basin
14
Bonaparte Basin
Amadeus Basin
15
Gladstone
Roma
18
Brisbane
Cooper/Eromanga Basins
16
Surat/Bowen Basins
Perth
Port Bonython
17
Gunnedah
19
Gunnedah
Basin
Adelaide
Otway Basin
21
20
Gippsland Basin
OPERATED NON-OPERATED
Exploration
Development
Operations/Production
Santos offi ces
10
10
Santos Annual Report 2009
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
REF LOCATION
SITE/ASSET
ACTIVITY
DESCRIPTION
Fergana Basin,
Kyrgyz Republic
North East Coast
Basin, offshore India
Bengal Basin,
offshore Bangladesh
Beibuan Trough,
offshore Vietnam
Phu Khanh Basin,
offshore Vietnam
Nam Con Son Basin,
offshore Vietnam
Kutei Basin,
offshore Indonesia
East Java Basin,
offshore Indonesia
Papua New Guinea
Timor Sea
and Timor Gap
Bonaparte Basin,
offshore northern
Australia
Darwin,
Northern Territory
Non-operated exploration in six prospecting licences.
Operated interests in two exploration permits.
Sangu
Non-operated interests in one exploration permit and gas and condensate production
from Sangu development area.
Chim Sáo, Dua
Maleo, Oyong,
Wortel
PNG LNG, Hides,
Barikewa, SE Gobe
Bayu-Undan,
Darwin LNG,
Jabiru-Challis
Barossa, Caldita,
Evans Shoal,
Petrel-Tern-Frigate
Operated interest in one exploration permit.
Operated interest in one exploration permit.
Non-operated interest in one exploration permit, which contains Chim Sáo oil
(in development) and Dua oil and gas discoveries.
Non-operated interest in Popodi and Papalang PSCs.
Operated interest in Sampang PSC, which contains Oyong oil and gas production, and
the Wortel gas discovery (for which development planning is currently in progress).
Operated interest in Madura Offshore PSC, which contains Maleo gas production.
Non-operated interests in the PNG LNG project and the Hides fi eld and oil production
from SE Gobe. Operated interests in the undeveloped Barikewa gas resources.
Non-operated interests in four production licences, which contain gas, condensate
and LPG production from Bayu-Undan, LNG production from Darwin LNG, and oil
production from Jabiru-Challis.
Operated interest in three retention licences and one exploration permit in the
southern Bonaparte, which contains the Petrel-Tern-Frigate gas fi elds under
development in a joint venture with GDF SUEZ (Bonaparte LNG). Operated interest in
one exploration permit in the northern Bonaparte, which contains the undeveloped
Evans Shoal gas resource, and non-operated interests in two exploration permits
containing the undeveloped Barossa and Caldita gas resources.
Wickham Point
Non-operated Darwin LNG facility.
Browse Basin, offshore
Western Australia
Burnside
Carnarvon Basin,
offshore Western
Australia
Mutineer-Exeter, John
Brookes, Barrow Island,
Legendre, Reindeer,
Stag, Thevenard
Amadeus Basin,
Northern Territory
Mereenie, Palm Valley,
Dingo Brewer Estate
Cooper/Eromanga
Basins, South Australia
and Queensland
Moomba, Ballera,
Jackson
Operated interests in four exploration permits, including the Burnside discovery.
Operated interests in three production licences which include oil production from
Mutineer-Exeter, ten exploration permits and one retention licence. Non-operated
interests in numerous exploration permits and production licences, which contain oil
production from Barrow Island, Legendre, Stag and Thevenard, and gas and condensate
production from John Brookes, and the Reindeer gas development.
Operated interests in two production licences, which contain oil, gas and condensate
production from Mereenie. Non-operated interest in one production licence, which
contains gas production from Palm Valley. Operated interest in one retention licence
containing the Dingo fi eld, also contains Brewer Estate liquids facility.
Operated and non-operated interests in numerous exploration and production permits
across South Australia and Queensland, which contain oil, gas, condensate and LPG.
Main production centres are located at Moomba, Ballera and Jackson, plus satellite
facilities and associated infrastructure.
Port Bonython
Operated processing and load-out facility.
Spencer Gulf,
South Australia
Surat/Bowen Basins,
Queensland
Gunnedah Basin,
New South Wales
Denison, Fairview,
Spring Gully, Scotia,
Roma, Moonie,
Wallumbilla
Gippsland Basin,
offshore Victoria
Patricia-Baleen,
Kipper, Sole
21
Otway Basin,
offshore Victoria
Casino, Henry,
Minerva
Operated and non-operated interests in numerous exploration and production permits,
which contain coal seam gas production from Fairview, Scotia, Spring Gully and Roma,
conventional gas production from Denison and Roma and oil production from Moonie.
Wallumbilla contains an LPG extraction plant and export compression facilities.
Drilling of coal seam gas fi elds underway for GLNG.
Operated interests in six exploration permits. Non-operated interests in three
exploration permits, one assessment lease which is to appraise coal seam gas
and one production permit which contains conventional gas production.
Operated interests in three permits, which contain Patricia-Baleen gas fi eld and
processing plant and the Sole gas resource. Non-operated interest in one permit,
which contains the Kipper gas development project.
Operated interests in three permits, which contain gas and condensate production
from Casino and Henry/Netherby developments. Operated exploration interests in
one permit. Non-operated interest in one permit which contains gas and condensate
production from Minerva.
Detailed exploration maps are available on the Santos website www.santos.com.
Percentage interests are provided in the Santos Group interests section of Santos’ Annual Report 2009.
Santos Annual Report 2009
11
11
Production statistics 2009
Total 2009
Total 2008
Total 2009
Total 2008
Field Units mmboe
Field Units mmboe
Field Units mmboe
Field Units mmboe
Sales gas, ethane and LNG (PJ)
Condensate (‘000 bbls)
15.5
Cooper
1,095.2
5.6
Surat/Denison
Cooper
Surat/Bowen/
Denison
Amadeus
Otway/Gippsland
Carnarvon
Bonaparte
Indonesia
Bangladesh
Total production
Total sales volume
Total sales revenue
($million)
Crude oil (‘000 bbls)
Cooper
Surat/Denison
Amadeus
Legendre
Thevenard
Barrow
Stag
Mutineer-Exeter
Jabiru-Challis
Indonesia
SE Gobe
Total production
Total sales volume
Total sales revenue
($million)
79.9
31.9
10.6
20.5
43.5
16.3
30.2
5.7
13.7
5.5
1.8
3.5
7.5
2.8
5.2
1.0
90.2
32.8
12.2
21.0
27.3
16.3
24.2
6.3
2.1
3.6
4.7
2.8
4.2
1.1
238.6
268.2
41.0
46.1
1,098.2
230.3
237.9
39.6
40.9
1,051.6
3,598.4
62.5
106.3
288.7
305.7
573.5
1,643.9
995.0
105.9
560.3
148.1
8,388.3
8,604.5
3.6
0.1
0.1
0.3
0.3
0.6
1.6
1.0
0.1
0.6
0.1
8.4
8.6
3,945.7
71.1
127.9
299.6
339.8
617
1,627.9
1,254.6
142.0
983.4
188.2
9,597.2
9,796.8
4.0
0.1
0.1
0.3
0.3
0.6
1.6
1.3
0.1
1.0
0.2
9.6
9.8
678.3
1,150.6
7.6
46.6
23.4
435.5
1,552.6
0.9
3,161.8
3,505.8
1.0
0.0
0.1
0.0
0.4
1.5
0.0
3.0
3.3
1,295.1
17.4
67.4
22.1
291.4
1,594.7
1.2
3,289.3
3,173.9
1.2
0.0
0.1
0.0
0.3
1.5
0.0
3.1
3.0
233.2
321.2
151.2
0.3
88.6
240.1
252.6
1.3
0.0
0.7
2.0
2.1
162.0
1.3
88.1
251.4
250.5
1.4
0.0
0.7
2.1
2.1
170.8
238.4
54.4
60.1
54.4
55.8
2,180.5
2,761.8
Amadeus
Otway
Carnarvon
Bonaparte
Bangladesh
Total production
Total sales volume
Total sales revenue
($million)
LPG (‘000 t)
Cooper
Surat/Denison
Bonaparte
Total production
Total sales volume
Total sales revenue
($million)
Total
Production (mmboe)
Sales volume
(mmboe)
Sales revenue
($million)
12
Santos Annual Report 2009
Reserves statistics 2009
Proven plus probable reserves (Santos share) by activity
Sales gas
(incl. ethane & LNG)
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
‘000 tonnes
Reserves year end 2008
Production
Additions
Acquisitions/divestments
Estimated reserves year end 2009
5,039
(239)
2,857
(197)
7,460
83
(8)
2
(3)
74
42
(3)
32
(7)
64
2,989
(240)
109
(10)
2,848
Total
mmboe
1,013
(54)
525
(44)
1,440
Proven plus probable reserves (Santos share) year end 2009 by area
Sales gas
(incl. ethane & LNG)
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
‘000 tonnes
Total
mmboe
Area
Eastern Australia
Cooper Basin
Southern Australia
Qld CSG
Qld conventional
NSW CSG
Total EA
Western Australia and Northern Territory
Carnarvon
Bonaparte
Amadeus
Total WA and NT
Asia Pacifi c
PNG
Indonesia
Vietnam
Bangladesh
Total AP
Total
Benefi cial interests*
Grand total
762
465
3,024
56
532
4,839
742
278
95
1,115
1,130
168
9
7
1,314
7,268
192
7,460
31
0
0
0
0
31
24
0
5
29
1
1
12
0
14
74
0
74
11
5
0
0
0
16
5
17
1
23
25
0
0
0
25
64
0
64
1,607
398
0
0
0
2,005
0
843
0
843
0
0
0
0
0
2,848
0
2,848
186
88
520
10
91
895
155
71
23
249
218
30
14
1
263
1,407
33
1,440
*STO owns 19.42% of Eastern Star Gas, which has a 65% interest of PPL3, PAL2, PEL238, PEL433 and PEL434
Reserves (Santos share)
(mmboe)
1P reserves
2P reserves
2C contingent resources
The information in this reserves statement has been
compiled by Greg Horton, a full-time employee of the
company. Greg Horton is qualifi ed in accordance with
ASX Listing Rule 5.11 and has consented to the form
and context in which this statement appears.
Year end 2008
Production
Additions
Acq/Div
Year end 2009
518
1,013
2,849
54
54
0
230
525
(260)
(46)
(44)
(92)
647
1,440
2,497
Approximately 70% of Santos’ year-end 2009 2P Reserves
and 37% of 2C contingent resources (including 100% of CSG
2P Reserves and 99% of CSG 2C contingent resources), were
audited by independent experts Gaffney, Cline & Associates
(conventional assets) and Netherland, Sewell & Associates,
Inc. (CSG assets). Additionally, over the last two years,
GCA, NSAI and DeGolyer and MacNaughton have audited
approximately 94% of Santos’ combined total year-end 2009
2P plus 2C estimates. The auditors found that based on the
outcomes of each of the respective audits and their
understanding of the estimation processes employed by
Santos, that Santos’ December 31, 2009 Reserves and
Contingent Resources quantities in aggregate compare
reasonably to those estimates prepared by the auditors.
Gaffney, Cline & Associates found that, in the aggregate,
the total volumes summarised in the Santos summary table
represents a reasonable estimate of Santos’ December 31,
2009 Reserves and Contingent Resources position.
Santos Annual Report 2009
13
Senior completions engineer Gabriel Amorer in Santos’ coal
seam gas fi elds in the Arcadia Valley, eastern Queensland.
LNG projects
Unprecedented economic growth in Asia
is increasing demand in the region for
LNG – demand that Santos’ transformational
LNG strategy is poised to support.
of the project. After a period of public
review, a supplementary EIS was submitted
to the Queensland Government in
November 2009.
LNG demand in the Asia-Pacifi c is
expected to double in the next 15 years.
This forecast increase substantially
outstrips contracted supplies.
Santos has abundant resources in close
proximity to these markets and a track
record of reliable delivery.
Santos has an LNG portfolio unique for a
company of its size: its cornerstone GLNG
project, the recently approved PNG LNG
project, the existing Darwin LNG project,
and the proposed Bonaparte LNG project.
GLNG: SIGNIFICANT ACHIEVEMENTS
The GLNG project will involve piping CSG
from Santos’ eastern Queensland fi elds to
a plant at Gladstone, where the gas will
be liquefi ed and loaded to ships for sale
to world markets.
GLNG reached an important milestone in
June 2009 when it announced a binding
heads of agreement to sell two million
tonnes per annum (mtpa) of LNG to
Santos’ GLNG project partner PETRONAS
over 20 years, starting in 2014.
As part of the deal, PETRONAS has
also undertaken to buy an additional one
mtpa of LNG should GLNG elect to supply.
The commercial terms and price of the
agreement are in line with industry practice
for long-term contracts. The gas will be
used in the Malaysian domestic market.
PETRONAS, the world’s third-largest LNG
producer and the largest LNG producer in
Asia, bought a 40% stake in GLNG in 2008.
Proven and probable CSG reserves have
grown three-fold since 2007, and Santos
now has more than enough gas to underpin
the fi rst GLNG train. Front-end engineering
and design studies are nearing completion.
The GLNG Environmental Impact
Statement (EIS) was submitted to the
Queensland Government in March 2009.
The EIS examined the potential
environmental, social and economic impacts
GLNG’s cultural heritage management
plans are well advanced, with fi ve of
seven Indigenous Land Use Agreements
already established. These agreements
provide benefi ts to Aboriginal groups
in the form of compensation, and
employment and training initiatives.
A fi nal investment decision is expected
around the middle of this year and fi rst
LNG shipments are scheduled for 2014.
PNG LNG PROJECT APPROVED
Co-venturers in the PNG LNG project
gathered in Port Moresby in December
2009 to formally give the go-ahead
for the project.
PNG LNG will involve piping gas from the
Hides gas fi eld in the PNG highlands to
a proposed 6.6 mtpa LNG plant near Port
Moresby. It is the largest ever investment
in PNG and is expected to double the
country’s gross domestic product.
Santos has a 13.5% stake in the
ExxonMobil-led project and a US$2 billion
share of the estimated capital cost.
First gas sales are targeted for 2014.
Offtake agreements have been signed
for all expected production, and will
supply to Sinopec, TEPCO, Osaka Gas
and CPC Taiwan.
GLNG operations adviser Glen Anyon at Santos’
Chinchilla white gum plantation near Fairview,
eastern Queensland.
BENEFICIAL USE OF CSG WATER
Santos has developed an innovative solution to
a challenge faced by the global CSG industry –
effectively using water produced during CSG
extraction.
The water will be used to nurture a plantation
of two million native Chinchilla white gum trees
near Fairview in eastern Queensland.
Almost one million trees have been planted, and
plans are being discussed to extend the plantation
to six million trees.
Santos will also use the water to irrigate feedstock
for cattle, boosting beef production in the area.
PROPOSED FLOATING LNG
Santos has partnered with France’s GDF
SUEZ, one of the world’s leading LNG
companies, to develop the Bonaparte LNG
project in the Timor Sea. Bonaparte LNG
proposes to use cutting-edge technology
to develop a fl oating LNG processing plant.
As part of the partnership, GDF SUEZ
has bought 60% of the Petrel, Tern and
Frigate gas fi elds from Santos for up to
US$370 million, and will carry all Santos’
share of the costs until a fi nal investment
decision, expected in 2013.
DARWIN LNG CONTINUES SOLID
PRODUCTION
The Darwin LNG project, Santos’ fi rst
producing LNG asset, continued to
produce well in 2009.
Santos has an 11.4% stake in Darwin LNG,
which commenced production in 2006.
The successful project takes gas from the
offshore Bayu-Undan fi elds 500 kilometres
north-west of Darwin in the Timor Gap.
Darwin LNG capacity will be increased
during statutory shutdown work planned
for the fi rst half of 2010.
Santos Annual Report 2009
15
Steel pipeline being spooled onto pipelay vessel at Crib Point
on Victoria’s Mornington Peninsula. The pipe was welded
together on land and spooled onto the vessel, before being
unreeled offshore to connect the Netherby and Henry wells
to existing Casino infrastructure.
Australia
Santos is Australia’s largest domestic
gas producer.
The company’s Australian base business
comprises gas and oil production assets
in all mainland states and the Northern
Territory.
Continued solid production combined with
sanctioned projects and the potential of
untapped reserves fi rmly places Santos in
a position to serve the growing demand
for natural gas and help Australia move
towards a cleaner energy future.
NATURAL GAS: THE KEY TO A
CLEANER ENERGY PORTFOLIO
As Australia’s largest domestic gas
producer, Santos is in a unique position
to help Australia and the Asia-Pacifi c
signifi cantly cut greenhouse gas emissions
through natural gas.
By increasing the use of natural gas as a
source of electricity generation, Australia
can immediately and signifi cantly reduce
its carbon footprint, while supporting the
development of intermittent renewable
power technology.
By progressively replacing coal-fi red power
generation, natural gas can underwrite a
20% reduction in carbon emissions from
electricity generation while still doubling
the level of power available to Australian
industry and homes.
Australia has a natural gas resource base
equivalent to hundreds of years of current
use. Natural gas is also affordable; prices
in eastern Australia are among the
cheapest in the OECD.
A BRIGHT FUTURE FOR THE COOPER
The Cooper Basin has been the heartland
of Santos for more than four decades and
still retains signifi cant development
potential.
Santos is working to unlock its signifi cant
gas resources through infi ll drilling and
by tapping unconventional reservoirs.
Infi ll drilling involves drilling multiple
wells across areas where previously only
one would be drilled – a method that
will produce previously uncommercial
gas from within existing fi elds.
Longer term, Santos is building its ability
to produce from unconventional resources.
An audit of the Cooper Basin has shown
vast amounts of unconventional shale
gas and tight gas resources. Already, the
company is producing shale gas from one
of its wells.
Santos believes gas demand in Australia’s
eastern states will grow signifi cantly as
the region seeks cleaner energy through
gas-fi red power plants. Established
infrastructure and access to extensive
pipeline networks positions the Cooper
Basin to play a large role in meeting
that demand.
NEW EASTERN AUSTRALIA PROJECTS
In the Otway Basin offshore Victoria, pipelay
work to join the new Netherby and Henry
gas fi elds to the existing Casino production
system began near the end of 2009.
First gas was achieved in February 2010.
Santos holds a 50% interest in this project.
In the nearby Gippsland Basin, also offshore
Victoria, work on the Kipper project is
progressing well. Drilling is scheduled
to commence in the fi rst half of 2010,
with fi rst gas scheduled for production
in the fi rst half of 2011. Santos has a
35% interest in Kipper.
The Shaw River Power Station project
near Orford in western Victoria illustrates
Santos’ recognition of the potential for
natural gas to help Australia achieve
cleaner electricity generation.
The proposed 500MW base load power
station would be supplied with natural gas
from Santos’ own gas portfolio. Feasibility
work on the project is continuing.
SIGNIFICANT WA BUSINESS
Santos is a leading gas supplier in
Western Australia and maintains a
portfolio of quality growth opportunities.
Development of the Reindeer project
offshore Western Australia is well underway,
with fi rst gas scheduled for the fourth
quarter of 2011. Santos has a 45% interest
in Reindeer, and has signed an agreement
to supply CITIC Pacifi c’s Sino Iron project.
Other contracts are expected to follow.
Production in Santos’ other Western
Australian assets, such as John Brookes,
remained strong in 2009.
The fi rst major discovery of natural gas in the Cooper Basin
occurred at the Gidgealpa-2 well on New Year’s Eve, 1963.
40 YEARS OF NATURAL GAS
On 10 November 2009, Santos commemorated
the 40th anniversary of natural gas delivery from
its Moomba processing plant in the Cooper Basin.
The company held a series of events in Adelaide
and throughout the Cooper Basin to celebrate
the event.
The fi rst molecules of natural gas arrived in
Adelaide via the 755-kilometre pipeline from
Moomba. Santos and its joint venture partners
have since delivered 5.8 trillion cubic feet of gas
to customers throughout the eastern Australian
states and territories.
South Australia uses this abundant and local natural
gas supply for a high proportion of its electricity
generation (56%), and subsequently has the cleanest
power supply of all Australian mainland states.
GUNNEDAH EXPLORATION
Santos took the next major step in its
strategic CSG strategy when it acquired
signifi cant additional acreage in the
Gunnedah Basin of New South Wales and
invested in leading local CSG Company
Eastern Star Gas.
Santos and Eastern Star’s total combined
area of petroleum permits in the Gunnedah
Basin is about 45,000 square kilometres.
Since acquiring 35% interest in ESG
operated acreage on 2 July 2009,
2P reserves have increased by 1,184 PJ
to 1,520 PJ gross.
Santos Annual Report 2009
17
Wida Yarifa, an electrical and instrument engineer
with Santos contractor GPS. On an offshore gas rig
in the Maleo fi eld, Indonesia.
Asia
The company’s focused Asia strategy
continues to progress, with producing
assets delivering strong performance in
2009 and multiple options for growth.
Also in Vietnam, 2D seismic surveys are
complete in offshore Block 123 in the Phu
Khanh Basin, north of Chim Sáo and Dua.
Drilling is planned there for 2011.
The developing Wortel and Peluang
prospects add to the producing Maleo
and Oyong assets in Indonesia, the
Chim Sáo oil project in Vietnam has
been formally approved, and exploration
in the Bay of Bengal and the Kyrgyz
Republic is progressing.
INDONESIA: NEW PROJECT AND
FURTHER GROWTH
Santos’ Indonesian assets are now fi rmly
established as part of the company’s base
business portfolio. The business has
continued to display incremental growth
in producing assets, and in 2009 brought
the new Oyong Phase-2 gas project online.
The Phase-2 project included modifi cations
to the existing offshore Oyong facilities
and construction of a 60-kilometre pipeline
to a new onshore gas processing facility.
The project in East Java started production
on schedule in the third quarter of 2009.
The project was delivered safely, and was
ramped up to production capacity within
20 days.
Oil production from Oyong began in
September 2007, and to date has produced
more than four million barrels.
The nearby Wortel development is
proposed to be tied back to Oyong.
A fi nal investment decision for Wortel
is targeted for mid-2010, with fi rst gas
forecast for the second half of 2011.
Also in East Java, the Maleo gas fi eld
continued to produce strongly. The nearby
Peluang-1 well was drilled in the fi rst
quarter of 2009, and has the potential
to tie back to Maleo to maintain plateau
production levels.
FIRST OIL PROJECT IN VIETNAM
Santos’ fi rst oil project in Vietnam, Chim
Sáo, has been formally approved. Work on
the wellhead platform is well underway
and fi rst oil is expected in the second
half of 2011.
Santos has a 31.875% non-operating
interest in the Chim Sáo fi eld, which
is located offshore southern Vietnam
in the Nam Con Son Basin.
BAY OF BENGAL AND BANGLADESH
In Santos’ offshore acreage in the Bay of
Bengal, an extensive 3D seismic program
began in 2009 and is largely complete.
Santos is targeting natural gas, which
could be sold to the domestic Indian
market. Interpretation of seismic results
is ongoing.
Santos has two deep water exploration
licences that cover about 16,500 square
kilometres in the north of the Bay. They
were awarded by the Indian Government
in 2007 under the competitive New
Exploration Licensing Policy. Santos has
shot over 300 kilometres of 3D seismic
which is being evaluated with a view
to drilling in 2011-12.
In Bangladesh, a well optimisation program
is extending the life of the offshore Sangu
fi eld. The Sangu fi eld has associated onshore
gas processing facilities, positioning Santos
to feed the nearby Chittagong gas market.
A 3D seismic program for the Magnama and
South Sangu fi elds is planned for early 2010.
KYRGYZ REPUBLIC: LEADING
ACREAGE POSITION
Santos has established a leading
acreage position in the Fergana Basin
in the south of the Kyrgyz Republic.
Santos holds interests in six prospecting
licences covering approximately 2,700
square kilometres in the proven oil and
gas province.
2D seismic work has been completed
and shallow drilling occurred in 2009.
Deeper drilling is planned for 2010 and
2011 to further evaluate the potential
of these assets.
If successful, existing pipelines and
refi neries will enable production to be
brought on quickly and will provide
multiple export options.
Santos has secured an option for further
acreage in the Fergana Basin, adding to
production potential.
Students on the EcoBoat learn to balance environmental
protection with economic development.
ON BOARD THE ECOBOAT
Santos has partnered with Fauna & Flora
International in the EcoBoat – an interactive
‘fl oating classroom’ in Vietnam’s picturesque
Ha Long Bay.
The EcoBoat initiative gives local and
international students hands-on experience
in balancing environmental conservation with
economic development.
While staying on board the EcoBoat, students
explore caves, talk to local communities and
businesses, learn marine safety, navigation, and
scientifi c measurement of the natural environment.
They use this experience to create their own
sustainable vision for Ha Long Bay – a World
Heritage Site and national treasure.
In Indonesia, Santos continued its commitment
to working with local communities, helping local
fi shermen and food business owners to improve
their operations and create avenues to broader
markets.
Santos also installed 1.2 kilometres of pipeline
to deliver clean water to village homes, and
supported road development and coastal lighting.
Santos Annual Report 2009
19
Landholder adviser David Lobb with a native
Queensland bottle tree, in the Coxon Creek area
of Santos’ eastern Queensland coal seam gas fi elds.
Sustainability
Applying the principles of sustainability
makes good business sense
Santos recognises that an integrated
sustainability framework delivers value beyond
traditional economic measures. To achieve
this Santos has established targets across 24
sustainability indicators, six for each of four
categories: environment, community, our
people, and economic.
Target scores were achieved for 75% of these
indicators, with the rest on track for achievement
in 2010. Key indicator improvements achieved
in 2009 include:
• climate change management
• safety TRCFR
• incidents and spills
• waste management.
The effi ciency and effectiveness with which
Santos manages environmental resources
is the pathway to keeping the company’s
licence to operate in communities and with
government regulators.
Reducing greenhouse gas emissions, the use
of clean water, land disturbance and waste to
landfi ll contributes to the key concept of ‘doing
more with less’ and has a positive effect on
operating and regulatory costs – ultimately
benefi ting both Santos and the environment.
GREENHOUSE GAS EMISSIONS
FROM OPERATED ASSETS
Million tonnes CO2-e (Scope 1)
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
OIL SPILL VOLUMES
m3
550
500
450
400
350
300
250
200
150
100
50
0
Moonie East/Algester spills
Carindale spill
2004
2005
2006
2007
2008
FY08-09
2005
2006
2007
2008
2009
Australia
Indonesia
United States
Santos’ greenhouse gas emissions profi le has reduced from
over fi ve million tonnes in 2005 to less than 3.5 million
tonnes. Energy effi ciency projects implemented in 2009
will save approximately 1,095 TJ of gas per year.
Santos’ integrity management program and training
programs helped deliver signifi cant reductions of oil
spill volumes in 2009.
TOTAL RECORDABLE CASE
FREQUENCY RATE
Recordable injuries per million hours worked
10
8
6
4
2
0
EMPLOYEE TURNOVER
%
8
6
4
2
0
2006
2007
2008
2009
2006
2007
2008
2009
Employees
Contractors
Combined
A sustained focus on safety contributed to the lowest
injury rate level in Santos’ history, this result was built
on strong safety systems and a series of initiatives that
were implemented to improve Santos’ focus on safety.
Low employee turnover is an indication of a committed,
engaged and proactive workforce. During this period
employee turnover reduced to just 3.5%.
SPONSORSHIP BY AREA 2009
% funding
SPONSORSHIP BY ACTIVITY 2009
% funding
SUSTAINABILITY REPORT 2009
Santos’ Sustainability Report 2009
provides a detailed annual review of its
sustainability scorecard performance
(www.santos.com/sustainability2009).
South Australia
36.1%
Australian School
of Petroleum
Royal Institution
of Australia
Queensland
Victoria
Indonesia
Vietnam
21.0%
15.0%
8.9%
8.8%
6.6%
1.7%
Education
40%
General community 30%
Arts and culture
Environment
Indigenous
Conference/
industry/govt
Youth
13%
10%
3%
2%
2%
Northern Territory
0.8%
Papua New Guinea 0.1%
Western Australia
0.5%
New South Wales 0.1%
Santos’ sponsorship program is geographically
distributed in a manner consistent with the spread
of the company’s operations in each area.
Santos’ community support program provides assistance
to education, environment, art and culture and a range
of youth and indigenous initiatives.
Santos Annual Report 2009
21
Board of Directors
ROY ALEXANDER
FRANKLIN OBE
BSc (Hons)
Age 56. Independent non-executive
Director since 28 September 2006
and member of the Environment,
Health, Safety and Sustainability
Committee of the Board.
Non-executive director of Keller
Group Plc since July 2007 and
Chairman since August 2009.
Non-executive director of
StatoilHydro ASA since October
2007. Former non-executive
Chairman of Bateman Litwin NV
and Novera Energy Plc.
Former Chief Executive Offi cer of
Paladin Resources Plc 1997-2005
and former Group Managing
Director of Clyde Petroleum Plc.
Former Chairman of BRINDEX, the
trade association for UK independent
oil and gas companies 2002-2005
and a former member of PILOT, the
joint industry/UK Government task
force set up to maximise
hydrocarbon recovery from the UK
North Sea 2002-2005. In 2004
awarded the OBE for services to
the UK oil and gas industry.
KENNETH ALFRED DEAN
DAVID JOHN WISSLER KNOX
PETER ROLAND COATES AO
BCom (Hons), FCPA, MAICD
Age 57. Independent non-
executive Director since 23
February 2005. Chairman of the
Audit Committee and member of
the Finance Committee of the
Board. Director of Santos Finance
Ltd since 30 September 2005.
Non-executive Director of Bluescope
Steel and Chair of Bluescope’s
Audit & Risk Committee. Chief
Financial Offi cer of Alumina Ltd
October 2005-February 2009,
alternate director of Alumina Ltd
October 2005-February 2009 and
non-executive director of Alcoa of
Australia Ltd, Alcoa World Alumina
LLC and related companies October
2005-February 2009.
Director of Shell Australia Ltd
from 1997 to 2001 and Woodside
Petroleum Ltd from 1998 to 2004.
Over 35 years’ experience in the
oil and gas industry. Fellow of the
Australian Society of Certifi ed
Practising Accountants and member
of the Australian Institute of
Company Directors. Former Chief
Executive Offi cer of Shell Financial
Services and member of the La
Trobe University Council.
Chief Executive Offi cer
and Managing Director
BSc (Hons) Mech Eng, MBA
Age 52. Joined Santos in
September 2007 as Executive
Vice President Growth Businesses.
Appointed Acting Chief Executive
Offi cer in March 2008 and Chief
Executive Offi cer and Managing
Director in July 2008. Member of
the Environment, Health, Safety
and Sustainability Committee of
the Board. Director of Santos
Finance Limited.
Previously Managing Director
of BP Exploration & Production
in Australasia and an Executive
Member of APPEA. David has
a wealth of upstream oil and
gas experience, having held
management and engineering
roles at BP, ARCO and Shell across
Australia, United Kingdom, Pakistan,
United States, Netherlands and
Norway. Also a director on the
Board of the Botanic Gardens and
State Herbarium, South Australia
and a Fellow of the Australian
Institute of Mechanical Engineering.
Chairman
BSc (Mining Engineering)
Age 64. Appointed Santos
Chairman on 9 December 2009.
Previously an independent
non-executive Director since
18 March 2008. Chairman of the
Remuneration Committee of the
Board, the Nomination Committee
of the Board and the Santos
Finance Limited Board. Member
of the Finance Committee of
the Board.
Former non-executive Chairman
of Xstrata Australia. Previously
Chief Executive of Xstrata Coal,
Xstrata Plc’s global coal business.
Appointed non-executive director
of Minara Resources Limited
in April 2008 and appointed
Chairman in May 2008. Non-
executive director of Amalgamated
Holdings Limited since July 2009.
Past Chairman of the Minerals
Council of Australia, the NSW
Minerals Council and the Australian
Coal Association. Member of the
APEC 2007 Business Consultative
Group and the Emissions Trading
Task Group. Current member of the
NSW Minerals Ministerial Advisory
Council and the Business Council
of Australia.
RICHARD MICHAEL HARDING
KENNETH CHARLES BORDA
JANE SHARMAN HEMSTRITCH
MSc
LLB, BA
BSc, FCA
Age 60. Independent non-executive
Director since 1 March 2004.
Chairman of the Environment,
Health, Safety and Sustainability
Committee of the Board. Member
of the Audit, Nomination and
Remuneration Committees of
the Board.
Independent non-executive
Chairman of Clough Ltd, having been
appointed as director in May 2006.
Non-executive director of Downer
EDI Limited since July 2008.
Non-executive Deputy Chairman
of Arc Energy Ltd until May 2007
(appointed as non-executive
director in August 2003). Chairman
of the Ministry of Defence Project
Governance Board – Land Systems
Division (Army) 2003–February
2009. Former President and General
Manager of BP Developments
Australia Ltd with over 25 years of
extensive international experience
with BP. Former Vice-Chairman and
Council member of the Australian
Petroleum Production and
Exploration Association (APPEA).
Age 57. Independent non-
executive Director since 14
February 2007. Chairman of the
Finance Committee of the Board
and member of the Nomination
Committee of the Board.
Board member of Fullerton Funds
Management, owned by Temasek,
Singapore, since February 2007.
Non-executive director of Ithmaar
Bank (Bahrain) since February
2007 and Leighton Contractors Pty
Ltd since July 2007. Appointed a
director of Talent2 International
Ltd in August 2008 and the Asian
Advisory Board of Aviva Pte Ltd in
Singapore in February 2009.
Previously a Board member of
SFE Corporation for over fi ve
years until its acquisition by the
Australian Stock Exchange Ltd
in July 2006. CEO of Middle East
and North Africa, Deutsche Bank
before retirement in May 2007.
Formerly Regional CEO Asia Pacifi c
and CEO Australia and New
Zealand, Deutsche Bank. Director
of Deutsche Bank Malaysia from
2002 until retirement in May 2007.
Age 56. Independent non-executive
director since 16 February 2010.
Member of the Remuneration
Committee of the Board and the
Audit Committee of the Board.
Non-executive director of the
Commonwealth Bank of Australia
since October 2006, The Global
Foundation since November 2006
and Tabcorp Holdings Ltd since
November 2008. Member of the
Research and Policy Council
and Advisory Committee of
the Committee for Economic
Development of Australia.
25 years’ experience with Accenture
and Andersen Consulting.
Previously Asia Pacifi c Managing
Director, Country Managing
Director for Australia and member
of Accenture’s Executive Leadership
Team 2004-2007. Past roles also
include Managing Partner of
Accenture’s Communications
and HighTech Operating Unit for
Asia Pacifi c and of Accenture’s
Communications and HighTech
Practice for Australia and
New Zealand
GREGORY JOHN
WALTON MARTIN
BEc, LLB, FAIM, MAICD
Age 50. Independent non-executive
Director since 29 October 2009.
Member of the Remuneration
Committee of the Board and
the Environment, Health, Safety
and Sustainability Committee
of the Board.
Non-executive director of Energy
Developments Limited and the
Australian Energy Market Operator
Limited. Chairman of Everest
Financial Group, Gas Valpo S.A.
(Chile) and the Royal Botanic
Gardens & Domain Trust of New
South Wales.
Previous Deputy Chairman of the
Australian Gas Association and
inaugural Chairman of the Energy
Supply Association of Australia
between 2004 and 2006. Former
Chairman of Jackgreen Limited.
Past member of the Business
Council of Australia and Committee
for the Economic Development
of Australia. Formerly Managing
Director and Chief Executive
Offi cer of AGL, and Chief Executive
Infrastructure at Challenger
Financial Services Group.
Santos Leadership Team
JOHN ANDERSON
Vice President Western Australia
and Northern Territory
LLB, BEc, GDCL
John Anderson is responsible for
Santos’ activities in Western
Australia and Northern Territory,
including commercial and fi nance,
business development, exploration,
development and operated assets.
John joined Santos in 1996 as
Corporate Counsel for the former
Queensland Northern Territory
Business Unit after 10 years as
a solicitor with Freehills. He has
held a range of roles at Santos
including Manager Legal and
Business Services, Group Executive
Business Development, Vice
President Strategic Projects and
most recently Vice President
Commercial.
MARTYN EAMES
Vice President Asia Pacifi c
BSc (Hons)
Martyn Eames is responsible
for Santos’ activities in the Asia
Pacifi c region. These comprise
Santos’ business interests in
Indonesia, Papua New Guinea,
India, Bangladesh, Kyrgyz
Republic and Vietnam.
Martyn joined Santos in December
2004 as Vice President Corporate
and People. Before then, he spent
more than 25 years with BP, working
various upstream roles in Angola,
Canada, Australia, Papua New
Guinea, Norway, United Kingdom
and United States.
PETRINA COVENTRY
Chief Human Resources Offi cer
BEd, PostDipHR, Master Business Ethics
Petrina Coventry is responsible
for human resources strategy
and activities throughout Santos,
including remuneration and
benefi ts, organisational
effectiveness, talent management,
learning and development,
recruitment and payroll.
Petrina has spent many years
working in the US, Asia and
Europe in global human resource
management roles for The General
Electric Company and The Coca Cola
Company. Her most recent role was
Chief Human Resource Offi cer for
a private equity consortium in
Singapore. She has deep industry
knowledge across many industrial
sectors including renewable energy,
oil and gas services, real estate
and fi nancial services.
DAVID KNOX
ROGER KENNETT
Vice President GLNG Operations
BSc Chemical Technology
Roger Kennett is responsible for the
project management, engineering,
construction and operation of the
coal seam gas fi eld development
in eastern Queensland, the 435-
kilometre pipeline from Fairview
to Gladstone, and the GLNG plant
and facilities on Curtis Island.
Roger joined Santos in 1984, and
has held a range of operations and
technical leadership roles during
his 25 year career with Santos.
His most recent role was Vice
President Operations. Before joining
Santos, Roger worked for 13 years
in chemical and fertiliser industries.
Chief Executive Offi cer
and Managing Director
BSc (Hons) Mech Eng, MBA
David Knox was appointed Chief
Executive Offi cer of Santos in
July 2008. He has 25 years of
experience in the global oil
and gas industry, including
as Managing Director for BP
Developments in Australasia
from 2003 to 2007.
David Knox joined Santos in
September 2007 as Executive Vice
President, Growth Businesses,
responsible for growth in Santos’
emerging new businesses including
LNG, Geoscience and New Ventures,
Indonesia and other strategic
projects.
Originally from Edinburgh, Scotland,
David holds a fi rst class honours
degree in Mechanical Engineering
from Edinburgh University and a
Masters of Business Administration
from the University of Strathclyde.
David Knox has previously held
senior positions with BP in Australia,
the United Kingdom and Pakistan.
He has worked for ARCO and Shell
in the United States, Netherlands,
the United Kingdom and Norway.
PETER WASOW
Chief Financial Offi cer
and Executive Vice President
BCom, GradDipMgmt, FCPA
Peter Wasow is responsible for
strategy and planning, corporate
fi nance, accounting, taxation,
treasury, investor relations, risk
and audit, and public affairs.
Peter joined Santos in May 2002
following a 23-year career with
BHP Billiton. His roles included
Vice President Finance and
Administration for BHP Petroleum
in Houston, Texas. His most recent
role was Vice President Finance, in
the BHP corporate offi ce.
RAY BETROS
Vice President Technical
BEng Chemical, GradDip Process
Plant Engineering
Ray Betros is responsible for
driving overall performance;
enhancing Santos’ technical
excellence across subsurface and
surface engineering disciplines;
leading environment, health and
safety and clean energy strategies;
and overseeing delivery of key
technical services (drilling, IT,
and procurement and logistics).
Ray joined Santos in January 2009
from BG Group where he was the
Technical Director and Chief
Operating Offi cer for the Asian,
Middle Eastern and African regions.
During his more than 30-year
career, he has also held senior
positions with BHP Billiton and
Hoechst.
TREVOR BROWN
Vice President Exploration
BSc (Hons)
Trevor Brown is responsible for
implementing Santos’ exploration
and new ventures strategy and for
building a material portfolio of
growth opportunities. Trevor also
leads a team of highly qualifi ed
geoscientists and subsurface
engineers ensuring the application
of subsurface excellence across
all Santos’ conventional and
unconventional exploration,
appraisal and development
activities.
Trevor joined Santos in 2001 from
the US independent oil company
Unocal where he was part of a very
active exploration team gaining
experience across SE Asia, the
United States and South America.
His previous roles at Santos
include Manager New Ventures,
Manager Growth Projects and Vice
President Geoscience and New
Ventures. Trevor has over 24 years’
experience in the oil and gas
industry including 11 years in
Indonesia managing onshore and
offshore exploration programs.
JAMES BAULDERSTONE
Vice President Corporate
Development and Legal
LLB (Hons), BSc (Hons)
James Baulderstone is responsible
for the M&A team and has functional
responsibility for Commercial and
Marketing Excellence, Legal and
Secretariat. James is also General
Counsel and Company Secretary
of the Santos Group.
James joined Santos in January 2007
after holding similar roles at Mayne
Group and BlueScope Steel. James
has extensive legal, commercial
and business development
experience across many countries
including the United States,
Germany, United Kingdom,
Malaysia, China and India.
RICK WILKINSON
President GLNG and Queensland
BSc (Hons)
Rick Wilkinson is responsible
for Santos’ Queensland assets,
including the GLNG business
and LNG marketing.
Rick was formerly Vice President
Commercial. Before joining Santos
in 1997, he was Group Manager
Energy Retail for the Victorian Gas
and Fuel Corporation, responsible
for energy trading, customer
relations, marketing and sales.
He has also held various engineering,
strategy and management
positions with Schlumberger,
McKinsey & Co and Pilkington Glass.
MARK MACFARLANE
Vice President Eastern Australia
BEng (Hons) Mechanical
Mark Macfarlane is responsible for
Santos’ eastern Australia activities,
including commercial and fi nance,
business development, exploration
and development, production
operations, plant operations and
reliability, and human resources.
Mark joined Santos in 1997 after
a nine-year career with Esso in
Australia and Malaysia. He has
worked in a variety of leadership
roles at Santos, including reservoir
management, corporate planning,
gas and oil exploitation and
optimisation, and operations.
Mark’s most recent role was Vice
President Development.
Corporate governance
INTRODUCTION
The Board and management of Santos believe
that, for the Company to achieve its vision of
becoming a leading energy company for Australia
and Asia, it is necessary for the Company to
meet the highest standards of personnel safety
and environmental performance, governance
and business conduct across its operations
in Australia and internationally.
To achieve the highest standards of corporate
governance, the Board has established
corporate governance policies and charters
(Policies). The Policies, or a summary of the
Policies, are publicly available on the Company’s
website, www.santos.com.
The Company’s Policies meet the requirements
of both the Corporations Act 2001 (Cth) (the
Act) and the Listing Rules of the Australian
Securities Exchange (ASX), and, in the opinion
of the Board, comply with best practice,
including the ASX Principles of Good
Corporate Governance and Good Practice
Recommendations (ASX Principles).
The table on page 27 indicates where specifi c
ASX Principles are dealt with in this Statement.
PART 1:
COMPOSITION OF THE BOARD
Relevant policies and charters
See www.santos.com
• Board Guidelines
• Company Constitution
1.1 Composition
The composition of the Board is determined in
accordance with the Company’s Constitution
and the Board Guidelines which, among other
things, require that:
• the Board comprises a minimum of fi ve
directors (exclusive of the Chief Executive
Offi cer/Managing Director (CEO)), and a
maximum of ten directors;
• the Board should comprise a substantial
majority of independent, non-executive
Directors;
Under these guidelines, the following
interests are regarded as material in the
absence of any mitigating factors:
• there should be a separation of the roles
of Chairman and CEO of the Company;
• the Chairman of the Board should be an
independent, non-executive Director; and
• performance of the Board and its members
should be reviewed regularly and objectively.
The names and details of the experience,
qualifi cations, special responsibilities, and
term of offi ce of each Director of the Company
and the Company Secretary are set out on
pages 22 to 25 of this Annual Report.
In 2009:
• Chairman Mr Stephen Gerlach retired from
the Company’s Board. Mr Peter Coates
assumed the role of Chairman, having been
appointed Deputy Chairman in 2008 as part
of the Board’s succession planning process.
• As part of the Company’s Board renewal
process, Professor Judith Sloan retired from
the Board on 6 May 2009 and, in October
2009, Mr Gregory Martin was appointed a
Director and, in February 2010 Ms Jane
Hemstritch was also appointed a Director.
1.2 Director independence
The Board has adopted the defi nition of
independence set out in the ASX Principles.
Having regard to this defi nition, the Board
generally considers a Director to be
independent if he or she is not a member
of Management and is free of any interest
and any business or other relationship which
could, or could reasonably be perceived to,
materially interfere with the Director’s ability
to act in the best interests of the Company.
The Board will assess the materiality of
any given relationship that may affect
independence on a case-by-case basis and
has adopted materiality guidelines to assist
in that assessment.
• a holding of 5% or more of the Company’s
voting shares or a direct association with
an entity that holds more than 5% of the
Company’s voting shares; or
• an affi liation with an entity which accounts
for 5% or more of the revenue or expense
of the Company.
Each Director’s independence is assessed by the
Board on an individual basis, with reference to
the above materiality guidelines and focusing
on an assessment of each Director’s capacity
to bring independence of judgement to Board
decisions. In this context, Directors are
required to promptly disclose to the Board
their interests in contracts, family ties and
cross-directorships which may be relevant
in considering their independence.
Currently, the Board comprises seven
non-executive Directors, all of whom are
considered independent under the principles
set out above, and one executive Director
(the Managing Director/CEO).
1.3 Conflicts of interest
The Board has an obligation to ensure that
Directors avoid confl icts between their duty
to the Company and their own personal
interests. Directors are required to declare
actual or potential confl icts of interest both
on their appointment to the Board and on an
ongoing basis. For example, Directors must
declare any confl ict of interest that they
may have at the start of all Board meetings.
Where a material personal interest arises with
respect to a matter that is to be considered
by the Board, the Director is required to
declare that interest and must not take part
in any Board discussion or vote in relation to
that matter, unless permitted in accordance
with the Act.
26
Santos Annual Report 2009
Principles and Recommendations
Principle 1 – Lay solid foundations for management and oversight
1.1 Establish and disclose the functions reserved to the Board and those delegated to management.
1.2 Disclose the process for evaluating the performance of senior executives.
1.3 Provide the information indicated in the guide to reporting on Principle 1.
Principle 2 – Structure the Board to add value
2.1 A majority of the Board should be independent Directors.
2.2 The chairperson should be an independent Director.
2.3 The roles of chairperson and chief executive offi cer should not be exercised by the same individual.
2.4 The Board should establish a Nomination Committee consisting of a minimum of 3 members, the majority being
independent Directors.
2.5 Disclose the process for evaluating the performance of the Board, its committees and individual directors.
2.6 Provide the information indicated in the guide to reporting on Principle 2.
Section
2.1
1.6
1.6, 2
1.2
1.1
1.1
3.1, 3.2, 3.3
1.6
1.1, 1.2, 1.4, 1.6,
2.2, 3.1, 3.2, 3.3
Principle 3 – Promote ethical and responsible decision-making
3.1 Establish a code of conduct to guide the Directors, the chief executive offi cer (or equivalent), the chief fi nancial
5.1, 5.2
offi cer (or equivalent) and any other key executives as to:
3.1.1 the practices necessary to maintain confi dence in the Company’s integrity;
3.1.2 the practices necessary to take into account their legal obligations and the reasonable expectations of stakeholders.
3.1.3 the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
3.2 Disclose the policy concerning trading in Company securities by Directors, senior executives and employees.
3.3 Provide the information indicated in the guide to reporting on Principle 3.
Principle 4 – Safeguard integrity in fi nancial reporting
4.1 The Board should establish an Audit Committee.
4.2 Structure the Audit Committee so that it :
• consists only of non-executive Directors;
• consists of a majority of independent Directors;
• is chaired by an independent chair, who is not a chair of the Board; and
• has at least three members.
4.3 The Audit Committee should have a formal charter.
4.4 Provide the information indicated in the guide to reporting on Principle 4.
Principle 5 – Make timely and balanced disclosure
5.1 Establish and disclose written policies and procedures designed to ensure compliance with ASX Listing Rule
disclosure requirements and to ensure accountability at a senior management level for that compliance.
5.2 Provide the information indicated in the guide to reporting on Principle 5.
Principle 6 – Respect the rights of shareholders
6.1 Design and disclose a communications strategy to promote effective communication with shareholders and
encourage effective participation at general meetings.
6.2 Provide the information indicated in the guide to reporting on Principle 6.
Principle 7 – Recognise and manage risk
7.1 Establish policies for the oversight and management of material business risks and disclose a summary of those policies.
7.2 Require management to design and implement the risk management and internal control system to manage the
company’s material business risks and report to the Board on whether those risks are being managed effectively.
7.3 Disclose whether the Board has received assurance from the chief executive offi cer and the chief fi nancial offi cer
that the declaration provided under s295A of the Act is founded on a sound system of risk management and internal
control that is operating effectively in all material respects in relation to fi nancial reporting risks.
7.4 Provide the information indicated in the guide to reporting on Principle 7.
Principle 8 – Remunerate fairly and responsibly
8.1 The Board should establish a remuneration committee.
8.2 Distinguish the structure of non-executive Directors’ remuneration from that of executive Directors and senior executives.
8.3 Provide the information indicated in the guide to reporting on Principle 8.
5.3
5.1, 5.2, 5.3
3.2, 3.3
3.1, 3.2, 3.3
3
3.2
5
5
5.4
5.4
4.1
4.1, 4.2
4.2
4.1, 4.2
3.2, 3.3
3.3
3.2, 3.3
Santos Annual Report 2009
27
Corporate governance
(continued)
1.4 Appointment of new Directors,
term of office and re-election
The Board Guidelines include the following
principles:
• non-executive Directors are to be appointed
on the basis that their nomination for
re-election as a Director is subject to
review and support by the Board;
• there should be appropriate circumstances
justifying re-election after a specifi ed
period of service as a Director; and
• the contribution of the Board, Board
Committees, and of individual Directors
is the subject of formal review and
discussion in accordance with the
process set out below.
Prospective candidates for election and
re-election to the Board are reviewed by
the Nomination Committee. The Committee
considers the business experience, skills
and expertise of the candidates and the
requirements of the Board, to ensure that
the Board’s overall composition enables it
to meet its responsibilities. The Nomination
Committee makes appropriate
recommendations to the Board regarding
possible appointments of Directors.
Under the Company’s Constitution,
approximately one third of Directors retire by
rotation each year. Directors appointed during
the year are also required to submit themselves
for election by shareholders at the Company’s
next Annual General Meeting. The Nomination
Committee considers candidates for re-election
and makes recommendations to the Board,
taking into account performance, internal and
external Board and Director review results and
the requirements of the Board.
28
Santos Annual Report 2009
In 2009, the following changes in the
directorship of the Company took place
as part of the Board renewal process:
• Mr Stephen Gerlach retired as Chairman
of the Company on 9 December 2009
and as a Director on 31 December 2009;
• Mr Peter Coates assumed the role
of Chairman on 9 December 2009;
• Professor Judith Sloan retired from
the Board on 6 May 2009; and
• Mr Gregory Martin was appointed
a Director on 29 October 2009.
The Board renewal process is overseen by the
Nomination Committee and involves regularly
reviewing the composition of the Board to
ensure that the Directors have the necessary
experience, skills and expertise to manage a
leading energy company. Throughout 2009,
the Nomination Committee had been actively
seeking appropriate candidates for appointment
to the Board to replace Mr Gerlach. In February
2010, the Board appointed Ms Hemstritch
as a Director. The details of Ms Hemstritch’s
experience and qualifi cations are set out
on page 23 of the Annual Report.
1.5 Director induction and continuing
education
Prior to appointment, each Director is
provided with a letter of appointment which
includes copies of the Company’s Constitution,
Board Guidelines, Committee Charters,
relevant policies and functional overviews
of the Company’s strategic objectives and
operations. Additionally, 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. Induction procedures include
access to appropriate executives in relation
to details of the business of the Company.
Directors are encouraged by the Board to
continue their education by attending both
internal and external training and education
relevant to their role.
1.6 Review of Board, Director and
executive performance
Ordinarily, an external review of the Board
and individual Directors is carried out on
a biennial basis and internal reviews of
individual Directors are conducted annually.
The external reviews are carried out by an
independent consultant, based on a scope
agreed in advance with the Board. Internal
reviews are facilitated by the Chairman, in
consultation with the Nomination Committee,
and involve formal interviews with each
Director culminating in a written report
prepared by the Chairman.
With the change of Chairman and other Board
renewal changes taking place in 2009, the
Board review in 2009 was via an internal
review conducted by the incoming Chairman.
In 2010, it is expected that an external
review will be undertaken of the Board as
a whole, together with peer review of all
individual Directors.
Board Committees conduct their own internal
review of their performance, structure,
objectives and purpose from time to time.
Performance evaluation of senior executives
is undertaken twice a year by the CEO, the
results of which are used by him in association
with the Remuneration Committee in
determining future remuneration and
generally for review by the Board in relation
to management succession planning.
Performance reviews were conducted for each
of the senior executives, including the CEO,
during the year. These reviews were carried
out in accordance with the process set out
above against the following criteria:
• analysing performance against agreed
measures;
• examining the effectiveness and quality
of the individual in their given role;
• assessing key contributions;
• identifying areas of potential
improvement; and
• assessing whether various expectations
of shareholders have been met.
As a result of recommendations arising
from the internal Board review, a number of
initiatives have been introduced to ensure
the continued effectiveness of the Board’s
performance and enable its sustained focus
on key issues for the Company.
The performance evaluations of senior
executives that were conducted in accordance
with the above procedures directly impacted
their short term incentives.
Details of the remuneration received by
Directors and senior executives are set out
in the Remuneration Report commencing
on page 52 of the Annual Report.
PART 2:
BOARD RESPONSIBILITIES
Relevant policies and charters
See www.santos.com
• Board Guidelines
In addition to the Board Guidelines, the Board
has adopted a formal document outlining the
Role of the Board. The overriding objective is
to increase shareholder value to top quartile
performance. The Board endeavours to do this
by use of a management framework which
protects the rights and interests of shareholders
and ensures the Company is properly managed
through the implementation of sound strategies
and action plans and the development of an
integrated framework of risk management and
control over the Company’s economic resources.
2.1 Responsibilities
The Board is responsible for the overall
corporate governance of the Company,
including approving the strategic direction
and fi nancial objectives, oversight of the
Company and its management, establishing
goals for management and monitoring the
attainment of these goals.
Specifi cally, the Board is responsible for:
• the oversight of the Company’s strategic
direction management of the Company;
• the approval of delegations of authority
to management;
• signifi cant acquisitions and disposals
of assets;
• signifi cant expenditure decisions outside
of the Board-approved corporate budget
including hedging of product sales, sales
contracts and fi nancing arrangements;
• the approval of, and monitoring of,
fi nancial performance against strategic
plans and corporate budgets;
• approving ethical standards and codes
of conduct;
• the selection and evaluation of, and
succession planning for, Directors, CEO,
CFO and Company Secretary and general
endorsement of the same for other
executives reporting to the CEO;
• the remuneration of Directors and the CEO
and general endorsement of the same for
other executives reporting to the CEO;
• oversight of the integrity of material
business risk management including
fi nancial and non-fi nancial risks.
The Board has also established a number of
Board Committees to assist with the effective
discharge of its duties.
Each Director is required to ensure that they
are able to devote suffi cient time to discharge
their duties and to prepare for Board and
Committee meetings and associated activities.
The Board delegates management of the
Company’s resources to the Company’s
executive management team, under the
leadership of the CEO, to deliver the strategic
direction and goals approved by the Board.
This is formally documented in the Company’s
Delegation of Authority which details the
responsibilities delegated by the Board to
Management for:
• implementing corporate strategies; and
• operating under approved budgets and
written delegations of authority.
2.2 Indemnity, access to information
and 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 qualifi cations and
reasonableness of the fees of the relevant
expert and, under normal circumstances, the
provision of the expert’s advice to the Board.
Pursuant to a deed executed by the Company
and each Director, a Director also has the right
to access all documents which have been
presented to meetings of the Board or to any
Committee of the Board or otherwise made
available to the Director whilst in offi ce.
This right continues for a term of seven years
after ceasing to be a Director or such longer
period as is necessary to determine relevant
legal proceedings that commenced during
that term. Information in respect of indemnity
and insurance arrangements for Directors and
certain senior executives appears in the
Directors’ Statutory Report on page 47
of this Annual Report.
Santos Annual Report 2009
29
Corporate governance
(continued)
PART 3:
BOARD COMMITTEES
Relevant policies and charters
See www.santos.com
• Audit Committee Charter
• Environment, Health, Safety &
Sustainability Committee Charter
• Finance Committee Charter
• Nomination Committee Charter
• Remuneration Committee Charter
Board Committees
KC Borda1
PR Coates2
Non-executive Director
Non-executive Director
(Deputy Chairman/
Chairman)
3.1 Role and membership
The Board has established a number of
Committees to assist with the effective
discharge of its duties. The membership and
role of each Committee is set out in section 3.3.
All Committees are chaired by and comprise
only non-executive, independent Directors,
except the Environment, Health, Safety and
Sustainability Committee, which includes
the CEO as a member. Other composition
requirements specifi c to the individual
Committee are set out in section 3.3.
Non-Committee members may attend
Committee meetings by invitation.
Each Committee operates under a specifi c
charter approved by the Board. The Board
Committee Charters have been reviewed in
accordance with the revised ASX Principles.
Board Committees have access to internal
and external resources, including access to
advice from external consultants or specialists
without management present.
The Chairman of each Committee provides
an oral, and, where practicable, a written
report together with the minutes and
recommendations of the Committee at the
next Board meeting.
As a result of changes in directorship of
the Company (as outlined in section 1.4),
the Board reviewed the Board Committee
memberships to ensure that the members of
each Committee have the requisite expertise
and skill. As a result of this review, the
following changes to Committee membership
occurred in February 2010:
• Mr Gregory Martin was appointed to the
Remuneration Committee with effect from
1 February 2010 and the Environment,
Health, Safety and Sustainability Committee
with effect from 17 February 2010;
Environment,
Health, Safety &
Sustainability
Committee
Audit Committee
Member
Member
Finance
Committee
Nomination
Committee
Remuneration
Committee
Chairman
Member
Member
Chairman
Chairman
KA Dean
Non-executive Director
Chairman
Member
RA Franklin
Non-executive Director
S Gerlach3
Non-executive Director
(Chairman)
RM Harding
Non-executive Director
Member
DJW Knox
Executive Director
(Managing Director/CEO)
J Sloan4
Non-executive Director
GJW Martin5
Member
Member
Chairman
Member
Non-executive Director
Member
JS Hemstritch6
Non-executive Director
Member
Member
Chairman
Member
Member
Member
Member
Member
Member
1 Mr Kenneth Borda was appointed to the Nomination Committee with effect from 17 February 2010.
2
Mr Peter Coates assumed the role of Chairman on 9 December 2009 and increased his Board Committee responsibilities by becoming Chairman of the Nomination Committee and
a member of the Environment, Health, Safety and Sustainability Committee and the Finance Committee on 31 December 2009. Mr Coates ceased to be a member of the Audit
Committee on 31 December 2009 and the Environment, Health, Safety and Sustainability Committee on 17 February 2010.
3 Mr Stephen Gerlach retired from the Board on 31 December and at that time ceased to be a member of any Board Committee.
4 Professor Judith Sloan retired from the Board on 6 May 2009 and at that time ceased to be a member of the Nomination Committee.
5
Mr Gregory Martin was appointed a Director on 29 October 2009, and a member of the Remuneration Committee with effect from 1 February 2010, and the Environment, Health,
Safety and Sustainability Committee with effect from 17 February 2010.
6
Ms Jane Hemstritch was appointed a Director on 16 February 2010, and a member of the Remuneration Committee and Audit Committee with effect from 17 February 2010.
30
Santos Annual Report 2009
• Mr Peter Coates ceased to be a member
of the Environment, Health, Safety and
Sustainability Committee on 17 February
2010;
• Ms Jane Hemstritch was appointed to the
Remuneration Committee and the Audit
Committee with effect from 17 February
2010; and
• Mr Kenneth Borda was appointed to the
Nomination Committee with effect from
17 February 2010.
Following is a summary of the membership
of the Board Committees. Details of the
qualifi cations and experience of each Director
is set out in pages 22 to 23.
3.2 Board and Committee meetings
The Board Guidelines prescribe that the Board
is to meet at least eight times a year, including
a strategy meeting. Board members are expected
to attend any additional meetings as required.
In 2009, a total of 12 meetings were held.
Details of the Board and Committee meetings
held and attendances at those meetings appear
in the Directors’ Statutory Report on page 44
of this Annual Report.
In addition to the Board meetings, several
meetings of the non-executive Directors are
scheduled to take place each year.
The Managing Director/CEO (as an executive
Director) and members of management do not
attend these meetings. Two meetings of the
non-executive Directors were held in 2009.
Also, in accordance with the Board Guidelines,
at least four Board dinners are held each year,
of which at least one is attended exclusively
by non-executive Directors.
Members of management attend Board and
Committee meetings, at which they report
to Directors within their respective areas of
responsibility. Where appropriate, advisors to
the Company attend meetings of the Board
and of its Committees.
3.3 Role and Membership of Committees
Committee
Members and Composition
Role
Audit
Mr KA Dean (Chairman)
Mr RM Harding
Ms JS Hemstritch
The Committee is required to consist of:
• members who are fi nancially literate;
• at least one member with past
employment experience in fi nance
and accounting, requisite
professional certifi cation in
accounting or other comparable
experience or background; and
• at least one member with an
understanding of the exploration
and production industry.
The Chairman of the Board is precluded
from being the Chairman of the Audit
Committee.
The primary objective of the Audit Committee is to assist the Board to fulfi l its
corporate governance and oversight responsibilities related to fi nancial accounting
practices, external fi nancial reporting, fi nancial risk management and internal
control, the internal and external audit function, and compliance with laws and
regulations relating to these areas of responsibility.
Specifi cally, the role of the Audit Committee includes:
• reviewing the effectiveness of the Company’s risk management and internal
compliance and control systems relating to fi nancial reporting;
• evaluating the truth and fairness of Company fi nancial reports and recommending
acceptance to the Board;
• reviewing the process adopted by the CEO and Chief Financial Offi cer (CFO) when
certifying to the Board that the Company’s fi nancial reports are true and fair and
that they are based on a sound system of risk management and internal
compliance and control that is operating effectively in all material respects;
• examining the accounting policies of the Company to determine whether they
are appropriate and in accordance with generally accepted practices;
• meeting regularly with the internal and external auditors to reinforce their
respective independence and to determine the appropriateness of internal and
external audit procedures;
• where the external auditor provides non-audit services, reporting to the Board
as to whether the Committee is satisfi ed that the provision of those services
has not compromised the auditor’s independence;
• reviewing the performance of the internal and external auditors and providing
them with confi dential access to the Board;
• receiving from the external auditors a formal written statement delineating all
relationships between the auditors and the Company and confi rming compliance
with all professional and regulatory requirements relating to auditor independence;
• referring matters of concern to the Board, as appropriate, and considering issues
which may impact on the fi nancial reports of the Company;
• recommending proposed dividends to the Board for fi nal adoption; and
• recommending to the Board the appointment and dismissal of the head
of internal audit.
Santos Annual Report 2009
31
Corporate governance
(continued)
Committee
Members and Composition
Role
Environment,
Health,
Safety and
Sustainability
Mr RM Harding (Chairman)
The role of the Environment, Health, Safety and Sustainability Committee includes:
Mr RA Franklin
Mr GJW Martin
Mr DJW Knox
During 2009, Mr Coates replaced
Mr Gerlach as a member of the
Environment, Health, Safety and
Sustainability Committee on 31 December
2009. Mr Martin replaced Mr Coates as
a member of the Environment, Health,
Safety and Sustainability Committee
on 17 February 2010.
• monitoring and review of the Environment, Health and Safety and Greenhouse
Policies and related systems;
• monitoring and review of the development of the Company’s Sustainability
Management Framework and the performance of sustainability aspects of this
framework under the categories of Environment, Community and Our People
(excluding sustainability aspects under the category of Economy); and
• review of the regular internal and external environmental, health and safety audits.
Nomination
Mr PR Coates (Chairman)
Mr KC Borda
Mr RM Harding
During 2009, Mr Coates was appointed
to the Nomination Committee on
31 March 2009. Professor Sloan ceased
to be a member of the Nomination
Committee upon retiring from the Board
on 6 May 2009 and Mr Gerlach upon
his retirement on 31 December 2009.
Mr Borda was appointed a member of
the Nomination Committee with effect
from 17 February 2010.
Remuneration Mr PR Coates (Chairman)
Mr RM Harding
Ms JS Hemstritch
Mr GJW Martin
During 2009, Mr Gerlach ceased to be a
member of the Remuneration Committee
on 31 December 2009. Mr Martin and
Ms Hemstritch were appointed members
of the Remuneration Committee with
effect from 1 February and 17 February
2010, respectively.
It is the responsibility of the Nomination Committee to devise the criteria for, and
review membership of, and nominations to, the Board (including the re-election
of incumbent Directors).
The primary criteria adopted in selection of suitable Board candidates, and the
assessment of incumbent directors seeking re-election is their capacity to
contribute to the ongoing development of the Company, having regard to the
location and nature of the Company’s signifi cant business interests and to the
candidates’ qualifi cations and experience by reference to the attributes of existing
Board members. When a Board vacancy exists or where it is considered that the
Board would benefi t from the services of a new Director with particular skills, the
Nomination Committee has responsibility for proposing candidates for consideration
by the Board and, where appropriate, engages the services of external consultants.
The Remuneration Committee is responsible for reviewing the remuneration policies
and practices of the Company including:
• the compensation arrangements for the non-executive and executive Directors
(including the CEO), and senior executives;
• the Company’s superannuation arrangements; and
• employee share and option plans.
The Committee has access to independent advice and comparative studies on the
appropriateness of remuneration arrangements. The structure and details of the
remuneration paid to Directors, the CEO and other senior executives during the
period are set out in the Remuneration Report commencing on page 52 of this
Annual Report and note 32 to the fi nancial statements commencing on page 70
of this Annual Report.
Finance
Mr KC Borda (Chairman)
The role of the Finance Committee includes:
Mr PR Coates
Mr KA Dean
During 2009, Mr Gerlach ceased to be
a member of the Finance Committee
on 31 December 2009 and Mr Coates
was appointed a member of the
Finance Committee with effect from
31 December 2009.
• responsibility for considering and making recommendations to the Board on the
Company’s capital management strategy and the Company’s funding requirements
and specifi c funding proposals;
• formulating and monitoring compliance with treasury policies and practices; and
• the management of credit, liquidity and commodity market risks.
32
Santos Annual Report 2009
PART 4:
RISK MANAGEMENT
Relevant policies and charters
See www.santos.com
• Board Guidelines
• Risk Management Policy
4.1 Risk management systems
The Board is responsible for overseeing the
implementation of, and ensuring there are
adequate policies in relation to, the Company’s
risk management and internal compliance and
control systems. These systems require
Management to be responsible for identifying
and managing the Company’s material business
risks, which include fi nancial and non-fi nancial
risks, such as environmental, exploration and
investment risks.
An Enterprise-Wide Risk Management approach
forms the cornerstone of Risk Management
activities of the Company, which has been based
on the relevant Australian Standard (AS/NZS
4360: 2004). This approach is incorporated in
the Company’s Risk Management Policy and
aims to ensure that material business risks
(both fi nancial and non-fi nancial) facing the
Company are consistently identifi ed, analysed
and evaluated, and that active management
plans and controls are in place for the ongoing
management of these risks. Independent
validation of controls is undertaken by internal
audit as part of its risk-based approach.
The internal audit function is independent
of the external auditor and reports to the
Audit Committee.
4.2 Management reporting on risk
Management reporting on risk operates
on a number of levels.
All reports to the Board on strategic and
operational issues incorporate an assessment
by Management of the associated risks, which
ensures that the Board is in a position to
make fully-informed business judgements
on these issues.
In addition, the Board receives dedicated
risk management updates from management,
which address the material business risks
facing the Company and the systems and
policies in place to manage those risks.
In addition to these periodic updates, the
Board and Management give consideration
to effectiveness of the Company’s risk
management and internal compliance and
control systems, and whether there is scope
for further improvement of these systems.
The Board confi rms that it has received a
report from management as to the effectiveness
of the Company’s management of its material
business risks for the 2009 Financial Year.
The Board also receives written certifi cations
from the CEO and the CFO in relation to the
Company’s fi nancial reporting processes.
For the 2009 fi nancial year, the CEO and
CFO certifi ed that:
“The declaration provided in accordance with
section 295A of the Corporations Act in respect
of the Consolidated Financial Report for the
year ended 31 December 2009 is founded
on a sound system of risk management and
internal control, and the system is operating
effectively in all material respects in relation
to fi nancial reporting risks.”
Santos Annual Report 2009
33
Corporate governance
(continued)
4.3 Examples of business risks
Examples of management of specifi c business risks, and the systems Santos has in place to manage these risks, include the following:
Type of risk
Method of management
Environmental
and safety risk
Environmental and safety risk is managed through:
• a comprehensive Environmental Health and Safety Management System based on Australian Standard 4801
and International Standard 14001;
• environment, health, safety and sustainability committees at Board and management levels;
• the retention of specialist environmental, health and safety staff and advisors;
• regular internal and external environmental, health and safety audits and reviews, including process safety reviews;
• regular training of employees with respect to environment, health and safety; and
• imposing environmental care and health and safety accountability as line management responsibilities.
Exploration
and reserves risk
Exploration risk and uncertainty is managed through:
• the implementation of risk management processes, including reporting mechanisms in respect of each
exploration project;
• internal control systems which include resource assessment of exploration prospects, resource development
plans and project assurance processes;
• corporate review in both prospect and hindsight; and
• Board approval of exploration budgets.
The Company has a Reserves Management System that is consistent with the Society of Petroleum Engineers
Petroleum Resources Management System. External reserves reviews and audits are also undertaken as necessary.
Investment risk
The Company has clearly defi ned procedures for capital allocation and expenditure. These include:
• a portfolio management system;
• annual budgets approved by the Board;
• short and long term funding strategies in respect of each exploration project which are approved by the Finance
Committee;
• detailed appraisal and review procedures, including the appointment of independent advisers;
• project management processes, including cost reporting, project forecasts and monitoring of impacts on projects;
• levels of authority; and
• due diligence requirements where assets are being acquired.
Financial reporting
and treasury
• A comprehensive budgeting system exists with an annual budget approved by the Board.
• Monthly actual results are reported against budget and quarterly forecasts for the year are prepared and reported
to the Board.
• Treasury operations are subject to a comprehensive system of internal control, and speculative transactions are prohibited.
• Further details relating to fi nancial instruments and commodity price risk management are included in Note 38
to the Consolidated Financial Statements.
• Regular treasury and market risk reports are made to the Finance Committee of the Board.
Operational risk
• All signifi cant areas of Company operations are subject to regular reporting to the Board.
• The Board receives regular reports on the performance of each business unit, functional area and major project,
including: Eastern Australia, Western Australia and the Northern Territory; Asia Pacifi c; GLNG and Queensland;
PNG LNG; Corporate Development; Finance and Investor Relations; Human Resources; Government and Media;
Environment, Health, Safety and Sustainability.
Organisation
capability risk
In order to manage organisation capability risk, the Company:
• conducts regular reviews of the organisational capacity;
• has developed a workforce plan and succession plans in respect of key roles within the Company;
• has developed and implemented specifi c training programs; and
• conducts regular reviews of its Human Resources policy, framework and development programs.
34
Santos Annual Report 2009
PART 5:
ETHICS AND CONDUCT
Relevant policies and charters
See www.santos.com
• Code of Conduct
• Reporting Misconduct Policy
• Guidelines for Dealing in Securities
• Continuous Disclosure Policy
• Shareholder Communications
• Market Disclosure Policy
5.1 Ethical standards and Code of Conduct
To promote high standards of corporate
governance and business conduct, the Company
has provided its employees with a clear set of
rules, values and guidelines to follow when
carrying out their work as a Santos employee
and representative. These rules, values and
guidelines set out what is expected of Directors,
employees, contractors and agents of Santos.
In particular, the Company has in place an
integrated Code of Conduct which:
• sets out the Company’s key rules, values
and guidelines with respect to workplace
and environment, business conduct and
sustainability; and
• outlines the processes for reporting and
investigating suspected breaches, and
the penalties that may be imposed where
a breach is found to have occurred.
Key issues addressed by the Code of Conduct
include:
• achieving compliance with all applicable laws
of the countries in which Santos operates;
• avoiding confl icts, by prioritising the
interests of the Company and its
stakeholders over personal interests;
• prohibiting inappropriate gifts, hospitalities,
bribes, commissions and inducements;
• communicating regularly, accurately
and effectively with investors, other
stakeholders, the media and the
market generally;
• treating employees and prospective
employees fairly and equitably in all matters;
• protecting rights of privacy and
confi dentiality, both at an individual
and Company level;
• ensuring Company assets are used solely
to promote the interests of the Company
and its stakeholders;
• operating with a view to long-term
sustainability, through a focus on health,
safety and the environment; and
• acting as a responsible corporate citizen
in all communities of which the Company
is part, and actively contributing to the
needs of the communities.
The standards of conduct expected of Santos
staff, including those directed at the broader
stakeholder constituency of shareholders,
employees, customers and the community, are
also recorded in separate guidelines and policies
relating to dealing in securities (discussed
below), the environment, occupational health
and safety and human resources.
Further, a Finance Code of Conduct, based
on that developed by the Group of 100 (an
association of senior fi nance executives from
Australia’s business enterprises) applies to the
CFO and all other offi cers and employees within
the fi nance function of the Company who have
the opportunity to infl uence the integrity,
direction and operation of the Company and
its fi nancial performance. Santos treats actual
or suspected breaches of its guidelines and
policies seriously, and has adopted an Issue
Resolution Policy and a Reporting Misconduct
Policy to ensure that suspected breaches are
reported and acted upon fairly and effectively.
Where a serious breach is found to have
occurred, penalties may be imposed ranging
from counselling to dismissal.
5.2 Reporting Misconduct
Santos is committed to practising high
standards of business conduct and corporate
governance and complying with legal
requirements wherever the Company
operates. See also discussion on the
Code of Conduct above.
A Reporting Misconduct Programme is in place
at Santos, to enable employees to confi dentially
report misconduct without fear of reprisal
or discrimination. Misconduct is defi ned as
non-compliance with laws and regulations and
company policy and procedures. The Reporting
Misconduct Policy is an additional mechanism,
over and above existing reporting and support
avenues. It is expected that, in most
circumstances, the normal channels are used
to report misconduct in the fi rst instance.
An independent hotline is available for
reporting. Matters are investigated without
bias and anyone using the hotline in good
faith will be protected from reprisals and
discrimination and their identity will be
protected (if desired by them or otherwise
required by law).
Santos Annual Report 2009
35
Corporate governance
(continued)
5.3 Guidelines for dealing in securities
The Company has developed specifi c written
guidelines that prohibit Directors and
executives (and their respective associates)
from acquiring, selling or otherwise trading
in the Company’s shares or another company’s
shares, if they possess material price-sensitive
information which is not in the public domain.
Pursuant to these guidelines, no person may
deal in securities while they are in the
possession of price-sensitive information.
In other circumstances, Directors must
provide notice of their intention and receive
acknowledgement from the Chairman or his
representative (and for executives, from the
Company Secretary or a person appointed by
the Board) prior to any dealings in securities
either by themselves or by their associates,
and must promptly notify details following
the dealing.
The Company’s policy is that trading in Santos
securities is permitted, with approval as set
out above, only during the following periods:
• the period commencing two clear days
after the announcement of the Company’s
annual results and ending 1 July; and
• the period commencing two clear days
after the announcement of the Company’s
half-yearly results and ending 1 January.
Directors and executives may not deal in
securities on considerations of a short term
nature. Directors and senior executives are not
permitted to hedge their shareholdings or long
term incentives unless those securities have
fully vested and are no longer subject to
restrictions. Breaches of this policy will be
subject to appropriate sanctions, which could
include disciplinary action or termination
of employment.
5.4 Continuous disclosure and shareholder
communication
The Company is committed to giving all
shareholders timely and equal access to
information concerning the Company.
The Company has developed policies and
procedures in accordance with its commitment
to fulfi lling its obligations to shareholders and
the broader market for continuous disclosure.
These policies establish procedures to ensure
that Directors and Management are aware of
and fulfi l their obligations in relation to the
timely disclosure of material price-sensitive
information. Information must not be
selectively disclosed prior to being announced
to the ASX. Employees must notify their
departmental manager or a designated
Disclosure Offi cer as soon as they become
aware of information that should be considered
for release to the market.
As part of the Company’s continuing education
program and to ensure that all Directors and
employees are aware of their obligations in
relation to continuous disclosure, in 2009, the
Company engaged an external consultant to
conduct a training session with senior executives
of the Company with respect to their continuous
disclosure obligations. This training has
subsequently been rolled out across various
business units of the Company.
When the Company makes an announcement
to the market, that announcement is released
to the ASX. The Company Secretary and Group
Executive Investor Relations are responsible
for communications with the exchanges.
All material information disclosed to the
ASX is posted on the Company’s website at
www.santos.com. This includes ASX
announcements, annual reports, notices of
meetings, CEO briefi ngs, media releases, and
materials presented at investor, media and
analyst briefi ngs. An email alert facility is also
offered to shareholders. Webcasting of material
presentations, including annual and half-yearly
results presentations, is provided for the benefi t
of shareholders, regardless of their location.
The Board is conscious of its obligations to
shareholders and will seek their approval as
required by the Company’s Constitution, the Act
and the ASX Listing Rules, or where otherwise
considered appropriate by the Directors.
Additionally, the Company’s external auditor
attends Annual General Meetings to be
available to answer shareholder questions
relevant to the conduct of the audit.
5.5 Independence of auditors and
non-audit services
The Board has adopted a policy in relation
to the provision of non-audit services by the
Company’s external auditor. The policy ensures
the external auditor’s independence and
impartiality by prescribing that:
• the Board will not invite any past or present
lead audit partner of the fi rm currently
engaged as the Company’s external auditor
to fi ll a vacancy on the Board;
• audit partners who have had signifi cant
roles in the statutory audit will be required
to rotate off the audit after a maximum
of fi ve years and there will be a period
of at least two successive years before
that partner can again be involved in the
Company’s audit; and
• the internal audit function, if outsourced,
will be provided by a fi rm other than the
external audit fi rm. The nature and amount
of non-audit services provided by the
external auditors is detailed on page 47
of the Directors’ Statutory Report,
together with the Directors’ reasons for
being satisfi ed that the provision of those
services did not compromise the auditor
independence requirements of the Act.
The policy requires that services which are
considered to be in confl ict with the role
of statutory auditor are not performed
by the Company’s external auditor and
prescribes the approval process for all
non-audit services where the Company’s
external auditor is used. The Audit Committee
Chairman is responsible for the fi nal approval
of these services.
Non-assurance service work in 2009
represented 4% of the fees paid to the
Company’s external auditor or associates.
A copy of the auditor’s independence
declaration as required under section
307C of the Act is set out on page 149
of the Annual Report.
36
Santos Annual Report 2009
Organisational chart
BOARD COMMITTEES
BOARD OF DIRECTORS
AUDIT
ENVIRONMENT, HEALTH,
SAFETY AND SUSTAINABILITY
FINANCE
NOMINATION
REMUNERATION
CHIEF EXECUTIVE OFFICER
SANTOS LEADERSHIP TEAM
The SLT comprises the CEO and his
direct reports and drives business
strategy and operations
CORPORATE CENTRE
DISCIPLINES
BUSINESS UNITS
Allocate capital and provide
governance and policy
HUMAN RESOURCES
LEGAL, CORPORATE
DEVELOPMENT AND COMMERCIAL
STRATEGY, FINANCE, PUBLIC
AFFAIRS AND COMMUNICATIONS
Provide excellence, service and assurance
Business execution and delivery
EXPLORATION
ASIA
TECHNICAL
(climate change and sustainability,
information technology, logistics and
procurement, drilling, environment,
health and safety)
EASTERN AUSTRALIA
GLNG AND QUEENSLAND
WESTERN AUSTRALIA AND
NORTHERN TERRITORY
Santos Annual Report 2009
37
Santos Group interests
as at 28 February 2010
Licence area % interest
Licence area % interest
Licence area % interest
Note: In South Australia PPL = Petroleum
Production Licence and PL = Pipeline Licence.
In Queensland PPL = Pipeline Licence and PL
= Petroleum Lease.
South Australia
Cooper Basin (Fixed Factor Area)1
(PPLs 6-20, 22-25, 27, 29-33, 35-48,
51-61, 63-70, 72-75, 78-81, 83-84,
86-92, 94-95, 98-111, 113-117, 119,
120, 124, 126-130, 132-135, 137-140,
144-146, 148-151, 153-155, 159-166,
169, 171, 174-181, 184-186, 190, 192,
193, 195, 196, 199, 228 & 230-238)
Cooper Basin (Patchawarra East Block)1
(PPLs 26, 76, 77, 118, 121-123, 125,
131, 136, 142, 147, 152, 156, 158, 167,
182, 187, 191, 197, 201 & 229)
Reg Sprigg West (PPL 194)1
Derrilyn Unit (PPL 206)1
PEL 1141
PL21
PL171
Queensland
South-West Queensland1
ATP 259P
Naccowlah (PLs 23-26, 35, 36, 62,
76-79, 82, 87, 107, 109, 133, 149,
175, 181, 182 & 189, 287)
Total 66 (PLs 34, 37, 63, 68, 75, 84, 88,
110, 129, 130, 134, 140, 142-144, 150,
168, 178, 186, 193, 241, PPL 8 & 14)
Wareena (PLs 113, 114, 141, 145,
148, 153, 157, 158, 187 & 188)
Innamincka (PLs 58, 80, 136, 137,
156 & 159)
Alkina
Aquitaine A
(PLs 86, 131, 146, 177, 208)
Aquitaine B (PLs 59-61, 81, 83, 85, 97,
108, 111, 112, 132, 135, 139, 147, 151,
152, 155, 205, 207, 288)
Aquitaine C (PLs 138 & 154)
50/40/10 (PL 55)
SWQ Unit (PPLs 13, 16-18, 31, 34-40,
46 48, 62, 64-72, 78-82, 84, 86,
94-96, 98, 100, 101, 105 & 113
and in South Australia PLs 5 & 9)
ATP 267P (Nockatunga)
(PLs 33, 50,51, 244 & 245)
66.6
72.3
54.2
65.0
100.0
66.6
100.0
55.5
70.0
61.2
70.0
72.0
52.5
55.0
47.8
60.0
60.0
100.0
ATP 299P(Tintaburra)(PLs 29, 38, 39,
52, 57, 95, 169 & 170, PPLs 109, 110,
111 & 112)
PPL 127 (Tickalara to SA Border)
PPL 128 (Jackson to Tickalara)
ATP 543P (PL117)
ATP 543P S
ATP 636P (Under Application)
ATP 661P (Under Application)
ATP 752P B (Barta)1,2
ATP 752P W (Wompi)1,2
ATP 820P (Under Application)
ATP 765 Farmin (Under Appln)
ATP 766 Farmin (Under Appln)
ATP 820P (Under Application)
Surat Basin
ATP 212P (Major) (PL 56)
ATP 336P (R) – Petronas
(PLs 3-9, 13, 93,309)1
ATP 336P (Roma) (PLs 10, 11 & 12)1
ATP 336P (Waldegrave)
(PLs 10W-12W, 28, 69 & 89)1
ATP 470P (Redcap)
ATP 470P (Formosa Downs)
Boxleigh (PL15 Sublease)1
PL 1 (Moonie)1
PL 1 (2) (Cabawin Exclusion)1
PL 1 (FO) (Cabawin Farm-out)1
PL 2 (A & B) (Kooroon)1
PL 2 (Alton)1
PL 2C (Alton Farm-out)1
PL 5K (Drillsearch)1
PL 5M (Mascotte)1
PL 11 (Snake Creek East)1
PL 12 (Trinidad)1
PL 12 (Oberina)1
PL 21, 22, 27, 64 (Balonne)
PL 17 Upper Stratum Farmin1
PL 30
PL 64 (Cogoon River)
PL 74
PL 71 (Parknook)
PL 195
PL 200 (Spring Gully)
PL 203
PL 204 (Spring Gully)
PL 213 (Churchie West)
ATP 526P (PLs 90,91, 92, 99, 100, 232,
233, 234, 235, 236, PPLs 76 & 92)1
ATP 606P
ATP 631P1
ATP 653P (Arcadia)1
89.0
100.0
100.0
100.0
50.0
100.0
100.0
45.0
25.0
100.0
100.0
100.0
100.0
15.0
60.0
100.0
53.8
10.0
5.5
100.0
100.0
100.0
50.0
52.5
100.0
63.5
25.0
50.0
100.0
100.0
100.0
12.5
100.0
15.0
12.5
15.0
8.0
4.0
2.7
4.0
0.2
16.7
45.6
2.6
81.9
45.6
Bowen Basin
ATP 665P1
ATP 708P (Fairview)1
ATP 745P (Fairview)1
ATP 803P1
ATP 804P1
ATP 868P1
ATP 972P
EPC 9371
ATP 592P
ATP 337P (Mahalo)1
ATP 337P (Denison Trough) (PLs 41-45,
54, 67, 173, 183, 218, PPL10 & PL11)
PL 176 (Scotia)1
ATP 553P (Denison)1
ATP 655P (Taringa)1
ATP 685P (Cockatoo Creek)
Facilities1
Wungoona Processing Facilities (PPL 4)
Moonie to Brisbane Pipeline
Comet Ridge to Wallumbilla Pipeline
(PPL 118)
New South Wales
Gunnedah Basin1,2
PEL 1
PEL 12
PEL 238
PEL 433
PEL 434
PEL 450
PEL 452
PEL 456
PEL 462
Facilities
Wilga Park Power Station
Victoria
Otway Basin
VIC/P441
VIC/RL7 (La Bella)
VIC/L22 (Minerva)
VIC/L24 (Casino)
VIC/L30 (Henry)
Gippsland Basin
VIC/RL3 (Sole)1
VIC/L21 (Patricia-Baleen)1
VICL/25 (Kipper)
VIC/L25 (Kipper Unit)
100.0
100.0
76.2
100.0
70.7
100.0
2.6
100.0
4.0
30.0
50.0
100.0
50.0
100.0
50.0
25.0
100.0
100.0
25.0
25.0
35.0
35.0
35.0
100.0
100.0
25.0
100.0
35.0
50.0
10.0
10.0
50.0
50.0
100.0
100.0
50.0
35.0
38
Santos Annual Report 2009
Licence area % interest
Licence area % interest
Licence area % interest
Offshore Tasmania
Sorell Basin1
T/35P
T/36P3
T/48P
Northern Territory
Amadeus Basin
OL 3 (Palm Valley)
OLs 4 and 5 (Mereenie)1
RL2 (Dingo)1
PL 2 Mereenie Pipeline1
Offshore Northern Australia
Carnarvon Basin
EP 61
EP 62
EP 357
L1H (Barrow Island)
L10
L12 (Crest)
L13 (Crest)
TL/2 (Airlie)
TL/3 (Banta-Triller)
TL/4
TL/7 (Thevenard)
TP/7 (1-2)
TP/7 (3)
TP/7 (4)
TR/4 (Australind)
WA-1-P
WA-4-R (Spar)
WA-8-L (Talisman)
WA-13-L (East Spar)
WA-15-L (Stag)
WA-20-L (Legendre)
WA-26-L (Mutineer)1
WA-27-L (Exeter)1
WA-29-L (John Brookes)
WA-33-R (Maitland)
WA-41-L (Reindeer)
WA-191-P (Mutineer-Exeter)1
WA-208-P1
WA-209-P
WA-214-P (John Brookes)
WA-246-P
WA-358-P
WA-264-P1
WA-290-P
Browse Basin1
WA-274-P
WA-281-P
WA-410-P
WA-411-P
37.5
50.0
100.0
Bonaparte Basin1
NT/RL1 (Petrel)
WA-6-R (Petrel West)
WA-18-P (Tern)
WA-27-R (Tern)
Timor Sea
AC/L1 (Jabiru)
AC/L2 (Challis)
AC/L3 (Cassini)
NT/P48 (Evans Shoal)
NT/P61
NT/P69
Timor Gap
JPDA 03-12
Bayu-Undan Gas Field
Bangladesh
Block 16
Sangu Development Area
Egypt1,3
South East July
India1
NEC-DWN-2004/1
NEC-DWN-2004/2
Indonesia
East Java Basin1
Madura Offshore (Maleo)
Sampang (Oyong)
Kutei Basin
Donggala1,3
Papalang
Popodi
West Papua Basin
Warim
48.0
65.0
65.7
65.0
28.6
28.6
35.7
28.6
28.6
35.7
35.7
15.0
28.6
35.7
35.7
43.7
63.4
18.7
35.7
22.6
100.0
37.4
45.0
66.7
22.6
33.4
33.4
45.0
18.7
45.0
33.4
31.3
45.0
45.0
15.0
60.0
50.0
15.0
30.0
47.8
30.0
63.6
95.0
95.0
100.0
100.0
10.3
10.3
10.3
40.0
40.0
40.0
19.4
11.4
50.0
37.5
40.03
Kyrgyzstan4
Closed Joint Stock Company South
Petroleum Company (SPC)
The Santos Group holds a 70% equity interest
in SPC which is the legal and benefi cial
holder of the following exploration licences:
Tuzluk, Soh, West Soh, Nuashkent, Nanai.
Closed Joint Stock Company KNG
Hydrocarbons (KNG HC)
The Santos Group holds a 75% equity interest
in Zhibek Resources Limited (English company)
which in turn owns 72% of KNG HC (Kyrgyz
company), which is the legal and benefi cial
holder of the Tashkumyr and Pishkoran
exploration licences.
Papua New Guinea
PDL 1 (Hides)
PDL 31
PRL 51,3
PRL 91
SE Gobe Unit (Unitisation of PDLs 3 & 4)
Vietnam
Block 101-100/041,5
12W
Block 1231
1 Santos operated.
24.0
15.9
50.3
42.6
9.4
55.0
31.9
50.0
2 Subject to Farmin commitments.
100.0
100.0
3 Disposal of entire interest is near completion and
is only subject to fi nal Governmental approval,
which is expected shortly.
4 Some of the Kyrgyzstan licenses are in the process of being
renewed or extended and are awaiting Government approval.
5 Santos has executed a conditional farmout agreement
which provides for a reduction in Santos’ % interest
to 27.5 and a transfer of operatorship.
67.5
45.0
00.0
20.0
20.0
20.0
Santos Annual Report 2009
39
10-year summary
As at 31 December 2009
2000
2001
2002
2003
2004
2005
2006
2007
2008
Santos average realised oil price (A$/bbl)
46.54
45.53
44.74
43.59
51.83
73.83
89.35
92.00
117.45
2009
78.83
Financial performance ($million)
Product sales revenue
Total revenue*
1,497.1 1,459.7 1,478.4 1,465.0 1,500.9 2,462.8 2,750.3 2,488.5 2,761.8 2,180.5
1,537.1 1,501.9 1,518.5 1,486.3 1,526.4 2,491.8 2,779.3 2,518.0 2,805.0 2,250.5
Foreign currency gains/(losses)***
2.7
0.2
(0.7)
(7.9)
2.6
(3.8)
0.8
0.4
24.4
(28.3)
Profi t from ordinary activities before tax***
725.9
627.6
493.3
430.9
518.8 1,133.5
964.7
718.6 2,533.2
Income tax relating to ordinary activities***
239.1
181.7
171.2
103.9
164.1
371.4
321.3
195.7
768.4
486.8
445.9
322.1
327.0
354.7
762.1
643.4
359.3 1,650.1
163.6
114.7
716.5
204.6
78.4
433.5
Royalty related taxes**
Net profi t after income tax attributable
to the shareholders of Santos Ltd***
Financial position ($million)
Total assets***
Net debt (cash)***
Total equity***
Reserves and production (mmboe)
Proven plus Probable reserves (2P)
Production
Exploration****
Wells drilled (number)
Expenditure ($million)
Other capital expenditure ($million)
4,659.8 5,048.7 5,320.8 5,218.3 4,836.6 6,191.3 6,902.9 7,320.2 9,801.9 11,361.0
866.6 1,060.8 1,162.9
897.6 1,133.3 1,598.9 1,449.7 1,838.7
506.0 (605.4)
2,310.9 2,726.6 2,863.9 3,087.9 2,357.8 2,964.0 3,355.5 3,093.1 4,478.3 6,967.1
921
56.0
724
55.7
732
57.3
636
54.2
643
47.1
774
56.0
819
61.0
879
1,013
1,440
59.1
54.4
54.4
42
26
18
19
16
22
25
10
13
6
100.1
93.4
133.1
136.4
125.6
187.0
258.5
149.8
233.1
181.0
Delineation and development****
187.1
308.1
308.8
519.0
672.7
666.1
865.5
954.6 1,290.3 1,203.8
Buildings, plant and equipment
153.5
258.7
319.0
94.9
131.1
106.0
182.1
202.2
105.1
172.2
40
Santos Annual Report 2009
As at 31 December
Share information
Share issues
Number of issued ordinary shares
at year end (million)
Weighted average number
of ordinary shares (million)
Dividends per ordinary share
- ordinary (¢)
- special (¢)
Dividends
- ordinary ($million)
- special ($million)
Number of issued preference
shares at year end (million)
Dividends per preference share
- ordinary ($)
- special ($)
Dividends
- ordinary ($million)
- special ($million)
Earnings per share (¢)***
Return on total revenue (%)*
Return on average ordinary
equity (%)***
Return on average capital
employed (%)***
Net debt/(net debt + equity)
(%)***
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options/
Restricted
Shares
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options/
Share Buy-
Back/
Schemes of
Arrangement
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan
Employee
Share plan/
Executive
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options/
Preference
Share
Buy-Back/
Issue of
FUELS/
Convertible
Preference
Shares
Employee
Share Plan/
Executive
Share Plan/
Non-executive
Director
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan/
Buy Back
Employee
Share Plan/
Executive
Share Plan/
Non-executive
Director
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan/
Buy Back
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan/2 for 5
Rights Issue/
Redemption
of FUELS/
Convertible
Preference
Shares
610.4
579.3
583.1
584.7
585.7
594.4
598.5
586.1
584.9
831.9
658.9
662.9
629.2
631.9
633.5
636.8
645.8
639.6
639.8
779.2
30.0
-
182.0
-
-
-
-
-
-
73.9
31.7
22.3
30.0
10
184.2
61.2
3.5
-
-
-
-
67.3
29.7
19.0
30.0
-
30.0
-
30.0
-
36.0
-
40.0
-
40.0
-
42.0
-
42.0
-
174.2
-
3.5
175.0
-
3.5
175.5
-
6.0
5.4
-
18.9
-
48.2
21.2
12.4
6.6
-
23.0
-
48.1
22.0
11.6
6.6
5.0
23.0
14.3
50.1
23.2
18.6
212.4
-
6.0
5.1
-
30.6
-
114.9
30.6
35.5
238.1
-
235.1
-
248.3
6.0
6.0
6.0
299.4
-
-
5.1
-
30.4
-
94.9
23.1
23.9
5.6
-
33.5
-
50.9
14.3
12.4
6.3
-
38.0
251.9
58.8
50.6
4.6
-
27.7
-
52.1
19.3
7.5
16.5
13.9
8.9
8.8
11.7
19.8
15.1
9.0
34.1
7.3
27.3
28.0
28.9
22.5
32.5
35.0
30.2
37.3
10.2
(9.5)
Net interest cover (times)***
9.1
9.7
8.1
8.5
9.1
14.9
10.1
7.4
38.5
(45.4)
General
Number of employees
(excluding contractors)
1,631
1,713
1,737
1,700
1,526
1,521
1,679
1,786
1,940
2,096
Number of shareholders
76,457
86,472
85,888
84,327
78,976
78,157
83,566
77,498
78,933 107,138
Market capitalisation ($million)
3,670
3,589
3,509
4,017
4,965
7,280
5,907
8,274
8,696 11,721
Netback
-
-
18.9
18.4
19.8
29.5
32.9
32.9
35.9
22.9
*From 2005, ‘Total operating revenue’ has been reclassifi ed to ‘Total revenue’ and prior year amounts have been restated.
**From 2007, ‘Royalty related taxes’ have been accounted for as a tax.
***From 2004 amounts refl ect IFRS. Prior year amounts refl ect AAGAP and have not been restated.
****From 2001, appraisal, near fi eld exploration wells and CSG expenditure have been reclassifi ed from exploration to delineation expenditure. Prior year amounts have not been restated.
Santos Annual Report 2009
41
Financial Report
DIRECTORS’ STATUTORY REPORT
REMUNERATION IN BRIEF
REMUNERATION REPORT
FINANCIAL REPORT
INCOME STATEMENTS
STATEMENTS OF COMPREHENSIVE INCOME
STATEMENTS OF FINANCIAL POSITION
STATEMENTS OF CASH FLOWS
STATEMENTS OF CHANGES IN EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Signifi cant Accounting Policies
2 Segment Information
3 Revenue and Other Income
4 Expenses
5 Earnings
6 Net Financing Costs
7 Taxation Expense
8 Cash and Cash Equivalents
9 Trade and Other Receivables
10 Inventories
11 Other Financial Assets
12 Available-For-Sale Financial Assets
13 Exploration and Evaluation Assets
14 Oil and Gas Assets
15 Other Land, Buildings, Plant and Equipment
16 Impairment of Cash-Generating Units
17 Deferred Tax Assets and Liabilities
18 Trade and Other Payables
19 Interest-Bearing Loans and Borrowings
20 Provisions
21 Other Liabilities
22 Capital and Reserves
23 Earnings per Share
24 Consolidated Entities
25 Acquisitions of Subsidiaries
26 Disposal of Subsidiaries
27 Investment in an Associate
28 Interests in Joint Ventures
29 Notes to the Statements of Cash Flows
30 Employee Benefi ts
31 Share-Based Payment Plans
32 Key Management Personnel Disclosures
33 Related Parties
34 Remuneration of Auditors
35 Commitments for Expenditure
36 Contingent Liabilities
37 Deed of Cross Guarantee
38 Financial Risk Management
39 Events After the End of the Reporting Period
DIRECTORS’ DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
INDEPENDENT AUDIT REPORT
42
50
52
70
71
72
73
74
75
89
91
92
93
93
94
95
95
96
96
96
97
98
100
101
102
103
103
106
107
107
110
111
112
113
113
114
115
116
119
129
134
134
135
137
138
142
147
148
149
150
42
Santos Annual Report 2009
Directors’ Statutory Report
The Directors present their report together with the fi nancial report of Santos Limited (Santos or the Company) and the consolidated fi nancial
report of the consolidated entity, being the Company and its controlled entities, for the fi nancial year ended 31 December 2009, and the
auditor’s report thereon. Information in the Annual Report referred to by page number in this report, including the Remuneration Report,
or contained in a Note to the fi nancial statements referred to in this report is to be read as part of this report.
DIRECTORS, DIRECTORS’ SHAREHOLDINGS AND DIRECTORS’ MEETINGS
Directors’ Shareholdings
The names of Directors of the Company in offi ce 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
Borda
Coates
Dean
Franklin
Harding
Hemstritch
Knox
Martin
Other Names
Kenneth Charles
Peter Roland
Kenneth Alfred
Roy Alexander
Richard Michael
Jane Sharman
David John Wissler
Gregory John Walton
Shareholdings in Santos Ltd Ordinary Shares
67,308
19,714
11,638
–
2,441
14,000
3,550
3,250
The above named Directors held offi ce during and since the end of the fi nancial year, except for Mr GJW Martin, who was appointed a Director
of the Company on 29 October 2009, and Ms JS Hemstritch, who was appointed on 16 February 2010.
Professor J Sloan held offi ce as a Director of the Company until her retirement on 6 May 2009. Mr S Gerlach held offi ce as Chairman of the
Board until 9 December 2009 and as a Director of the Company until his retirement on 31 December 2009.
All shareholdings are of fully paid ordinary shares.
At the date of this report, Mr DJW Knox holds 544,974 options and 186,779 share acquisition rights (SARs) under the Santos Executive Share
Option Plan and Santos Employee Share Purchase Plan, respectively, and subject to the further terms described in Note 31 to the fi nancial
statements. Details of the options and SARs granted to Mr Knox during the year are set out in the Remuneration Report on page 52.
Details of the qualifi cations, experience and special responsibilities of each Director and the Company Secretary are set out on the Directors’
and Executives’ biography pages of the Annual Report. This information includes details of other directorships held during the last three years.
Santos Annual Report 2009
43
Directors’ Statutory Report
(continued)
Directors’ Meetings
The number of Directors’ Meetings and meetings of committees of Directors held during the fi nancial year and the number of meetings attended
by each Director are as follows:
Surname
Other Names
Directors’
Meetings2
Audit
Committee
Environment,
Health,
Safety and
Sustainability
Committee
Remuneration
Committee
Finance
Committee
Nomination
Committee
No. of
Mtgs
Held1
No. of
Mtgs
Attended
No. of
Mtgs
Held1
No. of
Mtgs
Attended
No. of
Mtgs
Held1
No. of
Mtgs
Attended
No. of
Mtgs
Held1
No. of
Mtgs
Attended
No. of
Mtgs
Held1
No. of
Mtgs
Attended
No. of
Mtgs
Held1
No. of
Mtgs
Attended
Borda
Coates
Dean
Kenneth Charles
Peter Roland
Kenneth Alfred
Franklin
Roy Alexander
Gerlach
Stephen
Harding
Richard Michael
Knox
Martin
Sloan
David John Wissler
Gregory John Walton
Judith
12
12
12
12
12
12
12
2
3
12
12
12
12
12
10
12
2
3
-
4
4
-
-
4
-
-
-
-
4
4
-
-
4
-
-
-
-
-
-
4
4
4
4
-
-
-
-
-
4
4
4
4
-
-
-
4
-
-
4
4
-
-
-
-
4
-
-
4
4
-
-
-
5
-
5
-
5
-
-
-
-
5
-
5
-
5
-
-
-
-
-
2
-
-
3
3
-
-
1
-
2
-
-
3
3
-
-
1
1 Refl ects the number of meetings held during the time the Director held offi ce, or was a member of the Committee, during the year.
2 In addition to formal meetings, the Board participated in a site visit to Jakarta and the Oyong fi eld in Indonesia.
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 in the Corporate Governance Statement in the Annual Report.
PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during the fi nancial year were: petroleum exploration, the production, treatment
and marketing of natural gas, crude oil, condensate, naphtha, liquid petroleum gas, and the transportation by pipeline of crude oil.
No signifi cant change in the nature of these activities has occurred during the year.
REVIEW AND RESULTS OF OPERATIONS
A detailed review of the operations of the consolidated entity during the fi nancial year, the results of those operations and the fi nancial
position of the consolidated entity as at the end of the fi nancial year is contained in the reports by the Chairman, Chief Executive Offi cer
and Chief Financial Offi cer in the Annual Report. Further details regarding the operations, results and business strategies of the consolidated
entity appear in the Annual Report.
In summary, the consolidated net profi t of $434 million after tax for the year ended 31 December 2009 is $1.2 billion or 74% lower than
the net profi t for 2008, which included a $1.2 billion profi t from the sale of a 40% interest in the GLNG project to PETRONAS.
The 2009 result includes profi ts of $180 million after tax from asset sales. The sale of 60% of the Petrel, Tern and Frigate fi elds to GDF SUEZ
announced in August 2009 contributed $139 million of this amount.
Underlying net profi t after tax in 2009 of $257 million was 53% lower than the prior year. Sales revenue of $2,181 million was down
$581 million or 21% from 2008, mainly due to lower international crude oil, condensate and LPG prices, which had a signifi cant impact
on the underlying 2009 result.
44
Santos Annual Report 2009
Total revenue for the Eastern Australia segment was $1,082 million, an 18% decrease from the 2008 result of $1,319 million. The Western
Australia and Northern Territory segment recorded a total revenue decline of 23% from 2008 to $864 million. The Asia-Pacifi c segment
recorded a total revenue decline of 31% from 2008 to $167 million and the Gladstone LNG segment recorded a 25% growth in total revenue
to $141 million from 2008.
Total production of 54.4 million barrels of oil equivalent (mmboe) remained the same as 2008 production. Natural fi eld decline, asset sales
and unscheduled downtime were offset by increased production contributions from the John Brookes, Maleo, Sampang and Fairview fi elds.
NET PROFIT
The 2009 net profi t of $434 million is $1,216 million lower than in 2008 and includes the net profi t/(loss) items before tax of $197 million
(after tax $177 million), referred to below.
Underlying Profit Table1
The following amounts are included in the calculation of underlying profi t for the year ending 31 December:
Underlying profit
Net gains/(losses) on sales and impairment losses
Foreign currency gains/(losses)
Fair value adjustments on embedded derivatives and hedges
Remediation costs and contract losses, net of related insurance recoveries
Investment allowances, capital losses and other tax adjustments
Net profit after tax (NPAT)
2009 $million
2008 $million
Gross
Tax
effect
211
(28)
10
4
-
(48)
7
(4)
(2)
27
197
(20)
Net
257
163
(21)
6
2
27
177
434
Gross
Tax
effect
Net
548
1,481
(433)
1,048
24
(5)
4
-
(6)
2
7
28
1,504
(402)
182
(3)2
11
28
1,102
1,650
1
This table has been prepared in accordance with the AICD/Finsia principles for reporting underlying profi t.
2 Adjustment to prior year to ensure comparability with current year.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The Directors consider that matters or circumstances that have signifi cantly affected, or may signifi cantly affect, the operations, results
of operations or the state of affairs of the Company in subsequent fi nancial years are:
• the approval of the Papua New Guinea liquefi ed natural gas (PNG LNG) project in December 2009, marking the next step in the delivery
of Santos’ transformational LNG growth strategy. Santos has a 13.5% interest in the 6.6 million tonne per annum (mtpa) PNG LNG project.
First LNG is expected in 2014;
• the Gladstone LNG (GLNG®) project signed a binding Heads of Agreement in July 2009 to sell 2 mtpa of LNG to PETRONAS with an option
for an additional 1 mtpa;
• the acquisition in July 2009 of signifi cant additional acreage in the Gunnedah Basin in northern New South Wales and an investment
in leading local coal seam gas company Eastern Star Gas Limited; and
• Santos announced a strategic partnership with GDF SUEZ, one of the world’s leading LNG companies, to develop a fl oating LNG project
in the Bonaparte Basin offshore northern Australia. Santos sold a 60% interest in the Petrel, Tern and Frigate gas fi elds to GDF SUEZ
for US$200 million. GDF SUEZ will lead the development of a 2 mtpa fl oating LNG project. GDF SUEZ will carry Santos’ share of pre-front
end engineering design (FEED) and FEED costs and make an additional payment of US$170 million upon a fi nal investment decision
of the project.
Santos Annual Report 2009
45
Directors’ Statutory Report
(continued)
DIVIDENDS
On 18 February 2010, the Directors resolved to pay a fully franked fi nal dividend of 20 cents per fully paid ordinary share on 31 March 2010 to
shareholders registered in the books of the Company at the close of business on 2 March 2010. This fi nal dividend amounts to approximately
$166 million.
A fully franked fi nal dividend of $117 million (20 cents per fully paid ordinary share) was paid on 31 March 2009 on the 2008 results.
Indication of this dividend payment was disclosed in the 2008 Annual Report. In addition, a fully franked interim dividend of $182 million
(22 cents per fully paid ordinary share) was paid to members on 30 September 2009.
In accordance with the Terms of Issue, a fully franked fi nal dividend of $2.9989 per Franked Unsecured Equity Listed Security amounting
to approximately $18 million was paid on 31 March 2009. Indication of this dividend payment was disclosed in the 2008 Annual Report.
A fully franked interim dividend of $1.6191 per Franked Unsecured Equity Listed Securities amounting to approximately $10 million was
paid on 30 September 2009.
ENVIRONMENTAL REGULATION
The consolidated entity’s Australian operations are subject to various environmental regulations under Commonwealth, State and Territory
legislation. Applicable legislation and requisite environmental licences are specifi ed in the entity’s EHS Compliance Database, which forms 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 fi nancial year, the consolidated entity did not receive any fi nes and was not subject to prosecution or other enforcement action
in respect of applicable environmental regulations or environmental protection legislation, except as set out below:
• on 15 January 2009, the Queensland Environmental Protection Agency issued an Infringement Notice under the Environmental Protection
Act 1994 (Qld) and imposed a $2,000 penalty for unauthorised vegetation clearance on the proposed GLNG plant site on Curtis Island.
The Company had earlier reported the vegetation clearance (which was carried out by its geotechnical contractors) to the Agency as a
potential non-compliance matter. No criminal conviction was recorded against the Company and appropriate corrective measures have
been taken to preclude a re-occurrence; and
• hydrocarbons were identifi ed in the groundwater at Port Bonython during routine quality testing undertaken in April 2009. An extensive and
thorough source identifi cation program has been undertaken, and recovery and remediation plans have been fi nalised following endorsement
by an independent third party auditor. Communications with the regulator, the South Australian Environment Protection Authority, have
been ongoing and actions have been incorporated into site environmental licence conditions. In September 2009, the Authority notifi ed the
Company of its intention to conduct a formal investigation to determine what, if any, breaches of the Environment Protection Act 1993 (SA)
may have occurred and what enforcement action should be taken if a breach is determined.
EVENTS SUBSEQUENT TO BALANCE DATE
Except as mentioned below, in the opinion of the Directors there has not arisen in the interval between the end of the fi nancial year and the
date of this report any matter or circumstance that has signifi cantly affected or may signifi cantly affect the operations of the consolidated
entity, the results of those operations or the state of affairs of the consolidated entity in future fi nancial years.
Dividends declared after 31 December 2009 are set out above and in Note 22 to the fi nancial statements.
LIKELY DEVELOPMENTS
Certain likely developments in the operations of the consolidated entity and the expected results of those operations in future fi nancial
years are referred to in the reports in the Annual Report by the Chairman, Chief Executive Offi cer and Chief Financial Offi cer.
Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in
future fi nancial 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. Further details regarding likely developments appear in the individual reports providing more detailed
discussion of business activities and outlook in the Annual Report.
46
Santos Annual Report 2009
DIRECTORS’ AND SENIOR EXECUTIVES’ REMUNERATION
Details of the Company’s remuneration policies and the nature and amount of the remuneration of the Directors and senior
management (including shares, options and SARs granted during the fi nancial year) are set out in the Remuneration Report
commencing on page 52 of this report.
INDEMNIFICATION
Rule 61 of the Company’s Constitution provides that the Company indemnifi es, on a full indemnity basis and to the full extent
permitted by law, offi cers of the Company for all losses or liabilities incurred by the person as an offi cer of the Company, a related
body corporate or trustee of a company-sponsored superannuation fund. Rule 61 does not indemnify an offi cer for any liability
involving a lack of good faith.
Rule 61 also permits the Company to purchase and maintain a Directors’ and Offi cers’ insurance policy. No indemnity has been
granted to an auditor of the Company in their capacity as auditor of the Company.
In conformity with Rule 61, the Company is party to Deeds of Indemnity in favour of each of the Directors referred to in this report
who held offi ce during the year and certain senior executives of the consolidated entity. The indemnities operate to the full extent
permitted by law and are not subject to a monetary limit. Santos is not aware of any liability having arisen, and no claims have
been made, during or since the fi nancial year under the Deeds of Indemnity.
During the year, the Company paid premiums in respect of Directors’ and Offi cers’ Liability and Legal Expenses insurance contracts
for the year ending 31 December 2009 and since the end of the year the Company has paid, or agreed to pay, premiums in respect
of such contracts for the year ending 31 December 2010. The insurance contracts insure against certain liability (subject to
exclusions) persons who are or have been directors or offi cers of the Company and its controlled entities. A condition of the
contracts is that the nature of the liability indemnifi ed and the premium payable not be disclosed.
NON-AUDIT SERVICES
During the year the Company’s auditor, Ernst & Young, was paid the following amounts in relation to non-audit services it provided:
Taxation services
Assurance services
Other services
$73,000
$533,000
$4,000
The Directors are satisfi ed, based on the advice of the Audit Committee, that the provision of the non-audit services detailed above
by Ernst & Young is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth).
The reason for forming this opinion is that all non-audit services have been reviewed by the audit committee to ensure they do not
impact the impartiality and objectivity of the auditor.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 (Cth) is set out on
page 149 of the Annual Report.
Santos Annual Report 2009
47
Directors’ Statutory Report
(continued)
SHARES UNDER OPTION AND UNVESTED SARS
Options
Unissued ordinary shares of Santos Limited under option at the date of this report are as follows:
Date options granted
23 May 2005
23 May 2005
24 October 2006
4 May 2006
1 July 2007
1 July 2007
3 September 2007
3 May 2008
3 May 2008
28 July 2008
28 July 2008
28 July 2008
2 March 2009
2 March 2009
Expiry date
22 May 2015
22 May 2015
24 October 2016
3 May 2016
30 June 2017
30 June 2017
2 September 2017
2 May 2018
2 May 2018
27 July 2018
27 July 2018
27 July 2018
2 March 2019
2 March 2019
Issue price of shares1
Number under option
$8.46
$8.46
$10.48
$11.36
$14.14
$14.14
$12.81
$15.39
$15.39
$17.36
$17.36
$17.36
$14.81
$14.81
8,350
77,100
435,800
2,500,000
225,968
59,800
100,000
641,791
281,573
94,193
131,976
131,976
207,988
67,896
4,964,411
1
This is the exercise price payable by the option holder.
Options do not confer an entitlement to participate in a bonus or rights issue, prior to the exercise of the option.
SARs
Unissued ordinary shares of Santos Limited under unvested SARs at the date of this report are as follows:
Date SARs granted
6 August 2007
18 December 2007
6 August 2007
23 June 2008
4 August 2008
4 August 2008
4 August 2008
23 June 2008
2 March 2009
2 March 2009
2 March 2009
48
Santos Annual Report 2009
Number of shares under unvested SARs
331,500
50,000
319,700
131,119
35,973
50,403
50,403
71,625
399,516
170,621
114,377
1,725,237
No amount is payable on the vesting of SARs.
SARs do not confer an entitlement to participate in a bonus or rights issue, prior to the vesting of the SAR.
Further details regarding the SARs (including when they will lapse) are contained in the Remuneration Report commencing on page 52
of this report.
SHARES ISSUED ON THE EXERCISE OF OPTIONS AND ON THE VESTING OF SARS
Options
The following ordinary shares of Santos Limited were issued during the year ended 31 December 2009 on the exercise of options granted
under the Santos Executive Share Option Plan. No further shares have been issued since then on the exercise of options granted under
the Santos Executive Share Option Plan. No amounts are unpaid on any of the shares.
Date options granted
Issue price of shares
Number of shares issued
15 June 2004
23 May 2005
23 May 2005
24 October 2006
SARS
$6.95
$8.46
$8.46
$10.48
50,000
14,500
82,350
280,200
427,050
The following ordinary shares of Santos Limited were issued during the year ended 31 December 2009 on the vesting of SARs granted under
the Santos Employee Share Purchase Plan. No further shares have been issued since then on the vesting of SARs granted under the Santos
Employee Share Purchase Plan. No amount is payable on the vesting of SARs and accordingly no amounts are unpaid on any of the shares.
Date SARs granted
8 December 2006
6 August 2007
6 August 2007
23 June 2008
23 June 2008
2 March 2009
2 March 2009
ROUNDING
Number of shares issued
249,000
20,414
17,787
9,917
4,178
579
1,210
303,085
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 18 February 2010 in accordance with a resolution of the Directors.
Director
2010
Director
2010
Santos Annual Report 2009
49
Remuneration in Brief
This Remuneration in Brief is an addition to Santos Limited’s (Santos or the Company) reporting framework, which describes Santos’
remuneration in a clear and transparent manner. The Remuneration in Brief outlines the key remuneration decisions made by the Company
in 2009, and discloses the actual amount of remuneration paid to the Company’s senior executives.
It should be read in conjunction with the Remuneration Report on pages 52 to 69, which provides disclosure of the remuneration framework
of the Company in accordance with statutory obligations and accounting standards.
KEY REMUNERATION DRIVERS AND ACTIONS IN 2009
Exercising restraint
The Company’s remuneration practices in 2009 were commensurate with the business conditions resulting from the economic downturn.
Accordingly:
• there was no increase to the Managing Director and Chief Executive Offi cer’s (CEO) remuneration, which was set on 28 July 2008;
• except for adjustments due to changes in roles and responsibilities and other exceptional reasons, pay was frozen in 2009 at April 2008
levels for Senior Executives and Australian non-award employees;
• there was no increase to non-executive Directors’ fees, which were last adjusted on 1 July 2008;
• allowances paid to fi eld-based employees, normally adjusted annually by the infl ation rate, were frozen.
These measures resulted in cash savings in excess of $10 million, and were among the most decisive among employers in the Australian
exploration and production industry.
Rewarding strong performance
While exercising restraint in respect of pay increases, the Board upheld the principle of rewarding performance and the delivery of
shareholder value.
First, strong achievement against short-term objectives set for the Company in 2009 was recognised through the payment of a short-term
incentive at 80% of maximum. Determination of the payout percentage was based on a focused set of performance measures and delivery
of strategic milestones, including the Company’s profi tability in 2009.
Secondly, there was full vesting of the long-term incentive grant covering the 2007–2009 period, during which Santos’ Total Shareholder
Return of 69.6%, or 19.3% per annum compound, was in the top 12% of the comparator group of Australian and international exploration
and production companies.
The external environment
In setting and reviewing its remuneration arrangements, Santos has regard to the external environment, including market practice and
prevailing regulatory and governance standards.
During 2009, Santos participated in various general and industry-specifi c remuneration surveys, as well as a review of the performance of its
outsourced superannuation arrangements.
In addition, the Company actively monitored the tax, regulatory and governance activities which impacted remuneration in 2009, in particular
the Productivity Commission’s inquiry into Executive Remuneration. In reviewing its approach to remuneration, Santos’ aim was to maintain
a responsible and measured approach to remuneration, while ensuring that the Company continued to be able to secure the skills it needs for
project delivery in an exploration and production labour market that, after a brief hiatus in 2009, has rebounded to pre-downturn buoyancy.
50
Santos Annual Report 2009
Remuneration outcomes for the CEO and Senior Executives
The remuneration values for the CEO and Senior Executives, contained on pages 57 and 63 of the Remuneration Report, are calculated in
accordance with statutory obligations and accounting standards, and are theoretical.
To make the information more meaningful to shareholders, the following table discloses the actual “dollar value” of remuneration received by
the Company’s CEO and Senior Executives during 2009 in a clear and concise way (including prior year awards where the executive “realised”
value from these awards in 2009).
DJW Knox
Managing Director and Chief Executive Offi cer
JH Anderson
Vice President Western Australia and Northern Territory
JL Baulderstone
Vice President Corporate Development and Legal,
Company Secretary and General Counsel
MEJ Eames
Vice President Asia Pacifi c
MS Macfarlane
Vice President Eastern Australia
PC Wasow
Chief Financial Offi cer and Executive Vice President
RJ Wilkinson
President GLNG and Queensland
Fixed
remuneration1
STI2
$1,750,000
$1,400,000
$540,000
$223,800
$546,063
$254,000
LTI3
$0
$0
$0
$621,860
$258,000
$266,660
$532,460
$199,600
$0
$1,000,000
$562,300
$308,200
Other4
Total
$500,0005
$3,650,000
$22,435
$786,235
-
-
-
-
$800,063
$1,146,520
$732,060
$1,870,500
$559,801
$232,000
$217,080
$16,800
$1,025,681
1
2
3
Comprising base salary and superannuation.
This fi gure represents the amount of the short-term incentive or bonus paid to the executive for 2009 performance. For further details of the Company’s short-term incentive program,
please see pages 55 and 59 of the Remuneration Report.
This fi gure represents the value of vested Share Acquisition Rights (SARs), which vested in 2009 based on the closing share price of $13.40 on the date of vesting (23 January 2009)
and options that were exercised (if any) in 2009 based on the difference between the exercise price and the closing share price on the date of exercise. No options were exercised by
the Senior Executives in 2009. Although shares allocated under Share Acquisition Rights are subject to a further restriction on dealing of up to 10 years after the grant date and can
be forfeited for misconduct, their full value is included here. For further details of the Company’s LTI program, please see pages 56 to 57 and 59 to 62 of the Remuneration Report.
4
Comprised of ad hoc payments treated as remuneration such as relocation allowance.
5 Mr Knox received a once-only retention bonus for continued employment between 25 March 2008, the date of his appointment as Acting Chief Executive Offi cer, and 25 March 2009.
Santos Annual Report 2009
51
Remuneration Report
The Directors of Santos Limited (Santos or the Company) present this Remuneration Report for the Company and its controlled entities
for the year ended 31 December 2009. The information provided in the Remuneration Report has been audited as required by section 308(3C)
of the Corporations Act 2001 (Cth). The Remuneration Report forms part of the Directors’ Statutory Report.
The Remuneration Report sets out remuneration information pertaining to the Company’s Directors and Senior Executives, who are the key
management personnel of the consolidated entity for the purposes of the Corporations Act and the Accounting Standards. They include the
fi ve highest remunerated executives of the Company and Group for the 2009 fi nancial year, and are listed in Table 1 below.
Table 1: Directors and Senior Executives
Executive
Name
DJW Knox
Position
Non-Executive
Name
Position
Managing Director and Chief Executive Offi cer
PR Coates
Deputy Chairman
(Chairman from 9 December 2009)
JH Anderson
Vice President Western Australia
and Northern Territory
KC Borda
Director
JL Baulderstone
Vice President Corporate Development and
Legal, Company Secretary and General Counsel
KA Dean
Director
MEJ Eames
Vice President Asia-Pacifi c
MS Macfarlane
Vice President Eastern Australia
PC Wasow
Chief Financial Offi cer and
Executive Vice President
RJ Wilkinson
President GLNG and Queensland
1 Appointed 29 October 2009.
2 Retired 31 December 2009.
3 Retired 6 May 2009.
RA Franklin
RM Harding
GJW Martin
Former
S Gerlach
J Sloan
Director
Director
Director1
Chairman (until 8 December 2009)2
Director3
52
Santos Annual Report 2009
Senior Executive Remuneration
REMUNERATION POLICY
The diagram below shows the key objectives of Santos’ remuneration policy for Senior Executives and how these are implemented through
the Company’s remuneration framework.
ATTRACTING AND
RETAINING TALENTED,
QUALIFIED EXECUTIVES
ENCOURAGING EXECUTIVES
TO STRIVE FOR SUPERIOR
PERFORMANCE
ALIGNING EXECUTIVE AND
SHAREHOLDER INTERESTS
• Remuneration levels are market-
aligned against similar roles
in comparable companies.
• Individual performance targets
determine 30% of the short-term
incentive award for Senior
Executives.
• The deferred component of the
long-term incentive plan promotes
retention and rewards loyalty.
• A signifi cant component of
• The long-term incentive
remuneration is “at risk” under
short-term and long-term incentive
plans. Value to the executive
is dependent on meeting
challenging targets.
• Consistently high-performing
executives are also rewarded
through higher base remuneration.
component of remuneration
is delivered through equity
instruments linked to Santos
ordinary shares.
• Vesting of performance-based
long-term incentive awards is
contingent on delivery of superior
shareholder returns.
• Executives cannot hedge equity
instruments that are unvested
or subject to restrictions.
Santos Annual Report 2009
53
Remuneration Report
(continued)
LINKING REMUNERATION STRUCTURES TO CORPORATE OBJECTIVES
Santos’ executive remuneration structures support the Company’s vision to be a leading energy company for Australia and Asia. The diagram
below highlights the links between the Company’s remuneration systems and its corporate objectives.
Santos Corporate
objective
Link to
remuneration
structures
Examples of
measures used
to reinforce link
DELIVERING THE
BASE BUSINESS
TAPPING OUR
RESOURCE RICHES
BEING A GREAT, SAFE
PLACE TO WORK
Senior Executives
with oversight of the
existing base businesses
are rewarded for
delivering sustained
performance and growth
in core operations.
• Individual
performance
measures for
relevant executives
are linked to
delivery of strategic
milestones and
performance targets.
• Financial key
performance
indicators for Senior
Executives under the
short-term incentive
plan include safety
and environmental
performance
production, profi t,
cash fl ow, capital
invested, reserve
growth and reserve
replacement cost.
Performance measures
for Senior Executives
in strategic roles and
growth businesses are
linked to delivery of
growth targets.
Remuneration
frameworks reward
collaboration and
reinforce safety as a
priority for employees
at all levels.
• Short-term incentive
measures for Senior
Executives are
weighted towards
overall company
performance
to encourage
collaboration.
• Safety and
environmental
performance is a
key performance
indicator that
impacts on the
short-term incentive
award for the
CEO and Senior
Executives.
• Key Performance
Indicators for the
CEO’s 2009 short-
term incentive
included:
– Santos’ strategic
positioning in
Australia and
Asia; and
– furtherance
of Santos’
LNG projects.
• Senior Executives
with responsibility
for the growth LNG
businesses (PNG
LNG and GLNG)
have strategic
performance targets
linked to delivery
of key project
milestones.
DELIVERING
SUPERIOR RETURNS
TO SHAREHOLDERS
A signifi cant proportion
of remuneration for
the CEO and Senior
Executives is “at risk”
based on delivery of
superior shareholder
returns.
• The long-term
incentive plan
links a signifi cant
component of
pay for the CEO
and other Senior
Executives to
delivery of superior
returns.
• Long-term incentive
grants lapse (and
participants receive
no value) if Santos’
total shareholder
return does not
meet at least the
median for ASX 100
companies.
• Remuneration
• Full vesting of
targets are fair,
challenging, clearly
understood and
within the control
of employees.
performance awards
under the long-
term incentive plan
only occurs where
Santos outperforms
all other ASX 100
companies in its
total shareholder
return performance.
54
Santos Annual Report 2009
CEO REMUNERATION ARRANGEMENTS
Remuneration components and their relative weightings
Total remuneration for the Managing Director and Chief Executive Offi cer (CEO), Mr DJW Knox, is made up of the following components:
• Base remuneration – comprising salary and superannuation;
• Short-term Incentive (STI) – an annual bonus linked to Company performance and achievement of strategic objectives; and
• Long-term Incentive (LTI) – equity grants tied to vesting conditions dependent on Santos’ achievement of superior performance relative
to the ASX 100.
The Board received external advice on Mr Knox’s remuneration package, which is benchmarked against the remuneration paid to CEOs
of comparable companies in the industry. In line with the Company’s general pay freeze, Mr Knox’s remuneration did not change in 2009
and, in fact, has not changed since his appointment in 2008.
The relative weightings of the three components comprising the CEO’s total remuneration are set out in Table 2 below.
Table 2: Relative weightings of remuneration components1
CEO
% of total remuneration (annualised)
Fixed remuneration
Performance-based remuneration
37%
STI
26%
LTI
37%
1
These fi gures do not refl ect the relative value derived by the CEO from each of the components, which is dependent on actual performance against targets for the “at risk” components.
This is discussed in the STI and LTI sections below.
Base remuneration
Mr Knox is paid Total Fixed Remuneration (TFR), which includes the Company’s contributions into his accumulation superannuation fund
of at least the minimum statutory amount. He may, if he wishes, salary sacrifi ce part of his TFR for additional superannuation contributions.
Mr Knox’s TFR for 2009 (as set out in Table 4 below) was $1,750,000.
Short-term Incentive
Mr Knox has a maximum annual STI opportunity of 100% of TFR, subject to delivery of strategic milestones and performance targets
set by the Board.
Mr Knox’s performance measures comprise a combination of strategic, fi nancial and operational targets, all of which are directly related to
strategic objectives agreed with the Board. The Board believes that this method of setting performance targets focuses the CEO’s attention
on achieving the key conditions and milestones necessary to deliver Santos’ strategic plan.
At the end of each fi nancial year, the Remuneration Committee assesses performance against the objectives set by the Board, and makes
recommendations to the Board regarding Mr Knox’s performance and the appropriate level of STI award. The Board believes this method
of assessment provides a balanced assessment of the CEO’s overall performance.
As outlined above, for the 2009 performance period, Mr Knox’s STI targets were based on agreed objectives linked to Company performance
targets and delivery of its strategic growth initiatives. Consistent with his role as CEO, these performance measures for 2009 included the
Company’s strategic positioning in Australia and Asia, delivery of fi nancial and operational performance targets, in particular, from the base
business, achievement of specifi c milestones in the GLNG and PNG LNG projects in furtherance of the Company’s vision to achieve
transformational growth through its LNG portfolio and achievement of safety and environmental performance milestones.
Based on performance against these targets during the year, Mr Knox was awarded an STI payment of $1,400,000 or 80% of the maximum
STI payable. The difference between actual STI paid and maximum STI will not be carried forward.
Santos Annual Report 2009
55
Remuneration Report
(continued)
Long-term Incentive
No new LTI grant was made to the CEO in 2009 as the grants made to Mr Knox in 2008 constitute his LTI entitlement for the 2008, 2009
and 2010 years.
The 2008 grants comprised:
• a performance-based equity award made to Mr Knox in his capacity as Executive Vice President, Growth Projects (Performance Award);
• a service-based equity award made to Mr Knox in his capacity as Executive Vice President, Growth Projects (Deferred Award); and
• a further performance-based equity award made to Mr Knox upon his appointment as CEO to supplement the grants already made to him
in his Senior Executive capacity (CEO Performance Award).
Mr Knox elected to receive his equity awards as a combination of options and share acquisition rights (SARs).
The key terms of Mr Knox’s awards are as follows:
• The LTI grants made in 2008 were structured to provide Mr Knox with an annual LTI opportunity of 100% of TFR (based on the 2008 level
of $1.75 million) for each of the 2008, 2009 and 2010 years, subject to achieving applicable vesting conditions.
• Mr Knox was able to elect to receive his LTI grant as either SARs, market value options or a combination of the two. He chose to take
a combination of the two.
• All of the performance-based LTIs are subject to hurdles based on the Company’s Total Shareholder Return (TSR) relative to the
ASX 100 over a three-year performance period. There is no retesting of performance conditions.
• The CEO Performance Award is divided into three tranches:
– Tranche 1 Tested over the period from 1 January 2008 to 31 December 2010;
– Tranche 2 Tested over the period from 1 January 2009 to 31 December 2011; and
– Tranche 3 Tested over the period from 1 January 2010 to 31 December 2012.
• Each tranche of the CEO Performance Award vests in accordance with the following vesting schedule:
TSR percentile ranking
% of grant vesting
< 50th percentile
= 50th percentile
51st to 75th percentile
76th to 100th percentile
0%
37.5%
39%-75%
76%-100%
• None of the grants have vested as none of their performance periods have been completed.
• Upon vesting of SARs, ordinary shares in Santos will automatically be allocated to Mr Knox. These shares will be subject to restrictions
until the earlier of ten years from the grant date, cessation of employment, or if the Board approves, at Mr Knox’s request, the removal
of the restrictions.
• Options may be exercised at any time between the vesting date and the expiry date (27 July 2018), subject to payment of the exercise
price of $17.36 per option (being the volume weighted average price in the week up to and including the grant date).
• Full details of the equity grants made to Mr Knox in 2008 are contained in the 2008 Remuneration Report.
56
Santos Annual Report 2009
Table 3 contains details of the number and value of SARs and options granted to Mr Knox in 2008.
Table 3: SARs and options granted to Mr Knox in 20081
Grant name
CEO Performance Award
2008 Awards prior to CEO Appointment
Performance Award
Deferred Award
Number of SARs granted
Number of options granted
Maximum value of grant2
Tranche 1
Tranche 2
Tranche 3
35,973
50,403
50,403
Tranche 1
Tranche 2
Tranche 3
94,193
Tranche 1
$1,040,640
131,976
131,976
Tranche 2
Tranche 3
$990,405
$990,066
-
-
64,992
21,837
$341,208
$159,410
1
2
These grants constitute Mr Knox’s full LTI awards for the 2008, 2009 and 2010 fi nancial years. As the SARs and options only vest on satisfaction of service and/or performance
conditions to be tested in future fi nancial years, none of the SARs or options detailed above were forfeited during the year.
Maximum value represents the fair value of the LTI awards as at their grant date (being 3 May 2008 for the Performance Award and Deferred Award and 28 July 2008 for the CEO
Performance Award). The fair value per instrument at the grant date was:
CEO Performance Award Tranche 1: SARs – $13.82 Options – $5.77
Options – $4.22
Options – $4.29
Tranche 2: SARs – $8.60
Tranche 3: SARs – $8.41
Performance Award
Options – $5.25
Deferred Award
Options – $7.30
Monte Carlo simulation was used to determine the value of the SARs and options granted. Details of the assumptions underlying the valuation are set out in Note 31 to the fi nancial
statements. The minimum total value of the grant, if the applicable vesting conditions are not met, is nil in all cases.
2009 Remuneration details for Mr DJW Knox
Table 4: 2008 and 2009 remuneration details for Mr DJW Knox
Year
Short-term employee benefits
Post-
employment
Share-based
payments1,2
Termination
Other
long-term
benefits3
Total
% at risk
Base salary
$
STI
$
Other
$
Super-
annuation
$
$
2009
2008
1,735,897
1,400,0004
500,0005
14,103
1,486,8736
1,200,115
1,100,000
-
54,745
800,206
$
-
-
$
$
29,891
5,166,7647
19,826
3,174,892
56%
60%
1
In accordance with the requirements of the Accounting Standards, remuneration includes a proportion of the theoretical value of equity linked compensation determined as at the
grant date and progressively expensed over the vesting period. The amount allocated as remuneration is not related to or indicative of the actual benefi t (if any) that Mr Knox may
ultimately realise should the equity instruments vest. The theoretical value of equity linked compensation was determined in accordance with AASB 2 Share-based payment applying
the Monte Carlo simulation method. Details of the assumptions underlying the valuation are set out in Note 31 to the fi nancial statements.
2 Of the total remuneration for Mr Knox for the year, 23% consisted of SARs and options.
3
“Other long-term benefi ts” represent the movement in the CEO’s long service leave entitlements measured as the present value of the estimated future cash outfl ows to be made
in respect of the CEO’s service between the respective reporting dates.
4
This amount represents the STI award made for the 2009 year, which will be paid in March 2010.
5 Mr Knox received a once-only retention bonus for continued employment between 25 March 2008, the date of his appointment as Acting Chief Executive Offi cer, to 25 March 2009.
6
“Share-based payments” in 2009 consists of the following equity linked theoretical compensation and, as a consequence of the rights issue in May 2009, now includes a cash-settled
component. This matter is discussed further on page 61.
SARs
$553,452
Options
$634,898
Cash-settled
$298,523
7
The difference between Mr Knox’s total remuneration for 2009 and 2008 is principally a consequence of his appointment as CEO in July 2008, which resulted in (1) an increase in his
base salary since that time and (2) the granting of additional SARs and options as part of his CEO remuneration package.
Santos Annual Report 2009
57
Remuneration Report
(continued)
Service Agreement
The Company entered into a service agreement with the CEO on 28 July 2008, which is ongoing until termination by the CEO or the Company.
The service agreement provides that the Company may terminate the CEO’s employment on giving 12 months notice. Where the Company
exercises this general right to terminate, it must make a payment to the CEO equivalent to his TFR for the full notice period. Pro-rata STI
entitlements, subject to performance, will apply to the date of termination and the Board retains discretion to vest any outstanding LTI,
having regard to performance and reasons for termination.
The Company may terminate the CEO’s employment at any time for cause. No payment in lieu of notice, nor any payment in respect of STI
or LTI will be made in this circumstance.
Mr Knox may initiate termination of his service agreement by giving the Company six months’ notice, in which case he will be entitled to
payment of TFR in respect of the notice period and pro-rata STI to the date of termination, subject to performance. The Board retains discretion
to vest any outstanding LTI, having regard to performance and reasons for termination. Mr Knox may also initiate termination of his service
agreement immediately if there is a fundamental change in his role or responsibilities without his consent. In this circumstance the service
agreement provides for payment of 12 months’ TFR, full STI for the year in which employment is terminated and a pro rata portion of the
following year’s STI, subject to current year performance. Pro-rata vesting of outstanding LTI will apply, based on the expired portion of
the performance period and performance achieved to the termination date.
SENIOR EXECUTIVE REMUNERATION ARRANGEMENTS
Remuneration components and their relative weightings
Total remuneration for Senior Executives is made up of the following components:
• Base remuneration – comprising salary and superannuation;
• Short-term incentives (STI) – annual bonuses tied to individual and Company performance; and
• Long-term incentives (LTI) – equity grants tied to vesting conditions tested over a three-year period.
Santos’ executive remuneration structure is consistent with the Company’s “reward performance” policy.
The relative weightings of the three components comprising the Senior Executives’ total remuneration are provided in Table 5 below.
Table 5: Relative weightings of remuneration components1
Chief Financial Offi cer and Executive Vice President
Other Senior Executives
% of total remuneration (annualised)
Fixed remuneration
Performance-based remuneration
TFR
52%
57%
STI
27%
20%
LTI
21%
23%
1
These fi gures do not refl ect the actual value derived by Senior Executives from each of the components, which is dependent on actual performance against targets for the “at risk”
components. This is discussed in the STI and LTI sections below.
58
Santos Annual Report 2009
Base remuneration
Salary and superannuation
Senior Executives are paid TFR, out of which the Company makes contributions into their superannuation funds
of at least the minimum statutory amount. They may, if they wish, salary sacrifi ce part of their TFR for additional
superannuation contributions or other benefi ts such as novated car leases.
Benefi ts
Senior Executives do not receive any benefi ts in addition to TFR.
Market alignment
Executive remuneration levels are market-aligned by comparison to similar roles in ASX 100 energy, materials and
utilities companies, excluding BHP Billiton and Rio Tinto due to their disproportionately larger size and market
capitalisation. This broad industry group is used, as there are too few Australian exploration and production
companies of similar size to Santos for benchmarking purposes.
Short-term Incentive
Frequency
Maximum STI
Performance measures
STI is assessed and paid annually.
75% of TFR for Chief Financial Offi cer and Executive Vice President.
50% of TFR for other Senior Executives.
To promote collaboration among Senior Executives and to focus their efforts towards the overall benefi t of the
Company, 70% of their STI is based on Company performance. The remaining 30% is based on the executive’s
individual performance.
A range of Company performance measures is used in order to drive balanced business performance. These measures
include lagging indicators to assess the Company’s past performance, as well as forward-looking indicators to
ensure the Company is positioning itself effectively for future growth. The areas covered by the measures include
reserve growth, reserve replacement cost, production, margin, new growth options, shareholder value creation,
people, environment, health and safety, and continuous improvement. Individual performance is assessed against
targets set within each executive’s own area of responsibility.
Assessment of
performance
Individual performance is assessed by the CEO.
Company performance is assessed by the Remuneration Committee.
Each metric is assessed against target and assigned a score on a fi ve-point scale. The average of these scores
forms the basis of the overall Company performance score.
The Board believes the above methods of assessment are rigorous and transparent, and provide a balanced
assessment of the executive’s performance.
Payment method
Cash.
STI awarded in 2009
Company performance against the measures in 2009 resulted in an average STI of 80% of maximum payable
to all eligible employees.
2009 STI awards made to individual Senior Executives ranged from 75% to 92% of maximum. The difference
between actual STI paid and maximum STI will not be carried forward.
Long-term Incentives
During the year, the Company made equity grants to its Senior Executives as the LTI component of their remuneration for 2009.
The grants comprised:
• a performance-based component, equal to 75% of the total grant value (Performance Award); and
• a service-based component, equal to 25% of the total grant value (Deferred Award).
All LTI grants were delivered, at the executive’s election, in the form of either:
• SARs – a conditional entitlement to a fully paid ordinary share at zero price, subject to satisfaction of vesting conditions; or
• Options – an entitlement to acquire a fully paid ordinary share at a predetermined price, subject to satisfaction of vesting conditions.
Grant sizes were market-aligned.
Santos Annual Report 2009
59
Remuneration Report
(continued)
Vesting details of the Performance and the Deferred Awards are summarised in Table 6 below. In addition, Table 6 contains details of the
number and value of SARs and options granted to Senior Executives in 2009 under the Performance and the Deferred Awards.
Table 6: Performance Award and Deferred Award vesting details
Performance Award
Vesting period
1 January 2009 to 31 December 2011.
Vesting condition
Vesting of this grant is based on relative TSR against ASX 100 companies
as at 1 January 2009.
Vesting schedule
The Board believes the chosen performance hurdle effectively aligns the
interests of the individual executives with that of the Company’s
shareholders, as TSR is a fair measure of shareholder returns and the ASX 100
represents the companies in which most of the Company’s shareholders could
invest as an alternative to Santos.
Vesting commences when Santos’ TSR performance equals the median for
ASX 100 companies, with one-third of the total grant vesting at this level
of performance.
A further 1.33% of the grant vests for each percentile improvement in Santos’
TSR ranking, with full vesting only occurring if Santos is the top-performing
ASX 100 company based on its TSR growth over the vesting period.
There is no re-testing of the performance condition if it is not satisfi ed.
Santos TSR percentile ranking
% of grant vesting
< 50th percentile
= 50th percentile
51st to 99th percentile
100th percentile
0%
33.33%
Further 1.33% for each percentile
improvement
100%
Deferred Award
2 March 2009 to 1 March 2012.
Vesting of the Deferred Award
is based on continuous service
to 1 March 2012, or three years
from the grant date.
0% if the continuous service
condition is not met.
100% if the continuous service
condition is met.
Exercise price
$14.81 for options, being the volume weighted average price in the week
up to and including the grant date of 2 March 2009.
As for Performance Award.
SARs have no exercise price.
Exercise period
Options may be exercised at any time between the vesting date and the
expiry date.
As for Performance Award.
Upon vesting of SARs, shares will automatically be allocated to the executive.
These shares will be subject to restrictions until the earlier of ten years from
the grant date, cessation of employment or the date at which the Board
approves the removal of the restrictions.
Expiry/lapse
SARs and options that do not vest upon testing of the performance
condition will lapse.
Vested options will expire if not exercised before 2 March 2019.
Cessation/change
of control
Upon cessation of employment, SARs which have not already vested and
options which are not exercisable will, in general, lapse and be forfeited.
SARs and options will lapse if the
service condition is not satisfi ed.
Vested options will expire if not
exercised before 2 March 2019.
As for Performance Award.
Hedging Policy
However, if cessation occurs due to death, disability or redundancy, or in
special circumstances approved by the Board, then a proportion of the SARs
and options may vest and become exercisable.
Where there is a change in control, the Board may determine whether, and
the extent to which, SARs and options may vest.
Consistent with the objective of creating a meaningful alignment of interests,
Directors and Senior Executives are not permitted to hedge their shareholdings
or LTIs unless those securities have fully vested and are no longer subject to
restrictions. Breaches of this policy will be subject to appropriate sanctions,
which could include disciplinary action or termination of employment.
As for Performance Award.
60
Santos Annual Report 2009
Table 7: SARs and Options granted to Senior Executives in 20091
Executive
Grant name
Number of SARs granted
Number of options granted
Maximum value of grant2
JH Anderson
Performance Award
Deferred Award
JL Baulderstone
Performance Award
Deferred Award
MEJ Eames
Performance Award
Deferred Award
MS Macfarlane
Performance Award
Deferred Award
PC Wasow
Performance Award
Deferred Award
RJ Wilkinson
Performance Award
Deferred Award
13,359
4,168
13,450
5,057
15,744
4,471
13,481
4,152
25,320
8,305
14,175
5,160
-
-
-
-
-
-
-
-
-
-
-
-
115,823
60,228
116,612
73,074
136,500
64,606
116,880
59,996
219,524
120,007
122,897
74,562
1
The grants made to the Senior Executives during the year constitute their full LTI awards for the 2009 fi nancial year. As the SARs and options only vest on satisfaction of service
and/or performance conditions to be tested in future fi nancial years, none of the SARs or options detailed above were forfeited during the year.
2 Maximum value represents the fair value of the Performance Award and Deferred Award as at their grant date (being 2 March 2009). The fair value per instrument at the grant date was:
Performance Award
SARs – $8.67, Options – $4.54
Deferred Award
SARs – $14.45, Options – $6.75
Monte Carlo simulation was used to determine the value of the SARs and options granted. Details of the assumptions underlying the valuation are set out in Note 31 to the fi nancial
statements. The minimum total value of the grant, if the applicable vesting conditions are not met, is nil in all cases.
Preserving alignment under the LTI Plan in response to equity issue
During the year the Company raised $2.914 billion through a two-for-fi ve rights issue. Each new share was issued at a price of $12.50,
representing a 26.9% discount to the closing price of the shares before the announcement of the rights issue.
Employees who held unvested SARs and options were unable to participate in the rights issue and there was no adjustment to the applicable
exercise price or the number of underlying shares to which each SAR or option was entitled. The ASX Listing Rules do allow an adjustment to
the exercise price of options to refl ect the impact of discounted rights issues but the terms of the grant need to expressly refer to the formula
in ASX Listing Rule 6.22.2 and the Listing Rules do not contemplate (nor provide a mechanism for adjusting) SARs.
Accordingly, in order to ensure the rights issue would neither unfairly disadvantage or advantage executives and so as to avoid a misalignment
between the incentives of management (through the LTI component of their remuneration) and a capital raising which was considered by the
Board to be in the best interests of the Company and shareholders, the Board determined, in respect of existing LTI grants:
• to use TSR data which takes into account the impact of rights issues and other capital management activities on both Santos and
comparator group companies when testing the satisfaction of TSR performance hurdles that apply to Santos LTI awards; and
• subject to the SARs and options vesting following satisfaction of applicable hurdles (and, in the case of options, being exercised), to make
a future cash remuneration payment to executives equal to the value of the right to participate in the rights issue (calculated at $1.31 for
each underlying share in accordance with the formula in ASX Listing Rule 6.22.2). The intention is to “keep whole” the executives in respect
of SARs and options that actually vest in due course. No cash payment will be made in respect of SARs that do not vest or options that do
not vest or are not exercised.
These future cash remuneration payments apply to LTI participants with grants that were yet to vest at the time of the rights issue, including
the CEO and Senior Executives. No changes have been made to the performance hurdles or testing dates.
Despite the intention to “keep whole” the LTI participants, the future cash remuneration payments did not fully compensate for the loss in
the value of the unvested SARs and options. The overall value of the future cash remuneration payments for the CEO and Senior Executives
is $89,556 less than the loss in value of the SARs and options, both determined in accordance with AASB 2 Share-based payments. The value
of these future cash remuneration payments has been expensed in accordance with AASB 2, over the period from 8 May 2009 (the last trading
day prior to the announcement of the rights issue; closing price of $17.09) to the end of their performance or vesting periods.
Santos Annual Report 2009
61
Remuneration Report
(continued)
LTI grants to Senior Executives
The following LTI grants were still in progress or were tested during 2009.
Table 8: LTI grants to Senior Executives
Grant year
Grant type
Vesting condition(s)
Performance/vesting period
Status
2007
Performance
Award
• Relative TSR performance against
Australian and international E&P
companies (50% of grant)
• Absolute TSR target of 11% per
annum compound (50% of grant)
Deferred
Award
Continuous service
1 January 2007 to
31 December 2009
Grant tested after the end of the
fi nancial year resulting in full
vesting of the grant.
In progress.
DJW Knox1:
3 September 2007 to
2 September 2010
Senior Executives:
1 July 2007 to 30 June 2010
2008
2009
Performance
Award
Relative TSR performance against
ASX 100 companies
1 January 2008 to
31 December 2010
In progress.
Deferred
Award
Continuous service
3 May 2008 to 2 May 2011
In progress.
Performance
Award
Relative TSR performance against
ASX 100 companies
1 January 2009 to
31 December 2011
Deferred
Award
Continuous service
2 March 2009 to
1 March 2012
In progress.
In progress.
1 Options and SARs granted to Mr Knox in his capacity as a Senior Executive prior to his appointment as CEO.
Service Agreements – Senior Executives
The Company has entered into service agreements with the Senior Executives. The service agreements are ongoing until termination by
the Company upon giving 12 months’ notice or the Senior Executive upon giving six months’ notice. In a Company-initiated termination,
the Company may make a payment in lieu of notice equivalent to the TFR the executive would have received over the notice period.
All Senior Executives’ service agreements may be terminated immediately for cause, whereupon no payments in lieu of notice or other
termination payments apply.
62
Santos Annual Report 2009
2009 Senior Executive Remuneration Details
Table 9: 2009 Senior Executive remuneration details
Executive
Short-term employee benefits
Base salary3
$
STI5
$
Other
$
JH Anderson
489,116
223,800
22,4356
JL Baulderstone7
512,621
254,000
MEJ Eames
585,296
268,000
MS Macfarlane
500,145
199,600
PC Wasow8
RJ Wilkinson
985,897
562,300
488,533
232,000
16,8009
Post-
employment
Share-based
payments1,2
(LTI)
Termination
Other
long-term
benefits4
Total
% at risk
Super-
annuation
$
50,884
33,441
36,564
32,314
14,103
71,267
$
262,336
365,017
308,127
261,079
358,269
257,492
$
-
-
-
-
-
-
$
$
10,111
1,058,682
9,597
1,174,676
12,577
1,210,564
6,698
999,836
37,801
1,958,370
6,488
1,072,580
46%
53%
48%
46%
47%
46%
-
-
-
-
1
The percentage of each Senior Executive’s total remuneration for the year that consisted of SARs and options is as follows:
JH Anderson
JL Baulderstone
MEJ Eames
20%
21%
20%
MS Macfarlane
PC Wasow
RJ Wilkinson
21%
15%
20%
2
“Share-based payments” consist of the following equity linked theoretical compensation and, as a consequence of the rights issue in May 2009, now includes a cash-settled component.
Executive
JH Anderson
JL Baulderstone
MEJ Eames
MS Macfarlane
PC Wasow
RJ Wilkinson
SARs
$126,470
$122,994
$147,935
$126,705
$296,065
$210,646
Options Cash-settled
$55,626
$80,240
$115,255
$126,768
$65,626
$94,566
$55,325
$79,049
$62,204
-
$46,846
-
3
4
5
6
7
8
The base salaries for Mr JH Anderson, Mr MS Macfarlane, Mr MEJ Eames and Mr RJ Wilkinson were frozen in 2009 at April 2008 levels. They are higher than the base salary
fi gures in Table 10 “2008 Senior Executive remuneration details” because the base salary fi gures in the 2008 table include the lower pre-April 2008 amounts.
“Other long-term benefi ts” represent the movement in the Senior Executive’s long service leave entitlements measured as the present value of the estimated future cash
outfl ows to be made in respect of the Senior Executive’s service between the respective reporting dates.
This amount represents the STI award made for the 2009 year, which will be paid in March 2010.
Mr Anderson received an allowance of $22,435 for relocating from Adelaide to Perth to head up the Western Australian Business Unit subsequent to commencing the role
of Vice President Western Australia and Northern Territory.
Effective 5 January 2009, Mr Baulderstone’s role was expanded to include responsibility for the Corporate Development and Commercial Excellence functions.
Mr Baulderstone’s remuneration increased in 2009 commensurate with the increased responsibilities of his new role.
In recognition of his seniority and strategic leadership, Mr Wasow was promoted to the position of Executive Vice President (in addition to his role as Chief Financial Offi cer)
effective 1 July 2008. Mr Wasow’s remuneration increased in 2009 commensurate with the increased responsibilities of his new role.
9 Mr Wilkinson received an Incidentals Allowance of $16,800 for commuting between Adelaide and Brisbane in relation to the GLNG project.
Santos Annual Report 2009
63
Remuneration Report
(continued)
2008 Senior Executive remuneration details
Table 10: 2008 Senior Executive remuneration details
Executive
Short-term employee benefits
Base salary
$
STI4
$
Other
$
JH Anderson
468,021
205,000
JL Baulderstone
465,734
250,000
MEJ Eames
551,505
220,000
MS Macfarlane
471,282
205,000
PC Wasow
830,548
585,000
-
-
-
-
-
RJ Wilkinson
485,676
255,000
5,2825
Post-
employment
Super-
annuation
$
48,689
46,326
57,455
49,029
13,289
90,260
Share-based
payments1,2
(LTI)
Termination
Other
long-term
benefits3
Total % at risk
$
203,594
231,473
241,862
202,553
265,239
201,462
$
-
-
-
-
-
-
$
16,351
5,963
$
941,655
999,496
20,213
1,091,035
17,536
945,400
68,629
1,762,705
18,192
1,055,872
43%
48%
42%
43%
48%
43%
1
The percentage of total remuneration for the year that consisted of SARs and options is as follows:
DJW Knox
JH Anderson
JL Baulderstone
25%
22%
23%
MEJ Eames
MS Macfarlane
22%
21%
PC Wasow
RJ Wilkinson
15%
19%
2
“Share-based payments” consisted of the following equity linked theoretical compensation:
Executive
JH Anderson
JL Baulderstone
MEJ Eames
SARs
$122,742
$111,832
$173,306
Options
$80,852
$119,641
$68,556
Executive
MS Macfarlane
PC Wasow
RJ Wilkinson
SARs
$122,742
$265,239
$201,462
Options
$79,811
-
-
3
4
5
“Other long-term benefi ts” represent the movement in the Senior Executive’s long service leave entitlements measured as the present value of the estimated future cash outfl ows
to be made in respect of the Senior Executive’s service between the respective reporting dates.
This amount represents the STI award made for the 2008 fi nancial year, paid in March 2009.
This amount represents an Incidentals Allowance for Mr Wilkinson for commuting between Adelaide and Brisbane in relation to the GLNG project.
LINK BETWEEN COMPANY PERFORMANCE AND SENIOR EXECUTIVE REMUNERATION OUTCOMES
Table 11 sets out the Group’s performance over the past fi ve years in respect of the key fi nancial and non-fi nancial indicators used to measure
year-on-year performance. Table 11 also shows how the size of the STI pool available to Senior Executives has varied over this period based
on the level of performance achieved each year across these key indicators.
Table 11: Key indicators of Company performance 2005–2009
Key Indicator
Safety (total recordable case frequency rate)
Production (mmboe)
Reserve replacement cost – 1P (A$/boe)
Reserve replacement rate – 1P (%)
Proven plus probable reserves – 2P
Netback (A$/boe)
Net profi t after tax $m
Earnings per share (cents)
Dividends per ordinary share (cents)
Size of STI pool (% of maximum)
64
Santos Annual Report 2009
2005
4.9
56.0
13
218
774
30
762
124
36
85
2006
6.4
61.0
15
143
819
33
643
103
40
70
2007
5.3
59.1
13
175
879
33
359
55
40
80
2008
5.8
54.4
13
160
1,013
36
1,650
273
42
80
2009
3.6
54.4
9
336
1,441
23
434
52
42
80
As set out earlier, Company performance in 2009 against the STI measures (detailed on page 59) resulted in an average STI award of 80% of the
maximum payable to all eligible employees. Performance against key metrics was on target in 2009, including the achievement of key strategic
milestones such as:
• sanction of PNG LNG on schedule in December 2009 in furtherance of the Company’s vision to achieve transformational growth through
an LNG portfolio;
• the GDF Suez–Bonaparte LNG partnership, resulting in the commercialisation of substantial contingent resources in the Petrel, Tern and
Frigate fi elds;
• the signing of the binding LNG offtake Heads of Agreement with PETRONAS for 2 mtpa plus a further 1 mtpa at GLNG’s option, underpinning
the development of the fi rst GLNG train;
• the successful $3 billion capital raising in May 2009.
The graphs below show the relationship over the past fi ve years between the Company’s TSR and share price growth, being two key indicators
of long-term Company performance, and the percentage of LTI grants to Senior Executives that vested. The graphs demonstrate how the level
of Senior Executive reward derived from their LTI grants is dependent upon the delivery of sustained above-average returns to shareholders.
TSR OF SANTOS, ASX100 AND AUSTRALIAN AND INTERNATIONAL EXPLORATION AND PRODUCTION COMPANIES 2005-2009
%
140
120
100
80
60
40
20
0
-20
-40
2005
2006
2007
2006
2007
2008
2007
2008
2009
Santos
ASX 100
E&P
Santos
ASX 100
E&P
Santos
ASX 100
E&P
LTI vesting for 2005-2007
performance period = 50%
LTI vesting for 2006-2008
performance period = 100%
LTI vesting for 2007-2009
performance period = 100%
SANTOS SHARE PRICE 2005-2009
$
20
16
12
8
4
0
2005
2006
2007
2008
2009
The TSR growth shown above incorporates dividends and capital returns the Company made to shareholders during the past fi ve years.
Dividends paid by the Company in the past fi ve years are as follows:
(Dividends per ordinary share)
2005
$0.36
2006
$0.40
2007
$0.40
2008
$0.42
2009
$0.42
Santos Annual Report 2009
65
Remuneration Report
(continued)
The following capital returns were made in the 2005–2009 period:
• On 30 June 2007, the Company bought back 24,671,275 fully paid ordinary shares, representing 4.10% of fully paid ordinary shares
on issue at that date, at a price of $12.16 per share.
• On 6 October 2008, the Company bought back 18,487,305 fully paid ordinary shares, representing 3.07% of fully paid shares on issue
at that date, at a price of $16.23 per share.
• On 30 September 2009, the Company redeemed the 6,000,000 Franked Unsecured Equity Listed Securities (FUELS) on issue at the
price of $100 each.
As noted above, Santos’ superior TSR performance compared to the Australian and international exploration and production companies
over the period from 1 January 2007 to 31 December 2009 resulted in full vesting of the 2007 Performance Award.
The value derived by Senior Executives during 2009 in respect of LTIs granted in previous fi nancial years (i.e. prior year awards which
vested and/or were exercised during 2009) is set out in Table 12 below. Table 12 also contains details of prior year LTIs that lapsed
or were forfeited during 2009.
Table 12: Senior Executives’ LTI remuneration outcomes in 2009
Vested
Exercised
Forfeited/Lapsed
Number
Value1
Number
Value2
Number
Value
DJW Knox
SARs
Options
JH Anderson
SARs
Options
JL Baulderstone
SARs
Options
MEJ Eames
SARs
Options
MS Macfarlane
SARs
Options
PC Wasow
SARs
Options
RJ Wilkinson
SARs
Options
Total SARs
Total Options
-
-
-
63,700
-
-
19,900
-
-
63,700
23,000
-
16,200
-
59,100
127,400
-
-
-
224,224
-
-
288,351
-
-
224,224
333,270
-
234,738
-
856,359
448,448
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
2
The value of each SAR on the date of vesting is based on the closing market price of Santos Limited shares on the ASX on the preceding trading day. The value of each option on
the date of vesting is based on the difference between the closing market price of Santos Limited shares on the ASX on the preceding trading day and the relevant exercise price.
The value of each option exercised during the year is based on the difference between the closing market price of Santos Limited shares on the ASX on the preceding trading day
and the relevant exercise price.
66
Santos Annual Report 2009
Non-executive Director Remuneration
REMUNERATION POLICY
The diagram below shows the key objectives of Santos’ non-executive Director remuneration policy and how these are implemented through
the Company’s remuneration framework.
SECURING AND RETAINING
TALENTED, QUALIFIED DIRECTORS
PROMOTING INDEPENDENCE
AND IMPARTIALITY
ALIGNING DIRECTOR AND
SHAREHOLDER INTERESTS
Fee levels are set with regard to:
• Fee levels do not vary according
• Santos encourages its non-
• time commitment and workload;
• the risk and responsibility attached
to the role;
• experience and expertise; and
• market benchmarking.
to the performance of the Company
or individual Director performance
from year to year.
• Santos’ market capitalisation
is considered in setting the
aggregate fee pool and in
benchmarking of Board and
committee fees.
executive Directors to build a
long-term stake in the Company.
• Traditionally, this has been
facilitated through the non-
executive Director share plan.
REMUNERATION ARRANGEMENTS
Maximum aggregate amount
Total non-executive Directors’ fees paid in a year, including Board committee fees, cannot exceed $2,100,000. This amount was approved
by shareholders at the Annual General Meeting held on 2 May 2008. Directors may also be paid additional fees for special duties or exertions,
and are entitled to be reimbursed for all business-related expenses. These payments are not included in the maximum aggregate amount
approved by shareholders. No additional fees were paid during the year.
2009 Non-executive Directors’ fees
In line with the Company’s general pay freeze, there was no increase to non-executive Directors’ fees, which were last adjusted on 1 July 2008.
Directors’ fee rates are provided in Table 13 below.
Table 13: Non-executive Directors’ fees per annum
Annual Fees
Chair1
$435,000
Deputy Chair1
Member
Chair
Member
$217,500
$145,000
$12,000-$30,000
$5,000-$15,000
Board
Committees
1
The Chairman and Deputy Chairman of the Board do not receive any additional fees for serving on or chairing any Board committee.
Superannuation
Superannuation contributions are made on behalf of non-executive Directors in accordance with the requirements of the Company’s statutory
superannuation obligations.
Santos Annual Report 2009
67
Remuneration Report
(continued)
Retirement benefits
Professor J Sloan and Mr S Gerlach, who were appointed prior to 1 January 2004, were contractually entitled to receive benefi ts upon their
retirement under the agreements entered into at their appointment, the terms of which were approved by shareholders at the 1989 Annual
General Meeting. These retirement benefi ts were frozen with effect from 30 June 2004, at which time their entitlements ceased to accrue.
However, to prevent erosion in the real value of the frozen benefi ts, the Board determined that from 1 July 2007 the benefi ts would be indexed
annually against the fi ve-year Australian Government Bond Rate.
Non-executive Directors appointed after 1 January 2004 are not entitled to receive a benefi t upon retirement (other than statutory entitlements).
Both Professor Sloan and Mr Gerlach retired during 2009. Table 14 below shows the increase in Professor Sloan’s and Mr Gerlach’s frozen
benefi ts as a result of indexation in 2009 and the fi nal retirement benefi ts paid to them upon retirement.
Table 14: Non-executive Director retirement benefi ts
Director
S Gerlach
J Sloan
Benefit as at
1 January 2009
Increase as a result
of indexation
Final benefit as
at retirement
$1,208,547
$370,617
$62,421
$5,469
$1,270,9681
$376,0862
1 Mr Gerlach retired on 31 December 2009.
2 Professor Sloan retired on 6 May 2009.
Non-executive Director Share Plan
The Non-executive Director Share Plan (NED Share Plan) was introduced in July 2007, following shareholder approval at the 2007 Annual
General Meeting. Participation in the NED Share Plan is voluntary and all present and future non-executive Directors are eligible to participate.
Under the NED Share Plan, Directors elect to sacrifi ce all or part of their pre-tax fees in return for an allocation of shares of equivalent value.
The NED Share Plan, therefore, does not involve any additional remuneration for participating Directors.
Shares are allocated quarterly and are either issued as new shares or purchased on the ASX at the prevailing market price. The shares are
registered in the name of the participating Director, but are subject to a restriction on dealing. In the absence of exceptional circumstances,
the restriction will apply until the Director ceases to hold offi ce or until ten years have elapsed since the allocation of the shares, whichever
is earlier.
Following the changes to employee share schemes introduced by the Government in 2009, the Directors were able to elect to withdraw
from the NED Share Plan in the second half of 2009.
Details of the shares allocated to Directors under the NED Share Plan during the year are set out in Table 15 below.
Table 15: 2009 NED Share Plan allocations
Director
KC Borda
PR Coates
KA Dean
S Gerlach
RM Harding
J Sloan5
Q1 2009 allocation1
Q2 2009 allocation2
Q3 2009 allocation3
Q4 2009 allocation4
2,284
1,655
665
949
284
2,182
2,753
1,907
802
1,144
343
-
2,598
2,824
-
-
-
-
-
-
-
-
-
-
Total
10,459
3,562
1,467
2,093
627
2,182
1
2
3
4
Shares were allocated to the participating Directors on 7 April 2009 at $17.1811 per share.
Shares were allocated to the participating Directors on 29 June 2009 at $14.2552 per share.
Shares were allocated to the participating Directors on 7 October 2009 at $15.1076 per share.
Shares were allocated to the participating Directors on 23 December 2009 at $13.8947 per share.
5 Retired 6 May 2009.
68
Santos Annual Report 2009
Details of remuneration paid to non-executive Directors
Details of the fees and other benefi ts paid to Directors during 2009 are set out in Table 16 below.
Table 16: 2009 Non-executive Director remuneration details
Short-term benefits
Retirement benefits
Share-based
payments
Total
Directors’ fees
(incl. committee
fees)1
$
Fees for
special duties
or exertions
$
S Gerlach5
KC Borda
PR Coates
KA Dean
RA Franklin
RM Harding
GJW Martin
J Sloan6
402,375
0
178,528
160,125
158,500
185,963
25,425
14,301
-
-
-
-
-
-
-
-
Super-
annuation
contributions3
$
14,103
13,937
14,103
14,103
898
14,103
2,288
4,662
Other2
$
4,629
-
-
-
-
-
-
-
Increase to
retirement
benefit4
$
62,421
-
-
-
-
-
-
NED Share
Plan
$
32,625
157,000
55,626
22,875
-
9,788
-
5,469
37,500
$
516,153
170,937
248,257
197,103
159,398
209,854
27,713
61,932
1 Refer to Table 13 above for details of annual Directors’ fees and Committee fees. Figure shown is after fee sacrifi ce to NED Share Plan.
2
3
4
This fi gure represents the value of car parking provided to the Chairman in the Company’s head offi ce in Adelaide.
Includes superannuation guarantee payments. Superannuation guarantee payments are made to Mr Franklin only in relation to days worked in Australia.
This shows the increase to retirement benefi ts during the year. See Table 14 for details of retirement benefi ts paid out.
5 Retired 31 December 2009.
6 Retired 6 May 2009.
Details of the fees and other benefi ts paid to Directors during 2008 are set out in Table 17 below.
Table 17: 2008 Non-executive Director remuneration details
Short-term benefits
Retirement benefits
Share-based
payments
Total
Directors’ fees
(incl. committee
fees)1
$
Fees for
special duties
or exertions
$
S Gerlach
KC Borda
PR Coates
KA Dean
RA Franklin
RM Harding
J Sloan
350,625
0
0
130,687
150,250
167,287
0
-
-
-
-
-
-
-
Super-
annuation
contributions3
$
13,437
13,060
10,246
13,437
813
6,872
13,376
Other2
$
4,796
-
-
-
-
-
-
Increase to
retirement
benefit
$
39,897
-
-
-
-
-
12,235
NED
Share Plan
$
61,875
147,141
124,644
43,563
-
18,588
157,342
$
470,630
160,201
134,890
187,687
151,063
192,747
182,953
1 Refer to Table 13 above for details of annual Directors’ fees and committee fees. Figure shown is after fee sacrifi ce to NED Share Plan.
2
3
This fi gure represents the value of car parking provided to the Chairman in the Company’s head offi ce in Adelaide.
Includes superannuation guarantee payments. Superannuation guarantee payments are made to Mr Franklin only in relation to days worked in Australia.
Santos Annual Report 2009
69
Income Statements
for the year ended 31 December 2009
Product sales
Cost of sales
Gross profi t
Other revenue
Other income
Other expenses
Interest income
Finance expenses
Share of net losses of an associate
Profi t before tax
Income tax expense
Royalty-related taxation (expense)/benefi t
Total taxation expense
Net profi t for the period
Net profi t attributable to:
Owners of Santos Ltd
Minority interests
Earnings per share attributable to the
ordinary equity holders of Santos Ltd (¢)
Basic earnings per share
Diluted earnings per share
Dividends per share ($)
Ordinary shares
Redeemable preference shares
Consolidated
Santos Ltd
Note
2009
$million
2008
$million
2009
$million
2008
$million
681
(463)
218
34
49
(164)
197
(133)
–
201
(62)
3
(59)
142
142
–
142
873
(521)
352
64
1
(211)
183
(286)
–
103
(51)
(32)
(83)
20
20
–
20
3
4
3
3
4
6
6
27
7
7
23
23
22
22
2,181
(1,423)
2,762
(1,423)
758
70
254
(351)
85
(98)
(1)
717
(205)
(78)
(283)
434
434
–
434
52.1
51.9
1,339
43
1,735
(493)
63
(154)
–
2,533
(768)
(115)
(883)
1,650
1,650
–
1,650
251.9
242.8
0.42
0.42
4.6180
6.3348
The income statements are to be read in conjunction with the notes to the consolidated fi nancial statements.
70
Santos Annual Report 2009
Statements of Comprehensive Income
for the year ended 31 December 2009
Net profi t for the period
434
1,650
142
20
Consolidated
Santos Ltd
Note
2009
$million
2008
$million
2009
$million
2008
$million
Other comprehensive income:
Net exchange (loss)/gain on translation of foreign operations
Tax effect
Net gain/(loss) on foreign currency loans designated as
hedges of net investments in foreign operations
Tax effect
Net change in fair value of available-for-sale fi nancial assets
Tax effect
Net actuarial gain/(loss) on the defi ned benefi t plan
Tax effect
Other comprehensive (losses)/income, net of tax
Total comprehensive income
Total comprehensive income attributable to:
Owners of Santos Ltd
Minority interests
7
7
7
7
30
(294)
–
(294)
286
(86)
200
–
–
–
16
(5)
11
(83)
351
351
–
351
271
–
271
(259)
82
(177)
(13)
4
(9)
(37)
11
(26)
59
–
–
–
–
–
–
–
–
–
16
(5)
11
11
1,709
153
1,709
–
1,709
153
–
153
–
–
–
–
–
–
(13)
4
(9)
(37)
11
(26)
(35)
(15)
(15)
–
(15)
The statements of comprehensive income are to be read in conjunction with the notes to the consolidated fi nancial statements.
Santos Annual Report 2009
71
Statements of Financial Position
as at 31 December 2009
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other fi nancial assets
Tax receivable
Total current assets
Non-current assets
Receivables
Available-for-sale fi nancial assets
Investment in an associate
Other fi nancial assets
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Deferred income
Interest-bearing loans and borrowings
Tax liabilities
Provisions
Other liabilities
Total current liabilities
Non-current liabilities
Deferred income
Interest-bearing loans and borrowings
Deferred tax liabilities
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Equity attributable to equity holders of Santos Ltd
Minority interests
Total equity
Consolidated
Santos Ltd
Note
2009
$million
2008
$million
2009
$million
2008
$million
8
9
10
11
9
12
27
11
13
14
15
17
18
19
20
21
19
17
20
21
22
2,240
917
273
65
24
3,519
10
2
177
134
923
6,317
200
79
7,842
11,361
709
83
164
20
94
10
1,553
581
290
59
–
2,483
18
2
–
345
493
6,190
160
111
7,319
9,802
605
55
99
469
117
8
1,080
1,353
17
1,649
871
768
9
3,314
4,394
6,967
4,987
(283)
2,263
6,967
–
6,967
54
2,356
744
808
9
3,971
5,324
4,478
2,531
(189)
2,136
4,478
–
4,478
2,031
357
139
60
7
2,594
9
2
–
5,748
30
1,722
134
–
7,645
10,239
778
7
1
–
70
–
856
–
3,600
103
258
–
3,961
4,817
5,422
4,987
(2)
437
5,422
–
5,422
1,403
694
136
–
–
2,233
17
2
–
4,724
43
1,778
110
–
6,674
8,907
723
2
1
454
66
–
1,246
–
4,085
134
311
–
4,530
5,776
3,131
2,531
(2)
602
3,131
–
3,131
The statements of fi nancial position are to be read in conjunction with the notes to the consolidated fi nancial statements.
72
Santos Annual Report 2009
Statements of Cash Flows
for the year ended 31 December 2009
Consolidated
Santos Ltd
Note
2009
$million
2008
$million
2009
$million
2008
$million
Cash fl ows from operating activities
Receipts from customers
Interest received
Overriding royalties received
Insurance proceeds received
Pipeline tariffs and other receipts
Payments to suppliers and employees
Exploration and evaluation expenditure – seismic and studies
Royalties and excise paid
Borrowing costs paid
Income taxes paid
Royalty-related taxes paid
Net cash provided by operating activities
29
Cash fl ows from investing activities
Payments for:
Exploration and evaluation expenditure
Oil and gas assets expenditure
Other land, buildings, plant and equipment
Acquisitions of oil and gas assets
Acquisitions of controlled entities
Restoration expenditure
Acquisition of investment in an associate
Advances to related entities
Proceeds from disposal of non-current assets
Proceeds from disposal of controlled entities
Proceeds from disposal of other investments
Income taxes paid on disposal of non-current assets
Other investing activities
Net cash (used in)/provided by investing activities
Cash fl ows from fi nancing activities
Dividends paid
Proceeds from issues of ordinary shares
Proceeds from share issues placed on term deposits
Proceeds from maturity of term deposits
Redeemable cumulative preference shares redeemed
Off-market buy-back of ordinary shares
Repayments of borrowings
Drawdown of borrowings
Receipts from controlled entities
Payments to controlled entities
Net cash provided by/(used in) fi nancing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balances of cash held
in foreign currencies
2,308
85
8
30
93
(899)
(199)
(65)
(80)
(55)
(71)
1,155
(98)
(1,182)
(74)
(363)
(17)
(29)
(178)
(6)
12
24
–
(497)
(3)
(2,411)
(297)
3,003
(1,176)
1,116
(600)
–
(92)
–
–
–
1,954
698
1,553
(11)
Cash and cash equivalents at the end of the year
8
2,240
3,101
49
15
13
64
(1,089)
(88)
(102)
(134)
(292)
(152)
1,385
(266)
(1,179)
(40)
–
(7)
(55)
–
(6)
2,080
–
1
–
4
710
81
12
–
12
(286)
(19)
(26)
(2)
(24)
(25)
433
(27)
(355)
(49)
–
–
–
(178)
–
–
–
–
(497)
(4)
532
(1,110)
(251)
220
–
–
–
(302)
(751)
500
–
–
(584)
1,333
200
20
1,553
(297)
3,003
(1,176)
1,116
(600)
–
(1)
–
759
(1,492)
1,312
635
1,403
(7)
2,031
985
39
24
–
41
(402)
(11)
(47)
–
(229)
(35)
365
(73)
(359)
(14)
(1)
(6)
(3)
–
–
1
–
1
–
3
(451)
(251)
220
–
–
–
(302)
(1)
–
2,817
(1,052)
1,431
1,345
57
1
1,403
The statements of cash fl ows are to be read in conjunction with the notes to the consolidated fi nancial statements.
Santos Annual Report 2009
73
Statements of Changes in Equity
for the year ended 31 December 2009
Issued
capital
$million
Translation
reserve
$million
Fair value
reserve
$million
Retained
earnings
$million
Total
equity
$million
Note
Consolidated
Balance at 1 January 2009
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Share options exercised by employees
Entitlement offer exercised
Shares issued
Redeemable cumulative preference shares redeemed
Dividends to shareholders
Share-based payment transactions
Equity attributable to equity holders of Santos Ltd
Equity attributable to minority interests
Balance at 31 December 2009
Balance at 1 January 2008
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Share options exercised by employees
Shares issued
Off-market buy-back
Dividends to shareholders
Share-based payment transactions
Equity attributable to equity holders of Santos Ltd
Equity attributable to minority interests
Balance at 31 December 2008
Santos Ltd
Balance at 1 January 2009
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Share options exercised by employees
Entitlement offer exercised
Shares issued
Redeemable cumulative preference shares redeemed
Dividends to shareholders
Share-based payment transactions
Balance at 31 December 2009
Balance at 1 January 2008
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Share options exercised by employees
Shares issued
Off-market buy-back
Dividends to shareholders
Share-based payment transactions
Balance at 31 December 2008
22
22
22
22
22
31
22
22
22
22
31
22
22
22
22
22
31
22
22
22
22
31
2,531
–
4
2,914
138
(600)
–
–
4,987
–
4,987
2,331
–
3
253
(56)
–
–
2,531
–
2,531
2,531
–
4
2,914
138
(600)
–
–
4,987
2,331
–
3
253
(56)
–
–
2,531
(187)
(94)
(2)
–
2,136
445
–
–
–
–
–
–
(281)
–
(281)
(281)
94
–
–
–
–
–
(187)
–
(187)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
–
(2)
7
(9)
–
–
–
–
–
(2)
–
(2)
(2)
–
–
–
–
–
–
–
(2)
7
(9)
–
–
–
–
–
(2)
–
–
–
–
(327)
9
2,263
–
2,263
1,035
1,624
–
–
(245)
(286)
8
2,136
–
2,136
602
153
–
–
–
–
(327)
9
437
1,131
(6)
–
–
(245)
(286)
8
602
4,478
351
4
2,914
138
(600)
(327)
9
6,967
–
6,967
3,092
1,709
3
253
(301)
(286)
8
4,478
–
4,478
3,131
153
4
2,914
138
(600)
(327)
9
5,422
3,469
(15)
3
253
(301)
(286)
8
3,131
The statements of changes in equity are to be read in conjunction with the notes to the consolidated fi nancial statements.
74
Santos Annual Report 2009
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING
POLICIES
The fi nancial report of Santos Ltd (“the
Company”) for the year ended 31 December
2009 was authorised for issue in accordance
with a resolution of the Directors on
18 February 2010.
Santos Ltd (the parent) is a company limited
by shares incorporated in Australia whose
shares are publicly traded on the Australian
Securities Exchange (“ASX”) and is the
ultimate parent entity in the Group. The
consolidated fi nancial report of the Company
for the year ended 31 December 2009
comprises the Company and its controlled
entities (“the Group”).
The nature of the operations and principal
activities of the Group are described in the
Directors’ Statutory Report.
(A) STATEMENT OF COMPLIANCE
The fi nancial report is a general purpose
fi nancial report which has been prepared
in accordance with the requirements of
the Corporations Act 2001, Australian
Accounting Standards and other
authoritative pronouncements of the
Australian Accounting Standards Board.
The fi nancial report complies with
Australian Accounting Standards as
issued by the Australian Accounting
Standards Board and International
Financial Reporting Standards (“IFRS”) as
issued by the International Accounting
Standards Board.
(B) BASIS OF PREPARATION
The fi nancial report is presented in
Australian dollars.
The fi nancial report is prepared on
the historical cost basis, except for
derivative fi nancial instruments, fi xed
rate notes that are hedged by an interest
rate swap and available-for-sale fi nancial
assets, which are measured at fair value.
The Company is of a kind referred to in
ASIC Class Order 98/100 dated 10 July
1998 (updated by Class Order 05/641
effective 28 July 2005), and in
accordance with that Class Order
amounts in the fi nancial report and
Directors’ Statutory Report have been
rounded to the nearest million dollars,
unless otherwise stated.
Adoption of new accounting standards
and interpretations
From 1 January 2009, the Company has
adopted the following standards and
interpretations, and all consequential
amendments, which became applicable
on 1 January 2009. Adoption of these
standards and interpretations has only
affected the presentation and disclosure
in these fi nancial statements. There has
been no impact on the fi nancial position
or performance of the Company.
• AASB 8 Operating Segments
• AASB 101 Presentation of Financial
Statements
• AASB 2008-1 Amendments to
Australian Accounting Standard
– Share-based Payments: Vesting
Conditions and Cancellations
• AASB 2008-5 Amendments to
Australian Accounting Standards arising
from the Annual Improvements Project
• AASB 2008-7 Amendments to
Australian Accounting Standards – Cost
of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
• AASB 2009-2 Amendments to
Australian Accounting Standards
– Improving Disclosures about Financial
Instruments
• AASB 2009-6 Amendments to
Australian Accounting Standards
Santos Annual Report 2009
75
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been
adopted by the Group for the annual reporting period ended 31 December 2009. These are outlined in the following table:
Reference
Title
Summary
Effective for
annual
reporting
periods
beginning on
or after
AASB 3
Business Combinations Adopts the acquisition method to account for
1 July 2009
Impact on
Group
fi nancial
report
Will impact
recognition
of future
acquisitions
Unlikely to
have material
impact
Application
date for Group
1 January 2010
1 January 2013
1 January 2013
1 July 2009
Unlikely to
have impact
1 January 2010
1 July 2009
No impact
1 January 2010
1 July 2009
No impact
1 January 2010
AASB 9
Financial Instruments
AASB 127
Consolidated and
Separate Financial
Statements
AASB 2008-3
AASB 2008-6
Amendments to
Australian Accounting
Standards arising
from AASB 3 and
AASB 127
Further Amendments
to Australian
Accounting Standards
arising from the
Annual Improvements
Project
business combinations; acquisition costs
expensed; contingent consideration recognised
at fair value on acquisition date.
AASB 9 includes requirements for the
classifi cation and measurement of fi nancial
assets resulting from the fi rst part of phase 1 of
the IASB’s project to replace IAS 39 Financial
Instruments: Recognition and Measurement
(AASB 139 Financial Instruments: Recognition
and Measurement). These requirements improve
and simplify the approach for classifi cation and
measurement of fi nancial assets compared with
the requirements of AASB 139.
Changes in a parent’s ownership in a subsidiary
that result in a loss of control requires reserves
to be recycled and remaining ownership
interest to be measured at fair value; changes
that do not result in a loss of control are
accounted for as equity transactions.
Consequential amendments to a number of
standards following the issue of the revised
AASB 3 Business Combinations and AASB 127
Consolidated and Separate Financial Statements.
Extends scope of AASB 5 Non-current Assets
Held for Sale and Discontinued Operations to
require where entity is committed to sale plan
involving loss of control of a subsidiary but
retains a partial investment in the disposed
subsidiary, in which case all of the subsidiary’s
assets and liabilities are classifi ed as held for
sale; also includes minor terminology or
editorial amendments to other standards.
AASB 2008-8
Amendments to
Australian Accounting
Standards – Eligible
Hedged Items
Clarifi es the hedge accounting provisions of
AASB 139 Financial Instruments: Recognition
and Measurement to address infl ation in a
fi nancial hedged item, and one-sided risk in a
hedged item.
1 July 2009
No impact
1 January 2010
76
Santos Annual Report 2009
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference
Title
Summary
AASB 2008-13
AASB 2009-4
AASB 2009-5
AASB 2009-7
AASB 2009-8
AASB 2009-9
Amendments to
Australian Accounting
Standards arising from
AASB Interpretation
17 – Distributions of
Non-cash Assets to
Owners
Amends AASB 5 Non-current Assets Held for Sale
and Discontinued Operations in respect of the
classifi cation, presentation and measurement
of non-current assets held for distribution to
owners in their capacity as owners and
AASB 110 Events after the Reporting Period for
the disclosure requirements for dividends that
are declared after the reporting period but
before the fi nancial statements are authorised
for issue.
Amendments to
Australian Accounting
Standards arising
from the Annual
Improvements Project
Amends scope of AASB 2 Share-based Payment
to exclude business combinations from scope;
there are additional consequential amendments
to AASB 138 Intangible Assets arising from
revised AASB 3 Business Combinations.
Further Amendments
to Australian
Accounting Standards
arising from the
Annual Improvements
Project
Amendments to
Australian Accounting
Standards
Amendments to
Australian Accounting
Standards – Group
Cash-settled
Share-based Payment
Transactions
Includes a number of other amendments to
existing standards which are not expected to
have a material impact. Will amend
classifi cation of exploration expenditure in
statement of cash fl ows.
Various minor editorial amendments to a
number of standards and an interpretation to
correct errors that occurred in AASB 2008-12,
AASB 2008-13 and AASB Interpretation 17
Distributions of Non-cash Assets to Owners and
other amendments refl ect changes made by the
IASB to its pronouncements.
The amendments clarify the scope of AASB 2
Share-based Payment by requiring an entity
that receives goods or services in a share-based
payment arrangement to account for those
goods or services no matter which entity in the
group settles the transaction, and no matter
whether the transaction is settled in shares or
cash.
Amendments to
Australian Accounting
Standards –
Additional Exemptions
for First-time Adopters
Provides additional exemptions and
modifi cations on transition to Australian
Accounting Standards in relation to certain oil
and gas and lease assessments under
Interpretation 4 Determining whether an
Arrangement contains a Lease.
Effective for
annual
reporting
periods
beginning on
or after
Impact on
Group
fi nancial
report
Application
date for Group
1 July 2009
No impact
1 January 2010
1 July 2009
No impact
1 January 2010
1 July 2009
No impact
1 January 2010
1 July 2009
No impact
1 January 2010
1 January 2010
No impact
1 January 2010
1 January 2010
No impact
1 January 2010
Santos Annual Report 2009
77
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
Effective for
annual
reporting
periods
beginning on
or after
Impact on
Group
fi nancial
report
Application
date for Group
1 February 2010 No impact
1 January 2011
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reference
Title
Summary
AASB 2009-10
Amendments to
Australian Accounting
Standards –
Classifi cation of
Rights Issues
Amends AASB 132 Financial Instruments:
Presentation to require a fi nancial instrument
that gives the holder the right to acquire a
fi xed number of the entity’s own equity
instruments for a fi xed amount of any currency
to be classifi ed as an equity instrument if, and
only if, the entity offers the fi nancial
instrument pro-rata to all of its existing owners
of the same class of its own non-derivative
equity instruments. Before this amendment,
rights issues (rights, options, or warrants),
denominated in a currency other than the
functional currency of the issuer, were
accounted for as derivative instruments.
AASB 2009-11
AASB 2009-12
Amendments to
Australian Accounting
Standards arising
from AASB 9
Amendments to
Australian Accounting
Standards
AASB 2009-13
Amendments to
Australian Accounting
Standards arising from
Interpretation 19
Interpretation 17 Distributions of
Non-cash Assets to
Owners
Interpretation 18 Transfers of Assets
from Customers
Interpretation 19 Extinguishing
Financial Liabilities
with Equity
Instruments
This standard gives effect to consequential
changes arising from the issuance of AASB 9.
1 January 2013
1 January 2013
Unlikely to
have material
impact
The amendment to AASB 8 requires an entity
to exercise judgement in assessing whether a
government and entities known to be under the
control of that government are considered a
single customer for the purposes of certain
operating segment disclosures.
The objective of this Standard is to make
amendments to AASB 1 First-time Adoption of
Australian Accounting Standards as a
consequence of the issuance of Interpretation
19 Extinguishing Financial Liabilities with Equity
Instruments.
Provides guidance on when and how a liability
for certain distributions of non-cash assets is
recognised and measured, and how to account
for that liability. Does not apply to common
control transactions.
Provides guidance on transfers of property,
plant and equipment for entities that receive
such contributions from their customers.
This interpretation addresses the accounting by
an entity when the terms of a fi nancial liability
are renegotiated and result in the entity
issuing equity instruments to a creditor of the
entity to extinguish all or part of the fi nancial
liability.
1 January 2011
No impact
1 January 2011
1 July 2010
No impact
1 January 2011
1 July 2009
No impact
1 January 2010
1 July 2009
No impact
1 January 2010
1 July 2010
No impact
1 January 2011
78
Santos Annual Report 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Group has changed the classifi cation
of exploration and evaluation
expenditure in the statement of cash
fl ows such that only exploration and
evaluation expenditure that results in
the initial recognition of an exploration
and evaluation asset is included in
investing activities. Exploration and
evaluation expenditure that is expensed
as incurred (generally seismic and study
activities) is classifi ed in operating
activities. As a result, $88 million of
exploration and evaluation expenditure
was transferred from cash fl ows from
investing activities to cash fl ows from
operating activities for the Group and
$11 million for Santos Ltd in the prior
year ended 31 December 2008.
The accounting policies set out below
have been applied consistently to all
periods presented in the consolidated
fi nancial report.
The accounting policies have been
consistently applied by the Group.
(C) BASIS OF CONSOLIDATION
Subsidiaries
Subsidiaries are entities controlled by
the Company. Control exists when the
Company has the power, directly or
indirectly, to govern the fi nancial and
operating policies of an entity so as
to obtain benefi ts from its activities.
In assessing control, potential voting
rights that presently are exercisable
or convertible are taken into account.
The fi nancial statements of subsidiaries
are included in the consolidated fi nancial
statements from the date that control
commences until the date that
control ceases.
The acquisition of subsidiaries is
accounted for using the purchase method
of accounting, which involves allocating
the cost of the business combination to
the fair value of the assets acquired and
the liabilities and contingent liabilities
assumed at the date of acquisition
(refer note 1(G)).
Investments in subsidiaries are carried
at their cost of acquisition, less any
impairment charges, in the Company’s
fi nancial statements.
benefi ts through its share of jointly
controlled assets.
Intragroup balances and any unrealised
gains and losses or income and expenses
arising from intragroup transactions are
eliminated in preparing the consolidated
fi nancial statements.
Minority interests
Minority interests in the net assets
of consolidated entities are allocated
their share of net profi t after tax in the
income statement, and are identifi ed
separately from the Group’s equity
in those entities. Minority interests
consist of the amount of those interests
at the date of the original business
combination and the minority’s share of
changes in equity since the date of the
combination. Where the minority interest
has losses greater than its equity
interest in the consolidated subsidiary,
the excess and any further losses
applicable to the minority interest are
allocated against the Group’s interest.
If the minority interest subsequently
reports profi ts, the profi ts are allocated
to the Group until the minority’s share of
losses previously absorbed by the Group
have been fully recovered.
Jointly controlled assets
Santos’ exploration and production
activities are often conducted through
joint venture arrangements governed by
joint operating agreements, production
sharing contracts or similar contractual
relationships. A summary of the Group’s
interests in its signifi cant joint ventures
is included in note 28.
A joint venture characterised as a jointly
controlled asset involves the joint
control, and often the joint ownership,
by the venturers of one or more assets
contributed to, or acquired for the
purpose of, the joint venture and
dedicated to the purposes of the joint
venture. The assets are used to obtain
benefi ts for the venturers. Each venturer
may take a share of the output from the
assets and each bears an agreed share
of expenses incurred. Each venturer has
control over its share of future economic
The interests of the Company and of the
Group in unincorporated joint ventures
are brought to account by recognising
in the fi nancial statements the Group’s
share of jointly controlled assets, share
of expenses and liabilities incurred, and
the income from the sale or use of its
share of the production of the joint
venture in accordance with the revenue
policy in note 1(X).
Jointly controlled entities
The Group has interests in joint ventures
which are jointly controlled entities,
whereby the venturers have contractual
arrangements that establish joint control
over the economic activities of the
entities. The Group recognises its
interest in jointly controlled entities
using proportionate consolidation,
by combining its share of the assets,
liabilities, income and expenses of the
joint venture with similar line items in
the consolidated fi nancial statements.
Investment in an associate
The Group’s investment in an associate is
accounted for using the equity method
of accounting in the consolidated
fi nancial statements and at cost in the
parent. An associate is an entity over
which the Group has signifi cant infl uence
and that is neither a subsidiary nor a
joint venture. The Group generally has
signifi cant infl uence if it has between
20% and 50% of the voting rights of
an entity.
Under the equity method, the investment
in an associate is carried in the
consolidated statement of fi nancial
position at cost plus post-acquisition
changes to the Group’s share of net
assets of the associate. Goodwill relating
to the associate is included in the
carrying amount of the investment and
is not amortised. After application of the
equity method, the Group determines
whether it is necessary to recognise any
impairment loss with respect to the
Group’s net investment in the associate.
Santos Annual Report 2009
79
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Group’s share of the associate’s
post-acquisition profi ts or losses is
recognised in the income statement, and
its share of post-acquisition movements
in reserves is recognised in the
statement of changes in equity and,
when applicable, in the statement of
comprehensive income. The cumulative
post-acquisition movements are recorded
against the carrying amount of the
investment. Dividends receivable from
the associate are recognised in the
parent entity’s income statement, while
in the consolidated fi nancial statements
the Group reduces the carrying amount
of the investment.
When the Group’s share of losses in an
associate equals or exceeds its interest
in the associate, including any unsecured
long-term receivables and loans, the
Group does not recognise further losses,
unless it has incurred obligations or
made payments on behalf of the
associate. The reporting dates of the
associate and the Group are identical
and the associate’s accounting policies
conform to those used by the Group for
like transactions and events in similar
circumstances.
(D) FOREIGN CURRENCY
Functional and presentation currency
Both the functional and presentation
currency of Santos Ltd is Australian
dollars. Some subsidiaries have a
functional currency of United States
dollars which is translated to the
presentation currency (see below).
Transactions and balances
Transactions in foreign currencies are
initially recorded in the functional
currency by applying the exchange rate
ruling at the date of the transaction.
Monetary assets and liabilities
denominated in foreign currencies are
retranslated at the foreign exchange
rate ruling at the reporting date.
Foreign exchange differences arising
on translation are recognised in the
income statement.
Foreign exchange differences that arise
on the translation of monetary items
that form part of the net investment in
80
Santos Annual Report 2009
a foreign operation are recognised in
equity in the consolidated fi nancial
statements.
Non-monetary assets and liabilities that
are measured in terms of historical cost
in a foreign currency are translated using
the exchange rate at the date of the
initial transaction. Non-monetary assets
and liabilities denominated in foreign
currencies that are stated at fair value
are translated to the functional currency
at foreign exchange rates ruling at the
dates the fair value was determined.
Group companies
The results of subsidiaries with a
functional currency of United States
dollars are translated to Australian dollars
as at the date of each transaction. The
assets and liabilities are translated to
Australian dollars at foreign exchange
rates ruling at the reporting date.
Foreign exchange differences arising on
retranslation are recognised directly in
the foreign currency translation reserve.
Exchange differences arising from the
translation of the net investment in
foreign operations and of related hedges
are taken to the foreign currency
translation reserve. They are released
into the income statement upon disposal
of the foreign operation.
(E)
DERIVATIVE FINANCIAL
INSTRUMENTS
The Group frequently uses derivative
fi nancial instruments to hedge its
exposures to changes in foreign
exchange rates, commodity prices and
interest rates arising in the normal
course of business. The principal
derivatives that may be used are forward
foreign exchange contracts, foreign
currency swaps and options, interest rate
swaps 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 Group
does not trade in derivative fi nancial
instruments for speculative purposes.
Derivative fi nancial instruments are
recognised initially at fair value.
Subsequent to initial recognition,
derivative fi nancial instruments are
stated at fair value. Where derivatives
qualify for hedge accounting, recognition
of any resultant gain or loss depends
on the nature of the item being
hedged; otherwise the gain or loss
on remeasurement to fair value is
recognised immediately in profi t or loss.
The fair value of interest rate swaps is
the estimated amount that the Group
would receive or pay to terminate the
swap at the reporting date, taking into
account current interest rates and the
current creditworthiness of the swap
counterparties. The fair value of forward
exchange contracts is their quoted
market price at the reporting date, being
the present value of the quoted forward
price. The fair value of commodity swap
and option contracts is their quoted
market price at the reporting date.
Embedded derivatives
Derivatives embedded in other fi nancial
instruments or other host contracts are
treated as separate derivatives when
their risks and characteristics are not
closely related to those of the host
contract and the host contracts are not
measured at fair value with changes in
fair value recognised in profi t or loss.
(F) HEDGING
Hedge effectiveness
Hedge accounting (see below) is only
applied where the derivative fi nancial
instrument provides an effective hedge
of the hedged item. Where a derivative
fi nancial instrument provides a partially
effective hedge, any gain or loss on
the ineffective part is recognised
immediately in the income statement.
Fair value hedge
Where a derivative fi nancial instrument
hedges the changes in fair value of
a recognised asset or liability or an
unrecognised fi rm commitment (or an
identifi ed portion of such asset, liability
or fi rm commitment), any gain or loss on
the hedging instrument is recognised in
the income statement. The hedged item
is stated at fair value in respect of the
risk being hedged, with any gain or loss
being recognised in the income
statement.
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Cash fl ow hedge
Where a derivative fi nancial instrument is
designated as a hedge of the variability
in cash fl ows of a recognised asset or
liability, or a highly probable forecast
transaction, any gain or loss on the
derivative fi nancial instrument is
recognised directly in equity. When the
forecast transaction subsequently results
in the recognition of a non-fi nancial
asset or non-fi nancial liability, or the
forecast transaction for a non-fi nancial
asset or non-fi nancial liability becomes
a fi rm commitment for which fair value
hedging is applied, the associated
cumulative gain or loss is removed from
equity and included in the initial cost or
other carrying amount of the
non-fi nancial asset or non-fi nancial
liability. If a hedge of a forecast
transaction subsequently results in the
recognition of a fi nancial asset or a
fi nancial liability, the associated gains
and losses that were recognised directly
in equity are reclassifi ed into profi t or
loss in the same period or periods during
which the asset acquired or liability
assumed affects profi t or loss.
For cash fl ow hedges, other than those
covered by the preceding paragraph, the
associated cumulative gain or loss is
removed from equity and recognised in
the income statement in the same period
or periods during which the hedged
forecast transaction affects profi t or loss.
When a hedging instrument expires or
is sold, terminated or exercised, or the
entity revokes designation of the hedge
relationship, but the hedged forecast
transaction is still expected to occur,
the cumulative gain or loss at that point
remains in equity and is recognised in
accordance with the above policy when
the transaction occurs. If the hedged
transaction is no longer expected to take
place, the cumulative unrealised gain or
loss recognised in equity is recognised
immediately in the income statement.
Hedge of monetary assets and
liabilities
When a derivative fi nancial instrument is
used to hedge economically the foreign
exchange exposure of a recognised
monetary asset or liability, hedge
accounting is not applied and any gain
or loss on the hedging instrument is
recognised in the income statement.
Hedge of net investment in a
foreign operation
The gain or loss on an instrument used
to hedge a net investment in a foreign
operation is recognised directly in equity.
On disposal of the foreign operation, the
cumulative value of any such gains or
losses recognised directly in equity is
transferred to profi t or loss.
(G) ACQUISITION OF ASSETS
All assets acquired are recorded at their
cost of acquisition, being the amount of
cash or cash equivalents paid, and the
fair value of assets given, shares issued
or liabilities incurred. The cost of an
asset comprises the purchase price
including any incidental costs directly
attributable to the acquisition; any costs
directly attributable to bringing the asset
to the location and condition necessary
for it to be capable of operating; and the
estimate of the costs of dismantling and
removing the asset and restoring the site
on which it is located determined in
accordance with note 1(Q).
Business combinations
The purchase method of accounting
is used to account for all business
combinations regardless of whether
equity instruments or other assets are
acquired. Cost is measured as the fair
value of the assets given, shares issued
or liabilities incurred or assumed at the
date of exchange plus costs directly
attributable to the combination. Where
equity instruments are issued in a
business combination, the fair value
of the instruments is their published
market price as at the date of exchange.
Transaction costs arising on the issue
of equity instruments are recognised
directly in equity.
Except for non-current assets or disposal
groups classifi ed as held for sale (which
are measured at fair value less costs
to sell), all identifi able assets acquired
and liabilities and contingent liabilities
assumed in a business combination are
measured initially at their fair values at
the acquisition date. The excess of the
costs of the business combination over
the net fair value of the identifi able
net assets of the Group’s share of the
identifi able net assets acquired is
recognised as goodwill. If the cost of
acquisition is less than the Group’s share
of the net fair value of the identifi able
net assets of the subsidiary, the
difference is recognised as a gain in
the income statement, but only after a
reassessment of the identifi cation and
measurement of the net assets acquired.
Where settlement of any part of the
consideration is deferred, the amounts
payable in the future are discounted to
their present value as at the date of
exchange. The discount rate used is the
entity’s incremental borrowing rate,
being the rate at which a similar
borrowing could be obtained from an
independent fi nancier under comparable
terms and conditions.
(H) EXPLORATION AND EVALUATION
EXPENDITURE
Exploration and evaluation expenditure
in respect of each area of interest is
accounted for using the successful
efforts method of accounting. The
successful efforts method requires all
exploration and evaluation expenditure
to be expensed in the period it is
incurred, except the costs of successful
wells and the costs of acquiring interests
in new exploration assets, which are
capitalised as intangible exploration
and evaluation. The costs of wells are
initially capitalised pending the results
of the well.
An area of interest refers to an individual
geological area where the presence of
oil or a natural gas fi eld is considered
favourable or has been proved to exist,
and in most cases will comprise an
individual prospective oil or gas fi eld.
Santos Annual Report 2009
81
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Exploration and evaluation expenditure
is recognised in relation to an area of
interest when the rights to tenure of the
area of interest are current and either:
(i)
such expenditure is expected to
be recovered through successful
development and commercial
exploitation of the area of interest,
or alternatively, by its sale; 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
and active and signifi cant
operations in, or in relation to, the
area of interest are continuing.
(iv) suffi cient data exists to indicate
that although a development is
likely to proceed, the carrying
amount of the exploration and
evaluation asset is unlikely to be
recovered in full from successful
development or from sale.
Where an indicator of impairment exists,
a formal estimate of the recoverable
amount is made and any resultant
impairment loss is recognised in the
income statement.
When a discovered oil or gas fi eld enters
the development phase the accumulated
exploration and evaluation expenditure
is transferred to oil and gas assets –
assets in development.
Where an ownership interest in an
exploration and evaluation asset is
exchanged for another, the transaction is
recognised by reference to the carrying
value of the original interest. Any cash
consideration paid, including transaction
costs, is accounted for as an acquisition
of exploration and evaluation assets.
Any cash consideration received, net
of transaction costs, is treated as a
recoupment of costs previously capitalised
with any excess accounted for as a gain
on disposal of non-current assets.
The carrying amounts of the Group’s
exploration and evaluation assets are
reviewed at each reporting date, in
conjunction with the impairment review
process referred to in note 1(P), to
determine whether any of the following
indicators of impairment exists:
(i)
tenure over the licence area has
expired during the period or will
expire in the near future, and is not
expected to be renewed; or
(ii) substantive expenditure on further
exploration for and evaluation of
mineral resources in the specifi c
area is not budgeted or planned; or
(iii) exploration for and evaluation of
resources in the specifi c area has
not led to the discovery of
commercially viable quantities
of resources, and the Group has
decided to discontinue activities
in the specifi c area; or
(I) OIL AND GAS ASSETS
Oil and gas assets are usually single oil
or gas fi elds being developed for future
production or which are in the production
phase. Where several individual oil or
gas fi elds are to be produced through
common facilities, the individual oil or
gas fi elds and the associated production
facilities are managed and reported as a
single oil and gas asset.
Assets in development
When the technical and commercial
feasibility of an undeveloped oil or gas
fi eld has been demonstrated, the fi eld
enters its development phase. The costs
of oil and gas assets in the development
phase are separately accounted for
as tangible assets and include past
exploration and evaluation costs,
development drilling and other
subsurface expenditure, surface plant
and equipment and any associated land
and buildings.
When commercial operation commences
the accumulated costs are transferred to
oil and gas assets – producing assets.
Producing assets
The costs of oil and gas assets in
production are separately accounted
for as tangible assets and include past
exploration and evaluation costs,
pre-production development costs and
the ongoing costs of continuing to
develop reserves for production and to
expand or replace plant and equipment
and any associated land and buildings.
These costs are subject to depreciation
and depletion in accordance with
note 1(K).
Ongoing exploration and
evaluation activities
Often the initial discovery and
development of an oil or gas asset will
lead to ongoing exploration for, and
evaluation of potential new oil or gas
fi elds in the vicinity with the intention
of producing any near fi eld discoveries
using the infrastructure in place.
Exploration and evaluation expenditure
associated with oil and gas assets is
accounted for in accordance with the
policy in note 1(H). Exploration and
evaluation expenditure amounts
capitalised in respect of oil and gas
assets are separately disclosed in
note 14.
(J)
LAND, BUILDINGS, PLANT AND
EQUIPMENT
Land and buildings are measured at
cost less accumulated depreciation on
buildings, less any impairment losses
recognised.
Plant and equipment is stated at cost
less accumulated depreciation and any
accumulated impairment losses. Such
cost includes the cost of rotable spares
and insurance spares that are purchased
for back up or rotation with specifi c
plant and equipment items. Similarly,
the cost of major cyclical maintenance
is recognised in the carrying amount of
the related plant and equipment as a
replacement only if it is eligible for
capitalisation. Any remaining carrying
amount from the cost of the previous
major cyclical maintenance is
derecognised. All other repairs and
maintenance are recognised in profi t
or loss as incurred.
Depreciation on buildings, plant and
equipment is calculated in accordance
with note 1(K).
82
Santos Annual Report 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(K) DEPRECIATION AND DEPLETION
Depreciation charges are calculated
to write off the depreciable value of
buildings, plant and equipment over
their estimated economic useful lives to
the Group. Each component of an item
of buildings, plant and equipment with a
cost that is signifi cant in relation to the
total cost of the asset is depreciated
separately. The residual value, useful life
and depreciation method applied to an
asset is reviewed at the end of each
annual reporting period.
Depreciation of onshore buildings, plant
and equipment and corporate assets is
calculated using the straight-line method
of depreciation on an individual asset
basis from the date the asset is available
for use.
The estimated useful lives for each class
of onshore assets for the current and
comparative periods are generally as
follows:
• Buildings
• Plant and equipment
20 – 50 years
– Computer equipment 3 – 5 years
4 – 7 years
– Motor vehicles
– Furniture and fi ttings 10 – 20 years
10 – 30 years
– Pipelines
10 – 50 years
– Plant and facilities
Depreciation of offshore plant and
equipment is calculated using the
units of production method on a
cash-generating unit basis (refer
note 1(P)) from the date of
commencement of production.
Depletion charges are calculated using
a unit of production method based on
heating value which will amortise the
cost of carried forward exploration,
evaluation and subsurface development
expenditure (“subsurface assets”) over
the life of the estimated Proven plus
Probable (“2P”) reserves in a
cash-generating unit, together with
future subsurface costs necessary to
develop the hydrocarbon reserves in the
respective cash-generating units.
The heating value measurement used for
the conversion of volumes of different
hydrocarbon products is barrels of oil
equivalent.
Depletion is not charged on costs carried
forward in respect of assets in the
development stage until production
commences.
(L)
AVAILABLE-FOR-SALE FINANCIAL
ASSETS
Financial instruments held by the Group
and the Company which are classifi ed as
being available for sale are stated at fair
value, with any resultant gain or loss
being recognised directly in equity.
The fair value of fi nancial instruments
classifi ed as available for sale is their
quoted bid price at the close of business
on the reporting date.
Financial instruments classifi ed as
available for sale are recognised or
derecognised by the Group and the
Company on the date it commits to
purchase or sell the investments.
When these investments are
derecognised, the cumulative gain or
loss previously recognised directly in
equity is recognised in profi t or loss.
(M) INVENTORIES
Inventories are stated at the lower
of cost and net realisable value. Net
realisable value is the estimated selling
price in the ordinary course of business,
less the estimated costs of completion
and selling expenses. Cost is determined
as follows:
(i)
drilling and maintenance stocks,
which include plant spares,
consumables and maintenance and
drilling tools used for ongoing
operations, are valued at weighted
average cost; and
(ii) petroleum products, which comprise
extracted crude oil, liquefi ed
petroleum gas, 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
in a manner which approximates
specifi c identifi cation.
(N) TRADE AND OTHER RECEIVABLES
Trade and other receivables are initially
recognised at fair value, which in
practice is the equivalent of cost,
less any impairment losses.
Long-term receivables are discounted
and are stated at amortised cost, less
impairment losses.
Trade and other receivables are assessed
for indicators of impairment at each
reporting date. Where a receivable is
impaired the amount of the impairment
is the difference between the asset’s
carrying value and the present value of
estimated future cash fl ows, discounted
at the original effective interest rate.
The carrying amount of the receivable is
reduced through the use of an allowance
account. Changes in the allowance
account are recognised in profi t or loss.
(O) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash
balances and short-term deposits that
are readily convertible to known amounts
of cash, are subject to an insignifi cant
risk of changes in value, and generally
have an original maturity of three
months or less.
(P)
IMPAIRMENT
The carrying amounts of the Group’s
assets, other than inventories and
deferred tax assets, are reviewed at each
reporting date to determine whether
there is any indication of impairment.
Where an indicator of impairment exists,
a formal estimate of the recoverable
amount is made.
Oil and gas assets, land, buildings,
plant and equipment are assessed for
impairment on a cash-generating unit
(“CGU”) basis. A cash-generating unit
is the smallest grouping of assets that
generates independent cash infl ows, and
generally represents an individual oil or
gas fi eld. Impairment losses recognised
in respect of cash-generating units are
allocated to reduce the carrying amount
of the assets in the unit on a
pro-rata basis.
Exploration and evaluation assets are
assessed for impairment in accordance
with note 1(H).
Santos Annual Report 2009
83
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
An impairment loss is recognised in
the income statement whenever the
carrying amount of an asset or its
cash-generating unit exceeds its
recoverable amount.
Where a decline in the fair value of an
available-for-sale fi nancial asset has been
recognised directly in equity and there
is objective evidence that the asset is
impaired, the cumulative loss that had
been recognised directly in equity is
recognised in profi t or loss even though
the fi nancial asset has not been
derecognised. The amount of the
cumulative loss that is recognised in
profi t or loss is the difference between
the acquisition cost and current fair
value, less any impairment loss on that
fi nancial asset previously recognised in
profi t or loss.
Calculation of recoverable amount
The recoverable amount of an asset is the
greater of its fair value less costs to sell
and its value in use. In assessing value
in use, an asset’s estimated future cash
fl ows are discounted to their present
value using a pre-tax discount rate that
refl ects current market assessments of
the time value of money and the risks
specifi c to the asset. Where an asset does
not generate cash fl ows that are largely
independent from other assets or groups
of assets, the recoverable amount is
determined for the cash-generating unit
to which the asset belongs.
For oil and gas assets the estimated
future cash fl ows are based on estimates
of hydrocarbon reserves, future production
profi les, commodity prices, operating
costs and any future development costs
necessary to produce the reserves.
Estimates of future commodity prices
are based on contracted prices where
applicable or based on forward market
prices where available.
Reversals of impairment
An impairment loss is reversed if there
has been an increase in the estimated
recoverable amount of a previously
impaired asset. An impairment loss is
reversed only to the extent that the
asset’s carrying amount does not exceed
the carrying amount that would have
been determined, net of depreciation
or depletion, if no impairment loss had
been recognised.
Impairment losses recognised in profi t or
loss on equity instruments classifi ed as
available-for-sale fi nancial assets are not
reversed through profi t or loss.
(Q) PROVISIONS
A provision is recognised in the
statement of fi nancial position when the
Group has a present legal or constructive
obligation as a result of a past event
and it is probable that an outfl ow of
resources embodying economic benefi ts
will be required to settle the obligation
and a reliable estimate can be made of
the amount of the obligation.
Provisions are measured at the present
value of management’s best estimate of
the expenditure required to settle the
present obligation using a discounted
cash fl ow methodology. If the effect of
the time value of money is material, the
provision is discounted using a current
pre-tax rate that refl ects current market
assessments of the time value of money
and, where appropriate, the risks specifi c
to the liability. The increase in the
provision resulting from the passage of
time is recognised in fi nance costs.
Restoration
Provisions for future environmental
restoration are recognised where there
is a present obligation as a result of
exploration, development, production,
transportation or storage activities
having been undertaken, and it is
probable that an outfl ow of economic
benefi ts will be required to settle the
obligation. The estimated future
obligations include the costs of removing
facilities, abandoning wells and restoring
the affected areas.
The provision for future restoration costs
is the best estimate of the present value
of the future expenditure required to
settle the restoration obligation at the
reporting date, based on current legal
requirements. Future restoration costs
are reviewed annually and any changes
in the estimate are refl ected in the
present value of the restoration
provision at the reporting date, with a
corresponding change in the cost of the
associated asset.
The amount of the provision for future
restoration costs relating to exploration,
development and production facilities is
capitalised and depleted as a component
of the cost of those activities.
Remediation
Provisions for remediation costs are
recognised where there is a present
obligation as a result of an unexpected
event that occurs outside of the planned
operations of an asset.
The provision for future remediation
costs is the best estimate of the present
value of the future expenditure required
to settle the remediation obligation at
the reporting date, based on current
legal requirements. Future remediation
costs are reviewed annually and any
changes in the estimate are refl ected
in the present value of the remediation
provision at the reporting date, with a
corresponding charge to the income
statement.
(R) EMPLOYEE BENEFITS
Wages, salaries, annual leave and
sick leave
Liabilities for wages and salaries,
including non-monetary benefi ts,
and annual leave that are expected to
be settled within twelve months of the
reporting date are recognised in respect
of employees’ services up to the
reporting date. They are measured at the
amounts expected to be paid when the
liabilities are settled. Expenses for
non-vesting sick leave are recognised
when the leave is taken and are
measured at the rates paid or payable.
84
Santos Annual Report 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Long-term service benefi ts
A liability for long service leave is
recognised and measured as the present
value of the estimated future cash
outfl ows to be made in respect of
employees’ services up to the reporting
date. The obligation is calculated using
expected future increases in wage and
salary rates, experience of employee
departures and periods of service.
Expected future payments are discounted
using the rates attached to the
Commonwealth Government bonds at the
reporting date which have maturity dates
approximating the terms of the Group’s
obligations.
Defi ned contribution plans
The Company and its controlled entities
contribute to several defi ned contribution
superannuation plans. Obligations for
contributions are recognised as an
expense in the income statement
as incurred.
Defi ned benefi t plan
The Group’s net obligation in respect of
the defi ned benefi t superannuation plan
is calculated by estimating the amount
of future benefi t that employees have
earned in return for their service in the
current and prior periods; that benefi t
is discounted to determine its present
value, and the fair value of any plan
assets is deducted.
The discount rate is the yield at the
reporting date on Government bonds
that have maturity dates approximating
the terms of the Group’s obligations. The
calculation is performed by a qualifi ed
actuary using the projected unit credit
method.
When the benefi ts of the plan are
improved, the portion of the increased
benefi t relating to past service by
employees is recognised as an expense in
the income statement on a straight-line
basis over the average period until the
benefi ts become vested. To the extent
that the benefi ts vest immediately, the
expense is recognised immediately in the
income statement.
Actuarial gains or losses that arise in
calculating the Group’s obligation in
respect of the plan are recognised
directly in retained earnings.
When the calculation results in plan
assets exceeding liabilities to the Group,
the recognised asset is limited to the net
total of any unrecognised actuarial
losses and past service costs and the
present value of any future refunds
from the plan or reductions in future
contributions to the plan.
Past service cost is the increase in the
present value of the defi ned benefi t
obligation for employee services in prior
periods, resulting in the current period
from the introduction of, or changes to,
post-employment benefi ts or other
long-term employee benefi ts. Past
service costs may either be positive
(where benefi ts are introduced or
improved) or negative (where existing
benefi ts are reduced).
Share-based payment transactions
The Santos Executive Share Option Plan
allows eligible executives to acquire
shares in the capital of the Company.
The fair value of options granted is
recognised as an employee expense with
a corresponding increase in equity. The
fair value is measured at grant date and
recognised over the period during which
the executive becomes unconditionally
entitled to the options. The fair value of
the options granted is measured using
the Monte Carlo simulation method,
taking into account the terms and
market conditions upon which the
options were granted. The amount
recognised as an expense is only
adjusted when the options do not vest
due to non-market-related conditions.
The fair value of Share Acquisition Rights
(“SARs”) issued to eligible executives
under the Executive Long-term Incentive
Programme is recognised as an employee
expense with a corresponding increase
in equity. The fair value is measured
at grant date and recognised over the
period during which the executive
becomes unconditionally entitled to the
SARs. The fair value of the SARs granted
is measured using the Monte Carlo
simulation method, taking into account
the terms and market conditions upon
which the SARs were granted. The
amount recognised as an expense is only
adjusted when the SARs do not vest due
to non-market-related conditions.
The Group recognises the fair value
of cash-settled share-based payment
transactions as an employee expense
with a corresponding increase in the
liability for employee benefi ts. The fair
value of the liability is measured initially,
and at the end of each reporting period
until settled, at the fair value of the
cash-settled share-based payment
transaction, by using the Monte Carlo
simulation method, taking into account
the terms and conditions on which
the cash-settled share-based payment
transactions were granted, and the extent
to which the employees have rendered
service to date.
The fair value of shares issued to eligible
employees under the Santos Employee
Share Acquisition Plan, to eligible
executives and employees under the
Santos Employee Share Purchase Plan,
and new shares issued to Non-executive
Directors under the Non-executive
Director Share Plan, is recognised as an
increase in issued capital on grant date.
Shares issued under the Santos Employee
Share Acquisition Plan to employees
of subsidiaries are recognised in the
Company’s separate fi nancial statements
as an additional investment in the
subsidiary with a corresponding credit
to equity. As a result, the expense
recognised by the Company in relation
to equity-settled awards only represents
the expense associated with grants to
employees of the Company. The expense
recognised by the Group is the total
expense.
(S)
INTEREST-BEARING BORROWINGS
Interest-bearing borrowings are
recognised initially at fair value, net of
transaction costs incurred. Subsequent
to initial recognition, interest-bearing
borrowings are stated at amortised cost
with any difference between cost and
redemption value being recognised in
the income statement over the period
of the borrowings on an effective
interest basis.
Santos Annual Report 2009
85
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Fixed rate notes that are hedged by an
interest rate swap are recognised at fair
value (refer note 1(F)).
(T) BORROWING COSTS
Borrowing costs, including interest and
fi nance charges relating to major oil and
gas assets under development up to the
date of commencement of commercial
operations, are capitalised as a
component of the cost of development.
Where funds are borrowed specifi cally for
qualifying projects the actual borrowing
costs incurred are capitalised. Where the
projects are funded through general
borrowings the borrowing costs are
capitalised based on the weighted
average borrowing rate (refer note 19).
Borrowing costs incurred after
commencement of commercial operations
are expensed.
All other borrowing costs are recognised
in the profi t or loss in the period in
which they are incurred.
(U) DEFERRED INCOME
A liability is recorded for obligations
under sales contracts to deliver natural
gas in future periods for which payment
has already been received.
Deferred income is also recognised on
asset sale agreements where consideration
is received prior to all conditions
precedent being fulfi lled.
(V) TRADE AND OTHER PAYABLES
Trade and other payables are recognised
when the related goods or services are
received, at the amount of cash or cash
equivalent that will be required to
discharge the obligation, gross of any
settlement discount offered. Trade
payables are non-interest-bearing and
are settled on normal terms and
conditions.
(W) SHARE CAPITAL
Ordinary share capital
Ordinary share capital is classifi ed
as equity.
Preference share capital
Preference share capital is classifi ed as
equity if it is non-redeemable and any
86
Santos Annual Report 2009
dividends are discretionary, or it is
redeemable only at the Company’s
option. Dividends on preference
share capital classifi ed as equity are
recognised as distributions within equity.
Dividends
Dividends are recognised as a liability at
the time the Directors resolve to pay or
declare the dividend.
with the terms of the overriding royalty
agreements.
Pipeline tariffs and processing tolls
Tariffs and tolls charged to other entities
for use of pipelines and facilities owned
by the Group are recognised as revenue
as they accrue in accordance with the
terms of the tariff and tolling
agreements.
Transaction costs
Trading revenue
Transaction costs of an equity
transaction are accounted for as a
deduction from equity, net of any related
income tax benefi t.
(X) REVENUE
Revenue is recognised in the income
statement when the signifi cant risks
and rewards of ownership have been
transferred to the buyer. Revenue is
recognised and measured at the fair value
of the consideration or contributions
received, net of goods and services tax or
similar taxes, to the extent it is probable
that the economic benefi ts will fl ow
to the Group and the revenue can be
reliably measured.
Sales revenue
Sales revenue is recognised on the basis
of the Group’s interest in a producing
fi eld (“entitlements” method), when the
physical product and associated risks
and rewards of ownership pass to the
purchaser, which is generally at the time
of ship or truck loading, or on the
product entering the pipeline.
Revenue earned under a production
sharing contract (“PSC”) is recognised on
a net entitlements basis according to the
terms of the PSC.
Dividends
Dividend revenue from controlled entities
is recognised as the dividends are
declared, and from other parties as
the dividends are received.
Overriding royalties
Royalties recognised on farmed-out
operating lease rights are recognised as
revenue as they accrue in accordance
Trading revenue represents the net
revenue derived from the purchase and
subsequent sale of hydrocarbon products
from third parties where the risks and
benefi ts of ownership of the product
do not pass to the Group, or where the
Group acts as an agent or broker with
compensation on a commission or
fee basis.
(Y) INTEREST INCOME
Interest income is recognised in the
income statement as it accrues, using
the effective interest method. This is a
method of calculating the amortised cost
of a fi nancial asset and allocating the
interest income over the relevant period
using the effective interest rate, which is
the rate that exactly discounts estimated
future cash receipts through the expected
life of the fi nancial asset to the net
carrying amount of the fi nancial asset.
(Z) OTHER INCOME
Other income is recognised in the
income statement at the fair value of
the consideration received or receivable,
net of goods and services tax, when the
signifi cant risks and rewards of ownership
have been transferred to the buyer or
when the service has been performed.
The gain or loss arising on disposal of
a non-current asset is included as other
income at the date control of the asset
passes to the buyer. The gain or loss on
disposal is calculated as the difference
between the carrying amount of the
asset at the time of disposal and the
net proceeds on disposal.
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
(AA) LEASES
The determination of whether an
arrangement is or contains a lease
is based on the substance of the
arrangement and requires an assessment
of whether the fulfi lment of the
arrangement is dependent on the use
of a specifi c asset or assets and the
arrangement conveys a right to use
the asset.
Leases are classifi ed as fi nance leases
when the terms of the lease transfer
substantially all the risks and rewards
incidental to ownership of the leased
asset to the lessee. All other leases are
classifi ed as operating leases.
Finance leases are capitalised at the
lease’s inception at the fair value of the
leased property or, if lower, the present
value of the minimum lease payments.
The corresponding liability to the lessor
is included in the statement of fi nancial
position as a fi nance lease obligation.
Lease payments are apportioned between
fi nance charges and reduction of the lease
obligation so as to achieve a constant
rate of interest on the remaining balance
of the liability. Assets under fi nance lease
are depreciated over the shorter of the
estimated useful life of the asset and
the lease term if there is no reasonable
certainty that the Group will obtain
ownership by the end of the lease term.
Operating lease payments are recognised
as an expense on a straight-line basis
over the lease term, except where another
systematic basis is more representative
of the time pattern in which economic
benefi ts from the leased asset are
consumed. Contingent rentals arising
under operating leases are recognised
as an expense in the period in which
they are incurred.
(AB) 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 Taxation
Offi ce (“ATO”). In these circumstances
the GST is recognised as part of the cost
of acquisition of the asset or as part 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 statement
of fi nancial position.
Cash fl ows are included in the statement
of cash fl ows on a gross basis. The GST
components of cash fl ows arising from
investing and fi nancing activities which
are recoverable from, or payable to,
the ATO are classifi ed as operating
cash fl ows.
Similar taxes in other tax jurisdictions
are accounted for in a like manner.
(AC) TAXATION
Royalty-related taxation
Petroleum resource rent tax, resource
rent royalty and additional profi ts tax
are recognised as an income tax under
AASB 112 Income Taxes.
Income tax
Income tax on the profi t or loss for the
year comprises current and deferred tax.
Income tax is recognised in the income
statement except to the extent that it
relates to items recognised directly in
equity, in which case it is recognised
in equity.
Current tax is the amount of income tax
payable on the taxable profi t or loss
for the year, using tax rates enacted or
substantively enacted at the reporting
date, and any adjustment to tax payable
in respect of previous years.
Deferred tax is determined using the
statement of fi nancial position approach,
providing for temporary differences
between the carrying amounts of assets
and liabilities for fi nancial reporting
purposes and the appropriate tax bases.
The following temporary differences are
not provided for: the initial recognition
of assets or liabilities that affect neither
accounting nor taxable profi t; and
differences relating to investments in
subsidiaries to the extent it is probable
that they will not reverse in the
foreseeable future. The amount of
deferred tax provided is based on the
expected manner of realisation or
settlement of the carrying amount of
assets and liabilities, using tax rates
enacted or substantively enacted at the
reporting date.
A deferred tax asset is recognised only
to the extent that it is probable that
future taxable profi ts will be available
against which the asset can be utilised.
Deferred tax assets are reduced to the
extent that it is no longer probable that
the related tax benefi t will be realised.
The Company and all its wholly-owned
Australian resident entities are part of a
tax-consolidated group under Australian
taxation law. Santos Ltd is the head
entity in the tax-consolidated group.
Current tax expense/benefi t, deferred
tax liabilities and deferred tax assets
arising from temporary differences of the
members of the tax-consolidated group
are allocated amongst the members of
the tax-consolidated group using a
“stand-alone taxpayer” approach in
accordance with Interpretation 1052
Tax Consolidation Accounting and are
recognised in the separate fi nancial
statements of each entity. Current tax
liabilities and assets and deferred tax
assets arising from unused tax losses
and tax credits of the members of the
tax-consolidated group are recognised
by the Company (as head entity in the
tax-consolidated group).
The Company and the other entities in
the tax-consolidated group have entered
into a tax funding agreement. Tax
contribution amounts payable under the
tax funding agreement are recognised
as payable to or receivable by the
Company and each other member of the
tax-consolidated group. Where the tax
contribution amount recognised by each
member of the tax-consolidated group
for a particular period under the tax
funding agreement is different from the
aggregate of the current tax liability or
asset and any deferred tax asset arising
from unused tax losses and tax credits in
respect of that period assumed by the
Company, the difference is recognised as
a contribution from (or distribution to)
equity participants.
Santos Annual Report 2009
87
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Company and the other entities in
the tax-consolidated group have also
entered into a tax sharing agreement
pursuant to which the other entities may
be required to contribute to the tax
liabilities of the Company in the event of
default by the Company or upon leaving
the tax-consolidated group.
(AD) DISCONTINUED OPERATIONS
AND NON-CURRENT ASSETS HELD
FOR SALE
A discontinued operation is a component
of the Group that has been disposed of,
or is classifi ed as held for sale, and that
represents a separate major line of
business or geographical area of
operations, and is part of a single
coordinated plan to dispose of such a
line of business or area of operations.
The results of discontinued operations
are presented separately on the face of
the income statement and the assets and
liabilities are presented separately on
the statement of fi nancial position.
Non-current assets and disposal groups
are classifi ed as held for sale and
measured at the lower of their carrying
amount and fair value less costs to sell if
their carrying amount will be recovered
principally through a sale transaction.
They are not depreciated or amortised.
For an asset or disposal group to be
classifi ed as held for sale, it must be
available for immediate sale in its
present condition and its sale must be
highly probable.
An impairment loss is recognised for any
initial or subsequent write-down of the
asset (or disposal group) to fair value
less costs to sell. A gain is recognised
for any subsequent increases in fair
value less costs to sell of an asset (or
disposal group) but not in excess of any
cumulative impairment loss previously
recognised. A gain or loss not previously
recognised by the date of the sale of the
non-current asset (or disposal group) is
recognised at the date of derecognition.
(AE) SIGNIFICANT ACCOUNTING
JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The carrying amounts of certain assets
and liabilities are often determined
based on management’s judgement
regarding estimates and assumptions of
future events. The reasonableness of
estimates and underlying assumptions
are reviewed on an ongoing basis.
Revisions to accounting estimates are
recognised in the period in which the
estimate is revised if the revision affects
only that period or in the period of the
revision and future periods if the revision
affects both current and future periods.
The key judgements, estimates and
assumptions that have a signifi cant risk
of causing a material adjustment to the
carrying amount of certain assets and
liabilities within the next annual
reporting period are:
Estimates of reserve quantities
The estimated quantities of Proven
plus Probable hydrocarbon reserves
reported by the Group are integral to
the calculation of depletion and
depreciation expense and to
assessments of possible impairment of
assets. Estimated reserve quantities
are based upon interpretations of
geological and geophysical models and
assessments of the technical
feasibility and commercial viability of
producing the reserves. These
assessments require assumptions to be
made regarding future development
and production costs, commodity
prices, exchange rates and fi scal
regimes. The estimates of reserves may
change from period to period as the
economic assumptions used to
estimate the reserves can change from
period to period, and as additional
geological data is generated during
the course of operations. Reserves
estimates are prepared in accordance
with the Group’s policies and
procedures for reserves estimation
which conform to guidelines prepared
by the Society of Petroleum Engineers.
88
Santos Annual Report 2009
Exploration and evaluation
The Group’s policy for exploration and
evaluation expenditure is discussed in
note 1(H). The application of this
policy requires management to make
certain estimates and assumptions as
to future events and circumstances,
particularly in relation to the
assessment of whether economic
quantities of reserves have
been found. Any such estimates and
assumptions may change as new
information becomes available. If,
after having capitalised exploration
and evaluation expenditure,
management concludes that the
capitalised expenditure is unlikely to
be recovered by future exploitation or
sale, then the relevant capitalised
amount will be written off to the
income statement. The carrying
amount of exploration and evaluation
assets is disclosed in note 13.
Provision for restoration
The Group estimates the future
removal and restoration costs of oil
and gas production facilities, wells,
pipelines and related assets at the
time of installation of the assets and
reviews these assessments periodically.
In most instances the removal of these
assets will occur many years in the
future. The estimate of future removal
costs therefore requires management
to make judgements regarding the
removal date, future environmental
legislation, the extent of restoration
activities required and future removal
technologies.
The carrying amount of the provision
for restoration is disclosed in note 20.
Impairment of oil and gas assets
The Group assesses whether oil and
gas assets are impaired on a
semi-annual basis. This requires an
estimation of the recoverable amount
of the cash-generating unit to which
the assets belong. The carrying
amount of oil and gas assets and the
assumptions used in the estimation
of recoverable amount are discussed in
notes 14 and 16 respectively.
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2. SEGMENT INFORMATION (CONTINUED)
Note
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
Revenue from external customers by geographical location of
production
Australia
Other countries
Total revenue
2,084
167
2,251
3
During the year revenue from two separate customers amounted to
$512 million (2008: $770 million) and $253 million (2008: $539 million)
respectively, arising from sales from all segments of the Group.
Non-current assets by geographical location
Australia
Other countries
Non-current assets by geographical location comprises:
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Investment in an associate
13
14
15
27
3. REVENUE AND OTHER INCOME
Product sales:
Gas, ethane and liquefi ed gas
Crude oil
Condensate and naphtha
Liquefi ed petroleum gas
Other revenue:
Overriding royalties
Pipeline tariffs and tolls
Trading revenue
Dividends from controlled entities
Other
6,620
997
7,617
923
6,317
200
177
7,617
1,098
679
233
171
2,181
8
30
18
–
14
70
2,563
242
2,805
5,738
1,105
6,843
493
6,190
160
–
6,843
1,052
1,151
321
238
2,762
16
9
13
–
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43
310
250
58
63
681
12
2
19
–
1
34
301
407
81
84
873
24
4
8
27
1
64
Total revenue
2,251
2,805
715
937
Other income:
Insurance recoveries
Net gain on sale of non-current assets
Net loss on sale of controlled entities
8
260
(14)
254
36
1,699
–
1,735
–
49
–
49
–
1
–
1
Santos Annual Report 2009
91
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
4. EXPENSES
Cost of sales:
Cash cost of production
Production costs:
Production expenses
Production facilities operating leases
Other operating costs:
Pipeline tariffs, tolls and other
Royalties and excise
Total cash cost of production
Depreciation and depletion
Third party gas purchases
Decrease/(increase) in product stock
Total cost of sales
Other expenses:
Selling
Corporate
Depreciation
Foreign exchange losses/(gains)
Change in fair value of fi nancial assets designated as at fair value
through profi t or loss
Fair value hedges, losses/(gains):
On the hedging instrument
On the hedged item attributable to the hedged risk
Exploration and evaluation expensed
Net impairment loss of oil and gas assets
Impairment reversal of receivables due from controlled entities
Net impairment loss of investments in controlled entities
Profi t before tax includes the following:
Depreciation and depletion:
Depletion of subsurface assets
Depreciation of plant and equipment
Depreciation of buildings
Total depreciation and depletion
Employee benefi ts expense
Net write-down of inventories
Operating lease rentals:
Minimum lease payments
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
460
72
532
91
61
152
684
612
117
10
465
78
543
84
101
185
728
662
62
(29)
1,423
1,423
10
77
7
94
28
(6)
134
(138)
202
37
–
–
351
348
268
3
619
243
–
85
18
97
2
117
(24)
12
(236)
229
179
216
–
–
493
402
257
5
664
217
1
88
95
29
124
29
25
54
178
250
35
–
463
4
86
3
93
7
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–
–
32
35
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5
164
147
105
1
253
223
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41
155
30
185
21
43
64
249
273
7
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11
87
–
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(6)
–
–
–
22
71
(24)
50
211
181
90
2
273
210
–
39
92
Santos Annual Report 2009
5. EARNINGS
EBITDAX is calculated as follows:
Profi t before tax
Add back:
Net fi nancing costs/(income)
EBIT
Add back:
Depreciation and depletion
Exploration and evaluation expensed
Net impairment loss on oil and gas assets
Impairment reversal on receivables due from controlled entities
Net impairment loss on investments in controlled entities
EBITDAX
6. NET FINANCING COSTS
Interest income:
Controlled entities
Other entities
Interest income
Interest expense:
Controlled entities
Other entities
Less borrowing costs capitalised
Unwind of the effect of discounting on provisions
Finance expenses
Net fi nancing costs/(income)
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
717
13
730
619
202
37
–
–
2,533
91
2,624
664
179
216
–
–
1,588
3,683
–
(85)
(85)
–
69
(9)
60
38
98
13
–
(63)
(63)
–
132
(10)
122
32
154
91
201
(64)
137
253
32
35
(8)
5
454
(117)
(80)
(197)
121
1
–
122
11
133
(64)
103
103
206
273
22
71
(24)
50
598
(129)
(54)
(183)
276
1
–
277
9
286
103
Santos Annual Report 2009
93
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
7. TAXATION EXPENSE
Recognised in the income statement:
Income tax expense
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Benefi t of tax losses recognised
Adjustments for prior years
Total income tax expense
Royalty-related taxation expense
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior years
Total royalty-related taxation expense
Numerical reconciliation between tax expense and pre-tax net profi t:
Profi t before tax
Prima facie income tax at 30% (2008: 30%)
Increase in income tax expense due to:
Investment allowance
Net impairment loss of investments in controlled entities
Net impairment reversal of receivables from controlled entities
Benefi t arising from previously unrecognised tax losses or
temporary differences that are used to reduce current tax expense
Foreign losses not recognised
Dividends from controlled entities
Tax losses recognised/(derecognised)
Benefi ts arising from previously unrecognised tax bases in assets
upon change in use
Under-provided in prior years
Other
Income tax expense
Royalty-related taxation expense
Total taxation expense
Deferred tax charged/(credited) directly to equity:
Gain/(loss) on foreign currency loans designated as hedges of
net investments in foreign operations
Change in fair value of available-for-sale fi nancial assets
Off-market buy-back transaction costs
Entitlement offer transaction costs
Actuarial gain/(loss) on defi ned benefi t plan
94
Santos Annual Report 2009
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
79
(15)
64
116
–
25
141
205
72
(1)
71
6
1
7
78
717
215
(21)
–
–
(7)
25
–
15
(32)
10
–
205
78
283
86
–
–
(23)
5
68
727
(9)
718
90
(28)
(12)
50
768
79
7
86
29
–
29
115
2,533
760
–
–
–
(2)
26
–
(28)
–
19
(7)
768
115
883
(82)
(4)
(1)
–
(11)
(98)
74
9
83
(21)
–
–
(21)
62
4
–
4
(7)
–
(7)
(3)
201
60
(10)
2
–
–
–
–
–
–
9
1
62
(3)
59
–
–
–
(23)
5
(18)
(8)
14
6
42
(28)
31
45
51
28
2
30
2
–
2
32
103
31
–
15
(7)
–
–
(10)
(28)
–
45
5
51
32
83
–
(4)
(1)
–
(11)
(16)
8. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
Cash and cash equivalents in the statements of cash fl ows
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
234
2,006
2,240
273
1,280
1,553
58
1,973
2,031
155
1,248
1,403
The carrying amounts of cash and cash equivalents represent fair value. Bank balances and short-term deposits earn interest at fl oating rates
based upon market rates.
The Group’s usual cash management process includes investing cash in short-term deposits with an original maturity of three months or less.
However, much of the proceeds from the 2009 Entitlement offer have been invested in short-term deposits with longer maturities to take
advantage of higher available yields. As at 31 December 2009, $1,583 million was placed in term deposits with original maturities of 4 to
18 months. All deposits are held with a range of high creditworthy fi nancial institutions and are readily convertible to cash with commensurate
interest adjustments if required.
Restricted cash balances
Barracuda Limited, a wholly-owned subsidiary incorporated in Papua New Guinea, has cash and cash equivalents at 31 December 2009 of
US$16 million (2008: US$10 million) which can only be repatriated to Australia with the permission of the Internal Revenue Commission of
Papua New Guinea in accordance with the fi nancing plan submitted in respect of PDL 3.
Wholly-owned Australian subsidiaries, Santos (BBF) Pty Ltd and Santos (SPV) Pty Ltd, have total cash and cash equivalents at 31 December
2009 of US$18 million (2008: US$20 million) that are held to cover obligations under a reserve-based facility.
9. TRADE AND OTHER RECEIVABLES
Current receivables
Trade receivables
Allowance for impairment loss
Tax-related balances owing by controlled entities
Other receivables and prepayments
Non-current receivables
Other receivables
The ageing of trade receivables at the reporting date is as follows:
Trade receivables not yet due
Past due not impaired:
Less than one month
One to three months
Three to six months
Six to twelve months
Greater than twelve months
Considered impaired:
Greater than twelve months
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
324
–
324
–
593
917
10
327
–
327
–
254
581
18
119
–
119
–
238
357
9
286
307
113
11
17
3
4
3
–
3
11
2
3
1
–
1
2
–
3
–
–
121
–
121
533
40
694
17
121
–
–
–
–
–
–
Trade receivables are non-interest-bearing and settlement terms are generally within 30 days. Trade receivables that are neither past due nor
impaired relate to a number of independent customers for whom there is no recent history of default.
Impaired receivables
An allowance for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. No impairment
loss was recognised by the Group or the Company during the year.
324
327
119
121
Santos Annual Report 2009
95
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
147
126
273
39
60
3
–
2
65
123
–
–
–
10
–
–
1
164
126
290
29
–
–
59
–
59
304
33
–
–
6
–
–
2
134
345
85
54
139
24
60
–
–
–
60
–
–
147
1,848
–
3,575
178
–
5,748
82
54
136
18
–
–
–
–
–
–
–
108
1,193
–
3,422
–
1
4,724
10. INVENTORIES
Petroleum products
Drilling and maintenance stocks
Total inventories at lower of cost and net realisable value
Inventories included above that are stated at net realisable value
11. OTHER FINANCIAL ASSETS
Current other fi nancial assets
Term deposits
Interest rate swap contracts
Cross-currency swap contracts
Other
Non-current other fi nancial assets
Interest rate swap contracts
Cross-currency swap contracts
Receivables due from controlled entities:
Non-interest-bearing
Interest-bearing
Receivables due from other related entities
Investments in controlled entities
Investment in an associated entity
Other
Receivables due from controlled entities are shown net of impairment losses
of nil (2008: $8 million).
Receivables due from controlled entities are for loans made in the ordinary
course of business for an indefi nite period. Interest-bearing amounts owing
by controlled entities are at normal market terms and conditions.
Receivables due from other related entities are for loans made in the ordinary
course of business for a term of fi ve years, and interest is calculated on
normal market terms and conditions.
12. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Equity securities available for sale
2
2
2
2
Investments in equity securities available for sale consist of investments in ordinary shares listed on the Australian Securities Exchange, and
have no fi xed maturity date or coupon rate.
96
Santos Annual Report 2009
13. EXPLORATION AND
EVALUATION ASSETS
2009
Balance at 31 December 2009
Reconciliation of movements
Balance at 1 January 2009
Acquisition of controlled entities
Acquisition of exploration and
evaluation assets
Additions
Exploration and evaluation expensed
Disposals and recoupment of exploration
and evaluation expenditure
Transfer to oil and gas assets
Exchange differences
Balance at 31 December 2009
Comprising:
Acquisition-related costs
Successful exploration wells
Exploration and evaluation assets pending
determination of success*
2008
Balance at 31 December 2008
Reconciliation of movements
Balance at 1 January 2008
Acquisition of controlled entities
Acquisition of exploration and
evaluation assets
Additions
Exploration and evaluation expensed
Net impairment losses
Transfer to oil and gas assets
Exchange differences
Balance at 31 December 2008
Comprising:
Acquisition-related costs
Successful exploration wells
Exploration and evaluation assets pending
determination of success*
Consolidated
Santos Ltd
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
783
140
923
451
–
351
140
(63)
(24)
(38)
(34)
783
527
199
57
783
451
332
15
28
260
(82)
(1)
(160)
59
451
218
106
127
451
42
8
–
90
–
–
–
–
140
8
–
132
140
42
–
–
–
42
–
–
–
–
42
–
–
42
42
493
8
351
230
(63)
(24)
(38)
(34)
923
535
199
189
923
493
332
15
28
302
(82)
(1)
(160)
59
493
218
106
169
493
30
43
–
–
16
(13)
(23)
7
–
30
7
23
–
30
43
16
–
–
81
(22)
–
(32)
–
43
12
23
8
43
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30
43
–
–
16
(13)
(23)
7
–
30
7
23
–
30
43
16
–
–
81
(22)
–
(32)
–
43
12
23
8
43
* Amounts related to plant and equipment includes costs capitalised for the evaluation of the GLNG facilities.
Santos Annual Report 2009
97
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
14. OIL AND GAS ASSETS
2009
Cost at 31 December 2009
Less accumulated depreciation,
depletion and impairment
Consolidated
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
Subsurface
assets
$million
Santos Ltd
Plant and
equipment
$million
Total
$million
8,090
6,423
14,513
3,007
2,474
5,481
(4,886)
(3,310)
(8,196)
(2,199)
(1,560)
(3,759)
Balance at 31 December 2009
3,204
3,113
6,317
808
914
1,722
Reconciliation of movements
Assets in development
Balance at 1 January 2009
Additions
Recoupment of exploration and
evaluation expenditure
Transfer from exploration and
evaluation assets
Exchange differences
Balance at 31 December 2009
Producing assets
Balance at 1 January 2009
Acquisition of oil and gas assets
Additions
Transfer from exploration and
evaluation assets
Disposals
Depreciation and depletion expense
Net impairment losses
Exchange differences
Balance at 31 December 2009
Total oil and gas assets
Comprising:
Exploration and evaluation expenditure
pending commercialisation
Other capitalised expenditure
464
217
(48)
1
(96)
538
2,727
7
360
37
(43)
(348)
(24)
(50)
2,666
3,204
123
118
–
–
(11)
230
2,876
2
402
–
(5)
(242)
(13)
(137)
2,883
3,113
587
335
(48)
1
(107)
768
5,603
9
762
37
(48)
(590)
(37)
(187)
5,549
6,317
31
3,173
3,204
–
3,113
3,113
31
6,286
6,317
–
–
–
–
–
–
862
–
130
(7)
–
(147)
(30)
–
808
808
–
808
808
–
–
–
–
–
–
916
–
86
–
(2)
(81)
(5)
–
914
914
–
914
914
–
–
–
–
–
–
1,778
–
216
(7)
(2)
(228)
(35)
–
1,722
1,722
–
1,722
1,722
98
Santos Annual Report 2009
14. OIL AND GAS ASSETS (CONTINUED)
Consolidated
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
Subsurface
assets
$million
Santos Ltd
Plant and
equipment
$million
Total
$million
2008
Cost at 31 December 2008
Less accumulated depreciation,
depletion and impairment
Balance at 31 December 2008
Reconciliation of movements
Assets in development
Balance at 1 January 2008
Additions
Transfer from exploration and
evaluation assets
Exchange differences
Balance at 31 December 2008
Producing assets
Balance at 1 January 2008
Acquisition of oil and gas assets
Additions
Transfer from exploration and
evaluation assets
Disposals
Depreciation and depletion expense
Net impairment losses
Exchange differences
Balance at 31 December 2008
Total oil and gas assets
Comprising:
Exploration and evaluation expenditure
pending commercialisation
Other capitalised expenditure
7,838
6,121
13,959
2,885
2,392
5,277
(4,647)
(3,122)
(7,769)
(2,023)
(1,476)
(3,499)
3,191
2,999
6,190
862
916
1,778
220
93
113
38
464
2,907
–
593
47
(351)
(402)
(138)
71
2,727
3,191
223
2,968
3,191
1
122
–
–
123
2,457
–
601
–
(1)
(239)
(77)
135
2,876
2,999
1
2,998
2,999
221
215
113
38
587
5,364
–
1,194
47
(352)
(641)
(215)
206
5,603
6,190
224
5,966
6,190
–
–
–
–
–
750
1
301
32
–
(181)
(41)
–
862
862
–
862
862
–
–
–
–
–
900
–
117
–
–
(71)
(30)
–
916
916
–
916
916
–
–
–
–
–
1,650
1
418
32
–
(252)
(71)
–
1,778
1,778
–
1,778
1,778
Santos Annual Report 2009
99
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
15. OTHER LAND, BUILDINGS,
PLANT AND EQUIPMENT
Land and
buildings
$million
Plant and
equipment
$million
Total
$million
Land and
buildings
$million
Consolidated
Santos Ltd
Plant and
equipment
$million
Total
$million
2009
Cost at 31 December 2009
Less accumulated depreciation
Balance at 31 December 2009
Reconciliation of movements
Balance at 1 January 2009
Additions
Depreciation
Balance at 31 December 2009
2008
Cost at 31 December 2008
Less accumulated depreciation
Balance at 31 December 2008
Reconciliation of movements
Balance at 1 January 2008
Additions
Depreciation
Balance at 31 December 2008
37
(4)
33
32
2
(1)
33
35
(3)
32
25
8
(1)
32
344
(177)
167
128
67
(28)
167
276
(148)
128
110
40
(22)
128
381
(181)
200
160
69
(29)
200
311
(151)
160
135
48
(23)
160
7
(1)
6
5
1
–
6
5
–
5
5
–
–
5
296
(168)
128
105
48
(25)
128
248
(143)
105
103
23
(21)
105
303
(169)
134
110
49
(25)
134
253
(143)
110
108
23
(21)
110
100
Santos Annual Report 2009
16. IMPAIRMENT OF CASH-GENERATING UNITS
At 31 December 2009 the Group reassessed the carrying amount of its oil and gas assets for indicators of impairment such as changes in future
prices, future costs and reserves. As a result, the recoverable amounts of some cash-generating units were formally reassessed, resulting in an
impairment loss of $37 million (2008: $216 million).
Estimates of recoverable amounts are based on the asset’s value in use, determined by discounting each asset’s estimated future cash fl ows
at asset-specifi c discount rates. The pre-tax discount rates applied were equivalent to post-tax discount rates between 9.1% and 15.8%
(2008: 8.8% and 15.8%), depending on the nature of the risks specifi c to each asset. Where an asset does not generate cash fl ows that are
largely independent of other assets or groups of assets, the recoverable amount is determined for the cash-generating unit (“CGU”) to which
the asset belongs.
Consolidated
Santos Ltd
CGU
Segment
Description
Subsurface Plant and
assets equipment
$million
$million
Subsurface Plant and
assets equipment
$million
$million
Total
$million
Consolidated
2009
Mutineer-Exeter
Thevenard
Palm Valley
Moonie to Brisbane pipeline
Sampang
Sangu
Total impairment loss
2008
Sampang
Sangu
Other
Cooper Basin
Patricia Baleen
Mutineer-Exeter
Total impairment loss
WA & NT
WA & NT
WA & NT
Eastern Australia
Asia Pacifi c
Asia Pacifi c
Oil fi eld
Oil fi eld
Gas fi eld
Pipeline
Oil and gas fi eld
Gas fi eld
Asia Pacifi c
Asia Pacifi c
Asia Pacifi c
Eastern Australia
Eastern Australia
WA & NT
Oil and gas fi eld
Gas fi eld
Gas fi eld
Oil and gas fi eld
Gas fi eld
Oil fi eld
27
2
4
–
(6)
(3)
24
97
20
1
–
21
–
139
4
6
–
9
(6)
–
13
31
–
–
45
1
–
77
31
8
4
9
(12)
(3)
37
128
20
1
45
22
–
216
31
–
(1)
–
–
–
30
–
–
–
–
10
31
41
5
–
–
–
–
–
5
–
–
–
24
1
5
30
Total
$million
36
–
(1)
–
–
–
35
–
–
–
24
11
36
71
Santos Annual Report 2009
101
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
17. DEFERRED TAX ASSETS
AND LIABILITIES
2009
$million
2008
$million
2009
$million
2008
$million
2009
$million
2008
$million
Assets
Liabilities
Net
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable
to the following:
Consolidated
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Available-for-sale fi nancial assets
Trade receivables
Other receivables
Inventories
Prepayments
Derivative fi nancial instruments
Other assets
Equity-raising costs
Interest-bearing loans and borrowings
Other liabilities
Provisions
Royalty-related taxes
Other items
Tax value of carry-forward losses recognised
Tax assets/(liabilities)
Set-off of tax
Net tax assets/(liabilities)
Santos Ltd
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Available-for-sale fi nancial assets
Trade receivables
Other receivables
Inventories
Other assets
Equity-raising costs
Provisions
Royalty-related taxes
Other items
Tax assets/(liabilities)
Set-off of tax
Net tax liabilities
Unrecognised deferred tax assets
–
–
36
1
–
–
–
–
–
–
19
–
–
57
–
–
9
122
(43)
79
–
–
–
1
–
–
–
1
19
41
–
–
62
(62)
–
–
–
46
1
–
–
–
–
–
–
1
86
–
66
–
–
6
206
(95)
111
–
–
–
1
–
–
–
1
1
46
–
–
49
(49)
–
(192)
(241)
–
–
(6)
(4)
(30)
–
(35)
(16)
–
(71)
(1)
–
(269)
(49)
–
(914)
43
(871)
(2)
(48)
(21)
–
(6)
(4)
(17)
–
–
–
(61)
(6)
(165)
62
(103)
(73)
(289)
–
–
(4)
(4)
(27)
(2)
(117)
(10)
–
–
(3)
–
(258)
(52)
–
(839)
95
(744)
(10)
(77)
(9)
–
(3)
(5)
(15)
–
–
–
(61)
(3)
(183)
49
(134)
(192)
(241)
36
1
(6)
(4)
(30)
–
(35)
(16)
19
(71)
(1)
57
(269)
(49)
9
(792)
–
(792)
(2)
(48)
(21)
1
(6)
(4)
(17)
1
19
41
(61)
(6)
(103)
–
(103)
(73)
(289)
46
1
(4)
(4)
(27)
(2)
(117)
(10)
1
86
(3)
66
(258)
(52)
6
(633)
–
(633)
(10)
(77)
(9)
1
(3)
(5)
(15)
1
1
46
(61)
(3)
(134)
–
(134)
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
578
110
35
723
915
74
46
1,035
–
–
–
–
–
–
–
–
Deferred tax assets have not been recognised in respect of the following items:
Temporary differences in relation to investments in subsidiaries
Deductible temporary differences
Tax losses
Deferred tax assets have not been recognised in respect of these items because it is not probable that the temporary differences will reverse in
the future and that there will be suffi cient future taxable profi ts against which the benefi ts can be utilised. Unrecognised deductible temporary
differences and tax losses of $35 million (2008: $46 million) will expire between 2021 and 2028. The remaining deductible temporary
differences and tax losses do not expire under current tax legislation.
102
Santos Annual Report 2009
18. TRADE AND OTHER PAYABLES
Trade payables
Non-trade payables and accrued expenses
Tax-related balances owing to controlled entities
Amounts owing to controlled entities
19. INTEREST-BEARING LOANS AND BORROWINGS
This note provides information about the contractual terms of the Group’s
interest-bearing loans and borrowings. For more information about the Group’s
exposure to interest rate and foreign currency risk, see note 38.
Current liabilities
Obligations under fi nance leases
Bank loans – secured
Bank loans – unsecured
Long-term notes
Non-current liabilities
Amounts owing to controlled entities
Obligations under fi nance leases
Bank loans – secured
Bank loans – unsecured
Medium-term notes
Long-term notes
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
430
279
–
–
709
1
11
22
130
164
–
2
8
128
448
1,063
1,649
391
214
–
–
605
1
24
28
46
99
–
3
20
194
457
1,682
2,356
129
70
62
517
778
1
–
–
–
1
3,598
2
–
–
–
–
3,600
132
65
–
526
723
1
–
–
–
1
4,082
3
–
–
–
–
4,085
The amounts owing to controlled entities are for loans made in the ordinary course of business on normal market terms and conditions and are
not repayable for a minimum of nine years.
The Group has entered into interest rate swap contracts to manage the exposure to interest rates. This has resulted in a weighted average
interest rate on interest-bearing liabilities of 3.58% as at 31 December 2009 (2008: 5.74%). All borrowings are unsecured, with the exception
of the secured bank loan, and arranged through a controlled entity, Santos Finance Ltd, and guaranteed by Santos Ltd.
Santos Annual Report 2009
103
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
19. INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
Details of major credit facilities
(A) BANK LOANS – SECURED
A reserve-based lending facility for US$65 million was entered into in the 2006 reporting period which bears a fl oating rate of interest. The
facility is secured by a fi rst charge over the Group’s interests in the Maleo assets in Indonesia with a carrying amount at 31 December 2009
of A$86 million. The average rate for the year was 6.33%, and A$19 million was outstanding at the reporting date (2008: A$44 million).
The facility is available until 2012, and the current amount drawn down is expected to be fully repaid by 2011.
Committed loan facilities for the PNG LNG project were entered into by the joint venture participants on 15 December 2009 and are
currently subject to the satisfaction of conditions precedent scheduled for the fi rst quarter of 2010. The facilities include security over
shares in Santos’ project participants and the assets and entitlements of those participants in the project including their shares in the
jointly owned borrowing entity Papua New Guinea Liquefi ed Natural Gas Global Company LDC. Under the fi nancing arrangements, Santos’
entities are entitled to on-loans from the jointly-owned borrowing entity to fund 70% of project costs representing up to 13.5% of the
total loan commitments of US$14 billion which equates to A$2.1 billion. The facilities were provided by 17 commercial banks and six
export credit agencies, bear fi xed and fl oating rates of interest and have estimated fi nal maturity dates (subject to the date of completion
of the project) of December 2024 and December 2026 respectively.
(B) BANK LOANS – UNSECURED
The Group has access to the following committed revolving credit bank facilities with a number of fi nancial institutions:
Year of maturity
Currency
2011
2012
2013
Multi-currency
Multi-currency
Multi-currency
2009
A$million
2008
A$million
225
375
100
700
225
375
100
700
Revolving credit facilities bear interest at the relevant interbank reference rate plus a margin. The amount drawn at 31 December 2009
is nil (2008: nil).
Term bank loans
Year of maturity
Currency
2009
2010
2011
2012
2013
2014
2015
2016
2017
USD
USD
USD
USD
USD
USD
USD
USD
USD
2009
A$million
2008
A$million
–
22
22
19
16
17
17
18
19
28
28
29
25
21
22
22
23
24
150
222
Term bank loans bear interest at the relevant interbank reference rate plus a margin of up to 0.75%. The amount outstanding at
31 December 2009 is US$134 million (A$150 million) (2008: US$153 million (A$222 million)) at a weighted average annual effective
interest rate of 2.30% (2008: 5.03%).
104
Santos Annual Report 2009
19. INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
Details of major credit facilities (continued)
(C) COMMERCIAL PAPER
The Group has an $800 million (2008: $800 million) Australian commercial paper programme supported by the revolving credit facilities
referred to in (B) above. At 31 December 2009, no commercial paper is on issue (2008: nil).
(D) MEDIUM-TERM NOTES
The Group has a $1,000 million (2008: $1,000 million) Australian medium-term note programme under which the following were issued
in 2005:
Year of issue
Year of maturity
2005
2005
2011
2015
* Floating rate of interest.
(E) LONG-TERM NOTES
Effective
interest rate
%
4.65*
4.21
2009
$million
2008
$million
349
99
448
349
108
457
The Group has issued long-term notes in the US Private Placement market with varying maturities. The Group has the following long-term
notes on issue:
Year of issue
Year of maturity
2000
2002
2007
2010 to 2015
2010 to 2022
2017 to 2027
Effective
interest rate
%
2009
US$million
2008
US$million
2009
A$million
2008
A$million
3.75
2.83
0.85
203
286
578
211
337
646
227
320
646
306
487
935
1,067
1,194
1,193
1,728
Santos Annual Report 2009
105
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
20. PROVISIONS
Current
Liability for employee benefi ts
Restoration
Remediation
Non-executive Directors’ retirement benefi ts
Other
Non-current
Liability for employee benefi ts
Liability for defi ned benefi t obligations (refer note 30)
Restoration
Remediation
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
72
12
7
1
2
94
5
34
728
1
768
62
32
21
2
–
117
4
62
742
–
808
66
1
–
1
2
70
5
34
218
1
258
61
3
–
2
–
66
4
62
245
–
311
Movements in each class of provision during the fi nancial year, other than provisions relating to employee benefi ts, are set out below:
Consolidated
Balance at 1 January 2009
Provisions made during the year
Provisions used during the year
Unwind of discount
Change in discount rate
Exchange differences
Balance at 31 December 2009
Santos Ltd
Balance at 1 January 2009
Provisions made during the year
Provisions used during the year
Unwind of discount
Change in discount rate
Exchange differences
Balance at 31 December 2009
Total
Non-executive
Directors’
retirement
benefi ts
$million
Total
remediation
$million
Total
restoration
$million
Other
$million
Total
$million
774
22
(15)
38
(53)
(26)
740
248
(12)
(2)
11
(23)
(3)
219
21
(5)
(8)
–
–
–
8
–
1
–
–
–
–
1
2
–
(1)
–
–
–
1
2
–
(1)
–
–
–
1
–
2
–
–
–
–
2
–
2
–
–
–
–
2
797
19
(24)
38
(53)
(26)
751
250
(9)
(3)
11
(23)
(3)
223
Restoration
Provisions for future removal and restoration costs are recognised where there is a present obligation as a result of exploration, development,
production, transportation or storage activities having been undertaken, and it is probable that an outfl ow of economic benefi ts will be
required to settle the obligation. The estimated future obligations include the costs of removing facilities, abandoning wells and restoring the
affected areas.
Remediation
Provisions for remediation costs are recognised where there is a present obligation as a result of an unexpected event that occurs outside of
the planned operations of an asset.
Non-executive Directors’ retirement benefi ts
Agreements exist with Non-executive Directors appointed prior to 1 January 2004 providing for the payment of a sum on retirement from offi ce
as a Director in accordance with shareholder approval at the 1989 Annual General Meeting. Such benefi ts ceased to accrue with effect from
30 June 2004. These benefi ts have been fully provided for by the Company. In June 2007, the Board resolved to adopt a policy of indexation of
these frozen benefi ts to prevent further erosion of the real value. The entitlements are annually indexed to the fi ve-year Government bond rate.
106
Santos Annual Report 2009
21. OTHER LIABILITIES
Current
Interest rate swap contracts
Cross-currency swap contracts
Embedded derivatives
Other
Non-current
Other
22. CAPITAL AND RESERVES
Issued capital
831,834,626 (2008: 584,812,875) ordinary shares, fully paid
88,000 (2008: 88,000) ordinary shares, paid to one cent
Nil (2008: 6,000,000) redeemable convertible preference shares
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
1
7
–
2
10
9
–
–
6
2
8
9
–
–
–
–
–
–
–
–
–
–
–
–
4,987
–
–
4,987
1,947
–
584
2,531
4,987
–
–
4,987
1,947
–
584
2,531
In accordance with changes to the Corporations Law effective 1 July 1998, the shares issued do not have a par value and there is no limit on
the authorised share capital of the Company.
Movement in fully paid ordinary shares
Note
Number of shares
2009
2008
2009
$million
2008
$million
Balance at the beginning of the year
Santos Employee Share Acquisition Plan
Santos Employee Share Purchase Plan
Shares issued on exercise of options
Shares issued on vesting of Share Acquisition Rights
Santos Executive Share Plan
Non-executive Director Share Plan
Entitlement offer
Dividend Reinvestment Plan (“DRP”)
DRP underwriting agreement
Off-market buy-back
Transfer from redeemable convertible preference shares
Balance at the end of the year
Redeemable convertible preference shares
Balance at the beginning of the year
Redeemable convertible preference shares bought back at
face value and cancelled
Transfer to fully paid ordinary shares
Balance at the end of the year
31(a)
31(a)
31(b)
31(b)
31(c)
31(d)
22(a)
22(b)
22(b)
22(c)
22(d)
22(d)
22(d)
22(d)
584,812,875
101,376
18,400
427,050
303,085
–
20,390
237,287,762
2,005,880
6,857,808
–
–
585,964,352
111,153
300,100
303,583
141,330
–
33,356
–
2,323,249
14,123,057
(18,487,305)
–
831,834,626
584,812,875
1,947
2
–
4
–
–
–
2,914
30
106
–
(16)
4,987
6,000,000
6,000,000
584
(6,000,000)
–
–
–
–
6,000,000
(600)
16
–
1,747
1
3
3
–
–
1
–
35
213
(56)
–
1,947
584
–
–
584
Fully paid ordinary shares carry one vote per share, which entitles the holder to participate in dividends and the proceeds on winding up of the
Company in proportion to the number of and amounts paid on the shares held. The market price of the Company’s ordinary shares on
31 December 2009 was $14.09 (2008: $14.87).
Santos Annual Report 2009
107
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
22. CAPITAL AND RESERVES (CONTINUED)
(A) ENTITLEMENT OFFER
On 11 May 2009 the Company launched a two for fi ve accelerated pro-rata non-renounceable entitlement offer (“Entitlement offer”) at
an offer price of $12.50 per share. As a result, 140,040,844 ordinary shares (fully paid) were allotted to institutional investors of the
Company on 22 May 2009 and 97,246,918 ordinary shares (fully paid) were allotted to retail investors of the Company on 16 June 2009.
The entitlement offer to the retail investors was fully underwritten. $2,966 million was credited and transaction costs, net of tax of
$52 million was debited to the Company’s capital account.
(B) DIVIDEND REINVESTMENT PLAN
The Santos Dividend Reinvestment Plan is in operation. Shares are allocated at the daily weighted average market price of the Company’s
shares on the ASX over a period of seven business days commencing on the business day after the Dividend Record Date. At this time,
the Board has determined that no discount will apply. The Dividend Reinvestment Plan is currently not underwritten.
(C) OFF-MARKET BUY-BACK
On 6 October 2008, the Company bought back 18,487,305 fully paid ordinary shares, representing 3.07% of fully paid ordinary shares on
issue at that date, at a price of $16.23 per share. $56 million was debited against the Company’s capital account (including $1 million
transaction costs, net of tax) and $245 million was debited against retained earnings.
(D) REDEEMABLE CONVERTIBLE PREFERENCE SHARES
On 30 September 2009, the Company redeemed 6,000,000 redeemable convertible preference shares at their face value of $100, which
resulted in an amount of $600 million being debited to the Company’s capital account. The accumulated transaction costs, net of tax,
of $16 million were transferred to ordinary share capital.
Nature and purpose of reserves
Translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the fi nancial statements
of foreign operations where their functional currency is different to the presentation currency of the reporting entity, as well as from the
translation of liabilities that hedge the Company’s net investment in a foreign subsidiary and exchange differences that arise on the translation
of monetary items that form part of the net investment in a foreign operation.
Fair value reserve
The fair value reserve includes the cumulative net change in the fair value of available-for-sale fi nancial assets until the fi nancial asset is
derecognised.
Capital risk management
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern in order to meet its objectives with
various stakeholders, and to maintain an effi cient capital structure.
In order to maintain a prudent long-term capital structure the Group may adjust its distribution policy, return capital to shareholders,
issue new shares or undertake corporate initiatives.
The Group manages its capital with a primary objective to maintain investment grade credit rating. One of the measures which is used to
monitor capital is the gearing ratio. The Group undertakes this on a forecast and actual results basis. This ratio is calculated as net debt
divided by total capital. Net debt is calculated as total interest-bearing loans and borrowings less cash and cash equivalents and value of
fi nancial derivatives used to hedge net debt. Total capital is calculated as total equity as shown in the statement of fi nancial position plus net
debt. Equity in 2008 included redeemable convertible preference shares which were redeemed in September 2009 (refer note 22(D) above).
During 2009 the Group’s target was to maintain a gearing ratio below 45% and a BBB+ Standard & Poor’s credit rating. The gearing ratios at
31 December 2009 and 31 December 2008 were as follows:
108
Santos Annual Report 2009
22. CAPITAL AND RESERVES (CONTINUED)
Total interest-bearing loans and borrowings (note 19)
Less:
Cash and cash equivalents (note 8)
Term deposits (note 11)
Net fair value of fi nancial derivatives used to hedge debt (notes 11 and 21):
Cross-currency swap contracts
Interest rate swap contracts
Net (assets)/debt
Total equity
Total capital
Gearing ratio
Consolidated
2009
$million
2008
$million
1,813
2,455
(2,240)
(60)
7
(125)
(605)
6,967
6,362
(1,553)
–
(92)
(304)
506
4,478
4,984
(9.5%)
10.2%
The decrease in the Group gearing ratio resulted primarily from the proceeds received from the Entitlement offer issued during the year.
Dividends
Dividends recognised during the year by the Company are:
Dividend
per share
$
Total
$million
Franked/
unfranked
Payment
date
2009
Interim 2009 redeemable preference
Final 2008 redeemable preference
Interim 2009 ordinary
Final 2008 ordinary
2008
Interim 2008 redeemable preference
Final 2007 redeemable preference
Interim 2008 ordinary
Final 2007 ordinary
1.6191
2.9989
0.22
0.20
3.3365
2.9983
0.22
0.20
Franked dividends paid during the year were franked at the tax rate of 30%.
After the reporting date the following dividends were proposed by the Directors.
The dividends have not been provided for and there are no income tax consequences.
Final 2009 ordinary
0.20
Franked 30 Sep 2009
Franked 31 Mar 2009
Franked 30 Sep 2009
Franked 31 Mar 2009
Franked
Franked
Franked
Franked
30 Sep 2008
31 Mar 2008
30 Sep 2008
31 Mar 2008
Franked 31 Mar 2010
10
18
182
117
327
20
18
131
117
286
166
166
The fi nancial effect of these dividends has not been brought to account in the fi nancial statements for the year ended 31 December 2009 and
will be recognised in subsequent fi nancial reports.
Dividend franking account
30% franking credits available to shareholders of Santos Ltd for future distribution, after adjusting for
franking credits which will arise from the payment of the current tax liability at 31 December 2009
Santos Ltd
2009
$million
2008
$million
965
1,062
The ability to utilise the franking credits is dependent upon there being suffi cient available profi ts to declare dividends.
The impact on the dividend franking account of dividends proposed after the reporting date but not recognised as a liability is to reduce it by
$71 million (2008: $58 million).
Santos Annual Report 2009
109
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
23. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profi t for the year attributable to ordinary equity holders of Santos Ltd
(after deducting dividends paid on redeemable convertible preference shares) by the weighted average number of ordinary shares outstanding
during the year.
Diluted earnings per share amounts are calculated by dividing the net profi t attributable to ordinary equity holders of Santos Ltd (after adding
back the dividends paid on redeemable convertible preference shares) by the weighted average number of ordinary shares outstanding during
the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary
shares into ordinary shares.
Earnings used in the calculation of basic and diluted earnings per share
reconciles to the net profi t after tax in the income statement as follows:
Net profi t attributable to ordinary equity holders of Santos Ltd
Dividends paid on redeemable convertible preference shares
Earnings used in the calculation of basic earnings per share
Dividends paid on redeemable convertible preference shares
Earnings used in the calculation of diluted earnings per share
Consolidated
2009
$million
2008
$million
434
(28)
406
–
406
1,650
(38)
1,612
38
1,650
The weighted average number of shares used for the purposes of calculating diluted earnings per share reconciles to the number used to
calculate basic earnings per share as follows:
2009
Number of shares
2008
Basic earnings per share
779,217,946
639,831,571
Partly paid shares
Executive share options
Share acquisition rights
Redeemable convertible preference shares
69,842
890,143
2,445,269
–
71,222
1,446,209
1,694,044
36,650,691
Diluted earnings per share
782,623,200
679,693,737
Partly paid shares outstanding issued under the Santos Executive Share Plan, options outstanding issued under the Santos Executive Share
Option Plan and Share Acquisition Rights (“SARs”) issued to eligible executives and redeemable convertible preference shares have been
classifi ed as potential ordinary shares and included in the calculation of diluted earnings per share in 2009. The number of shares included in
the calculation are those assumed to be issued for no consideration, being the difference between the number that would have been issued
at the exercise price and the number that would have been issued at the average market price. The weighted average number of shares used
for the purposes of calculating diluted earnings per share in 2008 was retrospectively adjusted for the effect of the Entitlement offer
(refer note 22(A)).
During the year, 427,050 (2008: 303,583) options and 303,085 (2008: 141,330) SARs were converted to ordinary shares. The diluted earnings
per share calculation includes that portion of these options, SARs and partly paid shares assumed to be issued for nil consideration, weighted
with reference to the date of conversion. The weighted average number included is 197,097 (2008: 181,447).
24,690 (2008: 460,385) options and 61,961 (2008: 236,426) SARs lapsed during the year. The diluted earnings per share calculation includes
that portion of these options and SARs assumed to be issued for nil consideration, weighted with reference to the date the options or SARs
lapsed. The weighted average number included is 45,570 (2008: 177,527).
The redeemable convertible preference shares on issue during 2009 were not included in the 2009 diluted earnings per share calculation as
they were anti-dilutive for that period.
110
Santos Annual Report 2009
24. CONSOLIDATED ENTITIES
Name
Country of incorporation
Name
Country of incorporation
Santos Ltd (Parent Entity)
Controlled entities1:
Alliance Petroleum Australia Pty Ltd2
Basin Oil Pty Ltd
Boston L.H.F. Pty Ltd
Bridgefi eld Pty Ltd
Bridge Oil Developments Pty Limited2
Bronco Energy Pty Limited
Canso Resources Pty Ltd
Coveyork Pty Ltd
Doce Pty Ltd
Fairview Pipeline Pty Ltd
Farmout Drillers Pty Ltd
Gidgealpa Oil Pty Ltd
Kipper GS Pty Ltd
Controlled entity of Kipper GS Pty Ltd
Santos Carbon Pty Ltd
Moonie Pipeline Company Pty Ltd
Reef Oil Pty Ltd2
Santos Asia Pacifi c Pty Ltd
Controlled entities of Santos Asia Pacifi c Pty Ltd
Santos (Sampang) Pty Ltd
Santos (Warim) Pty Ltd
Santos Australian Hydrocarbons Pty Ltd
Santos (BOL) Pty Ltd2
Controlled entity of Santos (BOL) Pty Ltd
Bridge Oil Exploration Pty Limited
Santos CSG Pty Ltd
Santos Darwin LNG Pty Ltd2
Santos Direct Pty Ltd
Santos Facilities Pty Ltd
Santos Finance Ltd
Santos GLNG Pty Ltd
Santos (Globe) Pty Ltd
Santos International Holdings Pty Ltd
Controlled entities of Santos International Holdings Pty Ltd
Barracuda Limited
CJSC South Petroleum Company1
Lavana Limited
Santos Petroleum Ventures B.V.
Sanro Insurance Pte Ltd
Santos Americas and Europe Corporation
Controlled entities of Santos Americas and Europe Corporation
Santos TPY Corp
Controlled entities of Santos TPY Corp
Santos Queensland Corp
Santos TOG Corp
Controlled entities of Santos TOG Corp
Santos TOGA Pty Ltd
Controlled entity of Santos TOGA Pty Ltd
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
PNG
KGZ
PNG
NL
SG
USA
USA
USA
USA
AUST
AUST
USA
UK
AUST
AUST
Santos TPC Pty Ltd
Santos TPY CSG Corp
Santos Bangladesh Limited
Santos (Bawean) Pty Ltd
Santos (BBF) Pty Ltd
Controlled entities of Santos (BBF) Pty Ltd
Santos (SPV) Pty Ltd
Controlled entities of Santos (SPV) Pty Ltd
AUST
Santos (Madura Offshore) Pty Ltd
SB Jethro Pty Ltd (previously Santos Brantas Pty Ltd) AUST
AUST
AUST
PNG
AUST
Santos (Donggala) Pty Ltd
Santos Egypt Pty Ltd
Santos Hides Ltd
Santos International Operations Pty Ltd
AUST
AUST
PNG
AUST
AUST
AUST
AUST
UK
KGZ
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
MY
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
AUST
Santos International Ventures Pty Ltd
Santos Niugini Exploration Limited
Santos (Nth Bali 1) Pty Ltd
Santos (Papalang) Pty Ltd
Santos (Popodi) Pty Ltd
Santos Vietnam Pty Ltd
Zhibek Resources Limited1
Controlled entity of Zhibek Resources Limited
CJSC KNG Hydrocarbons1
Santos (JBJ1) Pty Ltd
Controlled entities of Santos (JBJ1) Pty Ltd
Santos (JBJ2) Pty Ltd
Controlled entity of Santos (JBJ2) Pty Ltd
Shaw River Power Station Pty Ltd
Santos (JPDA 06-104) Pty Ltd
Santos (JPDA 91-12) Pty Ltd
Santos (NARNL Cooper) Pty Ltd2
Santos (N.T.) Pty Ltd
Controlled entity of Santos (N.T.) Pty Ltd
Bonaparte Gas & Oil Pty Limited
Santos Offshore Pty Ltd2
Santos Oil Exploration (Malaysia) Sdn Bhd (in liquidation)
Santos Petroleum Pty Ltd2
Santos QNT Pty Ltd2
Controlled entities of Santos QNT Pty Ltd
Gastar Power Pty Ltd3
Santos QNT (No. 1) Pty Ltd2
Controlled entities of Santos QNT (No. 1) Pty Ltd
Santos Petroleum Management Pty Ltd2
Santos Petroleum Operations Pty Ltd
TMOC Exploration Proprietary Limited
Santos QNT (No. 2) Pty Ltd2
Controlled entities of Santos QNT (No. 2) Pty Ltd
Moonie Oil Pty Ltd
Petromin Pty Ltd
Santos (299) Pty Ltd (in liquidation)
Santos Exploration Pty Ltd
Santos Gnuco Pty Ltd
Transoil Pty Ltd
Santos Resources Pty Ltd
Santos (TGR) Pty Ltd
Santos Timor Sea Pipeline Pty Ltd
Sesap Pty Ltd
Vamgas Pty Ltd2
Notes
1 Benefi cial interests in all controlled entities are 100%, except:
• CJSC South Petroleum Company (70%);
• CJSC KNG Hydrocarbons (54%); and,
• Zhibek Resources Limited (75%).
2 Company is party to a Deed of Cross Guarantee. Refer note 37.
3 Company acquired during the year. Refer note 25.
Country of incorporation
AUST – Australia
KGZ
MY
NL
PNG
SG
UK
USA
– Kyrgyz Republic
– Malaysia
– Netherlands
– Papua New Guinea
– Singapore
– United Kingdom
– United States of America
In the fi nancial statements of the Company, investments in
controlled entities are recognised at cost, less any impairment
losses.
Santos Annual Report 2009
111
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
25. ACQUISITIONS OF SUBSIDIARIES
During the fi nancial year the following controlled entities were acquired and their operating results have been included in the income
statement from the date of acquisition:
Name of entity
Date of acquisition
Benefi cial
interest acquired
%
Purchase
consideration
$million
Contribution to
consolidated profi t
since acquisition
$million
Gastar Power Pty Ltd
2 July 2009
100
8
–
Gastar Power Pty Ltd owns a 35% share of the Wilga Park Power Station. The operator and owner of the remaining 65% is Narrabri Power Pty
Ltd, which is a wholly-owned subsidiary of Eastern Star Gas Limited. If the acquisition had occurred on 1 January 2009, revenue and net profi t
would not have been affected.
The acquisitions had the following effect on the Group’s assets and liabilities:
Plant and equipment
Net identifi able assets and liabilities
The cash outfl ow on acquisition of controlled entities is as follows:
Cash paid
Net cash acquired with subsidiaries
Total cash paid for current year acquisition
Deferred consideration paid*
Net consolidated cash outfl ow
* Deferred consideration paid in 2009 comprises:
Carrying
amounts
$million
Fair value
adjustments
$million
Recognised
values
$million
7
7
1
1
8
8
8
–
8
9
17
• $8 million to fund phase 2 of the exploration programme relating to the 2006 acquisition of CJSC South Petroleum Company; and
• $1 million to fund phase 1 of the exploration programme relating to the 2008 acquisition of Zhibek Resources Limited.
In 2008, the Group acquired benefi cial interest in the following controlled entities:
Name of entity
Date of acquisition
Benefi cial
interest
Purchase
acquired consideration
$million
%
Zhibek Resources Limited
CJSC KNG Hydrocarbons
17 November 2008
17 November 2008
75
54
–
–
112
Santos Annual Report 2009
26. DISPOSAL OF SUBSIDIARIES
On 10 May 2009, the Group disposed of the wholly-owned subsidiaries Santos UK (Kakap) Limited and Novus Nominees Pty Ltd for US$18 million
(A$24 million), resulting in a loss on sale of $14 million. The amount of foreign currency translation reserve recycled into profi t and loss is nil.
The major classes of assets and liabilities of Santos UK (Kakap) Limited and Novus Nominees Pty Ltd at the date of disposal were as follows:
Trade and other receivables
Inventories
Exploration and evaluation assets
Interest-bearing loan receivable
Trade and other payables
Tax liabilities
Provisions
Deferred tax liabilities
Net assets attributable to the disposed entities
The cash infl ow on disposal of controlled entities is as follows:
Cash received
Net cash and cash equivalents disposed with subsidiaries
Net consolidated cash infl ow
27. INVESTMENT IN AN ASSOCIATE
Company
Country
Principal activity
10 May 2009
$million
2
1
38
14
(3)
(2)
(1)
(11)
38
24
–
24
Ownership interest
2009
2008
%
%
Consolidated
2009
$million
2008
$million
Eastern Star Gas Limited
Australia
Oil and gas
19.42
–
177
Movement in the carrying amount of the Group’s investment in an associate
Balance at beginning of the year
Purchase of investment in associate
Share of losses, after tax
Balance at end of the year
Fair value of the Group’s investment in listed associate
Market value of the Group’s investment in Eastern Star Gas Limited based on
the closing share price on 31 December 2009
The Company believes that the Group’s investment in Eastern Star Gas Limited
will be recovered through ongoing exploration and evaluation of the associated
company’s underlying assets in which the Group also holds a direct interest.
Summarised fi nancial information*
The following table illustrates the summarised fi nancial information relating
to the Group’s associate:
The Group’s share of the associate’s statement of fi nancial position
Total assets
Total liabilities
Net assets
The Group’s share of the associate’s income statement
Revenue
Net loss after tax
–
178
(1)
177
145
181
(4)
177
–
(1)
–
–
–
–
–
–
–
–
–
–
–
* The Group’s share of the associate’s summarised fi nancial information is estimated based on the Eastern Star Gas Limited’s 30 June 2009 annual fi nancial report and
the latest ASX releases.
Santos Annual Report 2009
113
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
28. INTERESTS IN JOINT VENTURES
(A) The following are the signifi cant joint ventures in which the Group is a joint venturer:
Joint venture
Cash-generating unit
Principal activities
% interest
Oil and gas assets – Producing assets
Bayu-Undan Liquids
Bayu-Undan LNG
Casino
Fairview
Madura PSC (Maleo)
Mereenie
John Brookes
Mutineer-Exeter
Sampang PSC (Oyong, Wortel)
Sangu
Stag
SA Fixed Factor Area
SWQ Unit
Bayu-Undan
Bayu-Undan
Casino
Fairview
Madura PSC
Mereenie
John Brookes
Mutineer-Exeter
Sampang PSC
Sangu PSC
Stag
Cooper Basin
Cooper Basin
Oil and gas assets – Assets in development
PNG LNG
Kipper
Reindeer
Chim Sao
PNG LNG
Kipper
Reindeer
Vietnam (Block 12)
Exploration and evaluation assets
Evans Shoal
Gunnedah
PEL1 and 12
–
–
–
Gas production
Gas production
Gas production
Gas (CSG) production
Gas production
Oil and gas production
Gas production
Oil production
Oil and gas production
Gas production
Oil and gas production
Oil and gas production
Gas production
Gas development
Gas development
Gas development
Gas development
Contingent gas resource
Contingent gas (CSG) resource
Contingent gas (CSG) resource
11.4
11.4
50.0
45.7
67.5
65.0
45.0
33.4
45.0
37.5
66.7
66.6
60.1
13.5
35.0
45.0
31.9
40.0
35.0
25.0
(B) The Group recognises its interests in the following jointly controlled entities using the proportionate consolidation method of accounting:
Joint venture entity
Darwin LNG Pty Ltd
Papua New Guinea Liquefi ed Natural Gas Global Company LDC
Easternwell Drilling Services Holdings Pty Ltd
GLNG Operations Pty Ltd
% interest
11.4
13.5
50.0
60.0
The Group’s share of the assets, liabilities, income and expenses of the
jointly controlled entities, which are included in the consolidated fi nancial
statements using the proportionate consolidation method of accounting,
are as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Revenue
Expenses
Profi t before income tax
114
Santos Annual Report 2009
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
64
164
228
(21)
(24)
183
216
(189)
27
50
194
244
(98)
(15)
131
238
(214)
24
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28. INTERESTS IN JOINT VENTURES (CONTINUED)
(C) The Group’s share of capital expenditure commitments and minimum
exploration commitments in respect of joint ventures are:
Capital expenditure commitments
Minimum exploration commitments
29. NOTES TO THE STATEMENTS OF CASH FLOWS
(A) RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
Profi t after income tax
Add/(deduct) non-cash items:
Depreciation and depletion
Net impairment loss on investment in controlled entities
Net impairment reversal on receivables due from controlled entities
Dividends distributed by controlled entities
Net borrowing costs charged by controlled entities
Exploration and evaluation expensed
Net impairment loss on oil and gas assets
Net gains on fair value hedges
Share-based payments expense
Borrowing costs capitalised
Unwind of the effect of discounting on provisions
Change in fair value of fi nancial assets designated as at fair value through
profi t or loss
Defi ned benefi t plan expense
Foreign exchange losses/(gains)
Net gain on sale of non-current assets
Share of net loss in an associate
Net loss on sale of controlled entities
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
2,113
157
366
187
104
9
93
7
434
619
–
–
–
–
64
37
(5)
11
(9)
38
(5)
3
28
(260)
1
14
1,650
664
–
–
–
–
83
216
(7)
8
(10)
32
12
3
(24)
(1,699)
–
–
142
253
5
(8)
–
4
13
35
–
11
–
11
–
2
7
(49)
–
–
20
273
50
(24)
(27)
147
12
71
–
8
–
9
–
2
(6)
(1)
–
–
Net cash provided by operating activities before changes in assets
or liabilities
970
928
426
534
Add/(deduct) change in operating assets or liabilities net of acquisitions
or disposals of businesses:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
(Increase)/decrease in other assets
Net increase/(decrease) in deferred tax assets and deferred tax liabilities
Increase/(decrease) in current tax liabilities
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
17
17
(8)
63
95
14
(13)
11
(58)
(1)
74
398
(18)
51
Net cash provided by operating activities
1,155
1,385
(B) NON-CASH FINANCING AND INVESTING ACTIVITIES
Dividend Reinvestment Plan
Dividends distributed by controlled entities
Share subscriptions in controlled entities
Income tax transferred from controlled entities
Net borrowing costs charged by controlled entities
(C) TOTAL TAXATION PAID
Income tax paid
Cash outfl ow from operating activities
Cash outfl ow from investing activities
Royalty-related tax paid
Cash outfl ow from operating activities
31
–
–
–
–
(55)
(497)
(71)
(623)
35
–
–
–
–
(292)
–
(152)
(444)
(16)
(1)
1
(34)
28
26
3
433
31
–
(158)
40
(4)
(24)
(497)
(25)
(546)
49
(20)
(7)
40
(174)
(63)
6
365
35
27
(14)
613
(147)
(229)
–
(35)
(264)
Santos Annual Report 2009
115
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
30. EMPLOYEE BENEFITS
(A) DEFINED BENEFIT PLAN
Defi ned benefi t members of the Santos Superannuation Plan receive a
lump sum benefi t on retirement, death, disablement and withdrawal.
The defi ned benefi t section of the plan is closed to new members.
All new members receive accumulation only benefi ts.
Amount recognised in the statements of fi nancial position:
Defi cit in plan recognised in non-current provisions (refer note 20)
Non-current receivables (refer note 9)
Movements in the liability for net defi ned benefi t obligations
recognised in the statements of fi nancial position
Liability at the beginning of the year
Expense recognised in income statement
Amount capitalised in oil and gas assets
Amount recognised in retained earnings
Defi ned benefi t receivable from controlled entities
Employer contributions
Liability at the end of the year
Expense recognised in the income statements
Service cost
Interest cost
Expected return on plan assets
The expense is recognised in the following line items in
the income statements:
Cost of sales
Other expenses
Amounts recognised in the statements of comprehensive income
Actuarial gain/(loss) in the year
Tax effect
Net actuarial gain/(loss) in the year
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
34
(9)
25
45
3
1
(16)
–
(8)
25
4
3
(4)
3
3
–
3
16
(5)
11
62
(17)
45
11
3
2
37
–
(8)
45
3
4
(4)
3
–
3
3
(37)
11
(26)
34
(9)
25
45
2
1
(16)
1
(8)
25
2
2
(2)
2
2
–
2
16
(5)
11
62
(17)
45
11
2
1
37
2
(8)
45
2
2
(2)
2
–
2
2
(37)
11
(26)
(23)
Cumulative actuarial gain/(loss) recognised in the statements of
comprehensive income, net of tax
8
(23)
8
116
Santos Annual Report 2009
30. EMPLOYEE BENEFITS (CONTINUED)
(A) DEFINED BENEFIT PLAN (CONTINUED)
Historical information for the current and previous periods
Consolidated
Present value of defi ned benefi t obligations
Fair value of plan assets
Defi cit in plan
Experience adjustments (gain)/loss on plan assets
Experience adjustments (gain)/loss on plan liabilities
Santos Ltd
Present value of defi ned benefi t obligations
Fair value of plan assets
Defi cit in plan
Experience adjustments (gain)/loss on plan assets
Experience adjustments (gain)/loss on plan liabilities
2009
$million
2008
$million
2007
$million
2006
$million
2005
$million
170
(136)
34
(9)
(7)
170
(136)
34
(9)
(7)
175
(113)
62
43
(14)
175
(113)
62
43
(14)
162
(146)
16
(4)
(1)
162
(146)
16
(4)
(1)
158
(132)
26
(6)
18
158
(132)
26
(6)
18
129
(113)
16
(8)
–
129
(113)
16
8
–
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
Reconciliation of the present value of the defi ned benefi t obligations
Opening defi ned benefi t obligations
Service cost
Interest cost
Contributions by plan participants
Actuarial (gains)/losses
Benefi ts paid
Taxes and premiums paid
Curtailments
Settlements
Closing defi ned benefi t obligations
Reconciliation of the fair value of plan assets
Opening fair value of plan assets
Expected return on plan assets
Actuarial gains/(losses)
Employer contributions
Contributions by plan participants
Benefi ts paid
Taxes and premiums paid
Settlements
Closing fair value of plan assets
175
8
7
8
(14)
(3)
(3)
(1)
(7)
170
113
8
9
11
8
(3)
(3)
(7)
136
162
8
9
8
7
(16)
(3)
–
–
175
145
10
(43)
12
8
(16)
(3)
–
113
175
8
7
8
(14)
(3)
(3)
(1)
(7)
170
113
8
9
11
8
(3)
(3)
(7)
136
162
8
9
8
7
(16)
(3)
–
–
175
145
10
(43)
12
8
(16)
(3)
–
113
Santos Annual Report 2009
117
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
30. EMPLOYEE BENEFITS (CONTINUED)
(A) DEFINED BENEFIT PLAN (CONTINUED)
Plan assets
The percentage invested in each asset class at the reporting date:
Australian equity
International equity
Fixed income
Property
Other
Cash
Fair value of plan assets
The fair value of plan assets includes no amounts relating to:
• any of the Group’s own fi nancial instruments; or
• any property occupied by, or other assets used by, the Group.
Consolidated
Santos Ltd
2009
%
2008
%
2009
%
2008
%
32
29
10
9
7
13
28
27
10
13
10
12
32
29
10
9
7
13
28
27
10
13
10
12
Actual return on plan assets
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
Actual return on plan assets – gain/(loss)
12
(24)
12
(24)
Expected rate of return on plan assets
The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target
allocation of assets to each asset class and allowing for the correlations of the investment returns between asset classes. The returns used
for each asset class are net of investment tax and investment fees. An allowance for asset-based administration expenses has been
deducted from the expected return.
Principal actuarial assumptions at the reporting date (expressed as weighted average)
Discount rate
Expected rate of return on plan assets
Expected average salary increase rate over the life of the plan
2009
% p.a.
4.8
7.0
6.0
2008
% p.a.
4.0
7.0
6.0
The expected rate of return on Plan assets includes a reduction to allow for the administrative expenses of the plan.
Expected contributions
The Group expects to contribute $8 million to the defi ned benefi t superannuation plan in 2010.
(B) DEFINED CONTRIBUTION PLANS
The Group makes contributions to several defi ned contribution plans. The amount recognised as an expense for the year was $8 million
(2008: $6 million).
118
Santos Annual Report 2009
31. SHARE-BASED PAYMENT PLANS
(A) CURRENT GENERAL EMPLOYEE SHARE PLANS
The Company currently operates two general employee share plans:
• the Santos Employee Share Acquisition Plan (“SESAP”); and
• the Santos Employee Share Purchase Plan (“SESPP”).
Both of these plans have operated since 1997.
SESAP
Broadly, SESAP provides for permanent eligible employees with at least a minimum period of service determined by Directors as at the
offer date (one year of completed service) to be entitled to acquire shares under this Plan. Executives participating in the Executive
Long-term Incentive Programme in 2009, 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 grants of fully paid ordinary shares in the capital of the Company up to a value determined by the Board being
$1,000 per annum per eligible employee. A trustee is funded by the Group to acquire shares directly from the Company or on market.
The shares are then held by the trustee on behalf of eligible employees who participate in 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 (being three years) and the time when he or she ceases to be
an employee. Participants are entitled to instruct the trustee as to the exercise of voting rights, receive dividends and participate in bonus
and rights issues during the restriction period. At the end of the reporting period shares are granted to eligible employees at no cost to
the employee.
Summary of share movements in the SESAP during 2009 (and comparative 2008 information):
Grant date
2009
17 November 2006
20 November 2007
21 November 2008
20 November 2009
2008
18 November 2005
17 November 2006
20 November 2007
21 November 2008
Opening
balance
Granted
during the year
Distributions
during the year
Closing
balance
Number
Number
Fair value
per share
$
Fair value
aggregate
$
Number
Fair value
aggregate
$
Number
97,980
92,625
110,679
–
–
–
–
101,376
–
–
–
15.11
97,980 1,495,791
95,780
111,436
8,602
6,150
7,189
594
–
–
86,475 1,218,433
103,490 1,458,174
100,782 1,420,018
301,284
101,376
111,913 1,711,609
290,747 4,096,625
89,848
105,156
99,825
–
–
–
–
111,153
–
–
–
12.62
89,848
7,176
7,200
474
1,164,977
117,648
119,379
6,621
–
97,980
92,625
110,679
–
1,456,963
1,377,334
1,656,797
294,829
111,153
104,698
1,408,625
301,284
4,491,094
Shares are allocated at a price equal to the weighted average sale price of the Company’s ordinary shares on the ASX during the one-week
period up to and including the grant date. This is shown as fair value per share for shares granted during the year. The fair value of shares
distributed from the trust during the year and remaining in the trust at the end of the fi nancial year is the market price of shares of the
Company on the ASX as at close of trading on the respective dates.
Distributions during the year occurred at various dates throughout the year and therefore have not been separately listed.
Santos Annual Report 2009
119
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(A) CURRENT GENERAL EMPLOYEE SHARE PLANS (CONTINUED)
The amounts recognised in the fi nancial statements of the Group and the Company in relation to SESAP during the year were:
Employee expenses
Issued ordinary share capital
Consolidated
Santos Ltd
2009
$000
1,532
1,532
2008
$000
1,403
1,403
2009
$000
1,532
1,532
2008
$000
1,403
1,403
At 31 December 2009, the total number of shares acquired under the Plan since its commencement was 2,408,566.
SESPP
The general employee offer under SESPP 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 and those who have participated in the Executive Long-term Incentive Programme during the year 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, for a period determined by the Board (one year).
The subscription or acquisition price is Market Value (being the weighted average sale price of the Company’s ordinary shares on the ASX
during the one-week period up to and including the offer date) less any discount determined by the Board (5%). Under the Plan, at the
discretion of the Board, fi nancial assistance may be provided to employees to subscribe for and acquire shares under the Plan. The 5%
discount constitutes fi nancial assistance for these purposes. Participants are entitled to vote, receive dividends and participate in bonus
and rights issues during the restriction period.
On 20 November 2009, the Company issued 18,400 ordinary shares to 36 eligible employees at a subscription price of $14.86 per share
under the Plan, being a 5% discount on the Market Value of $15.641 (calculated by reference to the weighted average sales price of those
shares listed on the ASX during the one-week period up to and including the offer date, 23 October 2009). The total market price of those
shares on the issue date was $276,368, based on the market price of $15.02 at the close of trade on the date of issue. The total amount
received from employees for those shares was $273,424.
A summary of share movements in the SESPP are set out below:
Grant date
2009
21 November 2008
20 November 2009
2008
20 November 2007
21 November 2008
Opening
balance
Granted
during the year
Distributions
during the year
Closing
balance
Number
Number
Fair value
per share
$
Number
Date
Number
300,100
–
–
18,400
–
15.64
300,100
18,400
300,100
–
300,100
20 November 2009
–
400
–
400
–
300,100
300,100
–
11.48
400
–
400
20 November 2008
–
–
18,400
18,400
–
300,100
300,100
The fair value per share for shares granted during the year is Market Value (as defi ned above). The consideration received by the Company
per share is Market Value less the discount of 5% referred to above.
120
Santos Annual Report 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(A) CURRENT GENERAL EMPLOYEE SHARE PLANS (CONTINUED)
The amounts recognised in the fi nancial statements of the Group and the Company in relation to the general employee offer under the
SESPP during the year were:
Issued ordinary share capital
Consolidated
Santos Ltd
2009
$000
273
2008
$000
3,274
2009
$000
273
2008
$000
3,274
At 31 December 2009, the total number of shares acquired under the general employee offer of the Plan since its commencement
was 1,140,800.
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME
The Company’s Executive Long-term Incentive (“LTI”) Programme provides for invitations to be extended to eligible executives selected by
the Board.
The Programme currently consists of an offer of securities under:
• the Santos Employee Share Purchase Plan (“SESPP”); and
• the Santos Executive Share Option Plan (“SESOP”).
SESOP has operated since 1997 and the SESPP has been used as a component of executive compensation since 2003.
Share Acquisition Rights and options
Each Share Acquisition Right (“SAR”) and option is a conditional entitlement to a fully paid ordinary share, subject to the satisfaction of
performance conditions, on terms and conditions determined by the Board.
SARs and options carry no voting or dividend rights until the performance conditions are satisfi ed and, in the case of options, when the
options are exercised or, in the case of SARs, when the SARs vest.
Chief Executive Offi cer and Managing Director
No new LTI grant was made to the Chief Executive Offi cer (“CEO”) in 2009 as the grants made to Mr D J W Knox in 2008 constitute his LTI
entitlement for the 2008, 2009 and 2010 years.
The 2008 grants comprised:
• a performance-based equity award made to Mr Knox in his capacity as Executive Vice President, Growth Projects (“Performance Award”);
• a service-based equity award made to Mr Knox in his capacity as Executive Vice President, Growth Projects (“Deferred Award”); and
• a further performance-based equity award made to Mr Knox upon his appointment as CEO to supplement the grants already made to him
in his Senior Executive capacity (“CEO Performance Award”).
Mr Knox elected to receive his equity awards as a combination of options and share acquisition rights (SARs).
The key terms of Mr Knox’s awards are as follows:
• The LTI grants made in 2008 were structured to provide Mr Knox with an annual LTI opportunity of 100% of Total Fixed Remuneration
(“TFR”) (based on the 2008 level of $1.75 million) for each of the 2008, 2009 and 2010 years, subject to achieving applicable vesting
conditions.
• Mr Knox was able to elect to receive his LTI grant as either SARs, market value options or a combination of the two. He chose to take a
combination of the two.
• All of the performance-based LTIs are subject to hurdles based on the Company’s Total Shareholder Return (“TSR”) relative to the
ASX 100 over a three-year performance period. There is no retesting of performance conditions.
Santos Annual Report 2009
121
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
• The CEO Performance Award is divided into three tranches:
Tranche 1: Tested over the period from 1 January 2008 to 31 December 2010;
Tranche 2: Tested over the period from 1 January 2009 to 31 December 2011; and
Tranche 3: Tested over the period from 1 January 2010 to 31 December 2012.
• Each tranche of the CEO Performance Award vests in accordance with the following vesting schedule:
TSR percentile ranking
% of grant vesting
< 50th percentile
= 50th percentile
51st to 75th percentile
76th to 100th percentile
0%
37.5%
39% to 75%
76% to 100%
• None of the grants has vested as the period over which the performance hurdles are tested has not expired.
• Upon vesting of SARs, ordinary shares in Santos will automatically be allocated to Mr Knox. These shares will be subject to restrictions
until the earlier of 10 years from the grant date, cessation of employment, or the date at which the Board approves, at Mr Knox’s
request, the removal of the restrictions.
• Options may be exercised at any time between the vesting date and the expiry date (27 July 2018), subject to payment of the exercise
price of $17.36 per option (being the volume weighted average price in the week up to and including the grant date).
• Full details of the equity grants made to Mr Knox in 2008 are contained in the 2008 Remuneration Report.
During the fi nancial year, the Company granted nil (2008: 444,974) options over unissued shares to the CEO as set out below:
Outstanding at the beginning of the year
Granted during the year
Outstanding at the end of the year
Exercisable at the end of the year
2009
2008
Weighted
average
exercise
price
$
16.98
–
16.98
–
Weighted
average
exercise
price
$
–
16.98
16.98
–
Number
444,974
–
444,974
–
Number
–
444,974
444,974
–
The options outstanding at 31 December 2009 have an exercise price in the range of $15.39 to $17.36, and a weighted average
contractual life of 8.55 years.
During the year no options were exercised (2008: nil).
The fair value of shares issued as a result of exercising the options or vesting of SARs during the reporting period at their issue date is the
market price of shares of the Company on the ASX as at close of trading.
The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted.
The estimate of the fair value of the services received is measured based on the Monte Carlo simulation method. The contractual life of the
option is used as an input into this model. Expectations of early exercise are incorporated into the models.
122
Santos Annual Report 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
2008
Performance
Award
Deferred
Award
CEO Performance Awards
Option grant
F1
F2
F3
F4
F5
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Expected volatility (weighted average, %p.a.)
Option life (weighted average)
Expected dividends (%p.a.)
Risk-free interest rate (based on Australian Government
5.25
17.71
15.39
30.7
10 years
2.3
7.30
17.71
15.39
30.7
10 years
2.3
5.77
17.40
17.36
30.9
10 years
2.3
4.22
17.40
17.36
30.9
10 years
2.3
4.29
17.40
17.36
30.9
10 years
2.3
bond yields, %p.a.)
6.29
6.29
6.05
6.05
6.05
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options),
adjusted for any expected changes to future volatility due to publicly available information.
During the fi nancial year, the Company granted nil (2008: 136,779) SARs to the CEO as set out below. Shares allocated on vesting of SARs
will be subject to further restrictions on dealing for a maximum of ten years after the original grant date. No amount is payable on grant
or vesting of the SARs.
Outstanding at the beginning of the year
Granted during the year
Outstanding at the end of the year
Exercisable at the end of the year
Number of SARs
2009
2008
136,779
–
136,779
–
136,779
136,779
–
–
The fair value of services received in return for SARs granted is measured by reference to the fair value of SARs granted. The estimate of
the fair value of the services received is measured based on the Monte Carlo simulation method. The contractual life of the SARs is used
as an input into this model. Expectations of early exercise are incorporated into the Monte Carlo simulation method.
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share rights),
adjusted for any expected changes to future volatility due to publicly available information.
SARs grant
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Expected volatility (weighted average, %p.a.)
Right life (weighted average)
Expected dividends (%p.a.)
Risk-free interest rate (based on Australian Government bond yields, %p.a.)
2008
CEO Performance Award
F3
F4
F5
13.82
17.40
–
30.9
10 years
2.3
6.05
8.60
17.40
–
30.9
10 years
2.3
6.05
8.41
17.40
–
30.9
10 years
2.3
6.05
Santos Annual Report 2009
123
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
Former CEO
Mr J C Ellice-Flint retired on 25 March 2008. Consistent with the terms of his service agreement, 2,312,500 of Mr Ellice-Flint’s options,
which had not previously vested, were vested and became exercisable upon cessation of his employment.
Each option entitles Mr Ellice-Flint to acquire one fully paid ordinary share in the Company at a predetermined price, subject to
satisfaction of vesting conditions. The grant size is determined by reference to the median grant size given to executives in similar roles
in comparable companies.
No options have been granted to Mr Ellice-Flint since 2006.
At 31 December 2009, the 2,500,000 options are on issue, and are exercisable. The exercise price for the options granted is $11.36,
being the volume weighted average price in the ten days up to and including 9 March 2006 as approved by shareholders on 4 May 2006.
The options have a contractual life of ten years.
Eligible senior executives – SARs and options
During 2009, the Company made equity grants to its Senior Executives as the LTI component of their remuneration for 2009. The grants
comprised:
• a performance-based component, equal to 75% of the total grant value (“Performance Award”); and
• a service-based component, equal to 25% of the total grant value (“Deferred Award”).
Both the Performance Award and the Deferred Award were delivered, at the executive’s election, in the form of either SARs (under the
SESPP) or options (under the SESOP).
SARs and options were granted at no cost to the executives with the number of SARs awarded being determined by dividing the amount
of the award by the volume weighted average price of the Company’s shares over the week up to and including the award date. The number
of options awarded is of equivalent value calculated by an independent expert based on an acceptable valuation method.
Vesting details of the Performance Award and the Deferred Award are summarised below:
Performance Award
Vesting period
Vesting condition
Vesting schedule
Exercise price
Expiry/lapse
1 January 2009 to 31 December 2011.
Vesting of the Performance Award is based on relative TSR against ASX 100 companies as at
1 January 2009.
Relative TSR condition
Santos TSR percentile ranking
< 50th percentile
= 50th percentile
51st to 99th percentile
100th percentile
% of grant vesting
0%
33.33%
Further 1.33% for each percentile
100%
$14.81 for options, being the volume weighted average price in the week up to and including
the grant date of 2 March 2009.
SARs have no exercise price.
Upon cessation of employment, SARs which have not already vested and options which are
not exercisable will, in general, lapse and be forfeited.
There is no retesting of the performance conditions if they are not satisfi ed.
124
Santos Annual Report 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
Deferred Award
Vesting period
Vesting condition
Vesting schedule
Exercise price
Expiry/lapse
2 March 2009 to 1 March 2012.
Vesting of the Deferred Award is based on continuous service to 1 March 2012, or three years
from the grant date.
0% if the continuous service condition is not met.
100% if the continuous service condition is met.
As for Performance Award.
As for Performance Award.
Upon cessation of employment, SARs which have not already vested and options which are not exercisable will, in general, lapse and be
forfeited. However, if cessation occurs due to death, disability or redundancy, or in special circumstances approved by the Board, then a
proportion of the SARs and options may vest and become exercisable.
Where there is a change in control, the Board may determine whether, and the extent to which, SARs and options may vest.
During the fi nancial year, the Company granted 275,884 (2008: 880,533) options over unissued shares as set out below:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
2009
2008
Weighted
average
exercise
price
$
12.70
14.81
11.34
9.61
Number
2,195,293
275,884
(24,690)
(427,050)
13.65
2,019,437
Weighted
average
exercise
price
$
10.27
15.39
9.71
8.41
12.70
Number
2,078,728
880,533
(460,385)
(303,583)
2,195,293
Exercisable at the end of the year
10.15
521,250
8.14
232,300
The options outstanding at 31 December 2009 have an exercise price in the range of $8.46 to $15.39, and a weighted average remaining
contractual life of 7.9 years.
During the year 427,050 (2008: 303,583) options were exercised. The weighted average share price at the dates of exercise was $14.40
(2008: $17.81).
The fair value of shares issued as a result of exercising the options or vesting of SARs during the reporting period at their issue date is the
market price of shares of the Company on the ASX as at close of trading.
The amounts recognised in the fi nancial statements of the Group and the Company in relation to executive share options exercised during
the fi nancial year were:
Consolidated
Santos Ltd
Issued ordinary share capital
4,103
2,553
4,103
2009
$000
2008
$000
2009
$000
2008
$000
2,553
Santos Annual Report 2009
125
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted.
The estimate of the fair value of the services received is measured based on the Monte Carlo simulation method. The contractual life of the
option is used as an input into this model. Expectations of early exercise are incorporated into the models.
Option grant
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Expected volatility (weighted average, %p.a.)
Option life (weighted average)
Expected dividends (%p.a.)
Risk-free interest rate (based on Australian Government
bond yields, %p.a.)
2009
2008
Performance
Award
G1
Deferred
Award
G2
Performance
Award
F1
4.54
15.00
14.81
46.5
10 years
2.6
6.75
15.00
14.81
46.5
10 years
2.6
5.25
17.71
15.39
30.7
10 years
2.3
Deferred
Award
F2
7.30
17.71
15.39
30.7
10 years
2.3
2.94
2.94
6.29
6.29
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options),
adjusted for any expected changes to future volatility due to publicly available information.
During the fi nancial year, the Company granted 723,792 (2008: 241,668) SARs to eligible senior executives as set out below. Shares
allocated on vesting of SARs will be subject to further restrictions on dealing for a maximum of ten years after the original grant date.
No amount is payable on grant or vesting of the SARs.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Vested during the year
Outstanding at the end of the year
Exercisable at the end of the year
Number of SARs
2009
2008
1,229,712
723,792
(61,961)
(303,085)
1,365,800
241,668
(236,426)
(141,330)
1,588,458
1,229,712
–
–
The fair value of services received in return for SARs granted is measured by reference to the fair value of SARs granted. The estimate of
the fair value of the services received is measured based on the Monte Carlo simulation method. The contractual life of the SARs is used as
an input into this model. Expectations of early exercise are incorporated into the Monte Carlo simulation method.
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share rights),
adjusted for any expected changes to future volatility due to publicly available information.
SARs grant
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Expected volatility (weighted average, %p.a.)
Right life (weighted average)
Expected dividends (%p.a.)
Risk-free interest rate (based on Australia Government
2009
2008
Performance
Award
G1
Deferred Award
G2
G3
Performance
Award
F1
8.67
15.00
–
46.5
10 years
2.6
14.45
15.00
–
46.5
10 years
2.6
14.45
15.00
–
46.5
10 years
2.6
11.23
17.71
–
30.7
10 years
2.3
Deferred
Award
F2
16.73
17.71
–
30.7
10 years
2.3
bond yields, %p.a.)
2.94
2.94
2.94
6.29
6.29
126
Santos Annual Report 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
Cash-settled share-based payments
During the year the Company raised $2,914 million through a two for fi ve rights issue (refer note 22(A)). Each new share was issued at
a price of $12.50 representing a 26.9% discount to the closing price of the shares before the announcement of the rights issue.
Executives, being the CEO and eligible senior executives, who held unvested SARs and options, were unable to participate in the rights
issue and there was no adjustment to the applicable exercise price or the number of underlying shares to which each SAR or option was
entitled. The ASX Listing Rules do allow an adjustment to the exercise price of options to refl ect the impact of discounted rights issues
but the terms of the grant need to expressly refer to the formula in ASX Listing Rule 6.22.2 and the Listing Rules do not contemplate
(nor provide a mechanism for adjusting) SARs.
Accordingly, in order to ensure the rights issue would neither unfairly disadvantage or advantage executives and so as to avoid a
misalignment between the incentives of management (through the LTI component of their remuneration) and a capital raising which was
considered by the Board to be in the best interests of the Company and shareholders, the Board determined, in respect of existing LTI grants:
• to use TSR data which takes into account the impact of rights issues and other capital management activities on both Santos and
comparator group companies when testing the satisfaction of TSR performance hurdles that apply to Santos LTI awards; and
• subject to the SARs and options vesting following satisfaction of applicable hurdles (and, in the case of options, being exercised),
to make a future cash remuneration payment to executives equal to the value of the right to participate in the rights issue (calculated
at $1.31 for each underlying share in accordance with the formula in ASX Listing Rule 6.22.2). The intention is to “keep whole” the
executives in respect of SARs and options that actually vest in due course. No cash payment will be made in respect of SARs that do not
vest or options that do not vest or are not exercised.
These future cash remuneration payments apply to LTI participants with grants that were yet to vest at the time of the rights issue,
including the CEO. No changes have been made to the performance hurdles or testing dates.
Despite the intention to “keep whole” the executives, the future cash remuneration payments did not fully compensate for the loss in
the value of the unvested SARs and options. The overall value of the future cash remuneration payments is $166,523 less than the loss
in value of the SARs and options, both determined in accordance with AASB 2 Share-based Payment. The value of these future cash
remuneration payments has been expensed in accordance with AASB 2, over the period from 8 May 2009 (the last trading day prior to
the announcement of the rights issue; closing price of $17.09) to the end of their performance or vesting periods.
Financial statement impact of Executive Long-term Incentive Programme
The amounts recognised in the fi nancial statements of the Group and the Company, during the fi nancial year in relation to equity grants
issued under the Executive Long-term Incentive Programme were:
Employee expenses:
CEO and Managing Director options
CEO and Managing Director SARs
Former CEO options
Eligible senior executive options
Eligible senior executive SARs
Cash-settled share-based payments
Retained earnings
Liability for employee benefi ts
Consolidated
Santos Ltd
2009
$000
635
553
–
2,260
5,099
2,084
10,631
8,547
2,084
10,631
2008
$000
418
382
1,667
1,723
4,125
–
8,315
8,315
–
8,315
2009
$000
635
553
–
2,260
5,099
2,084
10,631
8,547
2,084
10,631
2008
$000
418
382
1,667
1,723
4,125
–
8,315
8,315
–
8,315
Santos Annual Report 2009
127
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(B) EXECUTIVE LONG-TERM INCENTIVE PROGRAMME (CONTINUED)
Eligible senior executives – Shares
No shares have been issued under the executive long-term incentive component of the SESPP since 2004. At 31 December 2009, the total
number of shares acquired under the executive long-term incentive component of the Plan since its commencement was 220,912.
The shares allocated pursuant to the SESPP were allotted to a trustee at no cost to participants, to be held on their behalf. The allocation
price is Market Value (as defi ned above) and the trustee was funded by the Company to subscribe for the shares.
In general the shares were restricted for a period of one year from the date of allotment. If a participating executive ceased employment
during this period, the Board in its discretion could determine that a lesser restriction on transfer and dealing applied, having regard to
the circumstances of the cessation. The shares can remain on trust for up to ten years from the date of allotment, during which time the
shares are subject to forfeiture if participants act fraudulently or dishonestly or in breach of their obligations to any Group company.
Participants are entitled to instruct the trustee as to the exercise of voting rights, receive dividends and participate in bonus and rights
issues while the shares are held on trust.
(C) LEGACY PLAN – SANTOS EXECUTIVE SHARE PLAN
The Santos Executive Share Plan operated between 1987 and 1997, when it was discontinued. Under the terms of the Plan, shares were
issued as partly paid to one cent. 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. After a “vesting” period, calls could be made for the balance of the
issue price of the shares, which varied between $2.00 and the market price of the shares on the date of the call being made. Shares were
issued principally on: 22 December 1987; 7 February and 5 December 1989; and 24 December 1990.
At the beginning of the fi nancial year there were 88,000 Plan shares on issue. During the fi nancial year no Plan shares were fully paid and
no aggregate proceeds were received by the Company. As at 31 December 2009 there were 88,000 Plan shares outstanding.
(D) NON-EXECUTIVE DIRECTOR SHARE PLAN
In accordance with shareholder approval given at the 2007 Annual General Meeting, the Non-executive Director (“NED”) Share Plan was
introduced in July 2007. Participation in the NED Share Plan is voluntary and all present and future Non-executive Directors are eligible to
participate. Under the NED Share Plan, Directors elect to sacrifi ce all or part of their fees in return for an allocation of fully paid ordinary
shares of equivalent value. The NED Share Plan therefore does not involve any additional remuneration for participating Directors.
Shares are allocated quarterly and are either issued as new shares or purchased on the ASX at the prevailing market price. The shares are
registered in the name of the participating Director, but are subject to a restriction on dealing. In the absence of exceptional circumstances,
the restriction will apply until the Director ceases to hold offi ce or until ten years have elapsed since the allocation of the shares, whichever
is earlier.
128
Santos Annual Report 2009
31. SHARE-BASED PAYMENT PLANS (CONTINUED)
(D) NON-EXECUTIVE DIRECTOR SHARE PLAN (CONTINUED)
In 2009, 20,390 (2008: 33,356) shares were allocated to participating Directors as follows:
Date
7 April 2009
29 June 2009
7 October 2009
23 December 2009
Shares
issued
Number
Price
per share
$
8,019
6,949
2,598
2,824
17.1811
14.2552
15.1076
13.8947
The amounts recognised in the fi nancial statements of the Group and the Company in relation to the NED Share Plan during the year were:
Employee expenses
Issued ordinary share capital
32. KEY MANAGEMENT PERSONNEL DISCLOSURES
(A) KEY MANAGEMENT PERSONNEL COMPENSATION
Short-term employee benefi ts
Post-employment benefi ts
Other long-term benefi ts
Termination benefi ts
Share-based payments
Consolidated
Santos Ltd
2009
$000
315
315
10,106
399
113
–
3,615
14,233
2008
$000
553
553
10,442
1,739
259
2,705
4,619
19,764
2009
$000
315
315
10,106
399
113
–
3,615
14,233
2008
$000
553
553
10,442
1,739
259
2,705
4,619
19,764
Santos Annual Report 2009
129
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
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131
Notes to the Consolidated Financial Statements
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Santos Annual Report 2009
133
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Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
33. RELATED PARTIES
Identity of related parties
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.
Details of related party transactions and amounts are set out in:
• note 6 as to interest charged to/by controlled entities;
• note 11 as to amounts owing by controlled entities and other related entities;
• notes 18 and 19 as to amounts owing to controlled entities;
• notes 19 and 36 as to Santos Ltd’s parent company guarantees (including fi nancing facilities) provided for its controlled entities;
• note 20 as to Non-executive Directors’ retirement benefi ts;
• notes 11 and 24 as to investments in controlled entities;
• note 28 as to interests in joint ventures; and
• note 32 as to disclosures relating to key management personnel.
34. REMUNERATION OF AUDITORS
The auditor of Santos Ltd is Ernst & Young.
Amounts received or due and receivable by Ernst & Young (Australia) for:
An audit or review of the fi nancial report of the entity and any other entity
in the consolidated group
Other assurance services
Other services:
Taxation
Other
Amounts received or due and receivable by overseas related practices
of Ernst & Young (Australia) for:
External audit
Assurance
Taxation
Other services
Amounts received or due and receivable by overseas non-Ernst & Young
audit fi rms for:
Audit of fi nancial reports for subsidiaries incorporated in
Papua New Guinea
40
62
Amounts received or due and receivable by related Australian practices of
non-Ernst & Young audit fi rms for:
Assurance
Taxation
Other services
195
657
35
887
60
297
190
547
134
Santos Annual Report 2009
Consolidated
Santos Ltd
2009
$000
2008
$000
2009
$000
2008
$000
1,035
513
–
–
1,061
368
5
38
725
433
–
–
813
292
4
38
1,548
1,472
1,158
1,147
143
20
73
4
240
122
20
33
4
179
–
–
–
–
–
–
137
151
25
313
–
–
–
–
–
–
42
69
133
244
35. COMMITMENTS FOR EXPENDITURE
The Group 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 fi nancial statements, payable:
Not later than one year
Later than one year but not later than fi ve years
Later than fi ve years
Santos Ltd has guaranteed the capital commitments of certain controlled
entities (refer note 37 for further details).
(B) MINIMUM EXPLORATION COMMITMENTS
Minimum exploration commitments for which no amounts have been
provided in the fi nancial statements or capital commitments, payable:
Not later than one year
Later than one year but not later than fi ve years
Later than fi ve years
The Group 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) OPERATING LEASE COMMITMENTS
Non-cancellable operating lease rentals are payable as follows:
Not later than one year
Later than one year but not later than fi ve years
Later than fi ve years
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
935
1,285
10
2,230
76
270
8
354
330
150
4
484
270
162
–
432
124
–
–
124
6
6
8
20
82
245
130
457
94
167
49
310
37
70
36
143
109
23
–
132
4
9
–
13
38
68
46
152
The Group leases fl oating production, storage and offtake facilities, fl oating storage offl oading facilities and mobile offshore production
units under operating leases. The leases typically run for a period of four to six years, and may have an option to renew after that time.
The Group also leases building offi ce space and a warehouse under operating leases. The leases are generally for a period of ten years,
with an option to renew the lease after that date. The lease payments typically increase annually by CPI.
During the year ended 31 December 2009 the Group recognised $85 million (2008: $88 million) as an expense in the income statement in
respect of operating leases.
Santos Annual Report 2009
135
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
35. COMMITMENTS FOR EXPENDITURE (CONTINUED)
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
(D) FINANCE LEASE COMMITMENTS
Finance lease commitments are payable as follows:
Not later than one year
Later than one year but not later than fi ve years
Later than fi ve years
Total minimum lease payments
Less amounts representing fi nance charges
Present value of minimum lease payments
1
2
1
4
(1)
3
1
1
1
3
(1)
2
1
2
1
4
(1)
3
1
1
1
3
(1)
2
The Group has fi nance leases for various items of plant and equipment with a carrying amount of $3 million (2008: $3 million) for both
the Group and the Company. The leases generally have terms of between three to twelve years with no escalation clauses and no option to
renew. Title to the assets passes to the Group at the expiration of the relevant lease periods.
(E) COMMITMENT ON REMOVAL OF SHAREHOLDER CAP
Pursuant to a Deed of Undertaking to the Premier of South Australia dated 16 October 2006 and as a consequence of the enactment of the
Santos Limited (Deed of Undertaking) Act 2007 on 29 November 2007, Santos has agreed to:
• Continue to make payments under its existing Social Responsibility and Community Benefi ts Programme specifi ed in the Deed totalling
$60 million over a ten-year period from the date the legislation was enacted. As at 31 December 2009, approximately $48 million
remains to be paid over the next eight years.
• Continue to maintain the South Australian Cooper Basin asset’s Head Offi ce and Operational Headquarters together with other roles in
South Australia for ten years subsequent to the date the legislation was enacted. At 31 December 2009, if this condition had not been
met, the Company would have been liable to pay approximately $90 million to the State Government of South Australia.
Santos is required to make these payments only if the State Government of South Australia does not reintroduce a shareholder cap on the
Company’s shares or introduce any other restriction on or in respect of the Company’s Board or senior management which have an adverse
discriminatory effect in their application to the Company relative to other companies domiciled in South Australia.
(F) REMUNERATION COMMITMENTS
Commitments for the payment of salaries and other remuneration
under the long-term employment contracts in existence at the
reporting date but not recognised in liabilities, payable:
Not later than one year
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
6
7
6
7
Amounts included as remuneration commitments include commitments arising from the service contracts of Directors and executives
referred to in the Remuneration Report of the Directors’ Statutory Report that are not recognised as liabilities and are not included in the
compensation of key management personnel.
136
Santos Annual Report 2009
36. CONTINGENT LIABILITIES
The Directors are of the opinion that provisions are not required in
respect of these matters, as it is not probable that a future sacrifi ce
of economic benefi ts will be required or the amount is not capable of
reliable measurement.
Santos Ltd and its controlled entities have the following contingent
liabilities arising in respect of:
The Group:
Performance guarantees*
Actual and possible legal claims and proceedings
The Group’s share of contingent liabilities of joint venture operations:
Performance guarantees
Litigation and proceedings
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
18
30
21
2
71
29
17
13
5
64
8
15
6
–
29
10
3
3
2
18
* Performance guarantees in the nature of bank guarantees provided to secure statutory and contractual commitments such as leases or work commitments in respect of
exploration permits and pipelines.
Legal advice in relation to the actual and possible legal claims and proceedings referred to above indicates that, on the basis of available
information, any liability in respect of these claims is unlikely to exceed $7 million on a consolidated basis.
A number of the Australian interests of the Group 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 signifi cantly impact the Group’s asset
base. Compliance with the “future act” provisions of the Native Title Act 1993 (Cth) can delay the grant of mineral and petroleum tenements
and consequently 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.
Guarantees provided by Santos Ltd for borrowings of controlled entities are disclosed in note 19.
Santos Ltd has provided parent company guarantees in respect of obligations estimated at $2,379 million which include:
(a) the funding and performance obligations of a number of subsidiary companies relating to:
• a fl oating storage and offl oading facilities agreement for the Sampang Production Sharing Contract;
• a mobile offshore production unit agreement for the Madura Production Sharing Agreement;
• the development of a jetty, marine offl oading facilities and in relation to the acquisition of land development and LNG facilities for the
GLNG project; and
• performance obligations under Production Sharing Contracts in India;
(b) a subsidiary company’s obligations to meet distribution charges for gas retail customers;
(c) the fi nancial obligations of subsidiary companies relating to:
• fl oating production storage and offl oading vessel charter agreement for the Chim Sao development in Block 12 W, offshore Vietnam; and
• subsidiary companies’ share (13.5%) of the US$14 billion fi nancing for the PNG LNG Project.
Subsidiary companies have provided parent or related company guarantees in respect of obligations estimated at $225 million which include:
(a) the performance obligations of their subsidiary or related companies in relation to:
• the sale of certain interest in the Bonaparte Basin;
• the sale of certain interests in the KAKAP PSC; and
• the acquisition of interest from Gastar Exploration USA Inc. and Gastar Exploration New South Wales, Inc.; and
(b) the payment obligations of a controlled entity in respect of mudlogging services in the Kyrgyz Republic.
Santos Annual Report 2009
137
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
37. DEED OF CROSS GUARANTEE
Pursuant to Class Order 98/1418, the wholly-owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for
preparation, audit and lodgement of their fi nancial reports.
As a condition of the Class Order the Company and each of the listed subsidiaries (“the Closed Group”) have entered into a Deed of Cross
Guarantee. The effect of the Deed is that the Company has guaranteed to pay any defi ciency in the event of winding up of any of the
subsidiaries under certain provisions of the Corporations Act 2001. The subsidiaries have also given a similar guarantee in the event that the
Company is wound up.
The subsidiaries subject to the Deed are:
• Alliance Petroleum Australia Pty Ltd;
• Bridge Oil Developments Pty Limited;
• Reef Oil Pty Ltd;
• Santos (BOL) Pty Ltd;
• Santos Darwin LNG Pty Ltd;
• Santos (NARNL Cooper) Pty Ltd (became a party to the Deed on 28 November 2008);
• Santos Offshore Pty Ltd;
• Santos Petroleum Management Pty Ltd;
• Santos Petroleum Pty Ltd;
• Santos QNT Pty Ltd;
• Santos QNT (No. 1) Pty Ltd;
• Santos QNT (No. 2) Pty Ltd; and
• Vamgas Pty Ltd.
138
Santos Annual Report 2009
37. DEED OF CROSS GUARANTEE (CONTINUED)
The consolidated income statement, statement of comprehensive income, statement of fi nancial position and statement of changes in equity of
the entities that are members of the Closed Group are as follows:
Consolidated income statement
Product sales
Cost of sales
Gross profi t
Other revenue
Other income
Other expenses
Interest income
Finance expenses
Share of net profi ts of an associate
Profi t before tax
Income tax expense
Royalty-related taxation expense
Total taxation expense
Net profi t for the period
Consolidated statement of comprehensive income
Net profi t for the period
Other comprehensive income:
Exchange losses on translation of foreign operations, net of tax
Change in fair value of available-for-sale fi nancial assets, net of tax
Actuarial gain/(loss) on defi ned benefi t plan, net of tax
Total comprehensive income
Closed Group
2009
$million
2008
$million
1,865
(1,411)
2,233
(1,412)
454
53
132
(178)
82
(127)
–
416
(89)
(39)
(128)
288
288
(22)
–
11
277
821
106
(6)
(414)
56
(221)
–
342
(154)
(48)
(202)
140
140
26
(9)
(26)
131
Santos Annual Report 2009
139
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
37. DEED OF CROSS GUARANTEE (CONTINUED)
Closed Group
2009
$million
2008
$million
Consolidated statement of fi nancial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other fi nancial assets
Tax receivable
Total current assets
Non-current assets
Receivables
Available-for-sale fi nancial assets
Other fi nancial assets
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Deferred income
Interest-bearing loans and borrowings
Tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Deferred income
Interest-bearing loans and borrowings
Deffered tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
140
Santos Annual Report 2009
2,048
938
254
63
9
3,312
9
2
2,471
601
4,410
134
6
7,633
10,945
471
31
1
9
94
606
4
3,125
452
618
4,199
4,805
6,140
4,987
–
1,153
6,140
1,342
1,046
256
–
–
2,644
17
2
2,124
209
4,439
110
9
6,910
9,554
769
50
1
444
38
1,302
6
3,434
380
707
4,527
5,829
3,725
2,531
22
1,172
3,725
Closed Group
Issued
capital
$million
Translation
reserve
$million
Fair value
reserve
$million
Retained
earnings
$million
Total
equity
$million
24
(22)
(2)
–
1,172
299
37. DEED OF CROSS GUARANTEE (CONTINUED)
Consolidated statement of changes in equity
Balance at 1 January 2009
Total comprehensive income for the period
Transactions with owners in their capacity as owners:
Share options exercised by employees
Entitlement offer exercised
Shares issued
Redeemable cumulative preference shares redeemed
Dividends to shareholders
Share-based payment transactions
Balance at 31 December 2009
Balance at 1 January 2008
Total comprehensive income for the period
Adjustment to retained earnings for company added to
Deed during the year
Transactions with owners in their capacity as owners:
Share options exercised by employees
Shares issued
Transaction costs, net of tax
Dividends to shareholders
Share-based payment transactions
Balance at 31 December 2008
2,531
–
4
2,914
138
(600)
–
–
4,987
2,331
–
–
3
253
(56)
–
–
2,531
–
–
–
–
–
–
2
(2)
26
–
–
–
–
–
–
24
–
–
–
–
–
–
(2)
7
(9)
–
–
–
–
–
–
–
–
–
–
(327)
9
1,153
1,205
114
131
–
–
–
(286)
8
3,725
277
4
2,914
138
(600)
(327)
9
6,140
3,541
131
131
3
253
(56)
(286)
8
(2)
1,172
3,725
Santos Annual Report 2009
141
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
38. FINANCIAL RISK MANAGEMENT
Exposure to foreign currency risk, interest rate risk, commodity price risk, credit risk, and liquidity risk arises in the normal course of the
Group’s business. The Group’s overall fi nancial risk management strategy is to seek to ensure that the Group is able to fund its business plans.
Derivative fi nancial instruments may be used to hedge exposure to fl uctuations in foreign exchange rates, interest rates and commodity prices.
The Group uses various methods to measure the types of fi nancial risk to which it is exposed. These methods include Cash Flow at Risk analysis
in the case of interest rate, foreign exchange and commodity price risk, and ageing analysis for credit risk.
Financial risk management is carried out by a central treasury department (“Treasury”) which operates under Board-approved policies.
The policies govern the framework and principles for overall risk management and covers specifi c fi nancial risks, such as foreign exchange risk,
interest rate risk and credit risk, approved derivative and non-derivative fi nancial instruments, and liquidity management.
(A) FOREIGN CURRENCY RISK
Foreign exchange risk arises from commercial transactions and valuations in assets and liabilities that are denominated in a currency that
is not the entity’s functional currency. The risk is measured using cash fl ow forecasting and Cash Flow at Risk analysis.
The Group is exposed to foreign currency risk principally through the sale of products denominated in US dollars, foreign currency
borrowings and expenditure. In order to economically hedge foreign currency risk, the Group has from time to time entered into forward
foreign exchange, foreign currency swap and foreign currency option contracts.
All US dollar (“USD”) denominated borrowings of Australian dollar (“AUD”) functional currency companies (2009: US$1,090 million;
2008: US$1,141 million) are either designated as a hedge of US dollar denominated investments in foreign operations, or swapped using
cross-currency swaps to Australian dollars in order to achieve an economic hedge. As a result, there were no net foreign currency gains or
losses arising from translation of US dollar denominated borrowings recognised in the income statements in 2009.
The Group’s risk management policy is to hedge between 0% and 50% of forecasted cash fl ows in US dollars for the current fi nancial year.
Based on the Group’s net fi nancial assets and liabilities at 31 December 2009, the following table demonstrates the estimated sensitivity
to a +/–13 cent movement in the US dollar exchange rate (2008: +/–10 cents) with all other variables held constant, on post-tax profi t
and equity:
Impact on post-tax profi t:
AUD/USD +13 cents (2008: +10 cents)
AUD/USD –13 cents (2008: -10 cents)
Impact on equity:
AUD/USD +13 cents (2008: +10 cents)
AUD/USD –13 cents (2008: -10 cents)
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
–
–
–
–
(1)
1
(1)
1
–
–
–
–
–
–
–
–
The above sensitivity will vary depending on the Group’s fi nancial asset and liability profi le over time.
The +/–13 cent sensitivity is the Group’s estimate of reasonably possible changes in the US dollar exchange rate over the following
fi nancial year, based on recent volatility experienced in the market.
142
Santos Annual Report 2009
38. FINANCIAL RISK MANAGEMENT (CONTINUED)
(B) MARKET RISK
Cash fl ow and fair value interest rate risk
The Group’s interest rate risk arises from its borrowings. Borrowings issued at variable rates expose the Group to cash fl ow interest rate
risk. Borrowings issued at fi xed rates expose the Group to fair value interest rate risk.
The Group adopts a policy of ensuring that the majority of its exposure to changes in interest rates on borrowings is on a fl oating rate
basis. Interest rate swaps, denominated in Australian dollars and US dollars, have been entered into as fair value hedges of medium-term
notes and long-term notes respectively. When transacted, these swaps have maturities ranging from 1 to 20 years, and align with the
maturity of the related notes. At 31 December 2009, the Group had interest rate swaps with a notional contract amount of $1,028 million
(2008: $1,302 million).
The net fair value of swaps at 31 December 2009 was $125 million (2008: $304 million), comprising assets of $126 million and liabilities
of $1 million. These amounts were recognised as fair value derivatives.
Based on the net debt position as at 31 December 2009, taking into account interest rate swaps, it is estimated that if interest rates
changed by US London Inter-Bank Offer Rate (“LIBOR”) +0.13%/–0.13% and Australian Bank Bill Swap reference rate (“BBSW”)
+1.14%/–1.14% (2008: +0.25%/–2.0%), with all other variables held constant, the estimated impact on post-tax profi t and equity would
have been:
Impact on post-tax profi t:
Interest rates +US 0.13%/+AU 1.14% (2008: +0.25%)
Interest rates –US 0.13%/–AU 1.14% (2008: –2.0%)
Impact on equity:
Interest rates +US 0.13%/+AU 1.14% (2008: +0.25%)
Interest rates –US 0.13%/–AU 1.14% (2008: –2.0%)
Consolidated
Santos Ltd
2009
$million
2008
$million
2009
$million
2008
$million
14
(14)
14
(14)
(1)
4
(1)
4
–
–
–
–
–
–
–
–
This assumes that the change in interest rates is effective from the beginning of the fi nancial year and the net debt position and
fi xed/fl oating mix is constant over the year. However, interest rates and the debt profi le of the Group are unlikely to remain constant
and therefore the above sensitivity analysis will be subject to change.
The sensitivity analysis is based on the Group’s reasonable estimate of changes in interest rates over the following fi nancial year
and refl ects annual interest rate volatility. Changes in interest rates over the following year may be greater or less than the
US LIBOR +0.13%/–0.13% and the Australian BBSW +1.14%/–1.14% sensitivity employed in the estimates above.
Commodity price risk exposure
The Group is exposed to commodity price fl uctuations through the sale of petroleum products and other oil-price-linked contracts.
The Group may enter into commodity crude oil price swap and option contracts to manage its commodity price risk. At 31 December 2009
the Group has no open oil price swap contracts (2008: nil), and therefore is not exposed to movements in commodity prices on fi nancial
instruments. The Group continues to monitor oil price volatility and to assess the need for commodity price hedging.
Santos Annual Report 2009
143
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
38. FINANCIAL RISK MANAGEMENT (CONTINUED)
(C) CREDIT RISK
Credit risk arises from investments in cash and cash equivalents, derivative fi nancial instruments and deposits with banks and fi nancial
institutions, as well as credit exposures to customers including outstanding receivables and committed transactions, and represents the
potential fi nancial loss if counterparties fail to perform as contracted. Management has Board-approved credit policies and the exposure to
credit risk is monitored on an ongoing basis. The majority of Santos’ gas contracts are spread across major Australian energy retailers and
industrial users. Contracts exist in every mainland state whilst the largest customer accounts for less than 20% of contracted gas.
The Group controls credit risk by setting minimum creditworthiness requirements of counterparties, which for banks and fi nancial
institutions is a Standard & Poor’s rating of A or better.
Rating
AA, AA–
A+
Approved
counterparties
Total
credit limit
$million
Total
exposure*
$million
6
7
3,400
1,300
2,356
203
Exposure
range
$million
0 – 653
0 – 152
* Cash deposits plus accrued interest, bank account balances and the mark-to-market gain and percentage of notional value weighted by term on derivatives.
If customers are independently rated these ratings are used, otherwise the credit quality of the customer is assessed by taking into
account its fi nancial position, past experience and other factors including credit support from a third party. Individual risk limits for banks
and fi nancial institutions are set based on external ratings in accordance with limits set by the Board. Limits for customers are determined
within contract terms. The daily nomination of gas demand by customers and the utilisation of credit limits by customers is monitored by
line management.
In addition, receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not
signifi cant. The Group does not hold collateral, nor does it securitise its trade and other receivables.
At the reporting date there were no signifi cant concentrations of credit risk within the Group and fi nancial instruments are spread amongst
a number of fi nancial institutions to minimise the risk of default by counterparties.
The maximum exposure to credit risk is represented by the carrying amount of fi nancial assets of the Group, excluding investments,
which have been recognised on the statement of fi nancial position.
144
Santos Annual Report 2009
38. FINANCIAL RISK MANAGEMENT (CONTINUED)
(D) LIQUIDITY RISK
The Group adopts a prudent liquidity risk management strategy and seeks to maintain suffi cient liquid assets and available committed
credit facilities to meet short-term to medium-term liquidity requirements. The Group’s objective is to maintain fl exibility in funding to
meet ongoing operational requirements, exploration and development expenditure, and other corporate initiatives.
The following table analyses the contractual maturities of the Group’s fi nancial liabilities into relevant maturity groupings based on
the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash fl ows comprising principal and interest repayments, except for interest rate swaps. Estimated variable interest expense
is based upon appropriate yield curves existing as at 31 December 2009.
Less than
1 year
$million
1 to 2
years
$million
2 to 5
years
$million
More than
5 years
$million
Consolidated
2009
Non-derivative fi nancial liabilities
Trade and other payables
Obligations under fi nance leases
Bank loans
Medium-term notes
Long-term notes
Derivative fi nancial liabilities/(assets)
Cross-currency swap contracts
Interest rate swap contracts
2008
Non-derivative fi nancial liabilities
Trade and other payables
Obligations under fi nance leases
Bank loans
Medium-term notes
Long-term notes
Derivative fi nancial assets
Cross-currency swap contracts
Interest rate swap contracts
Santos Ltd
2009
Trade and other payables
Obligations under fi nance leases
Amounts owing to controlled entities
2008
Trade and other payables
Obligations under fi nance leases
Amounts owing to controlled entities
709
1
32
24
199
5
(50)
920
605
1
54
18
141
(56)
(42)
721
778
1
–
779
723
1
–
724
–
1
38
372
59
–
(34)
436
–
1
34
17
260
(31)
(58)
223
–
1
–
1
–
1
–
1
–
1
54
13
278
–
(32)
314
–
1
82
376
375
–
(74)
760
–
1
–
1
–
1
–
1
–
1
51
113
1,056
–
(35)
1,186
–
1
119
119
1,432
–
(184)
1,487
–
1
3,598
3,599
–
1
4,082
4,083
Amounts owing to controlled entities are shown at their carrying value as any interest charged on the loans is added to the loan balance.
The loans are made in the ordinary course of business on normal market terms and conditions and are not repayable for a minimum of
nine years.
Santos Annual Report 2009
145
Notes to the Consolidated Financial Statements
for the year ended 31 December 2009
38. FINANCIAL RISK MANAGEMENT (CONTINUED)
(E) FAIR VALUES
The fi nancial assets and liabilities of the Group and the Company are recognised in the statement of fi nancial position at their fair value in
accordance with the accounting policies in note 1, except for long-term notes that are not swapped to a variable interest rate, and bank
borrowings, which are recognised at face value. The carrying value of these long-term notes is US$125 million and their fair value is
estimated at US$131 million based on discounting the future cash fl ows excluding the credit spread at the time of issue. The discount rate
used is the interest rate swap rate for the remaining term to maturity of the note as at 31 December 2009. The carrying value of the bank
borrowings approximates fair value as it is a fl oating rate instrument.
Basis for determining fair values
The following summarises the signifi cant methods and assumptions used in estimating the fair values of fi nancial instruments:
Trade and other receivables
The carrying value less impairment provision of trade receivables is a reasonable approximation of their fair values due to the
short-term nature of trade receivables.
Available-for-sale fi nancial assets
The fair value of available-for-sale fi nancial assets is determined by reference to their quoted bid price at the reporting date.
Derivatives
The fair value of interest rate swaps is calculated by discounting estimated future cash fl ows based on the terms of maturity of each
contract and using market interest rates for a similar instrument at the reporting date. Where these cash fl ows are in a foreign currency
the present value is converted to Australian dollars at the foreign exchange spot rate prevailing at reporting date.
Financial liabilities
Fair value is calculated based on the present value of future principal and interest cash fl ows, discounted at the market rate of interest
at the reporting date. Where these cash fl ows are in a foreign currency the present value is converted to Australian dollars at the
foreign exchange spot rate prevailing at reporting date.
Interest rates used for determining fair value
The interest rates used to discount estimated future cash fl ows, where applicable, are based on the market yield curve at the reporting
date. The dealt credit spread is assumed to be the same as the market rate for the credit as at reporting date as allowed under
AASB 139 Financial Instruments: Recognition and Measurement. The interest rates including credit spreads used to determine fair
value were as follows:
Derivatives
Loans and borrowings
2009
2008
0.4% – 6.3%
0.4% – 6.9%
1.3% – 4.3%
1.7% – 4.9%
146
Santos Annual Report 2009
38. FINANCIAL RISK MANAGEMENT (CONTINUED)
(E) FAIR VALUES (CONTINUED)
Fair value hierarchy
As at 31 December 2009, the Group held the following fi nancial instruments measured at fair value.
The Group uses the following hierarchy for determining and disclosing the fair value of fi nancial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities.
Level 2: other techniques for which all inputs which have signifi cant effect on the recorded fair value are observable, either directly
or indirectly.
Level 3: techniques which use inputs which have a signifi cant effect on the recorded fair value that are not based on observable
market data.
Assets measured at fair value
Financial assets at fair value through profi t and loss:
Interest rate swap contracts
Available-for-sale fi nancial assets:
Equity shares
Liabilities measured at fair value
Financial liabilities at fair value through profi t and loss:
Long-term notes
Medium-term notes
Cross-currency swap contracts
Interest rate swap contracts
Total
$million
Level 1
$million
Level 2
$million
Level 3
$million
126
2
(1,193)
(99)
(7)
(1)
–
2
–
–
–
–
126
–
(1,193)
(99)
(7)
(1)
–
–
–
–
–
–
During the reporting period ended 31 December 2009, there were no transfers between level 1 and level 2 fair value measurements, and no
transfers into or out of level 3 fair value measurements.
39. EVENTS AFTER THE END OF THE REPORTING PERIOD
On 18 February 2010, the Directors of Santos Ltd declared a fi nal dividend on ordinary shares in respect of the 2009 fi nancial year. Refer to
note 22 for dividends declared after 31 December 2009.
Santos Annual Report 2009
147
Directors’ Declaration
For the year ended 31 December 2009
In accordance with a resolution of the Directors of Santos Ltd (“the Company”), we state that:
1. In the opinion of the Directors:
(a) the fi nancial statements and notes of the Company and of the consolidated entity are in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Company’s and consolidated entity’s fi nancial position as at 31 December 2009 and of their
performance for the year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations 2001; 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.
2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A
of the Corporations Act 2001 for the fi nancial year ended 31 December 2009.
3. As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identifi ed in note 37
will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee
between the Company and those members of the Closed Group pursuant to Class Order 98/1418.
Dated this 18th day of February 2010
On behalf of the Board:
Director
Adelaide
Director
148
Santos Annual Report 2009
Auditor’s Independence Declaration
to the Directors of Santos Ltd
In relation to our audit of the fi nancial report of Santos Ltd and the entities it controlled for the year ended 31 December 2009, to the
best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001
or any applicable code of professional conduct.
Ernst & Young
R J Curtin
Partner
Adelaide
Ernst & Young
18 February 2010
Liability limited by a scheme
approved under Professional
Standards Legislation
Santos Annual Report 2009
149
Independent Audit Report
to the members of Santos Ltd
Report on the Financial Report
Independence
We have audited the accompanying fi nancial report of Santos Ltd,
which comprises the statement of fi nancial position as at 31 December
2009, and the income statement, statement of comprehensive income,
statement of cash fl ows and statement of changes in equity for the
year ended on that date, a summary of signifi cant accounting policies,
other explanatory notes and the directors’ declaration of the consolidated
entity comprising the Company and the entities it controlled at the
year’s end or from time to time during the fi nancial year.
In conducting our audit we have met the independence requirements
of the Corporations Act 2001. We have given to the Directors of the
Company a written Auditor’s Independence Declaration, a copy of
which is included on page 149 of the Annual Report and is referred
to in the directors’ statutory report. In addition to our audit of the
fi nancial report, we were engaged to undertake the services disclosed
in the notes to the fi nancial statements. The provision of these
services has not impaired our independence.
Directors’ responsibility for the financial report
The Directors of the Company are responsible for the preparation
and fair presentation of the fi nancial report in accordance with the
Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Act 2001. This responsibility
includes establishing and maintaining internal controls relevant to the
preparation and fair presentation of the fi nancial report that is free
from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances. In note 1(A), the
Directors also state that the fi nancial report, comprising the fi nancial
statements and notes, complies with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
Auditor’s responsibility
Our responsibility is to express an opinion on the fi nancial report based
on our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply
with relevant ethical requirements relating to audit engagements and
plan and perform the audit to obtain reasonable assurance whether
the fi nancial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the fi nancial report. The procedures
selected depend on our judgment, including the assessment of the
risks of material misstatement of the fi nancial report, whether due to
fraud or error. In making those risk assessments, we consider internal
controls relevant to the entity’s preparation and fair presentation of the
fi nancial report in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal controls. An audit also
includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by the Directors,
as well as evaluating the overall presentation of the fi nancial report.
We believe that the audit evidence we have obtained is suffi cient and
appropriate to provide a basis for our audit opinion.
Auditor’s opinion
In our opinion:
1. the fi nancial report of Santos Ltd is in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the fi nancial position of Santos
Ltd and the consolidated entity at 31 December 2009 and
of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the
Australian Accounting Interpretations) and the Corporations
Regulations 2001.
2. the fi nancial report also complies with International Financial
Reporting Standards as issued by the International Accounting
Standards Board.
Report on the Remuneration Report
We have audited the remuneration report included in pages 52 to 69,
within the directors’ statutory report for the year ended 31 December
2009. The Directors of the Company are responsible for the preparation
and presentation of the remuneration report in accordance with section
300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion the remuneration report of Santos Ltd for the year
ended 31 December 2009, complies with section 300A of the
Corporations Act 2001.
Ernst & Young
RJ Curtin
Partner
Adelaide
18 February 2010
Liability limited by a scheme
approved under Professional
Standards Legislation
150
Santos Annual Report 2009
Securities exchange and
shareholder information
Listed on Australian Securities Exchange at 26 February 2010 were 831,413,347 fully paid ordinary shares. Unlisted were 46,500 partly paid Plan 0
shares, 41,500 partly paid Plan 2 shares, 18,400 fully paid ordinary shares issued pursuant to the Santos Employee Share Purchase Plan (SESPP) for
General Employee Participation, 57,512 fully paid ordinary shares issued pursuant to SESPP for Senior Executive Long Term Incentive (LTI),
693,800 restricted fully paid ordinary shares issued pursuant to the vesting of LTI Share Acquisition Rights and 42,735 fully paid ordinary shares
issued pursuant to the Non-executive Director Share Plan. There were: 111,111 holders of all classes of issued ordinary shares (including 6 holders
of Plan 0 shares; 5 holders of Plan 2 shares; 36 holders of SESPP shares; and 56 holders of restricted shares) compared with 73,746 a year earlier;
and 52 holders of the 4,954,743 options granted pursuant to the Santos Executive Share Option Plan and 87 holders of 1,343,737 Share
Acquisition Rights.
The listed issued ordinary shares plus the ordinary shares issued pursuant to SESPP and the restricted ordinary shares issued pursuant to the
vesting of LTI Share Acquisition Rights represent all of the voting power in Santos. The holdings of the 20 largest holders of ordinary shares
represent 57.38% of the total voting power in Santos (last year 57.80%). The 20 largest shareholders of fully paid ordinary shares in Santos
as shown in the Company’s Register of Members at 26 February 2010 were:
Name
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
JP Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
ANZ Nominees Limited (Cash Income A/c)
Cogent Nominees Pty Limited
Queensland Investment Corporation
Australian Foundation Investment Company Limited
AMP Life Limited
Citicorp Nominees Pty Limited (CFS WSLE Geared Shr Fnd A/c)
Argo Investments Limited
Citicorp Nominees Pty Limited (BHP Billiton ADR Holders A/c)
UBS Wealth Management Australia Nominees Pty Ltd
RTS Nominees Pty Limited
Cogent Nominees Pty Limited (SMP Accounts)
Mr John Charles Ellice-Flint
UBS Nominees Pty Ltd
Neweconomy Com Au Nominees Pty Limited (SBL Account)
HSBC Custody Nominees (Australia) Limited – A/c 3
Merrill Lynch (Australia) Nominees Pty Limited
Total
Number of fully paid ordinary shares
161,469,916
108,651,936
97,485,218
29,004,735
19,026,225
11,874,389
6,842,105
6,611,628
5,765,314
4,343,686
3,350,000
3,247,356
3,161,739
3,118,324
2,820,736
2,578,746
2,389,746
1,898,596
1,736,299
1,712,523
%
19.42
13.07
11.73
3.49
2.29
1.43
0.82
0.80
0.69
0.52
0.40
0.39
0.38
0.38
0.34
0.31
0.29
0.23
0.21
0.21
477,089,217
57.38
Santos Annual Report 2009
151
Securities exchange and
shareholder information
(continued)
Analysis of Shares – Range of Shares Held
1-1,000
1,001-5,0000
5,001-10,000
10,001-100,000
100,001 and over
Total
Less than a marketable parcel of $500
Fully paid ordinary shares (holders)
% of holders % of shares held
45,821
51,628
8,859
4,632
171
111,111
1,866
41.24
46.47
7.97
4.17
0.15
2.86
14.54
7.50
11.41
63.69
100.00
100.00
Substantial Shareholders, as at 26 February 2010, as disclosed by notices received by the Company:
Name
No. of voting shares held
Blackrock Investment Management (Australia) Limited
42,060,067
For Directors’ Shareholdings see the Directors’ Statutory Report as set out on page 43 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 ordinary 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.
152
Santos Annual Report 2009
Glossary
barrel/bbl
The standard unit of measurement for all
production and sales. One barrel = 159 litres
or 35 imperial gallons.
boe
Barrels of oil equivalent. The factor used
by Santos to convert volumes of different
hydrocarbon production to barrels of oil
equivalent.
the company or Santos
Santos Ltd and its subsidiaries.
condensate
A natural gas liquid that occurs in association
with natural gas and is mainly composed
of propane, butane, pentane and heavier
hydrocarbon fractions.
contingent resources
Those quantities of hydrocarbons which are
estimated, on a given date, to be potentially
recoverable from known accumulations, but
which are not currently considered to be
commercially recoverable. Contingent resources
may be of a signifi cant size, but still have
constraints to development. These constraints,
preventing the booking of reserves, may relate
to lack of gas marketing arrangements or to
technical, environmental or political barriers.
crude oil
A general term for unrefi ned liquid petroleum
or hydrocarbons.
EBITDAX
Earnings before interest, tax, depreciation,
depletion, exploration and impairment.
exploration
Drilling, seismic or technical studies undertaken
to identify and evaluate regions or prospects
with the potential to contain hydrocarbons.
finding cost per barrel of oil equivalent
Exploration and delineation expenditure
per annum divided by reserve additions net
of acquisitions and divestments.
geoscience
Scientifi c disciplines related to the study
of the earth.
hazard
A source of potential harm.
hydrocarbons
Solid, liquid or gas compounds of the elements
hydrogen and carbon.
liquids
A sales product in liquid form; for example,
condensate and LPG.
LNG
Liquefi ed natural gas. Natural gas that has been
liquefi ed by refrigeration to store or transport
it. Generally, LNG comprises mainly methane.
lost time injury frequency rate (LTIFR)
A statistical measure of health and safety
performance. A lost time injury is a work-related
injury or illness that results in a permanent
disability or time lost of one complete shift
or day or more any time after the injury or
illness. LTIFR is calculated as the number of
lost time injuries per million hours worked.
LPG
Liquefi ed petroleum gas, the name given to
propane and butane in their liquid state.
market capitalisation
A measurement of a company’s stock market
value at a given date. Market capitalisation
is calculated as the number of shares on issue
multiplied by the closing share price on that
given date.
medical treatment injury frequency rate
(MTIFR)
A statistical measure of health and safety
performance. A medical treatment injury is
a work-related injury or illness, other than
a lost time injury, where the injury is serious
enough to require more than minor fi rst aid
treatment. Santos classifi es injuries that result
in modifi ed duties as medical treatment injuries.
mmbbl
Million barrels.
mmboe
Million barrels of oil equivalent.
mtpa
Million tonnes per annum.
netback
Total product sales revenue less operating
costs (namely production costs, tariffs/tolls,
royalties, PRRT and gas purchases and
movement in stock). Netback per boe is
netback divided by total sales volumes.
OECD
Organisation for Economic Cooperation
and Development
oil
A mixture of liquid hydrocarbons of different
molecular weights.
PJ
Petajoules. Joules are the metric measurement
unit for energy. A petajoule is equal to 1 joule
x 1015.
proven plus probable reserves (2P)
Reserves that analysis of geological and
engineering data suggests are more likely
than not to be recoverable. There is at least
a 50% probability that reserves recovered
will exceed Proven plus Probable reserves.
proven, probable plus possible reserves (3P)
Reserves that, to a low degree of certainty
(10% confi dence), are recoverable. There is
relatively high risk associated with these
reserves.
proven reserves (1P)
Reserves that, to a high degree of certainty
(90% confi dence), are recoverable. There is
relatively little risk associated with these
reserves. Proven developed reserves are
reserves that can be recovered from existing
wells with existing infrastructure and
operating methods. Proven undeveloped
reserves require development.
sales gas
Natural gas that has been processed by
gas plant facilities and meets the required
specifi cations under gas sales agreements.
seismic survey
Data used to gain an understanding of rock
formations beneath the earth’s surface using
refl ected sound waves.
tcf
Trillion cubic feet.
TJ
Terajoules are the metric measurement unit for
energy. A terajoule is equal to 1 joule x 1012.
total recordable case frequency rate (TRCFR)
A statistical measure of health and safety
performance. Total recordable case frequency
rate is calculated as the total number of
recordable cases (medical treatment injuries
and lost time injuries) per million hours worked.
Conversion
Crude oil
Sales gas
Condensate/
naphtha
1 barrel = 1 boe
1 petajoule = 171,937 boe
1 barrel = 0.935
LPG
1 tonne = 8.458
For a comprehensive online conversion calculator tool,
visit the Santos website, www.santos.com
Santos Annual Report 2009
153
Index
A
Audit Committee
Auditor’s Independence Declaration
to Directors
Auditors’ independence
Announcements
Annual General Meeting
30, 31
149
36
156
155
B
Balance sheet
Bangladesh
Basins
Bay of Bengal
Board of Directors
Bonaparte LNG project
Browse Basin
9
19
10-11
19
22-3, 26–31
15
11
C
Chairman’s review
Chief Executive Offi cer’s review
Chief Financial Offi cer’s review
Chim Sáo
Committees
Company profi le
Continuous disclosure
Corporate governance
5
7
8-9
19
30-2
inside front cover
36
26-6
D
Directors
Directors’ remuneration
Directors’ Statutory Report
Dividends
26, 28-9, 52
47
43-9
46
E
Earnings
Earnings per share
Environment, Health, Safety
and Sustainability Committee
Exploration and evaluation assets
93
110
30, 31
97
F
Finance Committee
Financial Report
Financial summary
G
GDF SUEZ
GLNG
Glossary
Greenhouse gas emissions
I
Income statement
Indonesian projects
Information for shareholders
J
John Brookes
K
Kyrgyz Republic
L
LNG projects
M
Maleo
Mutineer-Exeter
P
Papua New Guinea
Performance awards
PETRONAS
PNG LNG
Production statistics
R
Reindeer
Remuneration Committee
Remuneration in Brief
Remuneration Report
Reserve statistics
Risk management
S
Safety Performance
Senior executives
Share price
Sponsorships
Statements of Comprehensive Income
Statements of Financial Position
Statements of Cash Flows
Statements of Changes in Equity
Sustainability
30, 31
42-74
40-1
8, 15
8, 15
153
21
70
19
155
8
19
15
T
10-year summary
Total recordable case frequency rate
Total shareholder return (TSR)
8, 19
8
11
60
8, 15
8, 15
12
17
30, 31
50
52-69
13
33–4
21, 7
52
65
21
71
72
73
74
21
40-1
95
65
N
Nomination Committee
Notes to the Consolidated
Financial Statements
30, 31
75-147
V
Values
Vietnam
Vision and strategy
inside front cover
19
inside front cover
O
Operating and fi nancial highlights
Organisational chart
Oyong
2
37
8, 19
154
Santos Annual Report 2009
Information for
shareholders
NOTICE OF MEETING
INVESTOR INFORMATION AND SERVICES
The Annual General Meeting of Santos Ltd will
be held in the Festival Theatre at Adelaide
Festival Centre, King William Road, Adelaide,
South Australia on Thursday 6 May 2010 at
10:00 am.
FINAL DIVIDEND
The 2009 fi nal ordinary dividend will be paid
on 31 March 2010 to shareholders registered
in the books of the Company at the close of
business on 2 March 2010 in respect of fully
paid shares held at record date.
Santos website
A wide range of information for investors is
available from Santos’ website, www.santos.com,
including Annual Reports, Sustainability
Reports, Full Year and Interim Reports and
Presentations, News Announcements, Quarterly
Activities Reports and Current Well Information.
Comprehensive archives of these materials
dating back to 1997 are available on the
Santos website.
Other investor information available on the
Santos website includes:
SECURITIES EXCHANGE LISTING
• webcasts of investor briefi ngs;
Santos Ltd. Incorporated in Adelaide, South
Australia, on 18 March 1954. Quoted on the
offi cial list of the Australian Securities
Exchange (ordinary shares code STO).
• an email alert facility where people can
register to be notifi ed, free of charge, of
Santos’ News Announcements via email; and
• an RSS feed of Santos’ News Announcements,
Investor information, other than that relating
to a shareholding, can be obtained from:
Investor Relations, Santos Ltd
GPO Box 2455
Adelaide, South Australia 5001.
Telephone: 08 8116 5000.
Email:
investor.relations@santos.com
Electronic enquiries can also be submitted
through the Contact Us section of the Santos
website, www.santos.com.
SHAREHOLDERS’ CALENDAR
2009 Full Year Results announcement
18 Feb 2010
Ex-dividend date for 2009 full year dividend
24 Feb 2010
Record date for 2009 full year dividend
02 Mar 2010
DIRECTORS
P R Coates (Chairman), D J W Knox (Managing
Director), K C Borda, K A Dean, R A Franklin,
R M Harding, G J W Martin, J Hemstritch.
SECRETARY
J L Baulderstone
CHANGE OF SHAREHOLDER DETAILS
Shareholders can access their current
shareholding details and change many of
these details online via Santos Ltd website
www.santos.com. The website requires you to
quote your Shareholder Reference Number (SRN)
or Holder Identifi cation Number (HIN) in order
to access this information. Forms are also
available to advise the Company of changes
relating to change of address, direct crediting
of dividends, Tax File Number and Australian
Business Number, Annual Report and
Sustainability Report mailing preferences and
Dividend Reinvestment Plan participation by
contacting Computershare Investor Services
Pty Limited.
which allows people to view these
announcements using RSS reader software.
Payment date for 2009 full year dividend
31 Mar 2010
The Santos website provides a full history of
Santos’ dividend payments and equity issues.
Shareholders can also check their holdings
and payment history in the secure View
Shareholding section.
Santos’ website also provides an online
Conversion Calculator, which instantly computes
equivalent values of the most common units
of measurement in the oil and gas industry.
Publications
The Annual Report, First-Half Report and the
Sustainability Report are the major sources
of printed information about Santos. Printed
copies of the reports are available from the
Share Register or Investor Relations.
SHAREHOLDER ENQUIRIES
Enquiries about shareholdings should be
directed to:
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne, Victoria 3001
Phone: 1300 017 716 (within Australia) or
+61 3 9938 4343 (outside Australia)
Email: web.queries@computershare.com
Annual General Meeting
06 May 2010
2010 Interim Results announcement
26 Aug 2010
Ex-dividend date for 2010 interim dividend
TBA
Record date for 2010 interim dividend
TBA
Payment date for 2010 interim dividend
TBA
QUARTERLY REPORTING CALENDAR
2010 First Quarter Activities Report
22 Apr 2010
2010 Second Quarter Activities Report
22 Jul 2010
2010 Third Quarter Activities Report
21 Oct 2010
2010 Fourth Quarter Activities Report
20 Jan 2011
Dates are subject to change and are published
on the Santos website, www.santos.com.
Santos Annual Report 2009
155
As part of Santos’ continuous disclosure,
the company informs the market of
information that may affect the
company’s share price. All material
announcements disclosed to the ASX
are published on Santos’ website,
www.santos.com.
The Santos website provides an email
alert facility where people can register
to be notifi ed, free of charge, of Santos’
news announcements via email. It also
provides an RSS feed which allows people
to view these announcements using RSS
reader software.
Santos 2009
Major Announcements
07 Jan 2009
Santos signs US$585 million Sino Iron gas supply contract
23 Jan 2009
2008 Fourth Quarter Activities Report
28 Jan 2009
Santos 2008 Reserves Report
19 Feb 2009
Underlying profi t up 42% to $572 million for 2008
05 Mar 2009
Reindeer Project Update
31 Mar 2009
Retirement of Chairman, Stephen Gerlach: Appointment of Peter Coates
31 Mar 2009
GLNG Completes Environmental Milestone
23 Apr 2009
First Quarter Activities Report
06 May 2009
2009 AGM address
11 May 2009
Santos Announces Equity Raising
13 May 2009
Successful Completion of Institutional Component of Equity Raising
15 May 2009
Ground-breaking solution to CSG water management
28 May 2009
Santos announces $6 million community benefi ts package for SA
03 Jun 2009
Sale of interest in PRL 5 in Papua New Guinea
16 Jun 2009
Successful Completion of Retail Component of Equity Raising
18 Jun 2009
GLNG signs binding Heads of Agreement for sale of 2 mtpa of LNG
20 Jun 2009
GLNG Environmental Impact Statement to be released for public comment
22 Jun 2009
PNG LNG reaches signifi cant marketing milestone
30 Jun 2009
Santos to delist its ADRs from NASDAQ
02 Jul 2009
Santos increases strategic coal seam gas position in Gunnedah Basin
23 Jul 2009
Second Quarter Activities Report
27 Jul 2009
Santos secures $100 million Newmont gas supply extension in Western Australia
13 Aug 2009
Santos discovers gas in Browse Basin offshore Western Australia
18 Aug 2009
Santos and GDF SUEZ announce strategic partnership
20 Aug 2009
Santos reports $102 million net profi t for the fi rst half of 2009
27 Aug 2009
Redemption of FUELS
27 Aug 2009
Santos Tour Down Under sponsorship
25 Sep 2009
Natural gas key to driving lower carbon emissions from power generation
02 Oct 2009
First gas from Oyong Phase-2 in Indonesia
19 Oct 2009
PNG LNG Update
22 Oct 2009
Third Quarter Activities Report
29 Oct 2009
Santos appoints Greg Martin to Board
04 Nov 2009
PNG LNG signs Heads of Agreement with Sinopec
10 Nov 2009
Santos marks 40 years of natural gas delivery
04 Dec 2009
PNG LNG Project signs LNG Sale and Purchase Agreement with Sinopec
07 Dec 2009
PNG LNG Project signs LNG Sale and Purchase Agreement with TEPCO
08 Dec 2009
PNG LNG Project approved by Co-Venturers
22 Dec 2009
PNG LNG Project signs LNG Sale and Purchase Agreement with Osaka Gas
156
Santos Annual Report 2009
Port Bonython
PO Box 344
Whyalla South Australia 5600
Telephone: 61 8 8649 0100
Facsimile: 61 8 8649 0200
Jakarta
Santos Asia Pacifi c Pty Ltd
Level 4 Ratu Plaza Offi ce Tower
Jalan Jendral Sudirman Kav 9
Jakarta 10270 Indonesia
PO Box 6221 JKS GN
Jakarta 12060 Indonesia
Telephone: 62 21 2750 2750
Facsimile: 62 21 720 4503
Port Moresby
Barracuda Ltd
Level 8 Pacifi c Place
Cnr Musgrave Street and
Champion Parade
Port Moresby
Papua New Guinea
Telephone: 675 321 2633
Facsimile: 675 321 2847
Hanoi
Santos Vietnam Pty Ltd
Suite 701 Level 7
39 A Ngo Quyen
Hanoi Vietnam
Telephone: 84 4 2220 6000
Facsimile: 84 4 2220 6002
New Delhi
Santos International
Operations Pty Ltd
1401 & 1402 Level 14
Narain Manzil
23 Barakhamba Road
Connaught Place
New Delhi 110 001 India
Telephone: 91 11 4351 2000
Facsimile: 91 11 4351 2070
Bishkek
CJSC South Petroleum Company
5th Floor
93/2, Shopokov str., Bishkek
Kyrgyz Republic
Telephone: 996 312 90 1004
Facsimile: 996 312 90 1005
Santos Ltd
ABN 80 007 550 923
REGISTERED AND HEAD OFFICE
Ground Floor Santos Centre
60 Flinders Street
Adelaide South Australia 5000
GPO Box 2455
Adelaide South Australia 5001
SHARE REGISTER
Computer Share
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
GPO Box 2975
Melbourne Victoria 3001
Telephone:-
Within Australia: 1300 017 716
From overseas: 61 3 9938 4343
Facsimile: 61 3 9473 2500
Email:
web.queries@computershare.com.au
OFFICES
Brisbane
Level 22 Santos Place
32 Turbot Street
Brisbane Queensland 4000
GPO Box 1010
Telephone: 61 7 3838 3000
Facsimile: 61 7 3838 3350
Perth
Level 1, 40 The Esplanade
Perth Western Australia 6000
Telephone: 61 8 9333 9500
Facsimile: 61 9333 9571
Gladstone
114 Goondoon Street
Gladstone Queensland 4680
Telephone: 61 7 4970 8419
Facsimile: 61 7 4970 8444
Roma
39 Currey Street
Roma Queensland 4455
Telephone: 61 7 4622 2400
Facsimile: 61 7 4622 3476
Gunnedah
88 Marquis Street
Gunnedah New South Wales 2380
Telephone: 61 2 6741 5100
Facsimile: 61 2 6741 5101
PAPER AND PRINTING
OF THE ANNUAL REPORT
This report is printed on 9Lives 80
paper and ecoStar paper, which
contains chlorine-free recycled
fi bre and fi bre from responsibly
managed plantation forests.
The paper is certifi ed by the
Forest Stewardship Council (FSC),
which promotes environmentally
appropriate, socially benefi cial,
and economically viable
management of the world’s forests.
The report was printed by Southern
Colour, certifi ed by the FSC chain
of custody and certifi ed for ISO
14001: 2004 (Environmental
Management Systems).
The printing process uses digital
printing plates which eliminate
fi lm and associated chemicals. The
vegetable based inks use renewable
sources such as fl ax, rather than
traditional mineral oils which emit
higher volumes of greenhouse gases.
All paper waste during the printing
process is recycled.
HELP SAVE PAPER BY READING
THIS REPORT ONLINE
An electronic version of this report
is available on Santos’ website
www.santos.com. Shareholders
who do not require a printed
Annual Report, or who receive
more than one copy due to
multiple shareholdings, can help
reduce the number of copies
printed by advising the Share
Register in writing of changes to
their report mailing preferences.
Shareholders who choose not to
receive a printed report will
continue to receive all other
shareholder information, including
notices of shareholders’ meetings.
Designed and produced
by WellmarkPerspexa.com.