Annual Report 2012
The
energy
to
deliver
A
Santos Annual Report 2012 Key
Exploration
Development
Operations/production
Processing and load-out facility
Santos offices
Detailed exploration maps are available on the Santos website
www.santos.com. Percentage interests are provided in the Santos
Group interests section of this Annual Report.
B
World of
Santos
Ref Location
Site/Asset
Activity
Santos
operated
Product
AustrAliA
1
Carnarvon Basin
Mutineer-Exeter
Stag, Barrow Island, Thevenard
Spar, John Brookes, Varanus Island, Reindeer, Devil Creek
Fletcher Finucane
Zola, Winchester
2
3
Browse Basin
Bonaparte Basin
4 McArthur Basin
Crown, Burnside
Caldita Barossa
Two exploration permits
Four exploration permits
Amadeus/Pedirka Basins
Mereenie
Cooper/Eromanga Basins
South Australia – Moomba
South-west Queensland – Ballera, Jackson
Other oil assets
5
6
7
8
9
Surat/Bowen Basins
Gunnedah Basin
Gippsland Basin
10
Otway Basin
lNG projeCts
Denison, Mahalo
Moonie
Combabula, Spring Gully
Narrabri, Bando
Kipper
Sole
Casino, Henry, Netherby
Minerva
11
12
13
14
Bonaparte Basin
Bonaparte LNG
Timor Sea and Timor Gap
Bayu-Undan, Darwin LNG
Surat/Bowen Basins
Papua New Guinea
GLNG
PNG LNG
AsiA
15
Papua New Guinea
SE Gobe
Hides, Barikewa
16
17
18
Papuan Basin, Indonesia
Warim
East Java Basin, Indonesia
Maleo, Oyong, Wortel, Peluang
South Sumatra, Indonesia
Four CSG licences
19 Nam Con Son Basin, Vietnam Chim Sáo
Dua
Block 13/03
20
21
Phu Khanh Basin, Vietnam
123 PSC
Bengal Basin, Bangladesh
Sangu/Block 16
22 North East Coast Basin, India Two exploration permits
* Santos operates the upstream and has a 30% interest in the jointly held project company that operates the downstream.
Yes
No
No
Yes
3 of 9 permits
Oil
Oil
Gas, condensate
Oil
Oil, gas
4 of 5 permits Gas, condensate
No
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
No
Yes
No
Yes
Yes
No
No
No
Yes*
No
No
No
No
Yes
No
No
No
Yes
Yes
Yes
Yes
Gas
Gas
Oil, gas, condensate
Oil, gas, condensate
Oil, gas, condensate, LPG
Oil, gas, condensate, LPG
Oil
Gas
Oil
Gas
Gas
Gas, condensate, LPG
Gas
Gas, condensate
Gas, condensate
LNG
LNG, condensate, LPG
LNG
LNG, condensate
Oil,
Oil, gas, condensate
Oil, gas, condensate
Oil, gas, condensate
Gas
Oil, gas
Oil, gas
Oil, gas
Oil, gas, condensate
Gas, condensate
Gas
C
Santos Annual Report 2012
At Santos, delivering on our potential
is more than a promise. It is a core
value upon which the company is built.
Our record of delivering strong results
and robust projects provides a solid
platform for years to come.
Our values
We are a company 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.
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.
Delivers – by taking personal responsibility
and pride in our work to deliver timely,
quality results that benefit Santos and help
achieve our vision and strategy.
Cares – by taking the long-term view to
build a sustainable future for our company,
our people and the environments and
communities.
About Santos
An Australian energy pioneer since 1954,
Santos is a leading oil and gas producer,
supplying Australian and Asian customers.
With its origins in the Cooper Basin, Santos
is one of Australia’s largest producers of gas
to the domestic market and has the largest
exploration and production acreage position
in Australia of any company.
Santos has developed major oil and
gas liquids businesses in Australia, and
operates in all mainland states and the
Northern Territory.
Santos also has an exploration-led Asian
portfolio, with a focus on three core countries:
Indonesia, Vietnam and Papua New Guinea.
From this base, Santos is pursuing a
transformational LNG strategy with interests
in four LNG projects, including GLNG and
PNG LNG.
Our substantial pipeline of projects ensures
Santos is well positioned to achieve our
production goal of 80 to 90 million barrels
of oil equivalent by 2020.
With over 3,000 employees across Australia
and Asia, Santos’ foundations are based on
safe, sustainable operations and working
in partnership with host communities,
governments, business partners and
shareholders.
This 2012 Annual Report is a summary of Santos’ operations, activities and financial position as at 31 December 2012.
All references to dollars, cents or $ in this document are to Australian currency, unless otherwise stated.
An electronic version of this report is available on Santos’ website, www.santos.com
D
Santos Limited ABN 80 007 550 923
Contents
Cover:
Taurai Masvingise, Environmental Advisor GLNG project.
This page:
Fletcher Finucane oil project in the Carnarvon Basin, offshore Western Australia.
santos Annual Report 2012
Overview
2 Operating and financial highlights
4 Review by Peter Coates
and David Knox
7 Our vision and strategy
8 Production and sales
10 Reserves and resources
12 Review by Chief Financial Officer
14 Delivering sustainably
2
Business unit review
16 Eastern Australia
18 Western Australia and
Northern Territory
20 GLNG
22 Asia Pacific
16
Management
and governance
24 Board of Directors
26 Santos leadership team
28 Corporate governance report
45 Organisation chart
24
Financial report
and shareholder
information
46 10-year summary
48 Directors’ report
58 Remuneration report
77 Financial statements
163 Independent audit report and
independence declaration
165 Information for shareholders
168 Santos Group interests
171 Index
172 Glossary
173 Major announcements made in 2012
46
1
1
Santos Annual Report 2012
Operating and
financial highlights
proDuCtioN
52.1 mmboe
sAles reveNue
$3,220 million
Ç10%
Ç18%
2011
% change
2012
52.1
61.0
3,220
1,869
519
606
47.2
58.7
2,721
1,597
753
453
1,658
1,253
54.4
30
1,406
84.8
30
1,364
10
4
18
17
(31)
34
32
(36)
-
3
Production volume (mmboe)
Sales volume (mmboe)
Sales revenue ($million)
EBITDAX (excluding asset sales) ($million)
Net profit after tax ($million)
Underlying net profit after tax ($million)
Operating cash flow ($million)
Earnings per share (cents)
Dividends declared per ordinary share (cents)
Proved and probable reserves (mmboe)
2
eBitDAX
(excluding asset sales)
$1,869 million
Ç17%
PRODUCTION VOLUME
52.1 mmboe
54.4
54.4
49.9
47.2
52.1
2008
2009
2010
2011
2012
Production increased 10%, driven by new
producing assets combined with strong
Cooper oil production.
SALES VOLUME
61.0 mmboe
55.8
60.1
59.2
58.7
61.0
2008
2009
2010
2011
2012
Sales volumes increased 4%, with higher
equity production offsetting lower third-party
gas sales.
operAtiNG CAsh flow
Net profit After tAX
$1,658 million
$519 million
Ç32%
È31%
OPERATING CASH FLOW
$1,658 million
NET PROFIT AFTER TAX
$519 million
1,385
1,273
1,253
1,155
1,650
1,658
uNDerlyiNG Net profit
After tAX
$606 million
Ç34%
UNDERLYING NET PROFIT
AFTER TAX
$606 million
434
500
753
519
548
606
453
376
257
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
Operating cash flow increased 32%, due to
higher sales receipts and lower taxes paid,
partially offset by higher operating costs.
Net profit after tax was 31% lower, as the
prior year included $408 million from the
sale of interests in GLNG and Evans Shoal.
Underlying net profit increased by 34%, with
higher liquids volumes and gas prices partially
offset by higher production costs.
SALES REVENUE
$3,220 million
EARNINGS & DIVIDENDS
PER SHARE
54.4 cents
SAFETY PERFORMANCE
5.0
total recordable case frequency rate
(per million hours worked)
3,220
251
5.8
2,762
2,721
2,181
2,228
5.0
3.6
3.3
3.3
42
52
42
60
37
54
30
30
85
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
Earnings per share
Dividends declared per share
Sales revenue increased by 18%, driven by
a 33% increase in crude oil production and
higher gas prices.
The total 2012 dividend of 30 cents per share
is in line with the prior year.
The rate of low severity injuries increased in
2012, reflecting a record 19 million work hours,
however the overall injury severity decreased.
santos Annual Report 2012
3
Santos delivered stronger production,
record sales revenue and higher underlying
earnings in 2012. Major projects are on
track to deliver long-term returns to
shareholders.
Left to right:
Peter Coates and David Knox
4
4
Review by
Peter Coates and David Knox
Chairman and Chief Executive Officer
Dear Shareholder,
Santos delivered growth in production and
underlying earnings in 2012. Production was
up 10% to 52 million barrels of oil equivalent
(mmboe) and sales revenue was a record
$3.2 billion, driven by a 33% increase in crude
oil production. Underlying earnings rose by
34% to $606 million, primarily due to higher
oil and gas production and higher prices. Our
balance sheet is robust, and the base business
continues to generate strong cash flows to
fund our pipeline of sanctioned growth
projects and to provide shareholder returns.
In addition to the base business, delivering our
LNG portfolio is critical to achieve our vision
of being a leading oil and gas exploration and
production company in Australia and Asia. Our
major LNG projects are making good progress.
PNG LNG is over 75% complete and on track
for first LNG in 2014. GLNG is 47% complete,
with first LNG expected in 2015. You can
read more about these projects later in this
Annual Report.
By 2015, Santos will have equity production
from three LNG projects supplying Asian
markets, which are underpinned by long-
term, oil-linked, binding offtake agreements.
This will be an extraordinary achievement for
a company of our size, and these assets will
deliver a significant step-change to our
production and cash flow.
Our strategy is to unlock the company’s
significant resources in a growing market
for oil and gas in Australia and Asia. We
will do this safely, sustainably and profitably
to deliver long-term growth in shareholder
value. We are targeting 6% compound annual
production growth to the end of the decade,
which would deliver annual production of
between 80 and 90 mmboe by 2020.
AustrAliA’s eNerGy
trANsformAtioN
As one of the largest producers of natural
gas in Australia, Santos will continue to play
its part in providing energy to fuel both our
domestic and export markets.
Energy is critical to the development of
economies, and Australia is no different.
Not only is energy essential for providing
power to our homes and businesses, but the
development of a country’s energy resources
creates jobs, fosters innovation and delivers
wealth and prosperity.
Because of the importance of energy, the
development of our energy resources and the
policies in place to govern that development
command the attention of our governments,
communities and industry. This situation
is heightened when things change, and
Australia’s energy sector is going through
a period of rapid transformation which, if
well managed, can deliver great outcomes.
Natural gas is key to understanding
Australia’s energy transformation.
In terms of our gas resources, Australia
is truly blessed, with current estimates of
more than 50 years of gas in the ground
available for both domestic and export
markets. And this is without taking into
account Australia’s shale gas potential.
Santos has a large Australian unconventional
gas resource, and has a focused strategy
to evaluate and commercialise this gas.
During 2012, Santos produced Australia’s
first commercial gas from a shale well in
the Cooper Basin, enabling us to book
Australia’s first 2P shale gas reserves.
stroNG positioN to fuND
Growth, with A foCus oN
Cost CoNtrol
In 2013, we have another busy year ahead
of us, both for project delivery and with our
exploration drilling program. The Fletcher
Finucane oil project in the Carnarvon Basin,
sanctioned in January 2012, is on schedule
to deliver first oil in mid-2013. Work will also
continue at the Dua oil project in Vietnam,
with first oil on schedule for the first half
of 2014.
Following the exploration success at Crown,
offshore Western Australia, the Browse
exploration campaign continues in 2013
with drilling of two exciting prospects.
In the Cooper Basin, we continue to
explore the potential of shale and other
unconventional gas.
We are in a strong position to fund our
growth, with $5.8 billion of cash and
available credit facilities as at 31 December
2012. We also have strong operating cash
flow, with average cash flow over the past
five years of over $1.3 billion per year. This
is driven by production growth, an increasing
proportion of oil in our project mix, as well
as rising gas prices in key markets.
In order to deliver our portfolio for the
future, we also need to be leaner and more
efficient. Santos is committed to a relentless
focus on productivity and cost control across
our portfolio. We are investing in technology
to drive costs out of the business, such as a
more efficient drilling rig fleet to drill from
multi-well pads and initiatives to reduce
plant downtime in the Cooper Basin.
5
Santos Annual Report 2012 Review by
Peter Coates and David Knox (continued)
sAfety AND sustAiNABility
At Santos, safety permeates everything we
do. Good safety performance, covering both
our people and our operating facilities, is
critical to our business success.
During 2012, Santos’ lost-time injuries were
at a five-year low. There was an increase in
the rate of low-severity injuries, reflecting
the record level of manual work being
conducted on a day-to-day basis. This trend
will be addressed as part of Santos’ relentless
focus on eliminating serious incidents and
injuries from its business.
DiviDeND mAiNtAiNeD
The Board maintained the dividend at
30 cents per share fully franked in 2012
and anticipates that the dividend will
remain at this level during our capital
intensive growth phase between now
and PNG LNG start-up. Following that,
the Board will look to increase the
dividend as soon as appropriate.
Mr Hock Goh joined the Board in October
2012, and through his extensive experience
in the oil and gas industry in Asia is
contributing strongly to your company.
We would like to express our appreciation
to all of our fellow Directors for the
commitment and dedication they bring
to the Santos Board.
Santos continues to offer a dividend
reinvestment plan (DRP) which enables
shareholders to increase their shareholding
at a 2.5% discount to the market price
and without brokerage.
peter CoAtes Ao
Chairman
Sustainability is an integral part of Santos.
This means focusing on the health and
wellbeing of our people, responsibly managing
our environmental impact, working in
partnership with the communities in which we
operate, and reliably managing our business.
employees AND the BoArD
On behalf of the Directors, we would like
to thank all Santos employees for their
hard work and dedication to delivering
value to our shareholders.
Our 2012 Sustainability Report
is designed to complement this Annual
Report, and is available online at
www.santos.com/sustainability. We
encourage you to read our Sustainability
Report and find out more about what
sustainability means to Santos and what
we are doing to achieve it.
We would also like to thank our employees
who have rallied to support their local
communities, be it during the floods in
Queensland at the beginning of 2012 and
again in 2013, or through volunteering
during the year.
DAviD KNoX
Chief Executive Officer
and Managing Director
6
Our vision
and strategy
Our vision is to be a leading oil and gas exploration and production
company in Australia and Asia.
We have a three-pronged strategy to achieve this.
Australia
LNG
Asia
Growing our
strong domestic
base business
Delivering our
transformational
LNG portfolio
Building a focused
exploration-led
portfolio
Delivering the strategy in 2012
• Highest-ever Carnarvon gas production,
• Strong production from Darwin LNG
• Wortel gas project in Indonesia
driven by new projects online
post planned shutdown
delivered on budget
• Highest Cooper oil production since 2009
• Fletcher Finucane project 85% complete
• PNG LNG project over 75% complete
and on track for first LNG in 2014
• Strong oil production from Chim Sáo,
Vietnam
with first oil expected in mid-2013
• GLNG project 47% complete and on
• Dua oil project sanctioned and over
• Australia’s first commercial production of
gas from a shale well in the Cooper Basin
• Exploration success at Crown in the
Browse Basin
track for first LNG in 2015
• Proposed floating Bonaparte LNG
project in concept design phase
35% complete, with first oil expected
in the first half of 2014
santos Annual Report 2012
7
proDuCtioN
52.1 mmboe
Sales gas, ethane and LNG
Crude oil
Condensate
LPG
38.3
9.5
2.7
1.6
sAles
61.0 mmboe
Sales gas, ethane and LNG
Crude oil
Condensate
LPG
44.1
12.3
3.0
1.6
sAles reveNue
$3,220 million
Sales gas, ethane and LNG 1,319
1,401
Crude oil
321
Condensate
179
LPG
8
Santos’ 2012 production was 10% higher than in 2011, driven by new
producing assets and strong performance from the base business.
Total crude oil production of 7.2 mmboe was up 33% on the previous year,
reflecting a full year of oil production from Chim Sáo, Vietnam, and a successful
drilling campaign over the past 12 months in the Cooper Basin.
Total sales gas, ethane and LNG production of 38.3 mmboe was up 8%, driven by
the highest-ever production from the Carnarvon Basin due to strong production
from the Spar and Reindeer fields. Condensate and LPG production was in line
with the previous year.
In 2013, Santos is forecasting production of between 53 and 57 mmboe,
with the increase driven by forecast strong production from the base business
and the start-up of the Fletcher Finucane oil project in Western Australia in
mid-2013.
Sales volumes of 61.0 mmboe were up 4%, with crude oil sales increasing
by 43% due to higher equity production and higher third-party Cooper oil
purchases. Gas sales declined slightly with lower sales from Indonesia, Cooper
Basin and Victorian assets partially offset by higher sales from Reindeer and
John Brookes in Western Australia.
Santos continued to grow its third-party sales business during the year,
primarily in Eastern Australia. In 2012, Santos sold a record 9.9 mmboe of
third-party gas, oil, condensate and LPG, generating a before-tax profit of
$60 million. Sources of third-party gas include Cooper Basin gas produced
by others, gas produced from the Longtom field and processed at Santos’
Patricia-Baleen plant, and the non-Santos share of gas produced in
the GLNG acreage which is sold domestically.
Sales revenue of $3,220 million in 2012 was a record high for Santos, and was
up 18% on the previous year. Sales revenue from oil was up more than 40%,
driven by strong growth in the company’s oil production and favourable oil
prices during the year. Santos also recorded higher sales revenue for natural gas
and ethane, condensate and LPG in 2012. LNG sales revenue was slightly lower
primarily due to the planned shutdown of the Darwin LNG plant during 2012.
The average gas price increased from $4.71/GJ to $5.14/GJ, driven by higher
priced gas sales from Reindeer and Wortel, along with the favourable Maleo price
review. Crude oil prices were in line with 2011, with the average realised price in
2012 of US$117.83.
Production
and sales
Santos continues to increase
production year-on-year from
our base business.
2012
2011
Field
units mmboe
Field
units
mmboe
2012
2011
Field
units mmboe
Field
units
mmboe
Sales gas, ethane and LNG (PJ)
Crude oil (’000 bbls)
Cooper
Carnarvon
Indonesia
Otway
Darwin LNG/Bayu-Undan
Surat/Bowen
GLNG
Bangladesh
Vietnam
Amadeus
Gunnedah
66.6
65.0
28.1
19.4
14.4
11.2
10.8
4.9
2.1
-
-
11.5
11.2
4.8
3.3
2.5
1.9
1.9
0.8
0.4
-
-
66.1
45.5
33.9
19.0
14.7
14.2
9.0
3.5
-
0.7
0.2
Total production
Total sales
222.5
256.7
38.3
44.1
206.8
265.8
Condensate (’000 bbls)
11.4
Cooper
7.8
Vietnam
5.8
Stag
3.3
Mutineer-Exeter
2.6
Barrow
2.4
Indonesia
1.6
Amadeus
0.6
Thevenard
-
PNG
0.1
Surat/Denison
3,226.1
2,870.2
1,411.6
3.2
2,831.4
2.9
680.6
1.4
1,677.2
604.0
566.6
340.2
198.0
180.6
73.8
66.8
0.6
0.5
0.3
0.2
0.2
0.1
0.1
669.5
526.0
269.9
112.7
235.5
77.5
89.6
-
Total production
9,537.9
9.5
7,169.9
35.6
Total sales
12,309.5
12.3
8,615.6
45.7
LPG (’000 tonnes)
Cooper
Darwin LNG/Bayu-Undan
1,174.1
1.1
1,291.9
1.2
Darwin LNG/Bayu-Undan
1,030.7
1.0
1,072.0
1.0
Total production
635.6
0.6
502.4
0.5
Total sales
Cooper
Carnarvon
Amadeus
Otway
Indonesia
Surat/Bowen
Bangladesh
Total production
Total sales
29.9
19.7
5.6
1.8
-
2,897.4
3,180.5
-
-
-
-
-
24.1
19.5
5.2
2.8
0.6
-
-
-
-
-
Sales revenue ($million)
Crude oil
Sales gas, ethane and LNG
Condensate
2.7
2,918.5
2.7
LPG
125.1
69.4
194.5
191.7
1.0
0.6
1.6
1.6
134.4
75.2
209.6
198.4
2012
1,401
1,319
321
179
2.8
0.7
1.7
0.7
0.5
0.3
0.1
0.2
0.1
0.1
7.2
8.6
1.1
0.6
1.7
1.7
2011
994
1,252
304
171
3.0
2,919.6
2.7
Total sales revenue
3,220
2,721
9
Santos Annual Report 2012
Reserves
and resources
Santos’ growing reserve position, combined
with existing infrastructure, leaves the company
strategically well placed to supply the growing
demand for natural gas in Australia and Asia.
2P RESERVES
1,406 mmboe
2P RESERVES RECONCILIATION
mmboe
2P RESERVES REPLACEMENT
RATIO
%
1,440
1,445
1,364
1,406
1,364
71
23
(52)
1,406
1,013
305
180
2008
2009
2010
2011
2012
Reserves
year-end
2011
Additions
Acquisitions/
divestments
Production
Reserves
year-end
2012
1-year RRR
5-year RRR
In 2012, Santos continued its consistent
track record of reserves growth. Proved and
probable (2P) reserves have increased in nine
of the past ten years, while producing over
480 mmboe in the same period.
Proved and probable hydrocarbon reserves
increased to 1,406 mmboe as at the end
of 2012. Based on the 2012 production of
52 mmboe, Santos has a current 2P reserves
life of 27 years.
Approximately 88% of Santos’ 2P reserves are
sales gas, 6% crude oil, 4% condensate and
2% LPG.
On a proved (1P) reserves basis, year-end
reserves were 663 mmboe, 14 mmboe higher
than 2011.
2P additions of 71 mmboe in 2012 were
driven by strong growth in Cooper Basin
gas reserves, due to successful ongoing
results from the infill drilling program
combined with technical studies. Reserves
growth was also recorded in Cooper Basin
oil, Queensland CSG, the Carnarvon Basin
and Vietnam, more than offsetting a
reduction in Bonaparte reserves.
Santos also booked Australia’s first 2P
shale gas reserves, due to the success
of the Moomba-191 shale gas well that
was commissioned in September 2012.
Net 2P acquisitions of 23 mmboe reflect
Santos’ purchase of additional interests
in the Combabula CSG field in Queensland,
consolidation of interests in Fletcher
Finucane, and the purchase of Woodside’s
interest in Mutineer-Exeter.
Santos has a strong track record of reserves
replacement which is an important target to
drive long-term shareholder value growth.
A reserves replacement ratio (RRR) of more
than 100% indicates that reserves grew by
more than production during the period.
In 2012, Santos’ 2P RRR was 180%, as
reserves additions and net acquisitions
and divestments of 94 mmboe exceeded
production of 52 mmboe.
Over the five years to 2012, Santos’ 2P RRR
was a strong 305%. This was primarily driven
by the sanction of the PNG LNG project,
growth in CSG reserves in Queensland and
NSW, Cooper gas and the Carnarvon.
10
reserves (sANtos shAre)
mmboe
1P reserves
2P reserves
2C contingent resources
Year-end
2011
649
1,364
2,162
Production
Additions
Acquisitions/
divestments
-52
-52
-
65
71
-108
1
23
-89
proveN plus proBABle reserves (sANtos shAre) By ACtivity
Reserves year-end 2011
Production
Additions
Acquisitions/divestments
Estimated reserves year-end 2012
Sales gas
PJ
6,959
-222
294
130
7,161
Crude oil
mmbbl
Condensate
mmbbl
LPG
’000 tonnes
71
-10
20
1
82
72
-3
-
-
69
3,449
-194
116
-
3,371
proveN plus proBABle reserves (sANtos shAre) yeAr-eND 2012 By AreA
Year-end
2012
663
1,406
1,965
Total
mmboe
1,364
-52
71
23
1,406
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
’000 tonnes
Total
mmboe
Eastern Australia
Cooper Basin
Southern Australia
Queensland CSG
Queensland conventional
New South Wales CSG
Total Eastern Australia
Western Australia and Northern Territory
Carnarvon
Bonaparte
Amadeus
1,213
367
1,920
41
1,141
4,682
831
179
123
Total Western Australia and Northern Territory
1,133
Asia Pacific
Papua New Guinea
Indonesia
Vietnam and Bangladesh
Total Asia Pacific
Total
1,228
93
25
1,346
7,161
30
-
-
-
-
30
26
-
8
34
-
1
17
18
82
21
5
-
-
-
26
9
7
2
18
25
-
-
25
69
2,522
398
-
-
-
2,920
-
451
-
451
-
-
-
-
280
71
330
7
196
884
177
41
31
249
235
17
21
273
3,371
1,406
Unless otherwise stated, all references to reserves and resource quantities in this release are Santos’ net share. References to contingent resources are mid (2C) contingent resource estimates.
Sales gas reserves and contingent resources are estimated after deducting the fuel, flare and vent necessary to produce and deliver sales gas. LNG project sales gas reserves are estimated after
deducting the fuel, flare and vent necessary to produce and deliver sales gas to the LNG plant.
The information in this reserves statement has been compiled by Greg Horton, a full-time employee of the company. Greg Horton is qualified in accordance with ASX Listing Rule 5.11 and has
consented to the form and context in which this statement appears. Santos prepares its reserves and contingent resources estimates in accordance with the definitions and guidelines set forth
in the 2007 Petroleum Resources Management System (PRMS) prepared by the Society of Petroleum Engineers (SPE).
Santos engages independent experts Gaffney, Cline & Associates, Netherland, Sewell & Associates, Inc. and DeGolyer and MacNaughton to audit and/or evaluate reserves and contingent resources.
Each auditor found, based on the outcomes of its respective audit and evaluation, and its understanding of the estimation processes employed by Santos, that Santos’ 31 December 2012 reserves
and contingent resources quantities in aggregate compare reasonably to those estimates prepared by each auditor. Thus, in the aggregate, the total volumes summarised in the Santos summary
table represent a reasonable estimate of Santos’ reserves and contingent resources position as at 31 December 2012.
11
Santos Annual Report 2012
Review by
Chief Financial Officer
Andrew Seaton
Santos delivered strong financial results
in 2012, with record sales revenue and
underlying profit up 34% to $606 million.
Santos produced strong operational and
financial results in 2012, which is testament
to our focus on delivery across all parts of
the business.
Sales revenue was up 18% to a record
$3.2 billion, driven by higher crude oil sales
volumes and higher gas prices. Gas prices
were up 9% on the previous year, reflecting
higher prices from our Indonesian and
Western Australian assets.
Net profit after tax (NPAT) was $519 million
for the year. The previous year comparable
profit of $753 million included gains on
asset sales of $408 million after tax. The
2012 result includes $77 million of after
tax impairments. The impairments primarily
relate to the Sangu assets in Bangladesh and
revisions to abandonment cost estimates for
the non-operated Thevenard Island asset,
located offshore Western Australia.
Underlying net profit after tax was up
34% to $606 million, continuing the
growth trend since 2009. Growth in
underlying profit was driven by higher
liquids volumes and gas prices, partially
offset by higher costs.
Production costs of $660 million were
$104 million higher than the previous year,
with over half of this increase due to the
commencement of production from new
assets, such as Chim Sáo, Reindeer and
Wortel. Other main drivers of the cost
increase were the planned shutdown of
Bayu-Undan/Darwin LNG and higher
maintenance activities.
Managing costs remains an absolute
priority for Santos, and we are targeting
2013 production costs of between
$630 and $660 million.
Operating cash flow of $1,658 million
was 32% higher than the previous year
due to the favourable impact of higher
sales volumes and lower taxes paid, partially
offset by higher operating costs. This is a
32% increase on 2011, and underpins our
robust funding position in support of our
major growth capital expenditure program.
The company’s capital expenditure increased
to $3.4 billion in 2012 as our investment
in growth projects continued. Capital
expenditure is forecast to peak in 2013
at approximately $4 billion, including
approximately $2.5 billion on the PNG
LNG and GLNG projects, ahead of their
start-up in 2014 and 2015 respectively.
12
NET PROFIT AFTER TAX
$million
AVAILABLE FUNDING CAPACITY
$billion
89
(32)
(22)
71
13
(400)
22
753
1.0
0.5
2.1
25
519
2.2
2011
Prices and
foreign
exchange
Volume
Production
costs
Depreciation
and
depletion
Taxes
Other
Gain on
asset sale
Impairment
2012
Cash
Undrawn
corporate
facilities
Undrawn
project facility
(PNG LNG)
Undrawn
ECA
facilities
Key Drivers of 2012
NpAt versus 2011
The main drivers of the NPAT decrease from
$753 million to $519 million are represented
in the above chart, and are as follows:
• Prices and foreign exchange increased
NPAT by $22 million, primarily due to
higher gas prices.
• Sales volumes increased NPAT
by $89 million, as we sold higher
volumes of crude oil from Vietnam
and the Cooper Basin.
• Production costs decreased NPAT by
$32 million, as costs trended higher
due to cost inflation of approximately
5% across the business, together with
planned shutdown and maintenance
activity.
• Depreciation and depletion expenses
decreased NPAT by $22 million, reflecting
higher unit development costs.
stroNG fiNANCiAl positioN
Santos’ funding and liquidity position
remains very robust.
• A lower effective tax rate increased
NPAT by $71 million, primarily due to a
reduction of foreign losses not recognised.
• Other items increased NPAT by $13 million,
primarily due to lower exploration and
evaluation expenditure.
• Gains on asset sales decreased NPAT
by $400 million, due to the sale of
interests in Evans Shoal and GLNG
completed in 2011.
• Lower impairment losses in 2012
increased NPAT by $25 million.
At the end of December 2012, Santos had
$5.8 billion of funding capacity, including
$2.2 billion cash and $3.6 billion undrawn
committed corporate and project debt
facilities. Maturities on drawn debt facilities
are minimal out to 2017, at which time
Santos has the option to redeem the €1 billion
hybrid notes that otherwise mature in 2070.
This strong liquidity position provides
the capacity to fund the execution of the
company’s sanctioned development projects
while minimising refinancing risk.
13
Santos Annual Report 2012 Delivering
sustainably
Integrating environmental, social and
governance considerations into the
way we do business.
roBust frAmeworK
Santos has developed a company-specific
sustainability framework that is based around
the assessment of sustainability performance
across four interrelated domains: environment,
community, our people and economic.
liGhteNiNG our footpriNt
We have integrated systems in place to
manage our activities responsibly and to
find new ways to reduce our environmental
footprint.
The framework aims to provide a
comprehensive and consistent set of tools to
assess sustainability performance, integrate
sustainability into the way we operate and
drive improvement across the business.
pArtNeriNG with
CommuNities
Santos understands the importance of
supporting local communities in meaningful
ways, and seeks to engage and inform
communities by providing transparent,
accurate and up-to-date information. As part
of all community engagement strategies for
major projects, we provide regular and timely
project updates, targeted briefings, site tours,
free-call telephone numbers, regional offices
and information sessions.
During 2012, the Santos GLNG Community
Handbook was developed based on the
outcomes of a series of community
information sessions and consultative
committees. The handbook is designed to
help locals recognise the possible social
impacts of the GLNG project and addresses
six themes – water and environment,
community safety, social infrastructure,
community wellbeing and liveability, local
industry participation and training, and
Aboriginal engagement and participation.
Santos seeks to continually improve the
way it manages the treatment and disposal
of formation water, and looks for innovative
ways to limit impacts and achieve beneficial
outcomes for the community and
environment.
For example, Santos’ water management
solutions aim to benefit local communities
and augment existing water supplies through
recharging groundwater and surface water.
In 2012, over two million litres of water
were recycled and diverted to local pasture
irrigation.
At Fairview, Santos has also introduced
an innovative system to close the loop
on drilling fluids, which is helping to
minimise the disposal of waste water
and reduce the consumption of water
requirements. Approximately 500,000
barrels of drilling fluid were processed
in 2012, with around 90% being reused
throughout operations.
looKiNG After our people
Santos is committed to creating a safe,
supportive and productive work environment
that encourages diversity, fosters resilience
and maximises potential and performance.
The Santos employee survey was conducted
again in 2012. The survey covered a variety
of themes including job satisfaction, corporate
values, leadership, support, feedback and
recognition, integrity, fairness and culture.
Results for 2012 were pleasing, with a
significant increase in favourable responses.
14
Santos is committed to providing an
inclusive workplace that embraces people
with a diversity of skills and backgrounds.
In 2012, 34% of our new recruits are female
(compared to 27% of the total workforce),
revealing a trend towards greater female
participation.
Santos encourages Aboriginal workforce
participation through supporting cadetship,
traineeship, apprenticeship and scholarship
opportunities. To date, 137 Aboriginal
employment, training and education
opportunities have been created within
Santos and our contractor companies,
as well as 135 opportunities within the
GLNG project.
sustAiNABility report 2012
For further information, please refer to our
Sustainability Report, which provides further
details on Santos’ management approach
and performance.
www.santos.com/sustainability
2012
key statistics
GREENHOUSE GAS EMISSIONS
FROM SANTOS OPERATED ASSETS
3.8 million tonnes CO2e (Scope-1)
4.2
3.5
3.7
3.6
3.8
2008
2008-09
2009–10
2010–11
2011–12
Australia
Other
We achieved our 2012 emissions intensity
target of 70kt CO2e/mmboe.
SAFETY PERFORMANCE
Total recordable case frequency rate
(per million hours worked)
7.0
5.0
1.7
2008
2009
2010
2011
2012
Employee
Contractor
Combined
While injury rates have increased, our systems
are successfully preventing severe injuries.
WORKFORCE GENDER PROFILE
%
Board of Directors
Strategic leader
Functional leader
Team leader
Technical specialist
Team member
Total
89 11
77 23
84 16
87 13
76 24
69 31
73 27
Male
Female
Santos is committed to providing an inclusive
workplace that embraces diversity and supports
women in technical and management roles.
15
Supporting the Royal Flying Doctor Service, outback Australia.
Water bore testing, Gunnedah Basin.
Supporting the Clontarf Foundation, Gibb River charity bike ride.
Santos Annual Report 2012
2012
delivery
3
3
3
3
Australia’s first commercial
production of gas from a
shale well.
Highest Cooper oil
production since 2009.
First multi-well pad drilling
project executed in
Cooper Basin.
Farm-in to 19 million acres
across the Amadeus and
Pedirka Basins.
2012
key statistics
PRODUCTION
22.3 mmboe
1,000th cargo at Port Bonython, South Australia.
22.3
22.4
22.3
Turning the valve at Moomba-191 shale well, Cooper Basin.
2010
2011
2012
Production was in line with 2011, with higher
Cooper Basin oil production offset by lower
Queensland gas production.
EBITDAX
(excluding asset sales)
$666 million
577
633
666
2010
2011
2012
EBITDAX increased by 5%, with higher crude oil
sales driving higher sales revenue partially offset
by higher third-party purchase costs.
16
16
Drilling at the Tindilpie multi-well pad, Cooper Basin.
Eastern
Australia
Positioned for growth, with innovation and
investment helping us meet rising demand
locally and abroad.
Santos is a leading producer of natural gas,
gas liquids and crude oil in eastern Australia.
Gas is sold primarily to domestic retailers
and industry, while gas liquids and crude oil
are sold in the domestic and export markets.
During the year, Santos also developed plans
for a phased expansion of the Moomba
processing plant, with phase one gross
investment of up to $800 million over the
next four years.
kilometres from Moomba, the well was able
to be connected to the market within weeks.
As at the end of the year, the well was
flowing at 2.4 mmscf/day, a pleasing result.
The demand for natural gas in eastern
Australia is expected to triple by 2016 which
is driving gas prices significantly higher.
Santos has substantial gas reserves and
resources, conventional and unconventional,
and is well positioned to supply the growing
eastern Australian gas market.
Our aim is to double current production by
2020 whilst delivering lower production costs
per barrel through maximising utilisation of
existing infrastructure.
Cooper GAs trANsitioN
uNDerwAy
Gas production of 66.6 petajoules during
2012 was 1% higher than 2011,
with improvements in field and plant
downtime partially offset by lower upstream
capacity due to the project backlog caused
by the wet weather that affected the
2010–2011 drilling campaigns.
During the year, 23 gas development wells
were drilled, including the Tindilpie six-well
pad that will produce 15 mmscf/day.
Multi-well pad technology is used extensively
in the United States for its greater efficiency,
lower costs and a smaller environmental
footprint. A 16-well pad is planned for the
Cowralli field for 2013, with an expected
reduction in each well cost of 16%.
This will be the most significant project in
three decades affecting the Moomba plant
and field satellites, and will include an
additional carbon dioxide processing train
and associated facilities, upgrades to
existing satellite compression stations, and
installation of gathering systems and
trunklines covering hundreds of kilometres.
DeliveriNG Cooper oil
Santos produced 3.2 million barrels of oil
from the Cooper Basin in 2012, its highest
production since 2009. Driving the increase
was the 2011 drilling campaigns in the Zeus
and Cook fields, improved access to field
infrastructure following the 2010–2011
floods, and strong performance from the
Charo wells brought on line in the third
quarter of 2012.
In addition, Santos generated additional
revenue through the ongoing processing
of third-party crude oil at Moomba. This
is expected to grow by 30% in 2013 as
additional third-party volumes are processed.
moomBA-191 suCCess
Santos achieved a significant milestone in the
second half of 2012 with the commencement
of Australia’s first commercial production of
gas from a shale well.
The Moomba-191 well was commissioned
in late September 2012 with an initial flow
rate greater than 3 mmscf/day, exceeding
expectations. As it was only 350 metres
away from existing pipelines and only eight
Following this success, Santos will expand
its unconventional gas exploration campaign
in 2013, with four exploration wells targeting
Moomba shale and the Nappamerri Trough
basin centred gas plays.
Nsw GAs opportuNity
Santos has the largest natural gas
acreage position in New South Wales,
with uncontracted reserves close to
existing market channels.
Santos plans to commence a three-year
drilling and seismic program in the Gunnedah
Basin in 2013, including pilot and corehole
wells to gather production data, working
over existing wells and constructing
state-of-the-art water treatment facilities.
fArm-iN to AmADeus AND
peDirKA BAsiNs
In October, Santos announced a farm-in with
Central Petroleum Ltd to earn a 70% interest
in 13 permits in the Amadeus and Pedirka
Basins, onshore Northern Territory.
Under the agreement, Santos will be the
operator of all the permits. A 2D seismic
survey and an exploration well are planned,
targeting a potentially large conventional
and unconventional gas resource.
The proposed program is a natural extension
to Santos’ existing operations in the Mereenie
field in the Amadeus Basin, which are
managed by the Eastern Australia business
and produce oil, condensate and gas.
17
Santos Annual Report 2012 Western Australia
and Northern Territory
Proven record of delivery with
strong growth opportunities.
The WA&NT business has gone from strength
to strength, posting record gas production
from the Carnarvon Basin and contributing
over a third of Santos’ 2012 production and
revenue.
and Fletcher Finucane. Santos has also
identified a number of follow-on oil
opportunities in the Mutineer-Exeter
area, which will be explored over the
next few years.
Santos’ strategy is to build on this success
through further domestic gas sales, increased
oil production and progress towards the
commercialisation of its northern Australian
assets.
stroNG DomestiC GAs
proDuCtioN
Santos’ Western Australia domestic gas
production was up over 40% in 2012, driven
by the Reindeer and Spar fields brought on
line in 2011. With partner Apache Energy,
Santos processes gas through the Varanus
Island and Devil Creek facilities in the
Carnarvon Basin, and supplies it to mining
and industrial customers.
Options to grow this domestic gas business
include new sales for Reindeer gas, additional
processing capacity at Devil Creek and
follow-on projects in the Spar and John
Brookes gas fields.
CArNArvoN oil DevelopmeNt
oNGoiNG
Sanctioned in January 2012, the Fletcher
Finucane oil project is currently 85% complete
and on track for first oil in mid-2013. All three
development wells have been drilled and
completed. Offshore installation of the
sub-sea facilities, including the tie-in of the
three wells into the Mutineer-Exeter facilities,
will commence in early 2013.
In December, Santos acquired Woodside’s
8.2% interest in Mutineer-Exeter, which
will result in aligned joint-venture parties
having interests in both Mutineer-Exeter
CrowN GAs DisCovery
In November, Santos made a significant gas
discovery at the Crown exploration well in
WA-274-P, located between the Poseidon
and Ichthys fields in the offshore Browse
Basin. The well was drilled to a total depth
of 5,301 metres and intersected 61 metres
of net gas pay in the Jurassic-aged Montara,
Plover and Malita reservoirs. Pressure data
was acquired at multiple points indicating
that gas would be expected to flow at a
high rate and multiple condensate-bearing
gas samples were recovered to surface. The
preliminary recoverable contingent resource
estimate for the discovery is up to 5 TCF.
The Crown discovery is located close
to existing and proposed LNG projects
in the Browse Basin, with discussions
underway with joint-venture partners
for follow-up drilling.
eXCitiNG 2013 DrilliNG
proGrAm
An exciting exploration program is planned
for the Browse Basin in 2013, following the
success of Crown in 2012. Drilling of the
Dufresne and Bassett-West prospects is
planned for the first half, targeting gas
and associated liquids in the neighbouring
permit WA-408-P.
In the Carnarvon Basin, drilling of the
Winchester exploration well is planned for
2013, and gas with high gas liquids content
is anticipated. The Zola appraisal well is also
planned to be drilled, a follow-up from the
2011 discovery of 100 metres of net gas pay
in an excellent quality reservoir. Multiple
development options exist, including
domestic gas opportunities and tie-back
to third-party LNG projects.
offshore NortherN
AustrAliA proGress
In June, Santos and partner ConocoPhillips
signed an agreement with South Korea’s
SK E&S to progress the appraisal of the
Caldita Barossa gas fields. Under the
agreement, SK E&S will fund up to US$520
million in joint venture carry obligations
and contingent payments, with planning
for a three-well appraisal program currently
underway. Various development options for
the fields will be assessed, including floating
LNG and a tie-back to the Darwin LNG plant.
In October, the Bonaparte LNG project
cleared a major regulatory milestone,
receiving environmental approval from the
Australian Government. GDF SUEZ Bonaparte,
the operator and Santos’ partner in the
project, has awarded contracts to KBR and
Technip to complete independent designs
of the floating LNG facility during the
concept definition stage of development.
NortherN territory shAle
fArm-iN
Onshore, Santos is expanding its footprint
in the Northern Territory, with a farm-in to
four prospective shale gas and oil permits in
the McArthur Basin announced in December.
The permits offer gas and liquids potential
close to existing infrastructure, including
gas pipelines, a railway and a major highway.
These assets add to Santos’ NT portfolio led
by Darwin LNG, which continued to perform
strongly following a planned shutdown in the
first half of 2012.
18
2012
delivery
3
3
3
3
Highest-ever Carnarvon
gas production, up 43%
from 2011.
Exploration success at
Crown in Browse Basin.
SK E&S farm-in to
Caldita Barossa for
up to US$520 million.
Fletcher Finucane project
85% complete and on
schedule for first oil in
mid-2013.
2012
key statistics
PRODUCTION
18.7 mmboe
16.3
15.8
18.7
2010
2011
2012
Production was up 18%, driven by a full year
of production from the Reindeer and Spar
fields in the Carnarvon Basin.
EBITDAX
(excluding asset sales)
$792 million
791
792
641
2010
2011
2012
EBITDAX was in line with 2011, with strong
revenue from higher priced Reindeer gas sales
offset by higher production costs, including the
cost of the Darwin LNG planned shutdown.
19
On board the Mutineer-Exeter FPSO, Carnarvon Basin.
Supplying domestic gas from the Devil Creek gas processing plant, Pilbara.
Installation works at Fletcher Finucane oil project, Carnarvon Basin.
Santos Annual Report 2012
2012
delivery
3
3
3
3
3
3
3
3
GLNG project 47%
complete and on track
for first LNG in 2015.
Over 15 million
hours worked across
the project.
5,200 people working on
the project at year end.
Upstream hub
compressor station
construction commenced.
All pipeline landed in
Queensland and pipeline
construction underway.
Strong progress on
construction of LNG
trains and supporting
infrastructure on
Curtis Island.
Start of module
construction in Batangas,
the Philippines.
Brisbane operations
centre commissioned.
Installation of the LNG tank roof plates, Curtis Island.
Work at the Roma hub compressor station.
20
20
LNG plant construction underway at Curtis Island.
GLNG
Construction well underway
on a cornerstone project.
oN trACK for first lNG
iN 2015
The GLNG project involves the development
of gas fields in the Bowen and Surat Basins,
the construction of a 420-kilometre
underground gas transmission pipeline
and a two-train LNG processing facility
on Curtis Island in Gladstone.
The project is a joint venture between
Santos and three of the world’s largest
LNG companies, PETRONAS, Total and
KOGAS. Sanctioned in January 2011,
the project is now 47% complete and
on track for first LNG in 2015.
BuilDiNG vAlue for
shAreholDers
The GLNG project is at the heart of Santos’
vision to be a leading Asia Pacific exploration
and production company.
With the sanction of the GLNG project,
Santos opened a channel to strong Asian
demand for Australian LNG, reinvigorating
our Eastern Australia business through
access to the stronger priced Asian market.
The scale afforded by that higher demand
allows Santos to underpin the investment
needed to unlock the next wave of Eastern
Australia development, including Cooper
Basin shale and Moomba infrastructure.
The GLNG project had already provided
material value before the final investment
decision was made in January 2011, with
the 70% sell-down to PETRONAS, Total
and KOGAS generating $3.3 billion in cash
proceeds.
Underpinned by binding 20-year sales
contracts with KOGAS and PETRONAS,
GLNG is a new legacy asset that will
generate substantial cash flow to fund the
next wave of Santos’ growth after 2015.
GAs supply BuilD CoNtiNues
To execute the most efficient gas supply
for the project, gas will be sourced from
the dedicated CSG fields, underground
storage, supply from Santos’ portfolio
and third parties.
In 2012, 143 wells were drilled in the
project’s CSG acreage, with the gas produced
supplied to domestic contracts and the
remainder injected into underground storage.
A further 200 to 300 wells are planned to
be drilled each year from 2013 to 2015.
Additional gas supply agreements for
a total of 595 PJ were signed with third
parties in 2012 for gas supply to the GLNG
project, adding to the 750 petajoules that
Santos has agreed to supply, primarily from
the Cooper Basin.
GAsfielD AND pipeliNe
CoNstruCtioN uNDerwAy
More than 5,200 people are currently
working on the GLNG project, with a
significant number in the upstream
and pipeline construction.
Construction is currently underway at the
three hub compressor stations in Fairview
and Roma, with site foundations well
advanced and equipment installation
commenced. Materials and equipment for
key infrastructure continue to arrive from
local and overseas suppliers.
All 420 kilometres of the gas transmission
pipeline have been delivered to site,
marking a significant milestone for the
project. Construction continues with over
140 kilometres of the mainland pipeline
right-of-way cleared and graded, and
pipeline welding well underway. In
December, pipeline burial in the Arcadia
Valley commenced – the final step before
rehabilitation works are carried out.
lNG plANt AND port
CoNstruCtioN
On Curtis Island, construction of the two
LNG trains and supporting infrastructure
continues to progress. Bulk earthworks have
been completed, and the first mechanical
equipment has been installed on Train 1.
Good progress has been made on the LNG
tanks, with installation of roof plates and
concrete wall construction ongoing.
Work is also underway at the module yard
in the Philippines to construct and assemble
the 110 modules required, with modules
planned to be shipped to site in 2013.
CApitAl Cost estimAte
iNCreAseD to us$18.5 BillioN
In June 2012, Santos announced that the
gross capital cost estimate for the GLNG
project would be increased from US$16 billion
to US$18.5 billion for the period from final
investment decision (FID) until the end of
2015. This is based on foreign exchange rates
that are consistent with the assumptions
used at FID (A$/US$0.87 average over 2011
to 2015). The increase primarily relates to
additional upstream development in the
Fairview and Roma fields, such as additional
compressors, wells, gathering production
facilities, water handling facilities and other
infrastructure.
21
Santos Annual Report 2012 Asia
Pacific
Focused exploration-led portfolio, led by
our operations in Indonesia, Vietnam and
Papua New Guinea.
Santos’ strategy in Asia is to be a leading
independent upstream oil and gas producer,
by deepening our portfolio of assets in our
core countries of Indonesia, Vietnam and
Papua New Guinea.
is nearing completion with Antonov
operations expected to begin in April,
meeting the required timing of the overall
project schedule.
Asia’s energy trends are matching its
economic trends, as millions of people across
the region seek a better way of life, largely
through migration to urban centres and
greater access to heat, light and mobility.
The offshore section of pipeline has been
completed and over 70% of the main onshore
pipeline has been welded. The major items of
processing equipment are in place at the LNG
plant, with the LNG tanks, flare system and
load-out jetty nearing completion.
Asia’s transformation and its energy
challenges have been game-changers for
Australia and Asia’s gas industries, leading to
rapid rises in natural gas demand. Projections
indicate that global demand for natural gas
will grow by more than 50%, faster than any
other fossil fuel, in the 25 years to 2035.
Santos is well positioned with a growing
portfolio and interests in both LNG supply
and domestic production – the two activities
critical to the Asia Pacific’s energy security.
pNG lNG oN trACK for first
lNG iN 2014
The PNG LNG project is over 75% complete
and on track for first LNG in 2014. The
project involves gas production and
processing facilities at Hides in the Southern
Highlands of Papua New Guinea and pipeline
infrastructure to a LNG plant and load-out
facility located near Port Moresby, with a
capacity of 6.9 million tonnes of LNG per year.
In the upstream, development drilling is
underway on the first two wells of the Hides
field. Meanwhile, construction is progressing
at the Hides gas conditioning plant, with
earthworks and the major foundations
complete and pipework and equipment
installation progressing. The Komo airfield
In addition, the Hides Deep prospect is
planned to be drilled in 2014. It is located
below the existing Hides resource.
During the year, operator ExxonMobil
completed a cost and schedule review for the
project and advised that the project capital
cost estimate had increased to US$19 billion.
Foreign exchange was the largest single
contributor to the increase and to a lesser
extent, delays from work stoppages due to
community disruptions and land access led
to increased construction and drilling costs.
Extraordinary logistics and weather challenges
also increased costs. The operator also advised
that the LNG plant capacity had increased
from 6.6 mpta to 6.9 mtpa, with discussions
underway for sales of additional volumes.
stroNG iNDoNesiA BusiNess
Santos’ Indonesia business continues to
perform strongly, accounting for 10% of
company-wide production in 2012.
The Wortel gas project, located offshore
East Java, was delivered in January 2012
on budget, adding a third producing asset
to Santos’ Indonesian portfolio. Combined
gross production from Oyong and Wortel
has been 90 TJ/day, in line with expectations.
Santos is seeking to sanction the Peluang
project in early 2013, with an expected gross
peak production of 25 TJ/day. Peluang will be
developed as a tie-back to the existing Maleo
asset, with start-up expected in the first half
of 2014.
hiGh-mArGiN vietNAm oil
The Chim Sáo oil project, producing since
October 2011, continued to perform strongly
in 2012. The gross oil production rate was
greater than 25,000 barrels of oil per day
for the last eight months of the year, above
expectations.
Building on the success at Chim Sáo, the Dua
oil project was sanctioned in August 2012.
It involves a three-well sub-sea tie-back to
Chim Sáo and is expected to produce at a
gross rate of 10,000 barrels of oil per day.
The project is over 35% complete and on
track for first oil in the first half of 2014.
vietNAm eXplorAtioN upsiDe
Santos has an active exploration program
underway in the Nam Con Son and Phu Khanh
basins, offshore Vietnam, following promising
seismic results.
The Hon Khoai oil exploration well is planned
for the second half of 2013, following the
acquisition of 3D seismic in 2012. Located
in Block 13/03 in the Nam Con Son Basin,
Santos is targeting a gross mean prospective
resource estimate of 50-100 million barrels
of oil equivalent.
In Block 123 in the Phu Khanh basin, Santos
completed a 3D seismic survey in June 2012
which identified a main prospect with material
potential. An exploration well is planned to
be drilled in 2014, located in 1,900 metres
of water.
22
2012
delivery
3
3
3
3
PNG LNG over 75%
complete and on track
for first LNG in 2014.
Wortel gas project in
Indonesia delivered on
budget.
Chim Sáo delivers 200%
boost to Asia Pacific oil
production.
Dua oil project sanctioned;
first oil expected in first
half of 2014.
2012
key statistics
PRODUCTION
9.3 mmboe
7.9
7.5
9.3
2010
2011
2012
Production up 24%, driven by a full year of oil
production from Chim Sáo in Vietnam, partially
offset by lower Indonesian gas production.
EBITDAX
(excluding asset sales)
$372 million
372
111
2010
157
2011
2012
EBITDAX was up 137%, driven by a full year
of production from the Chim Sáo oil asset
in Vietnam.
23
23
Pipelay underway at the Dua oil project, Vietnam.
Construction well-advanced at the LNG plant site, Papua New Guinea.
Drilling at the Hides field, Papua New Guinea.
Santos Annual Report 2012
Board of Directors
KeNNeth AlfreD
DeAN
BCom (Hons), FCPA, FAICD
GreGory johN
wAltoN mArtiN
BEc, LLB, FAIM, MAICD
roy AleXANDer
frANKliN oBe
BSc (Hons)
DAviD johN wissler
KNoX
BSc (Hons) Mech Eng, MBA,
FIE Aust, FTSE
peter rolAND
CoAtes Ao
BSc (Mining Engineering),
FAICD
Age 60. Independent
non-executive Director
since 23 February 2005.
Chairman, Audit Committee
and Member, Finance
Committee of the Board.
Director of Santos Finance Ltd
since 2005.
Age 53. Independent
non-executive Director since
29 October 2009. Chairman,
People and Remuneration
Committee of the Board.
Member, Environment, Health,
Safety and Sustainability
Committee of the Board.
Non-executive director of
Bluescope Steel Limited since
April 2009 and Chairman of
Bluescope’s Audit and Risk
Committee. Independent
non-executive director of
EnergyAustralia Holdings
Limited (formerly TRUenergy)
since June 2012.
Previously Chief Financial
Officer of Alumina Limited,
alternate director of Alumina
Limited and non-executive
director of Alcoa of Australia
Ltd, Alcoa World Alumina
LLC and related companies
(2005–2009). Director of Shell
Australia Ltd (1997–2001)
and Woodside Petroleum Ltd
(1998–2004).
Over 30 years’ experience
in the oil and gas industry.
Former Chief Executive Officer
of Shell Financial Services
and member of the La Trobe
University Council.
Non-executive director of a
number of listed and unlisted
companies including Energy
Developments Limited since
May 2006, Iluka Resources
Limited since January 2013
and Australian Energy Market
Operator Limited since July
2009. Chairman and Joint
Managing Partner of Prostar
Capital since July 2012.
Previously Deputy Chairman of
the Australian Gas Association
and inaugural Chairman of
the Energy Supply Association
of Australia between 2004
and 2006. Past member
of the Business Council of
Australia and Committee for
the Economic Development of
Australia. Formerly Managing
Director, Murchison Metals
Limited (2011–2012),
Managing Director and CEO
of AGL and Chief Executive
Infrastructure at Challenger
Financial Services Group.
Age 59. Independent
non-executive Director since
28 September 2006. Member,
Environment, Health, Safety
and Sustainability Committee
and People and Remuneration
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
and of Boart Longyear
Limited since October 2010.
Non-executive director of
Cuadrilla Resources Holdings
Limited since January 2012.
Previously Chief Executive
Officer of Paladin Resources
plc (1997–2005) and former
Group Managing Director of
Clyde Petroleum plc. 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.
Age 55. Chief Executive Officer
and Managing Director of
Santos since July 2008,
having been appointed Acting
Chief Executive Officer in
March 2008. Joined Santos
in September 2007 as
Executive Vice President
Growth Businesses. Member,
Environment, Health, Safety
and Sustainability Committee
of the Board.
30 years of experience in the
global oil and gas industry,
including as Managing Director
for BP Developments in
Australasia (2003–2007).
Previously held senior
positions with BP in Australia,
UK and Pakistan, and
management and engineering
roles at ARCO and Shell in the
United States, Netherlands,
UK and Norway.
Chairman of the Australian
Petroleum Production and
Exploration Association
(APPEA). Board member,
SA Botanic Gardens and State
Herbarium. Member of the
Business Council of Australia.
Elected in November 2012
as a Fellow of the Australian
Academy of Technological
Sciences and Engineering.
Age 67. Appointed Chairman
on 9 December 2009.
Previously an independent
non-executive Director since
18 March 2008. Chairman,
Nomination Committee of
the Board and Santos Finance
Limited Board. Member, People
and Remuneration and Finance
Committees of the Board.
Non-executive director
of Amalgamated Holdings
Limited since July 2009 and
non-executive director of
Glencore International plc
since April 2011. Chair, Sydney
North West Rail Link Advisory
Board, since December 2012.
Former non-executive
Chairman of Xstrata Australia
Pty Ltd (2008–2009). Former
Chairman and non-executive
director of Minara Resources
Ltd (2008–2011). Previously
Chief Executive of Xstrata
Coal, Xstrata plc’s global
coal business. Past Chairman
of the Minerals Council of
Australia, the NSW Minerals
Council and the Australian
Coal Association.
Made an Officer of the Order of
Australia in 2009. Awarded the
2010 Australasian Institute of
Mining and Metallurgy Medal.
24
jANe shArmAN
hemstritCh
BSc (Hons), FCA, FAICD
Age 59. Independent
non-executive director since
16 February 2010. Member,
People and Remuneration
Committee and Audit
Committee of the Board.
Non-executive director of
the Commonwealth Bank
of Australia since October
2006, Lend Lease Group since
September 2011 and Tabcorp
Holdings Ltd since November
2008. Chairman of Victorian
Opera Company Ltd since
February 2013 (previously
non-executive director since
October 2010).
Previously Deputy Chairman
of The Global Foundation
(2009–2012) and a member
of the CEDA Research and
Policy Council (2009–2013).
Broad experience in the oil
and gas, telecommunications,
government, financial services
and manufacturing sectors.
Spent 25 years of her career
with Accenture and Andersen
Consulting. Formerly
Accenture’s Managing Director
Resources Operating Group
Asia Pacific, and before that,
Country Managing Director
Australia. Member of Chief
Executive Women Inc.
hoCK Goh
BEng (Hons) Mech Eng
Age 57. Independent
non-executive Director
since 22 October 2012.
Chairman of MEC Resources Ltd
since October 2006, Advent
Energy Ltd since November
2007 and NetGain Systems Pte
Ltd (Singapore) since 2005.
Non-executive director of
Stora Enso Oyj (Finland)
since April 2012.
Previously an Operating
Partner of Baird Capital
Partners Asia, based in
China, (2007–June 2012)
and non-executive director
of Xaloy Holding Inc in the
US (2006–2008).
More than 30 years’
experience in the global oil
and gas industry, having spent
25 years with Schlumberger
Limited including as President
of Network and Infrastructure
Solutions division in London,
President of Asia, and Vice
President and General Manager
of China. Previously held
managerial and staff positions
in Asia, the Middle East and
Europe.
KeNNeth ChArles
BorDA
LLB, BA
riChArD miChAel
hArDiNG
MSc
Age 60. Independent
non-executive Director since
14 February 2007. Chairman,
Finance Committee of the
Board. Member, Nomination
Committee of the Board.
Board member of Fullerton
Funds Management, owned
by Temasek, Singapore since
February 2007 and member
of the Asian Advisory Board
of Aviva Pte Ltd (Singapore)
since February 2009.
Previously Chairman of
Leighton Contractors Pty
Ltd (2011–2012 and non-
executive director since
2007), director of Talent2
International Ltd (2008–2012)
and board member of SFE
Corporation (2000–2006)
until its acquisition by the
Australian Stock Exchange Ltd.
Former non-executive director
of Ithmaar Bank (Bahrain and
Kuwait). CEO of Middle East
and North Africa, Deutsche
Bank before retirement in
2007 after 17 years of service.
Formerly Regional CEO Asia
Pacific, Regional CEO Middle
East and CEO Australia and
New Zealand, Deutsche Bank
and Director of Deutsche Bank
Malaysia (2002–2007).
Age 63. Independent
non-executive Director since
1 March 2004. Chairman,
Environment, Health, Safety
and Sustainability Committee
of the Board. Member, Audit
and Nomination Committees
of the Board.
Chairman of Downer EDI
Limited since November
2010, non-executive director
since 2008 and Deputy
Chairman since July 2010.
Non-executive director of
Roc Oil Company Limited
since June 2012.
Previously Chairman of
Clough Limited (2006–2010),
Deputy Chairman of Arc Energy
Ltd until 2007 (appointed as
non-executive director in
2003) and Chairman of the
Ministry of Defence Project
Governance Board – Land
Systems Division (Army)
(2003–2009). Former
President and General Manager
of BP Developments Australia
Ltd with over 25 years of
extensive international
experience with BP. Former
Vice-Chairman of APPEA.
santos Annual Report 2012
25
Santos
Leadership Team
Left to right:
Christian Paech, James Baulderstone,
Bill Ovenden, Diana Hoff,
John Anderson, Trevor Brown,
David Knox, Petrina Coventry,
Peter Cleary, Andrew Seaton,
Rod Duke, Martyn Eames, David Lim
26
ChristiAN pAeCh
General Counsel
LLB (Hons), BCom
Christian Paech advises the Santos
Board and management on legal
matters affecting the company and
its operations. He is responsible for
Santos’ legal function, which supports
the corporate team and the business
units in joint venture agreements,
project development, dispute
resolution, statutory compliance,
mergers and acquisitions, gas sales
and production sharing contracts.
Christian has 20 years of legal
experience and joined Santos in
2004 after working in national and
international firms in Melbourne
and London where he focused on
large-scale corporate transactions
and corporate governance.
jAmes BAulDerstoNe
vice president
eastern Australia
LLB (Hons), BSc (Hons)
James Baulderstone is responsible for
Santos’ activities in Eastern Australia.
This includes the exploration, production,
development and commercialisation of
the company’s oil and gas resources in
central Australia, the Gunnedah Basin
and offshore Victoria.
James joined Santos in 2007 as
General Counsel and Company
Secretary after previously holding
similar roles at Mayne Group and
BlueScope Steel. James has 23 years
of extensive legal, commercial and
business development experience.
Bill oveNDeN
vice president exploration
and subsurface (Acting)
BSc Hons (Geology and Geophysics)
Bill Ovenden is responsible for
exploration budget and strategy,
and ensuring excellence in subsurface
activities across Santos’ upstream
programs.
Bill is a geologist with 30 years of
experience in the oil and gas industry.
He has worked on exploration projects
in Australia, Central and South-East
Asia, North Africa, the Middle East
and South America, with companies
including Sun Oil, Kufpec, ExxonMobil
and Ampolex. He joined Santos in
2002 after working for ExxonMobil
in Indonesia.
DiANA hoff
vice president
technical and engineering
BSc Petroleum Engineering
Diana Hoff is responsible for drilling
and completions, major projects,
surface engineering, safety and
environment. She has 25 years of
experience with major and independent
operators in the upstream oil and gas
industry, including Chevron, Amoco
and Questar.
Diana joined Santos in 2010 as General
Manager Drilling and Completions.
Her career has included drilling and
completions operations, engineering
and management, and production
management with significant focus
on regulatory processes, including
environmental approvals, stakeholder
engagement and mitigations to lessen
impacts to air quality, water quality
and surface disturbance.
johN ANDersoN
vice president western
Australia and Northern
territory
LLB, BEc, GDCL
John Anderson is responsible for
Santos’ activities in Western Australia
and the Northern Territory, including
commercial and finance, business
development, exploration, development
and operated assets, and has held the
Perth-based position since 2009.
John joined Santos in 1996 as
Corporate Counsel for the former
Queensland Northern Territory Business
Unit. John has over 25 years of legal,
commercial and business development
experience in the oil and gas industry,
including 10 years working as a
solicitor with Freehills.
trevor BrowN
vice president Queensland
BSc (Hons)
Trevor Brown has end-to-end
responsibility for the delivery of
optimal gas supply, execution of
the upstream project and upstream
operations for the GLNG Project.
Trevor joined Santos in 2001 from
Unocal, where he was part of an active
exploration team working in South-East
Asia, the United States and South
America. Trevor has more than 27
years’ experience in the oil and gas
industry, including 11 years in
Indonesia managing onshore and
offshore exploration programs.
DAviD KNoX
Chief Executive Officer
and managing Director
BSc (Hons) Mech Eng, MBA,
FIEAust, FTSE
David Knox was appointed Chief
Executive Officer and Managing
Director in July 2008.
He has over 30 years of experience
in the global oil and gas industry,
and was Managing Director for BP
Developments in Australasia from
2003 to 2007. He previously held
senior positions with BP in the
United Kingdom and Pakistan, and
management and engineering roles at
ARCO and Shell in the United States,
Pakistan, the Netherlands, the United
Kingdom and Norway.
David holds a honours degree
in Mechanical Engineering from
Edinburgh University and a Masters
of Business Administration from
the University of Strathclyde.
petriNA CoveNtry
Chief human resources
Officer
BEd, Grad Dip HR, Grad Dip Phil,
Master Business Ethics
Petrina Coventry is responsible for
the company’s organisation and
people strategies.
Prior to joining Santos in 2009,
Petrina held global leadership roles
for The General Electric Company,
The Coca Cola Company and Proctor
and Gamble. Her industry experience
includes energy, oil and gas, financial
services and fast-moving consumer
goods.
santos Annual Report 2012
Petrina is a PhD partner with Melbourne
Business School, a Vincent Fairfax
Fellow, a member of the World Economic
Forum Partner Against Corruption
Initiative and an advisor to the Global
Council of Corporate Universities.
peter CleAry
vice president strategy
and Corporate Development
BCom, LLB
Peter Cleary is responsible for Santos’
commercial, strategy and planning,
corporate development, and public
affairs functions.
Peter joined Santos in September 2010
from BP, where he was the President
of North West Shelf Australia LNG, the
LNG marketing company for the North
West Shelf Venture.
During his 24-year career with
BP, Peter held senior management
positions in Australia, Indonesia,
Korea, Hong Kong, Abu Dhabi and the
United Kingdom. Peter is currently a
member of the Executive Committee
of the Australia Japan Business
Co-operation Committee.
ANDrew seAtoN
Chief Financial Officer
BEng (Hons) Chemical, GradDip
BusAdmin
Andrew Seaton was appointed
Chief Financial Officer in 2010, and
is responsible for Santos’ corporate
finance, accounting, taxation,
treasury, investor relations, risk, audit,
insurance, information systems and
procurement functions.
Andrew has over 25 years of oil and
gas industry experience, encompassing
finance, banking, commercial and
engineering roles. Prior to joining
Santos in 2005, Andrew held senior
positions in investment banking with
Merrill Lynch and corporate banking
with NAB where he worked on a broad
range of M&A, equity and debt
transactions. His early career included
10 years of operations, engineering
design and project management
experience.
mArtyN eAmes
Vice President Asia Pacific
BSc (Hons)
Martyn Eames is responsible for
Santos’ activities in the Asia Pacific
region, and has been based in
Singapore since early 2012. This
includes management of Santos’
existing exploration, development
and production assets in Indonesia,
Papua New Guinea, Vietnam, India,
Bangladesh and any future growth.
roD DuKe
vice president
Downstream GlNG
BEng (Hons) Chemical, GradDip
Management
Rod Duke is responsible for leading
the downstream activities of the
Santos GLNG project, including the
delivery of the GLNG gas transmission
pipeline and the LNG plant and port
projects.
Rod has extensive global experience
in the LNG industry and joined Santos
in February 2013 from Singapore LNG
Corporation, where he held the
position of Senior Vice President.
He has over 28 years of experience
in project management, engineering,
construction, commissioning,
operations, commercial, marketing
and business development areas of
the upstream natural gas and LNG
industry.
Martyn joined Santos in December
2004 as Vice President Corporate and
People. Before that, he spent more
than 25 years with BP working in
upstream commercial and management
roles in Angola, Canada, Australia,
Papua New Guinea, Norway, the United
Kingdom and the United States.
DAviD lim
Company secretary
BEc, LLB, Ch.Sec
David Lim is accountable to the
Board for the effectiveness of
corporate governance processes,
ensuring adherence to the Board’s
principles and procedures and
coordinating all Board business,
and provides the Santos Board
with independent advice and support
in relation to these matters.
Prior to joining Santos in 2007,
David had over 15 years of experience
in commercial legal practice. He is an
accredited Chartered Secretary.
27
Corporate
Governance
2012 GoverNANCe hiGhliGhts
• Review of Board Charter
• The Board participated in two site visits and ongoing
• Appointment of new independent non-executive Director
• Update of non-executive Director letter of appointment
and induction process
briefing programs
• Santos ranked at 92nd percentile in Corporate Governance
in Dow Jones Sustainability Index
• Policy and procedure updates
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.
The Board has established policies and charters (“Policies”) designed to achieve the highest standards of corporate governance within Santos.
The Policies, or a summary of the Policies, are publicly available on the Company’s website, www.santos.com. The Company’s Constitution,
which was updated in 2012 to ensure consistency with current regulations and corporate practice, is also available on the website.
The Company’s Policies meet the requirements of both the Corporations Act 2001 (Cth) (“Corporations Act”) and the Listing Rules of the
Australian Securities Exchange (“ASX”). In the opinion of the Board, the Policies comply with best practice, including the ASX Corporate
Governance Council’s Principles and Recommendations (“ASX Principles”). Consistent with the ’Guide to Reporting’ recommendations under the ASX
Principles, this Corporate Governance Statement (“Statement”) provides details of the corporate governance practices adopted by the Company.
The table below indicates the sections of this Statement that address each of the substantive recommendations under the ASX Principles.
ASX RECOMMENDATIONS
principle 1 – lay solid foundations for management and oversight
HOW SANTOS SATISFIES THE RECOMMENDATION
Establish and disclose the functions reserved to the Board and
those delegated to management.
Section 2 discusses the division of responsibilities between the
Board and Management.
Disclose the process for evaluating the performance of Senior Executives.
Section 2.1 details how senior executive performance is reviewed.
principle 2 – structure the Board to add value
A majority of the Board should be independent Directors.
The chairperson should be an independent Director.
Sections 1.1–1.2 confirms that the Board comprises eight
independent Directors and one executive Director.
Section 1.1 confirms this and explains how the composition of the
Board is determined.
The roles of chairperson and chief executive officer should not be
exercised by the same individual.
Section 1 confirms this.
The Board should establish a Nomination Committee consisting of
a minimum of 3 members, the majority being independent directors.
Sections 3.1–3.3 set out the role and membership of the Board
Committees, including the Nomination Committee.
Disclose the process for evaluating the performance of the Board,
its committees and individual directors.
Section 1.5 details how the performance of the Board and Directors
is reviewed.
Section 3.1 confirms that the performance of the Board’s Committees
is reviewed annually.
principle 3 – promote ethical and responsible decision-making
Establish a code of conduct to guide the Directors, the CEO, the CFO
and any other key executives.
Section 5.2 provides details regarding the Santos Code of Conduct,
which sets out the Company’s key rules, values and guidelines.
Adopt and disclose a diversity policy and set measurable objectives
relating to gender diversity for disclosure in the Annual Report.
The Company has adopted a Group-wide diversity policy. Further
details of the Company’s diversity initiatives and measurable
objectives are set out in Section 5.1.
Disclose the proportion of female employees in the organisation, in
senior executive positions and on the Board in the Annual Report.
Section 5.1 provides details of female representation levels across
Santos.
28
Principle 4 – Safeguard integrity in financial reporting
The Board should establish an Audit Committee, and structure the
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 chair of the Board; and
• has at least three members.
The Audit Committee should have a formal charter.
principle 5 – make timely and balanced disclosure
Sections 3.1–3.3 set out the role and membership of the Board
Committees, including the Audit Committee, and confirm compliance
with the Audit Committee structure.
The Audit Committee operates under a Charter approved by the
Board. For further details see Section 3.1 and 3.3.
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.
Section 5.4 outlines the written policies and processes Santos
has adopted to ensure compliance with its continuous disclosure
obligations.
principle 6 – respect the rights of shareholders
Design and disclose a communications strategy to promote effective
communication with shareholders and encourage effective
participation at general meetings.
principle 7 – recognise and manage risk
Establish policies for the oversight and management of material
business risks and disclose a summary of those policies.
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.
Disclose whether the Board has received assurance from the CEO and
the CFO that the declaration provided under s295A of the
Corporations Act is founded on a sound system of risk management
and internal control that is operating effectively in all material
respects in relation to financial reporting risks.
principle 8 – remunerate fairly and responsibly
The Board should establish a remuneration committee.
Distinguish the structure of non-executive Directors’ remuneration
from that of executive Directors and Senior Executives.
Section 5.4 summarises the Company’s shareholder communication
policies.
Sections 4.1–4.3 summarise the Company’s risk management systems,
including reporting to the Board on risk, and provide examples of
how business risks are managed.
Sections 4.1–4.3 summarise the Company’s risk management systems,
including reporting to the Board on risk, and provide examples of
how business risks are managed.
Section 4.2 confirms that the Board has received such assurance for
the 2012 financial year.
Sections 3.1–3.3 set out the role and membership of the Board
Committees, including the People and Remuneration Committee.
Further information regarding the structure and details of the
remuneration paid to Directors, the CEO and other Senior Executives
is set out in the Remuneration Report on pages 58–75 of this Annual
Report.
29
Santos Annual Report 2012 Corporate Governance
(continued)
pArt 1: CompositioN
of the BoArD
Relevant policies and charters
See www.santos.com
• Board Charter
• Company Constitution
The composition of the Board is determined
in accordance with the Company’s
Constitution and the Board Charter which,
among other things, require that:
• the Board comprises a minimum of five
directors (exclusive of the Chief Executive
Officer and Managing Director (“CEO”)),
and a maximum of ten directors;
• the Board should comprise a substantial
majority of independent, non-executive
Directors;
• 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, its members
and Committees should be reviewed
annually.
The Board Charter was reviewed and
updated in 2012.
In 2012, the Board undertook a review of the
Board Charter (previously called the Board
Guidelines) with a focus on plain language
and ensuring that it maintained best market
practice. The revised Board Charter has been
published on the Company’s website.
30
1.1 Director independence
The Board has adopted the definition of
independence set out in the ASX Principles.
Having regard to this definition, 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.
Under these guidelines, the following
interests are regarded as material in the
absence of any mitigating factors:
• 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 affiliation 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 provide a
standing notice of interests to the Board and
to make prompt disclosure to the Board of
any changes in interests in contracts, family
ties and cross-directorships that may be
relevant in considering their independence.
Directors must declare any conflict 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
Corporations Act.
In addition to a standing Board agenda item
for declarations of changes to Directors’
interests, Directors’ standing notices of
interests were last refreshed in 2012, tabled
at a Board meeting and minuted, and copies
distributed to all Directors. A standing notice
for the new Director appointed during the
year was tabled for consideration prior to the
Board’s confirmation of his appointment and
he similarly received copies of all other
Directors’ standing declarations of interests.
Taking into account each Director’s standing
notices and subsequent declarations, the
Board considers that all non-executive
Directors are independent.
BOARD COMPOSITION
Numbers of Directors
8 Independent
non-executive Directors
1 Executive Director
(Chief Executive Officer
and Managing Director)
Currently, the Board comprises eight
non-executive Directors, all of whom are
considered independent under the principles
set out above, and one executive Director
(the CEO and Managing Director).
1.2 Board capabilities
In determining the composition of the
Board, consideration is given to the optimal
mix of background, skills and experience that
will position the Board to guide the
Company. As the needs of the Board are
dynamic, these skills and experiences may
change over time.
The following diagram shows how the
Company’s programs and systems (described
in further detail in sections 1.3–1.5) support
Santos in building an effective Board, with
the breadth and depth of background, skills
and experience necessary to guide the
Company’s strategic growth plans.
DefiNiNG reQuireD sKills
AND eXperieNCe
iDeNtifyiNG AreAs for
further DevelopmeNt
improviNG BoArD
effeCtiveNess
In order to ensure that the skills and
experience available on the Board
align with Santos’ goals and strategy
the Board considers requirements
arising from:
• Current business plan and
operations
• Future growth plans
Key ACtioNs iN 2012
Areas for further development, as
well as skills and experience that
would complement existing skills
and experience, are identified by:
• Board performance review to
assess current capabilities
• Nomination Committee consideration
of succession planning
Steps taken to improve the Board
include:
• Development and briefings to
enhance Board effectiveness
• Recruitment of new Directors
to complement existing Board
capabilities
• Ongoing review
• Internal review conducted in
• Briefing sessions for Directors on
• Strategic planning meeting
late 2011/early 2012 and results
reported to the Board in May 2012
• External review commenced in
late 2012, to be completed in
early 2013
a wide range of issues
• Site visits to GLNG, Gunnedah and
Narrabri
• Appointment of new independent
non-executive Director
The current Board comprises nine Directors from diverse backgrounds with a range of business experience, skills and attributes. The following
charts demonstrate the primary skills and experience of the current Directors across several dimensions that are relevant to Santos as a
leading energy Company.
EDUCATIONAL QUALIFICATIONS
Numbers of Directors
INDUSTRY EXPERIENCE
Numbers of Directors
GEOGRAPHICAL EXPERIENCE
Numbers of Directors
Science/Engineering
Finance/Accounting
Legal/Humanities
Science/Engineering
and Finance/Accounting
Finance/Accounting
and Legal/Humanities
Resources
Resources and Services*
Resources and Services*
and Finance
Finance and Services*
* Professional or Technical
Services
Australia, Asia Pacific
and Other
Australia and Other
Asia Pacific and Other
Other
ensure that the Directors bring to the table
an appropriate mix of experience, skills and
backgrounds relevant to the management of
a leading energy company.
• the Board should include at least some
members with experience in the upstream
oil and gas and/or resources industries;
and
The names and details of the experience,
qualifications, special responsibilities
(including Committee memberships), and
term of office of each Director of the
Company and the Company Secretary can be
found on pages 24–27 of the Annual Report.
1.3 Director selection and
succession planning
The framework for the Nomination
Committee’s ongoing considerations of Board
composition, as specified in the Board
Charter, is that:
The Board renewal process is overseen by the
Nomination Committee and involves regularly
reviewing the composition of the Board to
• Directors should be appointed primarily
based on their capacity to contribute to
the Company’s development;
• in determining the composition of the
Board, consideration should be given to
succession planning, board renewal and
the optimal mix of background, skills,
experience and diversity that will position
the Board to guide the Company.
31
Santos Annual Report 2012
Corporate Governance
(continued)
The Board Charter also includes the following
principles:
1.4 Director induction
and continuing education
operations and personnel, and presentations
from the local management team.
• nomination for re-election is subject to
review by the Nomination Committee and
endorsement by the Board;
• there should be appropriate circumstances
justifying nomination for re-election
after a Director has served for 12 years
(e.g. Chairmanship or special skills); 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.
In making recommendations relating to
Board composition, the Nomination
Committee takes into account both the
current and future needs of the Company.
The Nomination Committee specifically
considers each of the Directors coming up for
re-election and makes an assessment as to
whether to recommend their re-appointment
to shareholders. This assessment considers
matters including their contribution to the
Board, the results of Board and Committee
reviews, and the ongoing needs of the
Company. The Committee also takes into
account the succession plans of the Directors
more broadly.
Where a potential ‘gap’ is identified in the
backgrounds, experiences or skill sets that
are considered desirable or necessary for the
Board’s continued effectiveness, this
information is used to inform the selection
of new Director candidates.
The Nomination Committee is responsible
for defining the desired attributes and skill
sets for a new Director and the services of
an independent consultant are then used to
assist in the identification and assessment
of a range of potential candidates based on
a brief from the Nomination Committee. The
Nomination Committee reviews prospective
candidates, then makes recommendations to
the Board regarding possible appointments
of Directors, including recommendations for
appointments to Committees.
Prior to appointment, each Director is
provided with a letter of appointment
which includes copies of the Company’s
Constitution, Board Charter, Committee
Charters, relevant policies and functional
overviews of the Company’s strategic
objectives and operations. The expectations
of the Board in respect to a proposed
appointee to the Board and the workings
of the Board and its Committees are also
conveyed in interviews with the Chairman.
Induction procedures include site visits and
access to appropriate executives in relation
to details of the business of the Company.
The existing practices of providing new
directors with a formal letter of appointment
setting out their rights, duties and
responsibilities and ensuring that they
receive a comprehensive induction program,
including business briefings by Management
and site visits, has now been explicitly
recognised in the revised Board Charter.
The letter of appointment was reviewed
and updated in October 2012, as were the
Company’s induction procedures.
Directors are encouraged by the Board to
continue their education by attending both
internal and external training and education
relevant to their role.
Board site visits in 2012 to GLNG,
Gunnedah and Narrabri.
During 2012, the Directors participated in
briefing sessions on a broad range of issues,
including global oil and gas industry trends,
crude oil pricing, global LNG supply and
demand, global exploration outcomes and
trends, and the national Work Health Safety Act
2011 (Cth). Directors also attended site visits
to GLNG and to Gunnedah and Narrabri,
including engagement with local community
business and government leaders. In addition,
Board meetings have been held at various
Santos offices including in Adelaide, Sydney,
Brisbane and Singapore, giving the opportunity
for familiarisation with each location’s
1.5 review of board
and director performance
As specified in the Board Charter, reviews
of Board, Committee and individual Director
performance are conducted annually. At least
once every three years, the annual review of
the Board and individual Directors is carried
out by an independent consultant. The scope
of the external review is agreed in advance
with the Board. Internal reviews are
facilitated by the Chairman, in consultation
with the Nomination Committee, and involve
questionnaires and formal interviews with
each Director culminating in a written report
prepared by the Chairman.
The last external review of the Board as
a whole concluded in 2011 and a number
of initiatives were introduced as a result,
including the initiation of a strategic five
year review, broadening the remit of the
People and Remuneration Committee and
increasing the Board’s engagement with
upcoming talent within the Company
as well as the key stakeholders in the
Company’s business.
An internal review of the Board, each
Committee and individual Directors was
carried out in early 2012. This review
included feedback from all Directors on the
workings of the Board as a whole, as well as
from senior executives. It included a review
of the performance, structure, objectives and
purpose of the Board Committees. The review
addressed:
• the Board’s contribution to strategy and
policy;
• interaction between the Board and
Management;
• the Board’s processes to monitor business
performance and compliance;
• risk management;
• Board composition and structure; and
• the operation and conduct of the Board.
32
Internal Board Review process
Implement initiatives to
improve Board effectiveness
Feedback from Directors
and review of individual
Director performance
INTERNAL
BOARD
REVIEW
Review performance, structure,
objectives and the purpose
of Board Committees
Feedback from
Senior Executives
The results of the review were reported to
the Board in May 2012 and as a result of this
review, a number of initiatives, including
additional scheduled site visits, were
introduced in 2012 to ensure the continued
effectiveness of the Board’s performance and
enable its sustained focus on key issues for
the Company.
At the date of this Report, the external
review is in its final stages. The Board will
shortly discuss the key findings from the
review and consider recommendations for
addressing the opportunities identified by
the review.
pArt 2: BoArD respoNsiBilities
2.1 responsibilities
The Board is responsible for the overall
corporate governance of the Company,
including approving the strategic direction
and financial objectives, oversight of the
performance and operations of the Company,
establishing goals for Management and
monitoring the attainment of these goals.
In the latter part of 2012 the Board
commenced its periodic external Board
performance review, engaging a specialist
corporate governance consultancy firm to
assist with the review.
The review examined the workings,
performance and effectiveness of the Board
and the Board’s Committees. In undertaking
the review, one-on-one interviews were
conducted with each member of the Board
and members of the Company’s Senior
Executive team who interact regularly with
the Board. The external consultant also sat
in and observed the conduct of part of a
Board meeting, including interactions of the
Senior Executives with the Board and the
operation of the Board generally during a
Board meeting.
Relevant policies and charters
See www.santos.com
• Board Charter
The updated Board Charter was approved
in December 2012 following a review. It
incorporates, consolidates and updates key
elements from the Board Guidelines, as the
Charter was previously known, as well as the
‘Role of the Board’ document adopted by the
Board a number of years ago, in relation to
the Board’s role and responsibilities. The
Board’s overriding objective is defined in the
Board Charter as “…to safely and sustainably
increase shareholder value within a business
framework which protects shareholders’
interests”. The Board seeks to ensure that
Management implements sound strategies
and develops an integrated framework of risk
management and control.
Each Director is required to ensure that
they are able to devote sufficient time to
discharge their duties and to prepare for
Board and Committee meetings and
associated activities.
The Board Charter confirms that
the Company Secretary, through the
Chairman, is accountable to the Board for
the effectiveness of corporate governance
processes, ensuring adherence to the Board’s
principles and procedures and coordinating
all Board business. All Directors have direct
access to the Company Secretary.
33
Santos Annual Report 2012 Corporate Governance
(continued)
the Board is responsible for:
• overseeing the Company’s strategic direction and management
• approving ethical standards and codes of conduct;
of the Company;
• approving the annual capital and operating budget;
• approving delegations of authority to Management;
• approving significant acquisitions and disposals of assets;
• approving significant expenditure decisions outside of the
Board-approved corporate budget;
• approving and monitoring financial performance against
strategic plans and corporate budgets;
• selection, evaluating and succession planning for Directors,
the CEO and Company Secretary and generally endorsing the
same for the CEO’s direct reports;
• setting the remuneration of Directors and the CEO and
generally endorsing of the same for the CEO’s direct reports;
and
• overseeing the integrity of risk management processes and
systems.
Delegation of Authority
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.
responsibilities delegated by the Board to management:
• the conduct and operation of the Company’s business in the ordinary course;
• implementing corporate strategies; and
• operating under approved budgets and written delegations of authority.
The Company’s Delegation of Authority
was the subject of an extensive review
in the first half of 2012, with a view to
simplification and incorporation of increased
accountability by personnel exercising
their delegated authority, whilst reducing
unnecessary ‘red tape’. A substantially
restructured, simplified and updated
version was adopted in June 2012. The
new Delegation of Authority incorporates
increased accountability for personnel
exercising delegated authority.
Regular Senior Executive performance
evaluations are undertaken.
Chairman undertakes the CEO’s annual review
and reports the outcome to the People and
Remuneration Committee.
• assessing key contributions;
• identifying areas of potential
improvement; and
The results of these reviews are used in
determining future remuneration in
consultation with the People and
Remuneration Committee, and generally for
review by the Board in relation to
Management succession planning.
Performance reviews were conducted in
accordance with this process for each of the
Senior Executives, including the CEO, during
the year. These reviews impacted on the
short term incentives for the Senior
Executives and included the following
criteria:
• assessing whether expectations of
shareholders and other stakeholders have
been met.
Details of the remuneration received by
the CEO and Senior Executives, including
short- and long-term incentives relating
to Company and individual performance
targets, are set out in the Remuneration
Report commencing on page 58 of the
Annual Report. Details of non-executive
Director remuneration are also set out in
the Remuneration Report.
An important aspect of the Board’s
responsibilities is the evaluation of the
Company’s executives. Performance
evaluation of Senior Executives is
undertaken twice a year by the CEO. The
• analysing performance against agreed
measures;
• examining the effectiveness and quality
of the individual in their given role;
34
2.2 indemnity, access to
information and independent
professional advice
The Board Charter sets out the circumstances
and procedures pursuant to which a Director
may seek independent professional advice at
the Company’s expense. Those procedures
require prior consultation with, and approval
by, the Chairman and assurances as to the
qualifications and reasonableness of the fees
of the relevant adviser. A copy of the advice
and letter of instruction is usually required
to be provided 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
office. This right continues for a term of
seven years after ceasing to be a Director,
or such longer period as is necessary to
determine any 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’ Report on
page 76 of this Annual Report.
pArt 3: BoArD Committees
Each Committee operates under a
specific charter approved by the Board.
Relevant policies and charters
See www.santos.com
• Audit Committee Charter
• Environment, Health, Safety and
Sustainability Committee Charter
• Finance Committee Charter
• Nomination Committee Charter
• People and Remuneration
Committee Charter
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
below and 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 in accordance
with the Charter of that Committee. Other
composition requirements specific to each
Committee are set out on the following
page and in Section 3.3. Non-Committee
members may attend Committee meetings
by invitation.
Board Committees conduct their own
internal review of their performance,
structure, objectives and purpose from
time to time. A revised Charter for the
Environment, Health, Safety and
Sustainability Committee was adopted in
February 2012, following a review by that
Committee. This updated the Charter in
line with changes brought about by the
new Work Health Safety Act 2011 (Cth).
An indicative annual schedule of matters
for consideration by the Committee was also
added, as part of consolidation of safety due
diligence principles endorsed by the Board.
Board Committees have access to internal
and external resources, including access to
advice from independent external
consultants or specialists.
The Chairman of each Committee provides an
oral, and, where appropriate and practicable,
a written report together with the minutes
and recommendations of the Committee at
the next Board meeting.
Following is a summary of the membership
of the Board Committees.
Board Committee Membership
Environment,
Health, Safety
and Sustainability
Committee
Audit
Committee
KC Borda
PR Coates
Non-executive Director
Non-executive Director
(Chairman)
KA Dean
Non-executive Director
Chairman
RA Franklin1
Non-executive Director
RM Harding1
Non-executive Director Member
DJW Knox
Executive Director
(Managing Director/CEO)
GJW Martin
Non-executive Director
JS Hemstrich
Non-executive Director Member
Member
Chairman
Member
Member
Finance
Committee
Chairman
Member
Member
Nomination
Committee
Member
Chairman
Member
People and
Remuneration
Committee
Member
Member
Chairman
Member
1. Mr RM Harding ceased to be a member of the People and Remuneration Committee, and Mr RA Franklin was appointed as a member of the People and Remuneration Committee, on 17 February 2012.
35
Santos Annual Report 2012 Corporate Governance
(continued)
Following are details of the membership requirements of each Committee, as outlined in each Committee’s Charter. The Board reviews
Committee membership on at least an annual basis and believes that each Committee’s membership currently satisfies the membership
requirements. Details of the qualifications and experience of each Director can be found on pages 24–25 of this Annual Report.
Board Committee
Audit Committee
Membership requirements
• members who are financially literate;
Environment, Health, Safety and
Sustainability Committee
Finance Committee
• at least one member with past employment experience in finance and accounting, requisite
professional certification in accounting or other comparable experience or background;
• at least one member with an understanding of the exploration and production industry; and
• the Chairman of the Board is precluded from being the Chairman of the Audit Committee.
At least three non-executive Directors and the Managing Director.
At least three independent non-executive Directors, all of whom will be financially literate and
including at least one with past employment experience in finance, requisite professional
certification or other comparable experience or background which results in the individual’s
financial sophistication.
Nomination Committee
At least three independent Directors, chaired by the Chairman of the Board.
People and Remuneration Committee
At least three non-executive Directors, including the Chairman of the Board.
3.2 Board and Committee meetings
In 2012, a total of 11 Board meetings
were held, including a strategy workshop
and meeting. This exceeded the minimum
requirements set out in the Board Charter.
In addition to formal meetings, the Directors
participated in a site visit to the GLNG
project at Gladstone in June 2012, and to
Narrabri and Gunnedah in December 2012.
Members of Management attend relevant
parts of Board and Committee meetings, at
which they report to Directors within their
respective areas of responsibility. Where
appropriate, advisers to the Company attend
meetings of the Board and of its Committees.
Board meetings regularly include a session at
which the non-executive Directors meet
without the CEO and Managing Director or
other members of management present.
Details of the Board and Committee meetings
held and Directors’ attendances at those
meetings appear in the Directors’ Statutory
Report on page 50 of this Annual Report.
3.3 role and activities
of Committees
Audit Committee
The primary objective of the Audit Committee
is to assist the Board to fulfil its corporate
governance and oversight responsibilities
related to financial accounting practices,
external financial reporting, financial risk
management and internal control, the
internal and external audit function, and
compliance with laws and regulations
relating to these areas of responsibility.
The role of the Audit Committee includes:
• evaluating the truth and fairness of
Company financial reports and
recommending acceptance to the Board;
• reviewing the process adopted by the CEO
and Chief Financial Officer (“CFO”) when
certifying to the Board that the Company’s
financial 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 satisfied
that the provision of those services has
not compromised the auditor’s
independence;
• reviewing the process of the Reporting
Misconduct Program;
• recommending proposed dividends to
the Board for final adoption; and
• recommending to the Board the appointment
and dismissal of the head of internal audit.
36
Regular meetings held with auditors
without Management present.
The Audit Committee meets with the external
auditor, Ernst & Young, without management
present, after each Audit Committee meeting
and this is followed by a meeting with Ernst
& Young and the Internal Auditor without
the rest of Management present.
Finance Committee
The role of the Finance Committee includes:
• responsibility for considering and making
recommendations to the Board on the
Company’s capital management strategy
and the Company’s funding requirements
and specific funding proposals;
• formulating and monitoring compliance
with treasury policies and practices; and
• the management of credit, liquidity and
commodity market risks.
During 2012 the Finance Committee
worked closely with Management in
actively reviewing the Company’s funding
plans.
Environment, Health, Safety and
Sustainability Committee
The role of the Environment, Health, Safety
and Sustainability (“EHSS”) Committee
includes:
• monitoring and review of the EHSS Policies
and related systems and their compliance
with all applicable environment, health and
safety legislation;
• monitoring and review of all aspects of
environment, and health and safety risks
which are relevant to the Company’s
operations;
• receipt and consideration of reports on all
Nomination Committee
It is the responsibility of the Nomination
Committee to devise the criteria for, and
review membership of the Board, including
the re-election of incumbent Directors and
nominations for new appointments, to
maintain an appropriate balance of skills,
experience, diversity and expertise on the
Board.
When a Board vacancy exists or where it is
considered that the Board would benefit from
the services of a new Director with particular
skills, experience or background, the
Nomination Committee has responsibility for
proposing candidates for consideration by
the Board.
Successful candidate search conducted
and new non-executive Director
appointed in 2012.
During 2012 the Nomination Committee
developed a brief for a search for candidates
for an additional director, having reviewed
the existing and future requirements for
diversity, skills and experience on the Board.
The Nomination Committee oversaw the
conduct of that search by an external service
provider and recommended the final
candidate to the Board for approval,
resulting in the appointment of Mr Hock Goh
as a new Director on 22 October 2012. This
appointment enhances the skills, technical
and geographical experience represented on
the Board. Further information about the
new composition of the Board is provided in
Section 1.2 above (Board Capabilities) and
Section 5 (Diversity) and Directors’
biographical details are provided on pages
24 and 25 of this Annual Report.
major changes to the Company’s
environment and health and safety
responsibilities;
• receipt and consideration of reports on
any significant system failure, accident or
other incident;
• review of the regular internal and external
environmental, health and safety audits;
and
• monitoring and reviewing the
appropriateness and implementation of the
Company’s environment, health, safety and
sustainability governance arrangements.
During 2012, EHSS Committee reporting
was improved and a new category of
award, to recognise outstanding
contribution by a health and safety
representative, was added to the
Directors’ EHS Awards categories.
Following a review of the format and
content of reporting to the EHSS Committee,
the EHSS Committee’s agendas and the style
and content of reports from Management
were amended in 2012, with the aim of
focusing more closely on key priorities. A
new standing agenda item involving the
review of lessons learnt from high potential
incidents (“HiPo’s”) was added and this item
is required to be presented by senior line
management personnel or a Vice President.
A new category was introduced to the
annual Directors’ EHS Awards, to recognise
outstanding contribution by a health &
safety representative. In this eighth year
of the Awards, which are judged by the
EHSS Committee, there were five categories
of awards, open to both employees and
contractors, attracting 46 entries. An
awards ceremony was held in May 2012,
to which all employees were invited. This
is an important annual opportunity to
bring EHSS matters, and the Board and
EHSS Committee’s commitment to EHSS,
to the attention of the whole Company.
37
Santos Annual Report 2012 Corporate Governance
(continued)
People and Remuneration Committee
pArt 4: risK mANAGemeNt
The People and 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;
• development and succession plans
for the CEO and senior leadership team;
• the Company’s superannuation
arrangements;
• employee share and option plans;
• reviewing and reporting to the Board
on measurable objectives for achieving
gender diversity;
• an annual assessment of the gender
diversity objectives and progress in
achieving them; and
• reviewing and reporting on remuneration
analysed by gender.
The Committee has access to, and
regularly uses, independent advice and
comparative studies on the appropriateness
of remuneration arrangements. Further
details of 2012 activities are set out in
the Remuneration Report commencing on
page 58 of this Annual Report.
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 58 of this Annual Report and notes
30-31 to the financial statements
commencing on page 130 of this Annual
Report.
Further detail about the People and
Remuneration Committee’s oversight of
diversity objectives and reporting, including
in relation to gender diversity, is provided in
section 5.1 Diversity on page 41.
Relevant policies and charters
See www.santos.com
• Board Charter
• 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 risks which may have a material impact
on the Company’s objectives, and to review
the systems if any irregularity or inadequacy
becomes apparent. These risks include
financial, non-financial and operational risks
impacting areas such as project delivery,
production, reputation, environment and
safety, exploration and investment.
The Board Charter specifies that risk
management arrangements will include:
• Board Committees;
• financial reporting;
• management reporting;
• organisational structures, procedures,
manuals and policies;
• audits;
• environment, health and safety standards;
• comprehensive insurance programs; and
• appointment of specialist staff and
external advisors.
An Enterprise-Wide Risk Management approach,
based on the relevant International Standard
(ISO31000:2009), forms the basis of the
Company’s risk management activities. This
approach is incorporated in the Company’s
Risk Management Policy and aims to ensure
that business risks facing the Company
are consistently identified, analysed and
evaluated, and that active management
plans and controls are in place for the
ongoing management of these risks. The
risk ranking prioritises those risks which
require attention. 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
As risk management is embedded throughout
the Company, reporting of these risks occurs
at a number of levels.
All regular reports to the Board on strategic,
project 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 to the formal reporting
arrangements, the Board and Management
give ongoing consideration to the
effectiveness of the Company’s risk
management and internal compliance and
control systems, and whether there is scope
for further improvement of these systems.
Following a review during 2012, amendments
to the Risk Policy, risk management system
and processes were endorsed by the Board in
December 2012 for implementation in 2013.
The Board confirms that it has received
a report from Management as to the
effectiveness of the Company’s management
of its material business risks for the 2012
financial year.
The Board also receives written certifications
from the CEO and the CFO in relation to the
Company’s financial reporting processes.
For the 2012 financial year, the CEO and
CFO provided assurance that the declaration
provided in accordance with section 295A
of the Corporations Act 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 financial reporting risks.
38
4.3 examples of business risks
Examples of management of specific business risks, and the systems the Company has in place to manage these risks, include the following:
Type of risk
Project risk
Managed through:
• A comprehensive Santos Quality Asset Development (“SQAD”) system, which applies in full
to all projects greater than $100 million and key selected principles to all smaller projects;
• project managers are identified as the key risk and control owners with accountability to
ensure all identified actions are taken;
• reports to the Board on the material projects;
• formal look back process to identify key lessons for application to future projects; and
• use of internal and external experts to peer review projects at defined points.
Environmental and safety risk
• 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
• Implementation of risk management processes, including reporting mechanisms in respect of
each exploration project;
• internal control systems that include resource assessment of exploration prospects, resource
development plans and project assurance processes;
• corporate review, both forward looking and retrospective; and
• Board approval of exploration budgets; and
• a Reserves Management System that is consistent with the Society of Petroleum Engineers’
Petroleum Resources Management System, in respect of which external reserves reviews and
audits are undertaken regularly.
Reputational risk
• Formal processes to ensure that the Company’s operations and interactions with our
stakeholders and communities are of the highest standard;
• consideration is given to the impacts of all operations to communities;
• participation with the industry body and other oil and gas operators; and
• regular briefings to stakeholders and communities where the Company operates.
Operational risk
• All significant areas of Company operations are subject to regular reporting to the Board;
• the Board receives regular reports on the performance of each business unit, functional area
and major project, including: Eastern Australia; Western Australia and Northern Territory;
Asia Pacific; GLNG; PNG LNG; Corporate Development; Legal; Finance and Investor Relations;
Human Resources; Government and Media; Environment, Health, Safety and Sustainability;
and
• identification of key safety critical equipment and maintenance processes.
39
Santos Annual Report 2012 Corporate Governance
(continued)
Type of risk
Investment risk
Managed through:
Clearly defined procedures for capital allocation and expenditure, including:
• a portfolio management system;
• annual budgets approved by the Board;
• Board approval for all new strategies prior to implementation;
• short- and long-term funding strategies 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;
• levels of authority; and
• due diligence requirements where assets are being acquired or new country entry is
contemplated.
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 financial transactions are prohibited; and
• regular treasury and market risk reports are made to the Finance Committee of the Board.
Further details relating to financial instruments and commodity price risk management are
included in note 38 to the Financial Statements.
Organisational capability risk
• Conducting regular reviews of the organisational capacity;
• developing the workforce development and succession plans for all employees with focus on
key roles within the Company;
• maintaining a personal and professional development curriculum with general and industry
programs;
• conducting a biennial survey of employees to ensure both qualitative and quantitative
measures are in place to communicate with all employees and take appropriate actions; and
• conducting regular reviews of Human Resources policy and practice.
Santos has two major projects, GLNG and PNG LNG, which have been identified due to their size, complexity and location as being material
to the delivery of the Company’s strategy. Risks associated with these projects have been identified and actions are being taken to address
the risks where appropriate.
40
4.4 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:
Non-assurance service work in 2012
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 Corporations Act is set out
on page 164 of the Annual Report.
• the Board will not invite any past or
present lead audit partner of the firm
currently engaged as the Company’s
external auditor to fill a vacancy on the
Board;
• audit partners who have had significant
roles in the statutory audit will be
required to rotate off the audit after a
maximum of five 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 firm
other than the external audit firm.
The nature and amount of non-audit
services provided by the external auditors
is in the Directors’ Statutory Report on
page 57 of this Annual Report, together
with the Directors’ reasons for being satisfied
that the provision of those services did not
compromise the auditor independence
requirements of the Corporations Act.
The policy requires that services which are
considered to be in conflict 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 final
approval of these services.
pArt 5: Diversity, ethiCs
AND CoNDuCt
Relevant policies and charters
See www.santos.com
• Diversity Policy
• Code of Conduct
• Reporting Misconduct Policy
• Securities Trading Policy
• Shareholder Communications and
Market Disclosure Policy
5.1 Diversity
The Board and senior leadership team of
Santos believe that increased workforce
diversity leads to stronger Company
performance and a positive organisational
culture. Santos is committed to providing an
inclusive working environment that embraces
diversity. Specific aims are to increase the
representation and development of its
diverse population, as well as supporting
broad based equal opportunity programs and
encouraging multicultural awareness.
The Diversity Policy has been approved
by the Board’s People and Remuneration
Committee and can be found on the
Company’s website. This policy is summarised
and referenced in the Company’s Code of
Conduct which sets out the expectations
regarding the behaviour of all Santos
employees. These policies are reviewed
regularly to ensure ongoing relevance.
In addition to concentrating on development
of the current workforce, Santos recognises
that recruitment is a key opportunity for
encouraging diversity. Santos’ Recruitment
and Selection Policy requires that only
relevant factors, such as experience and
qualifications, can be taken into
consideration when making selection
decisions. Further, in 2012, provision of
gender balanced candidate pools was
included as a performance measure in new
contracts with recruitment firms. This will
continue to be implemented as contracts
are re-negotiated over the next few years.
Santos’ focus on improving gender balance
has a high level of corporate accountability
with senior executives reporting annually to
the Board’s People and Remuneration
Committee on the results against measurable
objectives and progress on initiatives. To
ensure a consistent focus on diversity-related
matters, the Company requires business units
and corporate leaders to report on diversity
progress at their quarterly business reviews
and it is a major part of its annual people
planning reviews.
The following table sets out the measureable
objectives adopted by the Board and a
summary of the progress towards achieving
them that was reported to the Board’s People
and Remuneration Committee in October
2012 by the CEO and Chief Human Resource
Officer, in accordance with the Company’s
Diversity Policy. The items outlined in the
‘initiatives and progress’ column also
summarise progress towards achieving the
measurable objectives adopted in 2011 that
were ongoing in 2012.
41
Santos Annual Report 2012 Corporate Governance
(continued)
Diversity objectives and progress
Objective
Initiatives and progress
1. Representation
Increase representation of females and
Aboriginal employees at Santos. In
particular, increase representation in the
non-traditional areas such as apprentices,
trainees and graduates.
• A 2% increase in the overall number of female employees was achieved. 27% of Santos’
workforce is now female.
• Hiring practices and leadership coaching focused on removing gender bias has resulted in
34% of new hires being women in 2012 compared with 27% representation across Santos.
• The Santos Graduate Program continues to drive gender balance in the engineering and
geoscience pipeline, with 42% of graduates employed in 2012 being female.
• Santos has increased Aboriginal workforce participation in the energy and resources sectors
through creation of 137 employment, education and training opportunities within Santos
and its contractor companies, of which 81 were created in 2012. A further 135 opportunities
have been created within the GLNG Project. Roles created include cadetships, traineeships
and apprenticeships.
2. Leadership and culture development
Deliver development solutions to remove
gender bias and create an inclusive culture.
• The Code of Conduct was re-launched in 2012. In conjunction with that re-launch,
EEO, workplace harassment and bullying legislation regulations were reinforced by increased
training to over 98% of employees.
• Workforce flexibility policies and practices have been reinforced and Santos had a 100%
return rate of employees from parental leave.
• Diversity awareness tools were embedded into leadership development programs to ensure
that the drive for diversity is part of the overall Santos system.
• Female representation at the Company’s in-house development programs increased by 18%,
and female participation at technical development programs increased by 14%.
• The company-sponsored MBA program continued to drive the development of women in
management positions and strengthen their networks. In 2012, 26% of participants in the
MBA program were female.
• Personal development programs such as confidence building and resilience tools were
introduced to assist employees with their ability to manage work/life balance challenges.
• Policies have been reviewed, updated and communicated as outlined above in relation to
Diversity Objective 2.
• Service providers are measured on their ability to provide diverse and gender balanced
candidate pools.
• Recruitment practices have been upgraded to ensure we seek and attract a more diverse
candidate pool for trade and technical/science-based positions.
• Improved reporting systems to track participation in indigenous recruitment and
development have been implemented.
• The pay equity review process is conducted on an annual basis. This year’s review continued
to highlight that there was no significant difference in pay levels for male and female
employees in similar roles.
• Santos continued its involvement with the Gender Equity Project (GEP), an initiative driven
by Melbourne Business School and industry partners to produce research and interventions
that will drive awareness and improvement in gender balance across the country.
• Santos continues to support industry and community initiatives designed to improve gender
equity including Women in Resources South Australia, Boardlinks, Women on Boards and
Australian Institute of Company Directors programs.
3. Personal and career development
Equal representation of women and men to
receive opportunities for in-house
development programs.
4. Systems and processes
Review practices to identify inequities,
specifically review gender pay equity and
take necessary actions.
5. Government and industry
participation.
Involvement with initiatives designed to
improve gender equity.
42
The Company remains committed to
attracting, retaining and engaging people
with diversity of experience, skills, qualities
and backgrounds, and to providing an
inclusive culture. The five objectives listed
above will continue to ensure Santos
maintains focus in these key areas. Progress
against these objectives will be reported in
the Company’s 2013 Annual Report.
The following table shows the proportional
representation of men and women at various
levels within the Santos workforce. In 2012,
there was an increase of 2% in female
representation across the Group.
5.2 ethical standards and
code of conduct
Santos is committed to practising high
standards of business conduct and corporate
governance and complying with legal
requirements wherever the Company operates.
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.
WORKFORCE GENDER PROFILE 2012
%
In particular, the Company has in place an
integrated Code of Conduct which:
Non-executive Directors
Senior executives
87 13
85 15
• sets out the Company’s key rules, values
and guidelines with respect to workplace
and environment, business conduct and
sustainability; and
Other
Total
73 27
73 27
Male
Female
• outlines the processes for reporting and
investigating suspected breaches, and the
penalties that may be imposed where a
breach is found to have occurred.
WORKFORCE GENDER PROFILE 2011
%
Key issues addressed by the Code of Conduct
include:
• 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 Code of Conduct and its associated
training was re-launched in January 2012
after review and updating. All employees
were required to undertake a refresher of
compulsory online training and this training
module is also a compulsory component of
new personnel inductions. This roll-out of
training was undertaken in parallel with
other compulsory training modules in
relation to an associated policy which had
also been reviewed and updated, the Equal
Opportunity/Bullying Policy.
In addition, the Company has a separate
Anti-Corruption Policy. All Santos staff and
contractors are required to be familiar with
and to abide by the Policy and related
Guidelines. In 2012, the Company continued
a roll-out of anti-corruption workshops and
web-based training for employees in roles or
locations where there is a higher risk of
exposure to corrupt practices by third parties.
The standards of conduct expected of Santos
staff, including when dealing with the broader
stakeholder constituency of shareholders,
customers and the community, are also
recorded in separate guidelines and policies
relating to dealing in securities (see section
5.3 below), the environment, occupational
health and safety, and human resources.
Non-executive Directors
86 14
Senior executives
83 17
Other
Total
75 25
75 25
Male
Female
There was no reduction in the number of
females in the non-executive Director and
Senior Executive groups in 2012. Mr Hock
Goh was appointed as an additional
non-executive Director (see Section 3.3 and
the Directors’ Report commencing on page 49
of this Annual Report. An additional senior
executive was appointed as a result
of a restructure. The 2012 Senior Executives
included above are those who are described
in the Annual Report on pages 26–27,
reflecting changes to the comparable group
as described on pages 26–27 of the 2011
Annual Report.
• achieving compliance with all applicable
laws of the countries in which Santos
operates;
• avoiding conflicts, 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
confidentiality, both at an individual and
Company level;
Further, a Finance Code of Conduct, based
on that developed by the Group of 100 (an
association of senior finance executives from
Australia’s business enterprises) applies to
the CFO and all other officers and employees
within the finance function of the Company
who have the opportunity to influence the
integrity, direction and operation of the
Company and its financial performance.
• ensuring Company assets are used solely
to promote the interests of the Company
and its stakeholders;
Santos treats actual or suspected breaches
of its guidelines and policies seriously, and
has adopted Reporting Misconduct and Issue
43
Santos Annual Report 2012
Corporate Governance
(continued)
Resolution policies as additional mechanisms
to ensure that suspected breaches are reported
and acted upon fairly and effectively.
A Reporting Misconduct Program is in place
at Santos, to enable employees to report
misconduct confidentially, without fear of
reprisal or discrimination. 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). During 2012,
a review of investigation and reporting
protocols was undertaken, resulting in
an improved process for recording and
investigating all complaints relating to human
resources matters, regardless of whether they
have escalated to the formal independent
Reporting Misconduct hotline.
5.3 securities trading policy
The Company’s Securities Trading Policy that
prohibits Directors, executives and employees
(as well as connected persons over whom they
may be expected to have control or influence)
from acquiring, selling or otherwise trading in
the Company’s securities where they are in
possession of material price-sensitive
information which is not in the public domain.
Directors, executives and employees (and their
connected persons) are also prohibited from
dealing in the Company’s securities during
defined ‘blackout periods’, except:
• where there are exceptional circumstances
in which selling the securities is the only
reasonable course of action available
(such as severe financial hardship); or
• the period from the close of trading
on 30 June each year until the trading
day following the announcement of the
Company’s half-year results (usually in
the third week of August); and
• any other period that the Company
specifies from time to time.
Directors, executives and employees are
also prohibited from trading the Company’s
securities on a short-term basis, and are not
permitted to hedge their securities (including
options and share acquisition rights) unless
those securities have fully vested and are no
longer subject to restrictions.
Outside of these circumstances, employees
are generally free to deal in the Company’s
securities. However, Directors, the CEO and
Managing Director, the Company Secretary
and executives can only deal in the
Company’s securities if they first provide
notice of their intention and receive written
clearance from an appropriate senior officer.
In 2012 the Company made significant
improvements to the Company-wide visibility
of the Securities Trading Policy and related
materials on the Company’s intranet site,
which is available to all employees. The
improvements include:
• news stories highlighting the
commencement and cessation of each
blackout period;
• online applications for clearance to
deal in securities for relevant executives;
• where the dealing falls within one of
• frequently asked questions; and
the excluded categories under the Policy
(such as pro-rata issues of securities to
all shareholders).
The following periods are defined as ‘blackout
periods’ under the Policy:
• the period from the close of trading on
31 December each year until the trading
day following the announcement to the
ASX of the Company’s preliminary final
statement or full-year results (usually in
the third week of February);
• contact details for key internal contacts.
Breaches of the Securities Trading 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 to ensure that Directors and
Management are aware of and fulfil their
obligations in relation to the timely
disclosure of material price-sensitive
information. The Shareholder Communications
and Market Disclosure Policy and associated
Guidelines were reviewed during the year and
updated in November 2012. A copy is
published on the Santos website. In
accordance with the Policy, information must
not be selectively disclosed prior to being
announced to the ASX. Employees must notify
their departmental manager or a designated
Disclosure Officer as soon as they become
aware of information that should be
considered for release to the market.
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, media releases, and materials
presented at investor, media and analyst
briefings. An email alert facility is also
offered to shareholders. Webcasting of
material presentations, including annual and
half-yearly results presentations, is provided
for the benefit of shareholders, regardless
of their location. The Annual General Meeting
is also webcast live and made available for
later viewing.
The Board is conscious of its obligations to
shareholders and will seek their approval as
required by the Company’s Constitution, the
Corporations 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. The
Annual General Meeting also provides an
opportunity for any shareholder or their
proxy to attend and ask questions of the
Board, and exercise their vote.
44
Organisation
chart
BoArD Committees
BoArD of DireCtors
Audit
mANAGiNG DireCtor AND Chief eXeCutive offiCer
Environment, Health,
Safety and Sustainability
Finance
Nomination
People and Remuneration
sANtos leADership teAm
Comprises the CEO and his reports
Drive business strategy and operations
CorporAte CeNtre
BusiNess uNits
teChNiCAl DisCipliNes
Allocate capital and provide governance
and policy
Business execution and delivery
Provide excellence,
service and assurance
Human Resources, Health,
Aboriginal Participation
Finance, Tax, Insurance,
Investor Relations, Treasury,
Risk and Audit, Information
Technology, Logistics and Procurement
Strategy and Corporate Development,
Legal, Commercial and Marketing,
Public Affairs, Climate Change and
Sustainability
Corporate Secretariat
Asia Pacific
Exploration and Subsurface
Eastern Australia
Engineering, Safety, Environment
GLNG
Western Australia and
Northern Territory
45
Santos Annual Report 2012 10-year
summary
As at 31 December
Santos average realised oil price
(A$/bbl)5
Financial Performance ($million)6
Product sales revenue5
Total revenue1,5
Foreign currency gains/(losses)3
Profit from ordinary activities before
tax3
Income tax relating to ordinary
activities3
Royalty-related taxes2
Net profit after tax attributable
to the shareholders of Santos Ltd3
Financial Position ($million)6
2003
43.59
2004
51.83
2005
73.83
2006
89.35
2007
2008
92.00
117.45
2009
78.83
2010
2011
2012
87.35
115.29
113.78
1,465
1,486
(8)
431
1,501
1,526
2,463
2,492
3
(4)
519
1,133
2,750
2,779
1
964
2,489
2,518
-
2,762
2,805
24
719
2,533
2,181
2,251
(28)
717
2,228
2,306
(10)
793
2,721
2,803
18
1,282
104
164
371
321
196
768
205
244
440
327
355
762
643
164
359
115
1,650
78
434
51
500
91
753
3,220
3,299
(2)
915
322
75
519
Total assets3
Net debt/(cash)3
Total equity3
5,218
898
3,088
4,837
1,133
2,358
6,191
1,599
2,964
6,903
1,450
3,356
7,320
1,839
3,093
9,802
11,361
13,769
15,814 17,035
506
(605)
(1,201)
(205)
1,330
4,478
6,967
7,603
8,963
9,365
Reserves and production (mmboe)
Proven plus probable reserves (2P)
Production
Exploration4
Wells drilled (number)
Expenditure ($million)6
Other capital expenditure ($million)6
Delineation and development4
Buildings, plant and equipment
General
Number of employees
(excluding contractors)
Number of shareholders
636
54.2
643
47.1
774
56.0
819
61.0
879
59.1
1,013
1,440
1,445
1,364
1,406
54.4
54.4
49.9
47.2
52.1
19
136
519
95
16
126
673
131
22
187
666
106
25
259
866
182
10
150
955
202
13
233
6
181
3
90
4
151
4
162
1,290
1,204
1,684
2,769
2,965
105
172
107
149
232
1,700
1,526
1,521
1,679
1,786
1,940
2,096
2,367
2,847
3,289
84,327
78,976
78,157
83,566
77,498
78,933 107,138 112,145 113,173 111,135
Market capitalisation ($million)
Netback ($/boe)5
4,017
18.4
4,965
19.8
7,280
5,907
8,274
8,696
11,721
11,506
11,560
10,669
29.5
32.9
32.9
35.9
22.9
23.0
27.6
31.1
1 From 2005, ‘Total operating revenue’ has been reclassified to ‘Total revenue’ and prior year amounts have been restated.
2 From 2007, ‘Royalty-related taxes’ have been accounted for as a tax.
3
4 Exploration expenditure includes wildcat wells. Delineation and development expenditure includes appraisal, near field exploration wells and CSG expenditure.
5
From 2004, amounts reflect Australian equivalents to International Financial Reporting Standards. Prior year amounts reflect Australian Generally Accepted Accounting Principles and have not been restated.
From 2012, Cooper Basin oil purchases have been recorded as product sales/ third party purchases on a gross basis. Previously they had been recorded as trading income on a net basis. Only 2011 amounts
have been restated.
6 Prior year figures have been restated as whole numbers in order to achieve consistency with current year disclosures.
46
As at 31 December
Share Information
Share issues
Number of issued ordinary shares
at year end (million)
Weighted average number of
issued ordinary shares (million)
Dividends – ordinary shares
Paid during the period
(cents per share)
Declared in respect of the period
(cents per share)
Paid during the period ($million)6
Number of issued preference
shares at year end (million)
Dividends – preference shares
Paid during the period ($ per share)
- ordinary
- special
Declared in respect of the period
($ per share)
- ordinary
- special
Paid during the period ($million)6
- ordinary
- special
Earnings per share (cents)3
Return on total revenue (%)1,5
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
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
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
Employee
Share Plan/
Executive
Share Plan/
Non-executive
Director
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan/
Placement
(institutional)
Employee
Share Plan/
Executive
Share Plan/
Exercise of
Options/
Dividend
Reinvestment
Plan/
ESG Plan/
ESG
Scheme of
Arrangement
Employee
Share Plan/
Executive
Share Plan/
Dividend
Reinvestment
Plan
584.7
585.7
594.4
598.5
586.1
584.9
831.9
875.1
944.6
961.2
633.2
634.9
638.2
647.1
641.0
641.2
780.9
836.0
888.5
954.6
30
30
30
33
36
38
40
40
40
40
42
42
42
42
42
37
30
30
30
30
175
176
212
238
235
248
299
350
263
285
3.5
6.0
6.0
6.0
6.0
6.0
-
6.6
-
6.6
5.0
6.6
-
5.7
5.0
23
-
48.0
22.0
23
14
50.0
23.2
18.6
11.7
32.5
9.1
5.1
-
5.2
-
31
-
114.6
30.6
35.5
19.8
35.0
14.9
5.1
-
5.6
-
5.3
-
30
-
94.7
23.1
23.9
15.1
30.2
10.1
5.9
-
34
-
50.8
14.3
12.4
9.0
37.3
7.4
6.3
-
6.3
-
38
-
251.4
58.8
50.6
34.1
10.2
38.5
4.6
-
-
-
28
-
52.0
19.3
7.5
7.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
59.8
21.7
6.9
7.3
84.8
26.9
9.1
8.7
(9.5)
(18.7)
(2.3)
(45.3)
(19.1)
700.9
Return on average ordinary equity (%)3
11.6
Return on average capital employed (%)3
8.8
Net debt/ (net debt + equity) (%)3
Net interest cover (times)3
22.5
8.5
-
-
-
-
-
-
-
54.4
15.7
5.7
4.4
12.4
14.6
47
Santos Annual Report 2012 Directors’
Report
Contents
49 DIRECTORS’ REPORT
49 Directors, Directors’ shareholdings and Directors’ meetings
51 Principal activities
51 Review and results of operations
54 Significant changes in the state of affairs
55 Dividends
55 Environmental regulation
55 Post balance date events
55 Likely developments
56 Shares under Option and unvested share acquisition rights
57 Shares issued on the exercise of Options and on the vesting of SARs
57 Directors’ and senior executives’ remuneration
58 REMUNERATION REPORT
58 Remuneration at a glance
58 Realised remuneration
60 Remuneration policy and framework
61 Remuneration governance
62 Link between performance and remuneration
64 CEO remuneration
67 Senior executive remuneration
69 Non-executive Director remuneration
70 Detailed remuneration information
74 Detailed information about linking Company performance to incentives
76 DIRECTORS’ REPORT (CONTINUED)
76 Indemnification
76 Non-audit services
76 Rounding
4848
Directors’
Report
The Directors present their report together with the consolidated financial report of the consolidated entity, being Santos Limited
(“Santos” or “the Company”) and its controlled entities, for the financial year ended 31 December 2012, and the Auditor’s Report
thereon. Information in the Annual Report referred to in this report, including the Remuneration Report, or contained in a note to
the Financial Statements referred to in this report forms part of, and is to be read as part of, this report.
Directors, Directors’ shareholDings anD Directors’ Meetings
Directors and Directors’ shareholdings
The names of Directors of the Company in office at the date of this report and details of the relevant interest of each of those Directors
in shares in the Company at that date are as set out below:
Surname
Borda
Coates
Dean
Franklin
Goh
Harding
Hemstritch
Knox
Martin
Other names
Kenneth Charles
Peter Roland (Chairman)
Kenneth Alfred
Roy Alexander
Hock
Richard Michael
Jane Sharman
David John Wissler (Managing Director)
Gregory John Walton
Shareholdings in Santos Limited
74,320
37,104
16,349
3,547
-
2,643
14,000
85,141
10,750
The above-named Directors held office during and since the end of the financial year with the exception of Mr Hock Goh, who was appointed
on 22 October 2012 and has held office since that date. There were no other persons who acted as Directors at any time during the financial
year and up to the date of this report.
All shareholdings are of fully paid ordinary shares. No Director holds a relevant interest in a related body corporate of Santos Limited.
At the date of this report, Mr DJW Knox holds 257,512 Options and 556,506 Share Acquisition Rights (“SARs”). Details of the Options
and SARs granted to Mr Knox during the year are set out in the Remuneration Report commencing on page 58 and in notes 30–31 to the
Financial Statements.
Details of the qualifications, 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 listed company directorships held during the
last three years.
49
Santos Annual Report 2012 Directors’ Report
(continued)
Directors’ Meetings
The number of Directors’ meetings and meetings of committees of Directors held during the financial year and the number of meetings
attended by each Director are as follows:
Table of Directors’ meetings
Director
Borda
Coates
Dean
Franklin
Goh3
Harding
Kenneth Charles
Peter Roland
Kenneth Alfred
Roy Alexander
Hock
Richard Michael
Hemstritch
Jane Sharman
Knox
Martin
David John Wissler
Gregory John Walton
Directors’
meeting2
Audit
Committee
Environment,
Health, Safety
and
Sustainability
Committee
People &
Remuneration
Committee
Finance
Committee
Nomination
Committee
Held1
Attended
Held1
Attended
Held1
Attended
Held1
Attended
Held1
Attended
Held1
Attended
11
11
11
11
3
11
11
11
11
10
11
11
11
3
11
10
11
11
-
-
4
-
-
4
4
-
-
-
-
4
-
-
2
3
-
-
-
-
-
4
-
4
-
4
4
-
-
-
4
-
4
-
4
4
-
5
-
5
-
-
5
-
5
-
5
-
5
-
-
4
-
5
5
5
5
-
-
-
-
-
-
5
5
5
-
-
-
-
-
-
5
5
-
-
-
5
-
-
-
5
5
-
-
-
5
-
-
-
1 Reflects the number of meetings held during the time the Director held office, or was a member of the Committee, during the year.
2 In addition to formal meetings, the Directors participated in site visits to Gladstone in June and Narrabri/Gunnedah in December 2012.
3 Appointed on 22 October 2012.
50
PrinciPal activities
The principal activities of the consolidated entity during the financial year were: petroleum exploration, the production, treatment and
marketing of natural gas, crude oil, condensate, naphtha, liquid petroleum gas, and the transportation by pipeline of crude oil. No significant
change in the nature of these activities has occurred during the year.
review anD results of oPerations
A review of the operations and of the results of those operations of the consolidated entity during the year is as follows:
Summary of results table
Production volume
Sales volume
Product sales
EBITDAX2
Exploration and evaluation expensed
Depreciation and depletion
Net impairment loss
EBIT2
Net finance income
Taxation expense
Net profit for the period
Net loss attributable to non-controlling interest
Net profit attributable to equity holders of Santos1
Underlying profit for the period2
2011
Variance
2012
mmboe
52.1
61.0
mmboe
47.2
58.7
$million
$million
3,220
1,880
(165)
(773)
(106)
836
79
(397)
518
(1)
519
606
2,721
2,126
(167)
(641)
(127)
1,191
91
(531)
751
(2)
753
453
%
10
4
18
(12)
(1)
21
(17)
(30)
(13)
(25)
(31)
(50)
(31)
34
1
2
Net profit attributable to the equity holders of Santos for the year of $519 million is $234 million lower than 2011, primarily due to lower gains on sale of non-current assets, largely as a result of
the sale of 15% of the GLNG project in 2011, combined with higher cost of sales, offset by higher sales revenue. Please refer to page 54 for further details.
EBITDAX (earnings before interest, tax, depreciation, depletion, exploration and evaluation and impairment), EBIT (earnings before interest and tax) and underlying profit are non-IFRS measures
that are presented to provide an understanding of the underlying performance of Santos’ operations. Underlying profit excludes the impacts of asset acquisitions, disposals and impairments, as well
as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments and fluctuations in exchange rates. Please refer to page 54 for the
reconciliation from net profit to underlying profit for the period. The non-IFRS financial information is unaudited however the numbers have been extracted from the audited financial statements.
Production and sales
Santos’ 2012 production was up 10% to 52.1 million barrels of oil equivalent (“mmboe”). Production from new assets such as Reindeer
in Western Australia and Chim Sáo in Vietnam, combined with strong Cooper Basin oil production, drove the increase. Consistent delivery
of Santos’ strategy has positioned the company for further growth, with production expected to reach over 80 mmboe by 2020.
Sales volumes grew by 4% in 2012 to 61 mmboe, reflecting higher production partially offset by lower overall third-party product sales.
Sales revenue grew by 18% to a record $3,220 million, driven by a 33% increase in crude oil production and higher third-party crude oil
sales. The average realised oil price was A$113.78 per barrel, marginally lower than 2011, while the average gas price of A$5.14 per
gigajoule was 9% higher.
51
Santos Annual Report 2012 Directors’ Report
(continued)
eastern australia
Eastern Australia Business Unit EBITDAX was $668 million, 3% higher than 2011.
Santos’ share of Cooper Basin gas production of 66.6 petajoules (“PJ”) during 2012 was 1% higher than 2011, with improvements in
field and plant downtime partially offset by lower upstream capacity due to the project backlog caused by wet weather impacting the
2010–11 drilling campaigns. Santos’ share of condensate production was 1 million barrels (“mmbbl”), in line with 2011. Santos’ share
of gas production from the Surat/Bowen/Denison areas in Queensland and the Otway Basin offshore Victoria was 30.6 PJ, 8% lower
than 2011 primarily due to the shut-in of the non-operated Northern Denison field.
Santos produced 3.2 mmbbl of oil from the Cooper Basin in 2012, its highest production since 2009. Driving the increase was the prior year
drilling campaigns in the Zeus and Cook fields, improved access to field infrastructure following the 2010–11 floods and strong performance
from the Charo wells brought on line in the second half of 2012.
Santos achieved a significant milestone in the second half of 2012 with the commencement of Australia’s first commercial production of gas
from a shale well. The Moomba-191 well was commissioned in late September 2012 and produced a first month average flow rate of 2.7 million
standard cubic feet per day (“mmscf/d”), exceeding expectations, with gas composition consistent with that historically produced in the
Moomba Big Lake area. As at the end of the year, the well was flowing at 2.5 mmscf/d. Following this success, Santos will expand its shale
development program in 2013, with four exploration wells targeting Moomba shale and the Nappamerri Trough basin centred gas plays.
wa and nt
Western Australia and Northern Territory Business Unit EBITDAX was $801 million, 17% lower than 2011 primarily due to the sale of the
Evans Shoal asset in 2011.
Santos’ Western Australia gas production increased by over 40% in 2012 to a record 65.0 PJ, driven by the Reindeer and Spar fields
brought on line in 2011. With partner Apache Energy, Santos processes gas through the Varanus Island and Devil Creek facilities in the
Carnarvon Basin, and supplies it to domestic resource and industrial customers. Santos’ share of Western Australia condensate production
of 635,600 barrels was 27% higher than 2011 due to higher production from the Reindeer and Spar fields.
Santos’ share of WA oil production of 2.8 mmbbl was 11% lower than 2011 primarily due to lower output from the Stag field. The Fletcher
Finucane oil project is on track for first oil by mid-year 2013 and will provide a boost to Santos’ production in the region.
Santos’ share of gas production from the Darwin LNG plant of 14.4 PJ was in line with 2011. The plant had a scheduled maintenance
shutdown in the first half of 2012 and has performed strongly since the shutdown.
In November 2012, Santos made a significant gas discovery at the Crown exploration well in WA-274-P, located between the Poseidon
and Ichthys fields in the Browse Basin offshore Western Australia. The well was drilled to a total depth of 5,301 metres and intersected
61 metres of net gas pay in the Jurassic-aged Montara, Plover and Malita reservoirs. Following on from the success at Crown, the Dufresne
and Bassett-West prospects are planned to be drilled in 2013, targeting gas and associated liquids in the neighbouring permit WA-408-P.
In June 2012, Santos and partner ConocoPhillips signed an agreement with South Korea’s SK E&S to progress the appraisal of the Caldita
Barossa gas fields offshore northern Australia. Under the agreement, SK E&S will fund up to US$520 million in carry obligations and
contingent payments with planning for a three-well appraisal program currently underway.
52
Asia Pacific
Asia Pacific Business Unit EBITDAX was $371 million, 132% higher than 2011 mainly due to a full year of production from the Chim Sáo asset
in Vietnam and commencement of production from the Wortel asset in Indonesia.
The Chim Sáo asset offshore Vietnam performed strongly in 2012, with the gross oil production rate exceeding Santos’ guidance of 25,000
barrels of oil per day (“bopd”). Santos’ net entitlement to production was 2.9 mmbbl for the year. Building from the success at Chim Sáo, the
Dua oil project was sanctioned in August 2012. It involves a three-well subsea tie-back to Chim Sáo, and is expected to produce at a gross
rate of 10,000 bopd. First oil is expected in the first half of 2014.
Santos’ net entitlement gas production in Indonesia of 28.1 PJ was 17% lower than 2011, primarily due to a lower net entitlement to Maleo
gas following the favourable gas price review at the end of 2011 offset by the commencement of production from the Wortel asset in January
2012. Santos is planning to sanction the Peluang asset in 2013 which will be developed as a tie-back to Maleo with first production expected
in the first half of 2014.
In Papua New Guinea, the PNG LNG project (Santos 13.5% interest) is over 70% complete and on track for first LNG in 2014. Operated by
ExxonMobil, the project involves gas production and processing facilities in the Southern Highlands and Western Provinces of Papua New
Guinea with capacity of 6.9 million tonnes of LNG per year. In November 2012, the operator completed a cost and schedule review for the
project and advised that the project capital cost had increased to US$19 billion. This was primarily due to foreign exchange impacts, delays
from work stoppages due to community disruptions and land access, and logistics and weather challenges. The operator also advised that the
LNG plant capacity had increased from 6.6 million tonnes per annum (“mpta”) to 6.9 mtpa, with discussions underway with potential parties
for sales of additional volumes.
glng
Sanctioned in January 2011, the GLNG project (Santos 30% interest) is over 45% complete and on track for first LNG in 2015. The project
involves developing coal seam natural gas fields in the Bowen and Surat Basins in south-western Queensland, a 420-kilometre underground
gas transmission pipeline and a two-train LNG plant on Curtis Island at Gladstone.
The GLNG project is at the heart of Santos’ vision to create a leading Asia Pacific exploration and production company, as it is key to the
transformation of our east coast gas business through LNG export. With the sanction of the GLNG project, Santos opened a channel to the
strong Asian demand for Australian LNG, providing access to the higher priced Asian market and unlocking our east coast resources and
accelerating the conversion into reserves.
In June 2012, Santos announced that the gross capital cost estimate for the GLNG project had increased from US$16 billion to US$18.5
billion for the period from final investment decision until the end of 2015. This is based on foreign exchange rates which are consistent
with the assumptions used at FID (A$/US$0.87 average over 2011–15). The increase was primarily due to accelerated upstream development
in the Fairview and Roma fields such as additional wells, gas gathering and processing facilities, water handling facilities and other
infrastructure.
GLNG Business Unit results include domestic gas production and sales from the GLNG coal seam gas fields in south-western Queensland. GLNG
Business Unit EBITDAX was $11 million, 97% lower than 2011 mainly due to lower gains on sales of non-current assets in 2012, compared to
the sale of 15% of the GLNG project in 2011.
Santos’ share of GLNG gas production in 2012 was 10.8 PJ, 20% higher than 2011.
53
Santos Annual Report 2012 Directors’ Report
(continued)
Net Profit
The 2012 net profit attributable to equity holders of Santos Limited of $519 million is $234 million lower than in 2011. This decrease is
primarily due to a $529 million before tax ($408 million after tax) gain on sale of non-current assets during 2011, combined with higher
cost of sales, offset by higher sales revenue driven by higher liquids volumes and higher gas prices in the current period.
Net profit includes items before tax of $96 million ($87 million after tax), as referred to in the reconciliation of net profit to underlying
profit below.
Reconciliation of net profit to underlying profit1
Net profit after tax attributable to equity holders of Santos Limited
Add/(deduct) the following:
Net gains on sales of non-current assets
Impairment losses
Foreign exchange losses/(gains)
Fair value adjustments on embedded derivatives and hedges
Remediation costs for incidents net of related insurance recoveries
Other expense/(income) items
Tax adjustments relating to prior years
Other tax adjustments
Underlying profit1
2012 $million
Gross
Tax
(11)
106
2
(7)
2
4
-
-
96
3
(29)
(1)
2
(1)
(1)
17
1
(9)
Net
519
(8)
77
1
(5)
1
3
17
1
87
606
2011 $million
Gross
Tax
(529)
127
(18)
5
-
(3)
-
-
121
(25)
5
(2)
-
2
17
-
(418)
118
Net
753
(408)
102
(13)
3
-
(1)
17
-
(300)
453
1
Underlying profit is a non-IFRS measure that is presented to provide an understanding of the underlying performance of Santos’ operations. The measure excludes the impacts of asset acquisitions,
disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments and fluctuations in exchange rates.
The non-IFRS financial information is unaudited, however the gross numbers presented above have been extracted from the audited financial statements. ‘Other expense/(income) items’ in 2012
comprises amounts recognised for restructuring provision.
significant changes in the state of affairs
The Directors consider that matters or circumstances that have significantly affected, or may significantly affect, the operations, results of
operations or the state of affairs of the Company in subsequent financial years are as follows:
carbon tax
On 1 July 2012 the Australian Government’s Clean Energy legislation was introduced. This legislation requires Santos to surrender, to the
Government, one carbon permit for each tonne of carbon dioxide equivalent (“CO2e”) emitted from its affected facilities. The price set by
the Government for the first compliance year of the scheme is $23 per tonne of CO2e.
The cost of carbon for Santos in the 12 months from 1 July 2012 is forecast to be in the range of $45–$65 million. Santos expects to recoup
the majority of these carbon costs via cost pass through in domestic sales agreements and an allocation of free carbon permits that will be
issued under the Jobs and Competitiveness program of the legislation for LNG operations.
54
DiviDenDs
On 22 February 2013, the Directors resolved to pay a fully franked final dividend of 15 cents per fully paid ordinary share on 28 March 2013
to shareholders registered in the books of the Company at the close of business on 7 March 2013 (“Record Date”). This final dividend
amounts to approximately $144 million. The Board also resolved that the Dividend Reinvestment Plan (“DRP”) will continue to be in
operation for this dividend. Shares issued under the DRP will be allocated at the arithmetic average of the daily weighted average market
price of the Company’s shares on the ASX over a period of seven business days commencing on the second business day after the Record
Date less a 2.5% discount (“DRP Price”). The last election date for the DRP is the Record Date.
A fully franked final dividend of $142 million (15 cents per fully paid ordinary share) was paid on 30 March 2012 in respect of the year ended
31 December 2011, as disclosed in the 2011 Annual Report. In addition, a fully franked interim dividend of $143 million (15 cents per fully
paid ordinary share) was paid to members on 28 September 2012. The DRP was in operation for both of these dividends and shares were
allocated based on the DRP Price.
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 specified in the consolidated 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 financial year, the consolidated entity received $9,200 in fines: three Infringement Notices issued pursuant to the Environmental
Protection Act 1994 (Qld), one pursuant to the Waste Reduction and Recycling Act 2011 (Qld) and two issued pursuant to the Protection of the
Environment Operations Act 1997 (NSW). The consolidated entity undertook corrective measures in respect of the infringements to preclude
re-occurrences.
The consolidated entity received three other environmental regulatory instruments, two pursuant to the Environmental Protection Act 1994
(Qld) and one pursuant to the Petroleum and Geothermal Energy Act 2000 (South Australia), for which it was not fined and no penalty was
issued.
Santos is continuing to cooperate with a NSW Department of Trade and Investment, Regional Infrastructure and Services investigation into
a loss of CSG water from the Eastern Star Gas (“ESG”) operations in mid-2011 (prior to Santos taking control of ESG, now known as Santos
NSW) at the Bibblewindi Water Management Facility located in the Pilliga Forest near Narrabri in NSW.
Post Balance Date events
Except as mentioned below or elsewhere in this report, in the opinion of the Directors there has not arisen, in the interval between the end
of the financial year and the date of this report, any matter or circumstance that has significantly affected or may significantly affect the
operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years.
• On 22 February 2013, the Directors of Santos Limited declared a final dividend on ordinary shares in respect of the 2012 financial year.
The dividend has not been provided for in the 31 December 2012 financial statements. Refer to note 22 of the Financial Statements for
dividends declared after 31 December 2012.
likely DeveloPMents
Certain likely developments in the operations of the consolidated entity and the expected results of those operations in future financial
years are referred to in the reports in the Annual Report by the Chairman, Chief Executive Officer and Chief Financial Officer.
Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in
future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable
prejudice to the consolidated entity. Further details regarding likely developments appear in the individual reports providing more detailed
discussion of business activities and outlook in the Annual Report.
55
Santos Annual Report 2012 Directors’ Report
(continued)
shares unDer oPtion anD unvesteD share acquisition rights
options
Unissued ordinary shares of Santos Limited under option at the date of this report are as follows:
Date Options granted Expiry date
23 May 2005
23 May 2005
22 May 2015
22 May 2015
24 October 2006
24 October 2016
4 May 2006
1 July 2007
1 July 2007
3 May 2016
30 June 2017
30 June 2017
3 September 2007
2 September 2017
3 May 2008
3 May 2008
28 July 2008
02 March 2009
2 May 2018
2 May 2018
27 July 2018
2 March 2019
1 This is the exercise price payable by the Option holder.
Issue price of shares1
Number of Options
$8.46
$8.46
$10.48
$11.36
$14.14
$14.14
$12.81
$15.39
$15.39
$17.36
$14.81
8,350
61,100
372,700
2,500,000
203,900
47,400
100,000
483,348
249,630
81,948
54,621
4,162,997
Options do not confer an entitlement to participate in a bonus or rights issue, prior to the exercise of the option.
unvested sars
Unissued ordinary shares of Santos Limited under unvested SARs at the date of this report are as follows:
Date SARs granted
2 March 2010
15 November 2010
4 January 2011
1 March 2011
1 March 2011
4 July 2011
4 January 2012
1 March 2012
3 May 2012
2 July 2012
3 January 2013
Number of shares under unvested SARs
206,317
40,000
273,439
633,875
224,271
303,392
39,024
1,425,873
205,339
439,937
59,398
3,850,865
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 58 of this report and in note 30 to the Financial Statements.
56
shares issueD on the exercise of oPtions anD on the vesting of sars
options
No ordinary shares of Santos Limited were issued during the year ended 31 December 2012 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.
vested sars
The following ordinary shares of Santos Limited were issued during the year ended 31 December 2012 on the vesting of SARs granted under
the Santos Employee Equity Incentive Plan (“SEEIP”) (formerly known as the Santos Employee Share Purchase Plan (“SESPP”)) and
ShareMatch Plan (“ShareMatch”). No amount is payable on the vesting of SARs and accordingly no amounts are unpaid on any of the shares.
Date SARs granted
2 March 2009
2 March 2009
2 March 2010
22 November 2010
4 January 2011
1 March 2011
1 March 2011
4 July 2011
2 July 2012
Number of shares issued
130,446
81,726
13,477
15,000
8,883
1,218
7,820
6,187
3,251
268,008
Since 31 December 2012, the following ordinary shares of Santos Limited have been issued on the vesting of SARs granted under the SEEIP
and ShareMatch.
Date SARs granted
4 January 2011
4 July 2011
4 January 2012
2 July 2012
Number of shares issued
1,285
750
402
1,624
4,061
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 financial year) are set out in the Remuneration Report commencing on page 58
of this report and in notes 30–31 to the Financial Statements.
57
Santos Annual Report 2012 2012
Remuneration Report
The Directors of Santos Limited present this Remuneration Report for the consolidated entity for the year ended 31 December 2012. The
information provided in this report has been audited as required by section 308(3C) of the Corporations Act 2001 (Cth) (“Corporations Act”)
and forms part of the Directors’ Report.
It outlines the Company’s key remuneration activities in 2012 and remuneration information pertaining to the Company’s Directors, Chief
Executive Officer and Managing Director (“CEO”) and Senior Executives who are the key management personnel (“KMP”) of the consolidated
entity for the purposes of the Corporations Act and the Accounting Standards.
reMuneration at a glance
In 2012:
Fixed remuneration
Short-term Incentive
(“STI”)
Long-term Incentive
(“LTI”)
The CEO’s and Senior Executives’ total fixed remuneration (“TFR”) increased by an average of 4.0% in this year’s
annual remuneration review, slightly below the rest of the Company’s workforce who received 4.9% on average.
The Company met or exceeded a number of its operational and financial targets, but did not fully meet others.
This performance, as assessed by the Board, resulted in an average STI award of 68% of maximum.
The Company’s three-year total shareholder return was -15.7% which ranked at the 33rd percentile against the
ASX 100. This failure to achieve superior returns for shareholders resulted in none (0%) of the performance-
tested Share Acquisition Rights (“SARs”) granted to the CEO and Senior Executives vesting.
LTI program changes
As foreshadowed in the 2011 remuneration report, changes in 2012 included:
• “deferred rights” that is, LTI awards that are subject to a condition consisting only of a period of service,
were discontinued as part of the regular LTI program for Senior Executives. Unlike previous years, the annual
LTI grant to the Senior Executives in 2012 was solely performance-based, ensuring alignment with the
interests of shareholders. The CEO grant continued to be entirely performance-based;
• the number of SARs awarded were determined according to their fair value instead of a volume-weighted
average price. This resulted in a larger number of SARs granted, however these SARs are entirely at risk (no
deferred rights were offered) and will not vest if the Company does not achieve superior shareholder returns.
2012–2015
Four Year Strategy Grant
(“CEO Strategy Grant”)
In accordance with shareholders’ approval at the May 2012 Annual General Meeting (“AGM”), an additional
long-term equity grant was made to the CEO for the 2012–2015 period. The grant is aligned with long-term growth
in shareholder returns as the SARs will only vest if long-term strategic targets in relation to production, reserves
growth, GLNG first cargo delivery, GLNG capital expenditure and environment, health and safety are achieved.
Non-executive Directors
No increases have been made to non-executive Directors’ fees since they were last adjusted in October 2011.
realiseD reMuneration
In keeping with the Company’s practice since 2009, the following table shows the remuneration “actually realised” by the CEO and Senior
Executives in respect of 2012 performance. This is in addition and different to the disclosures required by the Corporations Act and
Accounting Standards, particularly in relation to LTI. As a general principle, the Accounting Standards require a value to be placed on LTI
based on probabilistic calculations at the time of grant (that is, before the SARs or Options vest and even if ultimately, they do not vest
because the performance hurdles are not met, as was the case in 2012). By contrast, this table values the LTI, in the case of SARs, only if
the SARs vest and shares are issued to the executive, on the basis of their closing price on the date of vesting. In the case of Options, a
value is attributed only if the Options vest and are exercised resulting in the issue of shares to the executive, calculated on the basis of the
difference between the exercise price and the market price on the date of exercise of the Options.
58
The Company believes that the additional information provided in Table 1 is useful to investors as recognised by the Productivity Commission
in its Report on Executive Remuneration in Australia. The Commission noted that the usefulness of remuneration reports to investors was
diminished by complexity and omissions and in particular recommended that the report should include reporting of pay “actually realised”
by the executives named in the report.
Table 1: Realised remuneration (non-IFRS)
DJW Knox
Chief Executive Officer and Managing Director
JH Anderson
Vice President Western Australia and Northern Territory
JL Baulderstone
Vice President Eastern Australia
TJ Brown5
Vice President Queensland
PJ Cleary
Vice President Strategy and Corporate Development
MEJ Eames
Vice President Asia Pacific
MS Macfarlane7
President GLNG Operations
AJ Seaton
Chief Financial Officer
Fixed
remuneration1
Year
$
STI2
$
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2,351,250
1,598,850
2,250,000
1,552,500
642,098
610,301
689,484
648,340
639,567
N/A
652,695
627,000
684,404
662,908
662,964
642,185
705,500
622,500
253,100
235,000
250,100
235,000
248,200
N/A
200,800
205,000
203,400
215,000
200,400
208,000
246,300
235,000
LTI3
Other4
$
0
0
62,478
0
75,804
0
44,385
N/A
N/A
N/A
$
0
0
0
0
0
0
6,892
N/A
0
1,400
Total
$
3,950,100
3,802,500
957,676
845,301
1,015,388
883,340
939,044
N/A
853,495
833,400
67,020
77,7546
1,032,578
0
62,238
0
59,181
0
0
14,804
23,215
877,908
940,406
873,400
0
0
1,010,981
857,500
1 “Fixed remuneration” comprises base salary and superannuation.
2 “STI” represents the amount of the STI or bonus that will be paid to the executive for 2012 performance.
3 For the value of share-based payments calculated in accordance with the Accounting Standards, see Table 8 on page 70. The figures in this “LTI” column show:
•
for 2012, the pre-tax vested value of service-based SARs which vested on 2 March 2012 at a closing share price of $13.68; no 2010–2012 performance SARs vested and no Options were
exercised in 2012; and
for 2011, zero values as all KMP elected to receive their 2009–2011 deferred grant as Options, and no Options were exercised in 2011.
•
Figures also include the value of an ex gratia payment of $1.31 per vested SAR as an adjustment to the value of unvested SARs at the time of the 2009 rights issue, detailed further at note 30
to the Financial Statements.
4 “Other” comprises ad hoc payments treated as remuneration, such as assignment allowance and foreign service premium.
5
Mr Brown became a KMP on 6 August 2012 when he was appointed to the role of Vice President Queensland. Mr Brown was formerly Vice President Exploration and Subsurface. Remuneration for
the entire year is included here for Mr Brown.
The role of Vice President Asia Pacific was relocated to Santos’ new Singapore office in January 2012. Mr Eames commenced an expatriate assignment at this time, and will receive compensatory
remuneration including foreign service premium for the duration of his assignment. The “Other” figure shown above for Mr Eames is the net value of the applicable allowances excluding the
significant taxation related adjustments required due to the overseas assignment. The gross values inclusive of tax are shown in Table 8. Assignment-related payments are made in accordance
with the standard policy applied to all Santos employees.
6
7 Mr Macfarlane ceased to be a KMP on 5 August 2012 when he commenced in the role of Vice President GLNG Operations. Remuneration for the entire year is included here for Mr Macfarlane.
The total remuneration amounts determined in accordance with the requirements of the Corporations Act are set out in Table 8 (see page 70).
59
Santos Annual Report 2012
2012 Remuneration Report
(continued)
reMuneration Policy anD fraMework
The Company’s remuneration practices have been designed to promote long-term growth in shareholder returns by:
• aligning remuneration outcomes with strategic, operational and financial goals;
• rewarding performance fairly and reasonably; and
• striking a balance between short-term and long-term growth-related objectives, and providing an incentive for superior performance
without encouraging irresponsible risk taking.
The diagram below shows the key objectives of Santos’ remuneration policy for the CEO and Senior Executives and how these are
implemented through the Company’s remuneration framework.
attracting anD retaining
talenteD anD 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.
• A significant component of
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.
• Short-term incentives are aligned
to key performance milestones
including safety, environment,
production, profitability, project
delivery and reserves development.
• Long-term incentives are delivered
through equity instruments linked
to Santos’ ordinary shares.
• Vesting of performance-based
long-term incentives are contingent
on Santos’ performance relative to the
ASX100 as measured by the relative
total shareholder return at the end
of the three-year performance period.
• Long-term incentives are ‘at risk’
and executives cannot hedge equity
instruments that are unvested or
subject to restrictions.
60
reMuneration governance
People and remuneration committee
The People and Remuneration Committee (“Committee”) oversees and formulates recommendations to the Board on the remuneration policies
and practices of the Company generally, including the remuneration of non-executive Directors, the CEO and Senior Executives.
The Committee’s Charter can be viewed or downloaded from www.santos.com. In 2012, the Committee comprised the following non-executive
Directors, including Mr PR Coates, the Chairman of the Board:
GJW Martin
PR Coates
RA Franklin
RM Harding
JS Hemstritch
Committee Chair
(from 15 Feb 2012)
(until 14 Feb 2012)
The CEO attends parts of Committee meetings that do not involve discussion of his own arrangements. Other executives may also attend
Committee meetings to provide management support.
external advisors and remuneration advice
In performing their roles, the Board and the Committee directly commission and receive information, advice and recommendations from
independent external advisors. This assists the Directors to make informed decisions when considering the Company’s remuneration policies
and practices.
The Board has adopted a protocol to formally record the process for engaging and seeking advice from remuneration consultants, which
ensures remuneration recommendations in relation to KMP are free from undue influence by management.
PricewaterhouseCoopers (“PwC”) and Aon Hewitt (“Aon”) were approved by the Committee as remuneration consultants and during the
year were engaged in accordance with the Board approved protocol to provide remuneration recommendations. The terms of PwC and
Aon’s engagements were finalised by the Chairman of the Committee and all remuneration recommendations were provided directly to
the Committee Chairman.
The Board is satisfied that the remuneration recommendations received from PwC and Aon during the year were free from undue influence.
All communications between the Company and PwC and Aon in relation to the remuneration recommendations were subject to strict
guidelines, including that information provided to PwC and Aon must not be selective or unbalanced, or imply that future work is contingent
on PwC or Aon giving particular recommendations. In addition, PwC and Aon provided a declaration to the Committee that the remuneration
recommendations they made were free from any undue influence by the Company’s KMPs.
The following table shows the fees payable to PwC and Aon in respect of 2012.
Table 2: Remuneration consultants
Remuneration consultant Advice and/or services provided
PricewaterhouseCoopers
Remuneration recommendations (CEO remuneration)
Other remuneration related work (benchmarking and market practice data)
Fees
$60,000
$53,000
Other non-remuneration related work including taxation, assurance and consulting fees
$4,114,000
Aon Hewitt
Remuneration recommendations (senior executive remuneration)
Other remuneration related work (benchmarking and market practice data)
$40,000
$12,000
61
Santos Annual Report 2012
2012 Remuneration Report
(continued)
link Between PerforMance anD reMuneration
short-term incentives (“sti”)
The Company sets stretch operational and financial targets to be achieved annually. These short-term targets are chosen to encourage
outcomes and behaviours that support the safe operation and delivery of the base business while pursuing long-term growth in shareholder
value. Below are the targets used in 2012 to measure performance for the purposes of STI and an explanation of the reason they were chosen.
Table 3: STI scorecard
Strategic driver
STI measure
Rationale
Environment, Health
and Safety
• Personnel Safety – measured by the number of
injuries per million hours worked and the average
severity of these injuries.
• Process Safety – measured by the number of Tier 1
incidents of loss of containment of hydrocarbons and
the level of Safety Critical Maintenance performed on
plant and equipment.
• Environmental Incidents – measured by the number
of environmental incidents of moderate or greater
consequence.
Profitability
• Production
• Cost of production
• Net profit after tax (“NPAT”)
Corporate
Sustainability
Growth
• Corporate Sustainability – measured by the Company’s
performance in an international Sustainability Index
which covers a variety of areas including corporate
governance, disclosure, environmental performance,
risk management, human capital development,
stakeholder engagement and social reporting.
• Project Delivery – progress against milestones in key
projects including GLNG, PNG LNG, Fletcher Finucane,
Gunnedah and other opportunities are identified and
measured.
• Reserves Replacement – the volume of ‘proven and
probable’ (“2P”) reserves added by the Company
organically (through exploration and exploitation
efforts as opposed to acquisitions) compared to
the volume of reserves used in production.
The Company takes safety and the environment very
seriously. The integrated targets represent the Company’s
holistic approach, the objective being to reduce the
number of injuries to our employees and contractors, as
well as the likelihood of low-frequency but high-impact
incidents such as fires and explosions, and significant
environmental incidents.
Strong safety and environmental performance provides the
Company with its ‘licence to operate’. The Company strives
to maintain a strong track record in relation to its safety
and environmental performance.
Production and the cost of production are critical to the
Company’s profitability, which is a key measure of the
Company’s performance and underpins annual earnings
and cash flow for distribution to shareholders and
re-investment for future growth.
Corporate Sustainability is integral to the creation of long-
term shareholder value by ensuring that opportunities are
captured in an economic, environmental and socially
responsible manner.
Project delivery underpins future production and growth.
In the current climate of rising costs and large capital
expenditure commitments, it is essential that the
Company delivers its long-term projects on time and
within budget to achieve future production.
The Company’s ability to replace the reserves it runs
down in production is critical to the long-term future
of the Company.
62
long-term incentives (“lti”)
The Board believes that relative total shareholder return (“TSR”) performance against the ASX 100 effectively aligns the interests of
individual executives with that of the Company’s shareholders. TSR is a fair measure of shareholder returns and the ASX 100 represents
the companies in which most of the Company’s shareholders would invest as an alternative to Santos.
2012 Performance
In 2012, the Company met or exceeded a number of its operational and financial targets, but did not meet others: fully met injury severity,
process safety, environment, profitability, reserves and sustainability targets; partially met production and project deliverability targets; and
did not meet the injury frequency target. This performance, as assessed by the Board, resulted in an average STI award of 68% of maximum.
The Company’s three-year TSR was -15.7% which ranked at the 33rd percentile against the ASX 100. This resulted in none (0%) of the
performance-tested SARs granted to the CEO and Senior Executives vesting.
More details about how performance targets are set and tested for the purposes of STI and LTI awards are set out in the section ‘Detailed
information about linking Company performance to incentives’ on pages 74–75.
Table 4 sets out the Company’s performance over the past five years in respect of several key financial and non-financial indicators and the
STI and LTI awards during this period.
Table 4: Key metrics of Company performance 2008–2012
Injury frequency (total recordable case frequency rate)
Production (mmboe)
Reserve replacement rate – 2P organic (%)
Net profit after tax $m
Dividends per ordinary share (cents)1
Share price – closing price on first trading day of year
TSR percentile ranking relative to ASX100 –
three year performance to 31 December
LTI performance (% vesting) –
shown against final year of performance period
Average STI paid (% of maximum)
1 The following capital returns were made in the 2008–2012 period:
2008
5.8
54.4
517
1,650
42
$14.32
2009
2010
2011
2012
3.6
54.4
965
434
42
3.3
49.9
330
498
42
3.3
47.2
173
751
30
5.0
52.1
136
518
30
$14.67
$14.29
$13.19
$12.342
88th
88th3
87th
39th
33rd
100%
80%
100%
80%
83%
78%
0%
69%
0%
68%
• 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.
2 Closing share price at 31 December 2012 was $11.10.
3
In respect of the 2007 LTI Grant (with performance period ending 31 December 2009), Santos’ TSR performance was measured against a comparator group of Australian and international energy
and production (“E&P”) companies. Relative TSR performance against this E&P group is shown for 2009.
63
Santos Annual Report 2012
2012 Remuneration Report
(continued)
Over the last 10 years Santos’ TSR performance has exceeded that of the S&P/ASX 100 Index, as shown in Figure 1 below.
Figure 1: 10-year company performance history
TSR OF SANTOS AND S&P/ASX 100 2003–2012
Index level
500
400
300
200
100
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Santos total shareholder return
S&P/ASX 100 Index total return
ceo reMuneration
The non-executive Directors directly engaged and received independent external advice on Mr Knox’s remuneration package, which is
benchmarked against the remuneration paid to CEOs of ASX 100 companies with a market capitalisation of 50% to 200% of Santos’
market capitalisation, as well as an industry peer group. This advice was received and considered by the Committee and the Board
without management being present.
overview of earnings
Fixed Remuneration
What was the increase in the CEO’s
fixed remuneration?
Mr Knox’s TFR, including base salary and superannuation, was increased from $2,250,000
to $2,351,250 in 2012.
How was the remuneration increase
determined?
This increase was determined by the Board in consideration of Mr Knox’s performance, the
performance of Santos and the remuneration provided to CEOs of companies in the market
comparator groups outlined above.
Short-term Incentives
What is the maximum STI that the CEO
can receive?
How much STI will the CEO receive in
respect of 2012 performance?
How is overall performance assessed for
STI purposes?
Mr Knox has a maximum potential STI opportunity of 100% of his TFR, subject to delivery of
strategic milestones and performance targets set by the Board (detailed in the section ‘Detailed
information about linking Company performance to incentives’ on pages 74–75. For 2012, this
was a maximum value of $2,351,250.
The Board has determined that $1,598,850, or 68% of the maximum STI payable, will be paid
to Mr Knox for 2012 performance. This reflects the recommendation from the Committee after
reviewing the Company’s performance in 2012.
Whilst the Board ultimately retains the discretion to take other factors into account, Mr Knox’s
performance is effectively assessed against the Company scorecard (see Table 3 on page 62 and
the section ‘Detailed information about linking Company performance to incentives’ on pages
74–75). Mr Knox’s interests are therefore aligned with the Company’s and shareholders’
interests.
64
Long-term Incentives
How much annual LTI was granted to the
CEO in 2012?
In relation to the annual LTI grant, Mr Knox was granted 193,935 SARs with a face value
of $2,750,000, as approved by shareholders at the 2011 AGM.
This grant was issued on the terms of the annual LTI program outlined in the section
‘Detailed information about linking Company performance to incentives’ on pages 74–75.
What proportion of prior year LTI grants
vested in 2012?
The CEO’s annual LTI grant for 2009 with a performance period 1 January 2009 to 31 December
2011 was tested in early 2012. As the performance hurdle was not achieved, there was no
vesting and the entire grant was forfeited.
Mr Knox also received the CEO Strategy Grant as detailed below.
What was the size of the CEO Strategy
Grant?
What are the performance conditions for
the CEO Strategy Grant?
The testing of the 2010 LTI grant with a performance period 1 January 2010 to 31 December
2012 occurred in early 2013. As the performance hurdle was not achieved, again there was
no vesting and the entire grant was forfeited.
Shareholders approved the grant of SARs with a fair value of $2,000,000 at the 2012 AGM.
This resulted in 205,339 SARs being granted to the CEO. These SARs are at risk and will not
vest if the strategic performance goals are not achieved.
Vesting is subject to achievement of specific goals that are integral to the Company’s
performance over the next four years. As described more fully in the Notice of Meeting to the
2012 AGM, the award is split into five equal tranches with separate performance targets that
relate to:
• GLNG Start-up – loading of first LNG cargo on or before 30 June 2015;
• GLNG Cost – project cost within or under budget;
• Production Growth – targeting 77 mmboe or more by 31 December 2015;
• Reserves Growth – targeting 2P reserve/production cover of 18 years or more at
31 December 2015; and
• Operations Integrity – maintaining an annual score of 90% or more against various
environmental, health and safety metrics while ensuring no High Impact or Critical
Environment incidents occur over the 2012–2015 period.
Where targets are not fully achieved the Board has discretion to determine an appropriate
level of pro rata vesting. For example, if the first LNG cargo target of 30 June 2015 is missed
by a few months, it will be reasonable for the CEO to receive an appropriate proportion.
But, if the target was missed by a year, for example, it is likely that the CEO would get
zero for that tranche. The Board intends to only reward performance that is consistent
with shareholder expectations and reserves the right to lapse all of a tranche if performance
does not meet or exceed the relevant target.
65
Santos Annual Report 2012 2012 Remuneration Report
(continued)
at risk remuneration
A higher proportion of the CEO’s total package is ‘at risk’ relative to other Senior Executives because he has the greatest scope to personally
influence the Company’s performance. In 2012, this weighting further increased, reflecting the addition of the CEO Strategy Grant.
Table 5: Relative weightings of remuneration components for CEO1
2012
2011
Fixed remuneration
25%
33%
STI
25%
33%
LTI
50%
33%
1
These figures do not reflect the actual relative value derived by the CEO from each of the components, which is dependent on actual performance against targets for the ‘at risk’ components.
The figures represent the maximum potential of each component.
service agreement and termination entitlements
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 without notice at any time for cause. No payment in lieu of notice, or any payment
in respect of STI or LTI is payable under the agreement 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.
Mr Knox’s termination arrangements were approved at the Company’s AGM in May 2012.
66
senior executive reMuneration
overview of earnings
Fixed remuneration
What was the fixed remuneration increase
for Senior Executives in 2012?
As a result of market benchmarking, the annual TFR review increase for Senior Executives was
between 3.0% and 5.0% in 2012, with an average increase of 3.8%. Remuneration details for
each individual are provided in Table 8.
How were remuneration increases
determined?
Senior Executives’ TFR increases were determined with reference to the market for similar roles
in comparable companies and in consideration of individuals’ skills and experience.
Short-term Incentives
What is the maximum STI that the Senior
Executives can receive?
How are STI payments calculated?
How is performance assessed for STI
purposes?
All Senior Executives have a maximum potential STI opportunity of 50% of their TFR.
To promote collaboration among Senior Executives and to focus their efforts towards the overall
benefit of the Company, 70% of their STI is based on Company performance. The remaining
30% is based on their individual performance.
Company performance is assessed by the Committee against the overall Company annual
scorecard (see Table 3 on page 62 and the section ‘Detailed information about linking Company
performance to incentives’ on page 74).
The individual performance of Senior Executives is assessed by the CEO by considering progress
against targets set within each executive’s own area of responsibility, for example the delivery
of key project milestones for those Senior Executives with responsibility for growth LNG
businesses, and production and cost targets for those managing operating assets.
How much STI will Senior Executives
receive in respect of 2012 performance?
Company performance against the measures in 2012 resulted in an average STI of 68% of
maximum payable to all eligible employees.
2012 STI awards made to individual Senior Executives range from 59% to 78% of maximum,
depending on individual performance assessments (see Table 8 on page 70). The CEO’s proposed
STI payments for Senior Executives are reviewed and endorsed by the Committee.
The difference between actual STI paid and maximum STI will not be carried forward.
Long-term Incentives
How much annual LTI was granted
in 2012?
All Senior Executives have a maximum LTI value of 60% of their TFR. This is an increase from
the 2011 LTI opportunity when the maximum LTI value was 52.5% of TFR.
Why were annual LTI grants increased?
In 2011, the Board engaged PwC to conduct a review of the Company’s Senior Executive incentive
arrangements. The results identified that Senior Executives’ maximum LTI values were significantly
lower than market competitors and, unlike typical market practice, SARs were allocated based on
‘face value’ not a ‘fair value’ which further reduced the true value from an executive’s perspective
because it did not take into consideration the probability of the SAR vesting.
The Board determined that to be more market competitive, it was appropriate to increase the
allocation of LTI for Senior Executives and apply ‘fair value’ in determining grant size.
The increased ‘at risk’ LTI with a long-term performance focus further aligns Senior Executives’
interests with those of shareholders, without increasing fixed remuneration. Whilst the number
of LTI instruments granted has increased, they remain at risk and will not vest if superior
shareholder returns are not delivered, as was the case in 2011 and 2012. This increase was
coupled with the removal of deferred rights which had previously been granted subject to
an executive’s continuous service only.
67
Santos Annual Report 2012 2012 Remuneration Report
(continued)
Long-term Incentives (continued)
Were any ‘deferred rights’ issued to Senior
Executives in 2012?
What are the applicable performance
conditions?
What proportion of prior year LTI grants
vested in 2012?
‘Deferred rights’ that is, LTI awards that are subject to a condition consisting only of a period
of service and which were awarded to encourage retention, are no longer granted as part of the
regular LTI program. Annual LTI grants to the Senior Executives are now solely performance-based.
The 2012 LTI grant has a performance period from 1 January 2012 to 31 December 2014, with
vesting based on the Company’s TSR performance relative to the ASX 100. See the vesting
schedule provided in the section ‘Detailed information about linking Company performance
to incentives’ on page 75.
The annual LTI grant from 2009 with a performance period 1 January 2009 to 31 December
2011 was tested in early 2012. As the performance hurdle was not achieved, there was no
vesting of the performance component of the grant, and this was forfeited.
The testing of the 2010 LTI grant with a performance period 1 January 2010 to 31 December
2012 occurred in early 2013. As the performance hurdle was not achieved, again there was
no vesting of the performance portion of the grant and this was forfeited.
Grants of deferred rights awarded in 2009 vested in 2 March 2012 and are shown in
Tables 1, 8 and 10 on pages 59, 70 and 71 respectively.
at risk remuneration
In 2012, the ‘at risk’ portion of the remuneration of Senior Executives increased, reflecting the larger LTI grant outlined above.
Table 6: Relative weightings of remuneration components for Senior Executives1
2012
2011
Fixed remuneration
47.5%
49%
STI
24%
25%
LTI
28.5%
26%
1
These figures do not reflect the actual relative value derived by the Senior Executives from each of the components, which is dependent on actual performance against targets for the ‘at risk’
components. The figures represent the maximum potential of each component.
service agreements and termination entitlements
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 by 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 are payable under the agreement.
68
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:
• time commitment and workload;
• the risk and responsibility attached
to the role;
• experience and expertise; and
• market benchmarking.
• Fee levels do not vary according 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.
• Santos encourages its non-executive
Directors to build a long-term stake
in the Company.
• Non-executive Directors can acquire
shares through acquisition on market
during trading windows.
Maximum aggregate amount
Total non-executive Directors’ fees paid in a year, including Board Committee fees, must not exceed $2,100,000, being the amount that
was approved by shareholders at the AGM 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.
remuneration
Non-executive Directors’ fees were last adjusted on 1 October 2011. No increases to gross non-executive Directors’ fees were made in 2012.
Remuneration details for the non-executive Directors are provided at Table 12 on page 73.
fee structure
Table 7: Non-executive Directors’ fees per annum1
Board
Audit Committee
Environment, Health, Safety and Sustainability Committee
Finance Committee
Nomination Committee2
People and Remuneration Committee
Chair2
$480,030
$42,000
$22,000
$22,000
N/A
$30,000
Member
$160,030
$21,000
$15,000
$15,000
$10,000
$16,000
1 Fees are shown exclusive of superannuation.
2
The Chairman of the Board does not receive any additional fees for serving on or chairing any Board committee. The Chairman of the Board is the Chairman of the Nomination Committee,
in accordance with its Charter.
Superannuation and retirement benefits
Superannuation contributions are made on behalf of non-executive Directors in accordance with the requirements of the Company’s statutory
superannuation obligations. Non-executive Directors are not entitled to retirement benefits (other than mandatory statutory entitlements).
69
Santos Annual Report 2012 2012 Remuneration Report
(continued)
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Table 9 contains details of the number and value of SARs and Options granted, vested and lapsed for Mr Knox in 2012.
Table 9: 2012 SARs and Options outcomes for CEO
SARs3
Options4
Granted
Vested
Lapsed
Number1 Maximum value2
Number
Value
399,274
$4,197,054
-
-
-
-
-
-
Number
(50,403)
(131,976)
Value
($625,501)
($999,058)
1 The SARs granted to Mr Knox during the year constitute his full LTI awards for the 2012 financial year, in respect of both his standard LTI grant and the CEO Strategy Grant.
2
Maximum value represents the combined fair value of the CEO’s 2012 LTI grant and the CEO Strategy Grant, determined in accordance with AASB 2 Share-based Payments. The fair value per
instrument as at grant dates of 10 April 2012 and 21 June 2012, respectively, was $10.45 and $10.57. Details of the assumptions underlying the valuations are set out in note 30 to the Financial
Statements. The minimum total value of the grant, if the applicable vesting conditions are not met, is nil in all cases.
No SARs vested in respect of the performance period ended 31 December 2012, and consequently all were lapsed by the Board on 20 February 2013. The value of lapsed SARs is based on the
closing share price at the end of the performance period of $11.10 plus the value of a forfeited ex gratia payment of $1.31 per SAR as an adjustment to the value of unvested SARs at the time
of the 2009 rights issue, detailed further at note 30 to the Financial Statements.
No Options vested in respect of the performance period ended 31 December 2012 and consequently all were lapsed by the Board on 20 February 2013. The value of Options shown is based on
the difference between the closing share price of $11.10 on the date of the end of the performance period and the exercise price of $17.36, plus the value of the forfeited ex gratia payment
of $1.31 per vested Option as an adjustment to the value of unvested Options at the time of the 2009 rights issue, detailed further at note 30 to the Financial Statements.
3
4
Table 10 contains details of the number and value of SARs received by Senior Executives in 2012. No Senior Executives had any Options
granted, vested or lapsed in 2012. No Options were exercised in 2012.
Table 10: 2012 SARs outcomes for Senior Executives
JH Anderson
JL Baulderstone
TJ Brown4
PJ Cleary
MEJ Eames
MS Macfarlane4
AJ Seaton
Total
Granted SARs
Vested SARs
Lapsed SARs
Number1 Maximum value2
Number
40,274
42,737
-
40,843
42,777
41,447
44,302
$401,532
$426,088
-
$407,205
$426,487
$413,227
$441,691
4,168
5,057
-
-
4,471
4,152
3,948
Value3
$62,478
$75,804
-
-
$67,020
$62,238
$59,181
Number
(13,359)
(13,450)
-
-
(15,744)
(13,481)
(5,982)
Value3
($165,785)
($166,915)
-
-
($195,383)
($167,299)
($74,237)
252,380
$2,516,230
21,796
$326,721
(62,016)
($769,619)
1 The grants made to the Senior Executives during the year constitute their full LTI awards for the 2012 financial year.
2
Maximum value represents the fair value of the SARs as at the grant date of 10 April 2012, determined in accordance with AASB 2 Share-based Payments. The fair value per instrument at the
grant date was $9.97. Monte Carlo simulation was used to determine the value of the SARs granted. Details of the assumptions underlying the valuation are set out in note 30 to the Financial
Statements. The minimum total value of the grant, if the applicable vesting conditions are not met, is nil in all cases.
These figures show the value of performance-based SARs in respect of the performance period ended 31 December 2012 at the closing share price on that date of $11.10, for which nil vesting was
effected by the Board on 20 February 2013, plus service-based SARs which vested on 2 March 2012 at a closing share price of $13.68. These figures also include the value of an ex gratia payment
of $1.31 per SAR as an adjustment to the value of unvested SARs at the time of the 2009 rights issue, detailed further at note 30 to the Financial Statements.
3
4 Remuneration disclosed for Mr Brown is for the period from 6 August 2012 when he became a KMP and for Mr Macfarlane for the period until 5 August 2012 after which time he ceased to be a KMP.
71
Santos Annual Report 2012 2012 Remuneration Report
(continued)
Table 11 outlines the LTI grants that were still in progress or were tested during 2012.
Table 11: LTI grants to Senior Executives
Grant year1
Grant type
Vesting condition(s)
Performance/vesting period Status
2009
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
2010
Performance Award
Relative TSR performance
against ASX 100 companies
1 January 2010
to 31 December 2012
Testing completed. Resulted
in 0% of the grant vesting
on 15 February 2012.
Vested in full to Senior
Executives who met the
continuous service condition.
Testing completed. Resulted
in 0% of the grant vesting
on 20 February 2013.
Deferred Award
Continuous service
2 March 2010
to 1 March 2013
2011
Performance Award
Relative TSR performance
against ASX 100 companies
1 January 2011
to 31 December 2013
Deferred Award
Continuous service
2 March 2011
to 1 March 2014
2012
Performance Award
Relative TSR performance
against ASX 100 companies
1 January 2012
to 31 December 2014
1 Full details of all grants made prior to 2012 can be found in at note 30 to the Financial Statements and in prior Remuneration Reports.
In progress.
In progress.
In progress.
In progress.
72
Details of the fees and other benefits paid to non-executive Directors during 2012 are set out in Table 12 below. No share-based payments
were made to any non-executive Directors.
Table 12: 2011 and 2012 non-executive Director remuneration details
Short-term benefits
Directors’ fees
(incl. Committee
Fees)1
Fees for special
duties or
exertions
Retirement
benefits
Other
Superannuation1
Share-based
payments
$
192,551
186,369
480,551
462,744
217,551
209,869
204,299
184,119
34,105
-
215,518
221,869
197,551
189,869
205,551
193,369
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
16,123
15,487
16,123
15,487
16,123
15,487
1,212
736
134
-
16,123
15,487
16,123
15,487
16,123
15,487
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Director
KC Borda
PR Coates
KA Dean
RA Franklin
H Goh2
RM Harding
JS Hemstritch
GJW Martin
Year
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
1 Includes superannuation guarantee payments. Superannuation guarantee payments are made to Mr Franklin and Mr Goh only in relation to days worked in Australia.
2 Mr Goh was appointed on 22 October 2012.
Total
$
208,674
201,856
496,674
478,231
233,674
225,356
205,511
184,855
34,239
-
231,641
237,356
213,674
205,356
221,674
208,856
73
Santos Annual Report 2012 2012 Remuneration Report
(continued)
DetaileD inforMation aBout linking coMPany PerforMance to incentives
short-term incentives
How are the Company’s short-term
performance targets determined?
What is measured in the Company’s annual
performance scorecard?
The Company’s short-term performance targets comprise a combination of strategic, financial
and operational targets, all of which are agreed with the Board and directly related to Santos’
strategic plan. These are captured in the Company’s annual performance scorecard.
The Company scorecard includes a range of Company performance measures used 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.
As described in Table 3 on page 62, the areas covered by the scorecard include:
• environment, health and safety;
• profitability, including production, cost of production and NPAT;
• corporate sustainability; and
• growth, including project delivery and reserves replacement.
The Board believes that this scorecard is balanced and focusses CEO and Senior Executive
attention on achieving the key conditions and milestones necessary to deliver Santos’ strategic
plan.
Company performance is formally assessed by the Committee against the overall Company
scorecard at the end of each financial year and this forms the basis of a recommendation
to the Board.
Each metric is assessed against an agreed target and assigned a percentage weighting of
the total scorecard. The actual versus target performance of each metric is assigned a score
between 0% and 100%. The weightings are then applied to these scores to derive a rating
for that metric. The sum of each metric’s rating is used to determine the Company’s overall
performance score.
The Board believes the above method of assessment is rigorous and provides a balanced
assessment of the Company’s performance.
Firstly, the Company’s overall performance score sets the actual budget available for STI
allocations across the organisation in respect of that performance year. This is calculated
by applying the percentage performance score to the maximum potential STIs of all eligible
employees.
Secondly, the Company’s overall performance score contributes to the actual STI payment
made to individuals in a given year. For the CEO, this Company performance outcome is the
sole input for determining STI payment. For Senior Executives, the Company performance
outcome determines 70% of their STI payment. The other 30% is determined through their
individual performance assessment.
How is Company performance assessed?
How does Company performance impact the
STI program?
74
long-term incentives
How are long-term incentives linked
to Company performance?
How is LTI awarded?
What is the performance period?
What performance hurdles are applied to
the LTI?
Why has relative TSR been chosen as the
company’s LTI performance hurdle?
LTI aligns the rewards received by the CEO and Senior Executives with the longer term
performance of Santos relative to other ASX 100 companies. Recipients also have the
opportunity to grow the long-term value of their LTI by delivering results for the Company
that increase the share price.
All 2012 LTI grants are now solely performance-based, ensuring further alignment with the
interests of shareholders.
All LTI grants are delivered in the form of SARs, i.e. a conditional entitlement to a fully paid
ordinary share at zero price, subject to satisfaction of the performance condition. Nothing is
payable by executives if and when SARs vest. For LTI awards granted in 2012, the Board has
discretion to settle SARs in cash.
SARs issued under the annual LTI program for 2012 have a three-year performance period from
1 January 2012 to 31 December 2014. This period has been chosen as an appropriate balance
between providing a genuine and foreseeable incentive to Senior Executives and fostering a
long-term view of shareholder interests.
Vesting of the 2012 grant is based on the Company’s relative TSR against ASX 100 companies
as at 1 January 2012. The Board has discretion to adjust the comparator group, for instance
to take account of takeovers, mergers and demergers that occur during the performance period.
Relative TSR performance is tested by an independent third party and reviewed by the Board
prior to vesting.
The Board believes that relative TSR effectively aligns the interests of 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.
How is vesting determined?
Vesting will be in accordance with the following schedule:
When can vested SARs be traded?
TSR percentile ranking
% of grant vesting
<50th percentile
=50th percentile
51st to 74th percentile
0%
50%
Further 2% for each percentile
improvement above the 50th
percentile
75th to 100th percentile
100%
This vesting scale is applied consistently to both the CEO’s and Senior Executives’ annual LTI
grants.
There is no re-testing of the performance condition. SARs that do not vest upon testing of
the performance condition will lapse.
Upon vesting of SARs, shares will automatically be allocated to the executive. Shares will be
allocated without restrictions unless the executive has elected an extended restriction period.
Restricted shares cannot be traded until the earlier of five/seven years from the grant date
(depending on the period elected by the executive) or cessation of employment, whichever
is earlier.
75
Santos Annual Report 2012 Directors’ Report
(continued)
inDeMnification
Rule 61 of the Company’s Constitution provides that the Company indemnifies, on a full indemnity basis and to the full extent permitted
by law, officers of the Company for all losses or liabilities incurred by the person as an officer of the Company, a related body corporate or
trustee of a company-sponsored superannuation fund. Rule 61 does not indemnify an officer for any liability involving a lack of good faith.
Rule 61 also permits the Company to purchase and maintain a Directors’ and Officers’ 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 office 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 financial year ending 31 December 2012 under the Deeds of Indemnity.
During the year, the Company paid premiums in respect of Directors’ and Officers’ Liability and Legal Expenses insurance contracts for the
year ended 31 December 2012 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 2013. The insurance contracts insure against certain liability (subject to exclusions) persons who are or
have been directors or officers of the Company and its controlled entities. A condition of the contracts is that the nature of the liability
indemnified 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
$89,000
Assurance services $541,000
Other services
$9,000
The Directors are satisfied, 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.
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 is set out on page 164.
rounDing
Australian Securities and Investments Commission Class Order 98/100, dated 10 July 1998, applies to the Company. Accordingly,
amounts have been rounded off in accordance with that Class Order, unless otherwise indicated.
This report is made out on 22 February 2013 in accordance with a resolution of the Directors.
Director
Director
76
Financial
Report
Inventories
Contents
As foreshadowed in the 2011 remuneration report, changes in 2012 included:
• “deferred rights” that is, LTI awards that are subject to a condition consisting only of a period of service,
The Company met or exceeded a number of its operational and financial targets, but did not fully meet others.
This performance, as assessed by the Board, resulted in an average STI award of 68% of maximum.
The CEO’s and Senior Executives’ total fixed remuneration (“TFR”) increased by an average of 4.0% in this year’s
annual remuneration review, slightly below the rest of the Company’s workforce who received 4.9% on average.
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
were discontinued as part of the regular LTI program for Senior Executives. Unlike previous years, the annual
LTI grant to the Senior Executives in 2012 was solely performance-based ensuring alignment with the
interests of shareholders. The CEO grant continued to be entirely performance-based;
The Company’s three year total shareholder return was -15.7% which ranked at the 33rd percentile against the
ASX 100. This failure to achieve superior returns for shareholders resulted in none (0%) of the performance-
tested Share Acquisition Rights (“SARs”) granted to the CEO and Senior Executives vesting.
The Directors of Santos Limited present this Remuneration Report for the consolidated entity for the year ended 31 December 2012. The
information provided in this report has been audited as required by section 308(3C) of the Corporations Act 2001 (Cth) (“Corporations Act”)
and forms part of the Directors’ Report.
78 FINANCIAL REPORT
78
It outlines the Company’s key remuneration activities in 2012 and remuneration information pertaining to the Company’s Directors, Chief
79
Executive Officer and Managing Director (“CEO”) and Senior Executives who are the key management personnel (“KMP”) of the consolidated
80
entity for the purposes of the Corporations Act and the Accounting Standards.
81
82
RemuneRation at a Glance
83
In 2012:
1 Significant Accounting Policies
83
2 Segment Information
98
3 Revenue and Other Income
101
Fixed Remuneration
4 Expenses
103
5 Net Finance (Income)/Costs
104
Short-term Incentive
6 Taxation Expense
105
(“STI”)
7 Cash and Cash Equivalents
106
Long-term Incentive
8 Trade and Other Receivables
106
(“LTI”)
9
107
10 Other Financial Assets
107
11 Exploration and Evaluation Assets
108
LTI program changes
12 Oil and Gas Assets
109
13 Other Land, Buildings, Plant and Equipment
110
14
Impairment of Non-current Assets
110
15 Deferred Tax Assets and Liabilities
112
16 Trade and Other Payables
112
17
113
18 Provisions
116
19 Other Financial Liabilities
117
20
117
2012-2015
21 Reserves and Retained Earnings
119
Four Year Strategy Grant
22 Dividends
120
(“CEO Strategy Grant”)
23 Earnings Per Share
121
24 Consolidated Entities
122
25 Acquisitions and Disposals of Subsidiaries
123
Non-executive Directors
26
124
27
125
Realised RemuneRation
28 Notes to the Statement of Cash Flows
127
In keeping with the Company’s practice since 2009, the following table shows the remuneration “actually realised” by the CEO and Senior
29 Employee Benefits
128
Executives in respect of 2012 performance. This is in addition and different to the disclosures required by the Corporations Act and
30 Share-based Payment Plans
130
Accounting Standards, particularly in relation to LTI. As a general principle, the Accounting Standards require a value to be placed on LTI
31 Key Management Personnel Disclosures
144
based on probabilistic calculations at the time of grant (that is, before the SARs or Options vest and even if ultimately, they do not vest
32 Related Parties
149
because the performance hurdles are not met, as was the case in 2012). By contrast, this table values the LTI, in the case of SARs, only if
33 Remuneration of Auditors
149
the SARs vest and shares are issued to the executive, on the basis of their closing price on the date of vesting. In the case of Options, a
34 Commitments for Expenditure
150
value is attributed only if the Options vest and are exercised resulting in the issue of shares to the executive, calculated on the basis of the
35 Contingent Liabilities
151
difference between the exercise price and the market price on the date of exercise of the Options.
36 Parent Entity Disclosures
152
37 Deed of Cross Guarantee
153
The Company believes that the additional information provided in this table is useful to investors as recognised by the Productivity
38
156
Commission in its Report on Executive Remuneration in Australia. The Commission noted that the usefulness of remuneration reports to
39 Events After the End of the Reporting Period
161
investors was diminished by complexity and omissions and in particular recommended that the report should include reporting of pay
Directors’ Declaration
162
“actually realised” by the executives named in the report.
163 INDEPENDENT AUDIT REPORT
164 AUDITOR’S INDEPENDENCE DECLARATION
Table 1: Realised Remuneration (non-IFRS)
In accordance with shareholders’ approval at the May 2012 Annual General Meeting (“AGM”), an additional
long-term equity grant was made to the CEO for the 2012-2015 period. The grant is aligned with long-term growth
in shareholder returns as the SARs will only vest if long-term strategic targets in relation to production, reserves
growth, GLNG first cargo delivery, GLNG capital expenditure and environment, health and safety are achieved.
average price. This resulted in a larger number of SARs granted, however these SARs are entirely at risk (no
deferred rights were offered) and will not vest if the Company does not achieve superior shareholder returns.
No increases have been made to non-executive Directors’ fees since they were last adjusted in October 2011.
• the number of SARs awarded were determined according to their fair value instead of a volume weighted
Investment in an Associate
Interests in Joint Ventures
Interest-bearing Loans and Borrowings
Financial Risk Management
Issued Capital
santos Annual Report 2012
77
Fixed
remuneration1
Year
STI2
LTI3
Other4
Total
DRAFT 1 – SAN002_DirectorsAndREM_d1a – 2013.2.25
Consolidated Income Statement
for the year ended 31 December 2012
Product sales
Cost of sales
Gross profit
Other revenue
Other income
Other expenses
Finance income
Finance costs
Share of net losses of an associate
Profit before tax
Income tax expense
Royalty‑related taxation expense
Total taxation expense
Net profit for the period
Net profit/(loss) attributable to:
Owners of Santos Limited
Non‑controlling interests
Earnings per share attributable to the
equity holders of Santos Limited (¢)
Basic earnings per share
Diluted earnings per share
Dividends per share ($)
Paid during the period
Declared in respect of the period
Note
3
4
3
3
4
5
5
26
6
6
23
23
22
22
2012
$million
3,220
(2,089)
2011
$million
2,721
(1,737)
1,131
79
16
(390)
138
(59)
–
915
(322)
(75)
(397)
518
519
(1)
518
54.4
54.1
0.30
0.30
984
82
545
(411)
190
(99)
(9)
1,282
(440)
(91)
(531)
751
753
(2)
751
84.8
84.4
0.30
0.30
The consolidated income statement is to be read in conjunction with the notes to the consolidated financial statements.
78
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2012
Net profit for the period
Other comprehensive income, net of tax:
Exchange (loss)/gain on translation of foreign operations
Tax effect
Gain/(loss) on foreign currency loans designated as hedges of
net investments in foreign operations
Tax effect
Impairment of available‑for‑sale financial assets reclassified to the
income statement
Tax effect
Gain/(loss) on derivatives designated as cash flow hedges
Tax effect
Actuarial gain/(loss) on the defined benefit plan
Tax effect
Other comprehensive loss, net of tax
Total comprehensive income
Total comprehensive income/(loss) attributable to:
Owners of Santos Limited
Non‑controlling interests
Note
2012
$million
6
21
6
21
6
21
6
21
29
6
21
518
(89)
(12)
(101)
46
(14)
32
–
–
–
11
(3)
8
2
(1)
1
(60)
458
459
(1)
458
2011
$million
751
6
–
6
(20)
6
(14)
4
(1)
3
(23)
7
(16)
(14)
4
(10)
(31)
720
722
(2)
720
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the consolidated financial statements.
79
Santos Annual Report 2012
Consolidated Statement of Financial Position
as at 31 December 2012
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Inventories
Other financial assets
Tax receivable
Total current assets
Non‑current assets
Receivables
Prepayments
Other financial 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
Current tax liabilities
Provisions
Other financial liabilities
Total current liabilities
Non‑current liabilities
Deferred income
Interest‑bearing loans and borrowings
Deferred tax liabilities
Provisions
Other financial liabilities
Total non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Equity attributable to owners of Santos Limited
Non‑controlling interests
Total equity
Note
2012
$million
2011
$million
7
8
9
10
8
10
11
12
13
15
16
17
18
19
17
15
18
19
20
21
21
2,151
514
263
321
3
6
3,258
17
30
254
1,510
11,675
268
23
13,777
17,035
950
48
15
121
173
4
1,311
45
3,689
934
1,652
39
6,359
7,670
9,365
6,608
(412)
3,174
9,370
(5)
9,365
3,332
899
200
283
6
24
4,744
25
16
192
1,386
9,068
241
142
11,070
15,814
1,005
60
169
109
135
2
1,480
47
3,092
977
1,173
82
5,371
6,851
8,963
6,392
(351)
2,926
8,967
(4)
8,963
The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements.
80
Consolidated Statement of Cash Flows
for the year ended 31 December 2012
Note
2012
$million
2011
$million
Cash flows from operating activities
Receipts from customers
Interest received
Overriding royalties received
Insurance proceeds received
Pipeline tariffs and other receipts
Income taxes refunded
Royalty‑related taxation refunded
Payments to suppliers and employees
Exploration and evaluation – seismic and studies
Royalty and excise paid
Borrowing costs paid
Income taxes paid
Overriding royalty costs
Royalty‑related taxation paid
Net cash provided by operating activities
28
Cash flows from investing activities
Payments for:
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Acquisitions of exploration and evaluation assets
Acquisitions of oil and gas assets
Acquisition of controlled entities, net of cash received
Restoration
Receipts from loans to related entities
Proceeds from:
Disposal of exploration and evaluation assets
Disposal of oil and gas assets
Disposal of controlled entity
Disposal of other land, buildings, plant and equipment
Disposal of available‑for‑sale financial assets
Income taxes paid on disposal of non‑current assets
Borrowing costs paid
Refundable deposit received
Refundable deposit paid
Other investing activities
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Drawdown of borrowings
Repayments of borrowings
Proceeds from issues of ordinary shares
3
3
3
3
Net cash provided by/(used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effects of exchange rate changes on the balances of cash held in foreign currencies
Cash and cash equivalents at the end of the period
7
3,364
155
10
1
87
26
2
(1,554)
(131)
(85)
(19)
(50)
(4)
(144)
1,658
(200)
(2,767)
(60)
(68)
(52)
–
(31)
3
51
223
2
–
1
(124)
(175)
9
(7)
(3)
2,876
208
9
–
149
43
14
(1,387)
(113)
(48)
(81)
(243)
(3)
(171)
1,253
(171)
(2,583)
(48)
–
(18)
3
(42)
3
653
444
–
3
–
(248)
(132)
–
–
(6)
(3,198)
(2,142)
(159)
627
(190)
88
366
(1,174)
3,332
(7)
2,151
(155)
354
(385)
96
(90)
(979)
4,319
(8)
3,332
81
The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements.
Santos Annual Report 2012
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012
Equity attributable to owners of Santos Limited
Issued Translation Fair value Hedging Retained
earnings
reserve
capital
$million
$million
$million
reserve
$million
reserve
$million
Non‑
Total
Total controlling
interests
equity
$million $million
equity
$million
5,514
–
(329)
–
(3)
–
2
–
2,421
753
7,605
753
(16)
(10)
(31)
(2)
(2)
–
7,603
751
(31)
Note
Balance at 1 January 2011
Profit for the period
Other comprehensive income/(loss)
for the period
Total comprehensive income/(loss)
for the period
Transactions with owners in their
capacity as owners:
Issue of shares related to
acquisition
Shares issued
Dividends to shareholders
Share‑based payment
transactions
20
20
22
30
–
–
683
195
–
–
(8)
(8)
–
–
–
–
Balance at 31 December 2011
6,392
(337)
Balance at 1 January 2012
Profit for the period
Other comprehensive income/(loss)
for the period
Total comprehensive income/(loss)
for the period
Transactions with owners in their
capacity as owners:
Shares issued
Dividends to shareholders
Share‑based payment
transactions
20
22
30
6,392
–
–
–
216
–
–
(337)
–
(69)
(69)
–
–
–
Balance at 31 December 2012
6,608
(406)
3
3
–
–
–
–
–
–
–
–
–
–
–
–
–
(16)
743
722
(2)
720
–
–
–
–
–
–
(263)
683
195
(263)
25
25
–
–
–
–
683
195
(263)
25
(14)
2,926
8,967
(4)
8,963
(14)
–
2,926
519
8,967
519
(4)
(1)
8,963
518
8
8
–
–
–
1
(60)
–
(60)
520
459
(1)
458
–
(285)
216
(285)
13
13
–
–
–
216
(285)
13
(6)
3,174
9,370
(5)
9,365
The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements.
82
Notes to the Consolidated Financial Statements
for the year ended 31 December 2012
1. SIGNIFICaNT aCCOuNTING POLICIES
The consolidated financial report of Santos
Limited (“the Company”) for the year ended
31 December 2012 was authorised for issue
in accordance with a resolution of the
Directors on 22 February 2013.
The consolidated financial report of the
Company for the year ended 31 December
2012 comprises the Company and its
controlled entities (“the Group”). Santos
Limited (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
Group is a for‑profit entity for the purpose
of preparing the financial statements.
The nature of the operations and principal
activities of the Group are described in the
Directors’ Report.
(A) STATEmENT OF COmPLIANCE
The consolidated financial report is a
general purpose financial 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 consolidated financial report
complies with Australian Accounting
Standards as issued by the Australian
Accounting Standards Board (“AASB”)
and International Financial Reporting
Standards (“IFRS”) as issued by the
International Accounting Standards
Board (“IASB”).
(B) BASIS OF PREPARATION
The consolidated financial report is
presented in Australian dollars.
The consolidated financial report is
prepared on the historical cost basis,
except for derivative financial
instruments, fixed rate notes that
are hedged by an interest rate swap
and a cross‑currency swap, and
available‑for‑sale financial 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 consolidated financial
report and Directors’ Report have been
rounded to the nearest million dollars,
unless otherwise stated.
Adoption of new accounting standards
and interpretations
The following amendments to standards,
which became applicable from 1 January
2012, have been adopted by the Group.
These amendments have not impacted
on the accounting policies, financial
position or performance of the Group,
or on presentation or disclosure in the
consolidated financial report:
• AASB 2010‑6 Amendments to
Australian Accounting Standards
– Disclosures on Transfers of Financial
Assets; and
• AASB 2010‑8 Amendments to
Australian Accounting Standards –
Deferred Tax Recovery of Underlying
Assets.
The Group has not elected to apply any
pronouncements before their effective
date for the annual reporting period
ended 31 December 2012.
New standards and interpretations not
yet adopted
A number of new standards, amendments
to standards and interpretations are
effective for annual periods beginning
on or after 1 January 2013 and have
not been applied in preparing these
consolidated financial statements.
The Group’s assessment of the impact
of these new standards, amendments
to standards and interpretations is set
out below:
• AASB 9 Financial Instruments and
AASB 2010‑7 Amendments to
Australian Accounting Standards
arising from AASB 9.
AASB 9 introduces new requirements
for the classification, measurement
and derecognition of financial assets
and financial liabilities. Application
of AASB 9 is not expected to have
a significant impact on the Group’s
accounting for financial assets and
financial liabilities. AASB 9 is
effective for annual reporting
periods beginning on or after
1 January 2015, and is available
for early adoption.
• AASB 10 Consolidated Financial
Statements, AASB 11 Joint
Arrangements, AASB 12 Disclosure
of Interests in Other Entities, revised
AASB 127 Separate Financial
Statements, AASB 128 Investments
in Associates and Joint Ventures and
AASB 2011‑7 Amendments to
Australian Accounting Standards
arising from the Consolidation and
Joint Arrangements Standards.
In August 2011, the AASB issued
a suite of six new and amended
standards which address the
accounting for joint arrangements,
consolidated financial statements
and associated disclosures. The
standards are effective for annual
reporting periods beginning on
or after 1 January 2013.
83
Santos Annual Report 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
AASB 10 replaces the guidance
on control and consolidation
in AASB 127 Consolidated and
Separate Financial Statements and
Interpretation 12 Consolidation –
Special Purpose Entities. AASB 10
includes a new definition of control
that focusses on the need to have
both power and rights or exposure
to variable returns. A review of
all entities in the Group which are
less than 100% owned has been
completed to assess the impact of
AASB 10. The review determined
that AASB 10 is not expected to
have a significant impact on the
composition of investments currently
consolidated into the Group’s results.
AASB 11 replaces AASB 131
Interests in Joint Ventures and uses
the definition of control in AASB 10
to introduce a principles‑based
approach to accounting for joint
arrangements. The focus is no longer
on the legal structure of joint
arrangements, but rather on how
rights and obligations are shared by
the parties to the joint arrangement.
The joint arrangement will be
classified as either a joint operation
or a joint venture. Parties to a joint
operation recognise their share of
assets, liabilities, income and
expenses in relation to their interest
in a joint operation. Joint venturers
will be required to apply the equity
method of accounting for their
investment in a joint venture.
The majority of the Group’s joint
arrangements are in the form of
joint operations and the application
of AASB 11 from 1 January 2013
will have no impact on these. At
31 December 2012, the Group has
interests in seven jointly controlled
entities which are currently
accounted for using the
proportionate consolidation method.
These jointly controlled entities
have been assessed as meeting the
classification of joint ventures
under AASB 11. From 1 January
2013, the Group will be required
to retrospectively apply the equity
method of accounting to these
entities. As a result, the Group will
no longer recognise its proportionate
share of the revenue, expenses,
assets, liabilities and associated
cash flows of these operations.
Instead, the Group will recognise
its share of net assets on a single
line in the consolidated statement
of financial position, its share of
net profit on a single line in the
consolidated income statement
and its share of dividends received
in the consolidated statement of
cash flows.
The application of AASB 11 will
result in the following adjustment at
1 January 2012:
•
•
•
•
derecognition of assets of
$71 million;
recognition of liabilities of
$20 million;
derecognition of losses of
non‑controlling interests of
$1 million; and
recognition of equity accounted
investment of $92 million.
If AASB 11 had applied for the year
ended 31 December 2012 there
would be no significant impact on
net profit after tax or earnings per
share in the current year.
• AASB 13 Fair Value Measurement
and AASB 2011‑8 Amendments to
Australian Accounting Standards
arising from AASB 13
AASB 13 establishes a single source
of guidance for fair value
measurements and disclosures.
The standard defines fair value,
establishes a framework for
measuring fair value and requires
more extensive disclosures than the
current standards.
AASB 13 is effective for annual
reporting periods beginning on
or after 1 January 2013.
• Revised AASB 119 Employee Benefits,
AASB 2011‑10 Amendments to
Australian Accounting Standards
arising from AASB 119
These amendments require all
actuarial gains and losses to be
recognised immediately in other
comprehensive income, which is
consistent with the Group’s current
policy. The expected return on plan
assets will be calculated based on
the rate used to discount the defined
benefit obligation. The standard also
introduces a number of additional
disclosures for defined benefit assets
and liabilities.
AASB 119 is effective for annual
reporting periods beginning on or
after 1 January 2013.
There are no other standards that are
not yet effective that are expected to
have a material impact on the Group’s
consolidated financial statements in the
current or future reporting periods.
The accounting policies set out below
have been applied consistently to all
periods presented in the consolidated
financial report. The accounting policies
have been consistently applied by the
Group.
During the year, the Group reassessed its
accounting treatment of certain Cooper
Basin arrangements relating to crude oil
purchases and sales that have previously
been recorded as trading income. From
1 January 2012, these arrangements
have been recorded as product sales and
third‑party product purchases on a gross
basis rather than as trading income
84
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012 1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
which was previously disclosed on a net
basis. Comparatives for the year ended
31 December 2011 have been restated
to reflect this change, resulting in an
increase in product sales revenue of
$191 million, an increase in cost of sales
of $175 million and a decrease in trading
revenue of $16 million. Corresponding
adjustments are reflected in the
consolidated statement of cash flows,
note 2 and note 37. There is no impact
on net profit, net assets or earnings per
share in the comparative financial year
as a consequence of this change.
(C) BASIS OF CONSOLIDATION
Subsidiaries are entities controlled by
the Company. Control exists when the
Company has the power, directly or
indirectly, to govern the financial and
operating policies of an entity so as to
obtain benefits from its activities.
In assessing control, potential voting
rights that presently are exercisable or
convertible are taken into account.
The financial statements of subsidiaries
are included in the consolidated financial
statements from the date that control
commences until the date that control
ceases.
The acquisition of subsidiaries is
accounted for using the acquisition
method of accounting. The acquisition
method of accounting involves
recognising at acquisition date,
separately from goodwill, the identifiable
assets acquired, the liabilities assumed
and any non‑controlling interest in
the acquiree. The assets acquired and
liabilities assumed are measured at
their acquisition date fair values
(refer note 1(G)).
The difference between the above items
and the fair value of the consideration,
including the fair value of the
pre‑existing investment of the acquiree,
is goodwill or a discount on acquisition.
If the Group loses control over a
subsidiary it will:
• derecognise the assets and liabilities
of the subsidiary;
• derecognise the carrying value of
any non‑controlling interest;
• derecognise the cumulative
translation differences, recorded in
equity;
•
•
•
recognise the fair value of the
consideration received;
recognise the fair value of any
investment retained; and
recognise any surplus or deficit in
the income statement.
A change in ownership interest of a
subsidiary that does not result in the
loss of control is accounted for as an
equity transaction.
Investments in subsidiaries are carried
at their cost of acquisition, less any
impairment charges, in the parent
entity’s financial statements.
Intra‑group balances and any unrealised
gains and losses or income and expenses
arising from intra‑group transactions are
eliminated in preparing the consolidated
financial statements.
Non‑controlling interests
Non‑controlling interests in the net
assets of consolidated entities are
allocated their share of net profit after
tax in the income statement, and are
identified separately from the Group’s
equity in those entities. Losses are
attributed to the non‑controlling
interests even if that results in a
deficit balance.
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 significant joint ventures
is included in note 27.
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
benefits 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
benefits through its share of jointly
controlled assets.
The interests of the Group in
unincorporated joint ventures are
brought to account by recognising in the
financial 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 financial statements.
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Santos Annual Report 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
Investment in an associate
The Group’s investment in an associate is
accounted for using the equity method
of accounting in the consolidated
financial statements. An associate is
an entity over which the Group has
significant influence and that is neither
a subsidiary nor a joint venture. The
Group generally has significant influence
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 financial
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.
The Group’s share of the associate’s
post‑acquisition profits 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 reduce the carrying amount
of the investment in the consolidated
financial statements of the Group. The
Group’s share in the associate’s profits
and losses resulting from transactions
between the Group and the associate is
eliminated.
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 are
consistent with 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 Limited is Australian
dollars. Some subsidiaries have a
functional currency other than Australian
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 a
foreign operation are recognised in the
translation reserve in the consolidated
financial 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
On 1 January 2011, Gladstone LNG
(“GLNG”) entities with an Australian
dollar functional currency changed their
functional currency to US dollars.
The change in functional currency was
applied prospectively from this date.
An additional GLNG entity changed its
functional currency from Australian
dollars to US dollars on 1 April 2012,
with the change being applied
prospectively from this date.
The results of subsidiaries with a
functional currency other than Australian
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 translation reserve.
Exchange differences arising from the
translation of the net investment in
foreign operations and of related hedges
are recognised in the translation reserve.
They are released into the income
statement upon disposal of the foreign
operation.
(E) DERIvATIvE FINANCIAL INSTRUmENTS
The Group regularly uses derivative
financial 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,
cross‑currency interest rate swaps,
interest rate swaps and commodity crude
oil price swaps, 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
financial instruments for speculative
purposes.
Derivative financial instruments are
recognised initially at fair value.
Subsequent to initial recognition,
derivative financial instruments are
stated at fair value. Where derivatives
qualify for hedge accounting (refer
note 1(F)), recognition of any resultant
86
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
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 the
income statement.
The fair value of these derivative
financial instruments is the estimated
amount that the Group would receive or
pay to terminate the contracts at the
reporting date, taking into account
current market prices and the current
creditworthiness of the contract
counterparties.
Embedded derivatives
Derivatives embedded in other financial
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 the income
statement.
(F) HEDGING
Hedge effectiveness
Hedge accounting (see below) is only
applied where the derivative financial
instrument provides an effective hedge
of the hedged item. Where a derivative
financial 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 financial instrument
hedges the changes in fair value of
a recognised asset or liability or an
unrecognised firm commitment (or an
identified portion of such asset, liability
or firm 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.
Cash flow hedge
Where a derivative financial instrument
is designated as a hedge of the
variability in cash flows of a recognised
asset or liability, or a highly probable
forecast transaction, any gain or loss on
the derivative financial instrument is
recognised directly in equity. When the
forecast transaction subsequently results
in the recognition of a non‑financial
asset or non‑financial liability, or the
forecast transaction for a non‑financial
asset or non‑financial liability becomes
a firm 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‑financial asset or non‑financial
liability. If a hedge of a forecast
transaction subsequently results in the
recognition of a financial asset or a
financial liability, the associated gains
and losses that were recognised directly
in equity are reclassified into the income
statement in the same period or periods
during which the asset acquired or
liability assumed affects the income
statement.
For cash flow 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 the income
statement.
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 financial 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 the income
statement.
(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
A business combination is a transaction
in which an acquirer obtains control of
one or more businesses. The acquisition
method of accounting is used to account
for all business combinations regardless
of whether equity instruments or other
assets are acquired.
87
Santos Annual Report 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
The acquisition method is only applied
to a business combination when control
over the business is obtained.
Subsequent changes in interests in a
business where control already exists are
accounted for as transactions between
owners.
The cost of the business combination is
measured as the fair value of the assets
given, shares issued and liabilities
incurred or assumed at the date of
acquisition. The cost includes the fair
value of any contingent consideration.
Subsequent changes to the fair value of
the contingent consideration which is
deemed to be an asset or liability will
be recognised in either the income
statement or in other comprehensive
income. Where the contingent
consideration is classified as equity,
it shall not be remeasured.
Costs directly attributable to the
business combination are expensed
as incurred.
Where settlement of any part of cash
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 financier under comparable
terms and conditions.
The excess of the consideration
transferred, the amount of any
non‑controlling interest in the acquiree
and the acquisition‑date fair value of
any previous equity interest in the
acquiree over the fair value of the
Group’s share of the net identifiable
assets acquired is recorded as goodwill.
If those amounts are less than the fair
value of the net identifiable assets of the
subsidiary acquired and the measurement
of all amounts has been reviewed, the
difference is recognised directly in the
income statement as a bargain purchase.
(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 field is considered
favourable or has been proved to exist,
and in most cases will comprise an
individual prospective oil or gas field.
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 significant operations
in, or in relation to, the area of
interest are continuing.
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.
88
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 specific area
is not budgeted or planned; or
(iii) exploration for and evaluation of
resources in the specific area has not
led to the discovery of commercially
viable quantities of resources, and
the Group has decided to discontinue
activities in the specific area; or
(iv) sufficient data exist 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 field enters
the development phase the accumulated
exploration and evaluation expenditure
is transferred to oil and gas assets –
assets in development.
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012 1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
(I) OIL AND GAS ASSETS
Oil and gas assets are usually single oil
or gas fields being developed for future
production or which are in the production
phase. Where several individual oil or
gas fields are to be produced through
common facilities, the individual oil or
gas field 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
field has been demonstrated, the field
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. Other subsurface
expenditures include the costs of
de‑watering coal seam gas fields to
provide access to the coal seams to
enable production from coal seam gas
reserves. De‑watering costs are the costs
of extracting, transporting, treating
and disposing of water during the
development phases of the coal seam
gas fields.
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
fields in the vicinity with the intention
of producing any near field 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 12.
(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 specific 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 the
income statement as incurred.
Depreciation on buildings, plant and
equipment is calculated in accordance
with note 1(K).
(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 significant in relation to the
total cost of the asset is depreciated
separately. The residual value, useful life
and depreciation method applied to an
asset are 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, unless a units of production
method represents a more systematic
allocation of the asset’s depreciable
amount over its economic useful life.
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
– motor vehicles
4 – 7 years
– Furniture and fittings 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 for an asset or
group of assets from the date of
commencement of production.
Depletion charges are calculated using
the units 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”) hydrocarbon reserves
for an asset or group of assets, together
with future subsurface costs necessary to
develop the hydrocarbon reserves in the
respective asset or group of assets.
89
Santos Annual Report 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
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 classified 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 financial instruments
classified as available for sale is their
quoted bid price at the close of business
on the reporting date.
Financial instruments classified as
available for sale are recognised or
derecognised on the date of commitment
to purchase or sell the investments.
When these investments are
derecognised, the cumulative gain or
loss previously recognised directly in
equity is recognised in the income
statement.
(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, liquefied
petroleum gas, condensate and
naphtha stored in tanks and pipeline
systems and processed sales gas
90
and ethane stored in subsurface
reservoirs, are valued using the
absorption cost method in a manner
which approximates specific
identification.
(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
any 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 flows, 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 the income
statement.
(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 insignificant
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
basis. A cash‑generating unit is the
smallest grouping of assets that
generates independent cash inflows, and
generally represents an individual oil or
gas field. 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.
Individual assets or sub‑component
groups of assets within a
cash‑generating unit may become
impaired if circumstances related to their
ongoing use change or there is an
indication that the benefits to be
obtained from ongoing use are likely to
be less than the carrying value of the
individual asset or sub‑component group
of assets.
Exploration and evaluation assets are
assessed for impairment in accordance
with note 1(H).
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 financial 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 the income statement
even though the financial asset has not
been derecognised. The amount of the
cumulative loss that is recognised in
the income statement is the difference
between the acquisition cost and current
fair value, less any impairment loss on
that financial asset previously recognised
in the income statement.
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 flows are discounted to their
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
present value using a pre‑tax discount
rate that reflects current market
assessments of the time value of money
and the risks specific to the asset.
Where an asset does not generate cash
flows 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 flows for the value‑in‑use
calculation are based on estimates of 2P
hydrocarbon reserves, future production
profiles, 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. For oil and gas
assets, the estimated fair value less
costs to sell calculation is based on
estimates of hydrocarbon reserves and
resources and other relevant factors.
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 the
income statement on equity instruments
classified as available‑for‑sale financial
assets are not reversed.
(q) PROvISIONS
A provision is recognised in the
statement of financial position when the
Group has a present legal or constructive
obligation as a result of a past event
and it is probable that an outflow of
resources embodying economic benefits
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 flow methodology. If the effect of
the time value of money is material, the
provision is discounted using a current
pre‑tax rate that reflects current market
assessments of the time value of money
and, where appropriate, the risks specific
to the liability. The increase in the
provision resulting from the passage of
time is recognised in finance 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 outflow of economic
benefits 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 reflected 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 reflected
in the present value of the remediation
provision at the reporting date, with a
corresponding charge to the income
statement.
Carbon tax
The Group estimates its emissions
liability in accordance with the Clean
Energy Act 2011 (Cth) and associated
pronouncements, based on covered
emissions arising from facilities for
which the Group has operational control.
The determination of covered emissions
includes both measured and estimated
data based on operational activities and
judgement in regard to the expected
liable facilities for the relevant
compliance period under the legislation.
Carbon permits are purchased when
the provision for carbon is required
to be settled. The carbon provision is
derecognised from the statement of
financial position when purchased
permits are delivered to the Australian
Government in settlement of the liability.
The estimated impact of carbon tax on
the Group’s cash‑generating units has
been included in determining cash flow
projections when assessing impairment
of oil and gas assets and other land,
buildings, plant and equipment as
described in note 1(AF).
The carrying amount of the provision for
carbon is disclosed in note 18.
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Santos Annual Report 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
(R) EmPLOyEE BENEFITS
Wages, salaries, annual leave and
sick leave
Liabilities for wages and salaries,
including non‑monetary benefits, 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.
Long‑term service benefits
A liability for long service leave is
recognised and measured as the present
value of the estimated future cash
outflows 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.
Defined contribution plans
The Group contributes to several defined
contribution superannuation plans.
Obligations for contributions are
recognised as an expense in the income
statement as incurred.
Defined benefit plan
The Group’s net obligation in respect of
the defined benefit superannuation plan
is calculated by estimating the amount
of future benefit that employees have
earned in return for their service in the
current and prior periods; that benefit
is discounted to determine its present
value, and the fair value of any plan
assets is deducted.
92
The discount rate is the yield at the
reporting date on Commonwealth
Government bonds that have maturity
dates approximating the terms of the
Group’s obligations. The calculation is
performed by a qualified actuary using
the projected unit credit method.
When the benefits of the plan are
improved, the portion of the increased
benefit 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 benefits become vested.
To the extent that the benefits 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 defined benefit
obligation for employee services in prior
periods, resulting in the current period
from the introduction of, or changes to,
post‑employment benefits or other
long‑term employee benefits. Past
service cost may be either positive
(where benefits are introduced or
improved) or negative (where existing
benefits are reduced).
Share‑based payment transactions
Santos executive share‑based
payment plans
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 a
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
performance‑based SARs granted is
measured using a monte Carlo simulation
method, taking into account the terms
and market conditions upon which the
SARs were granted. The fair value of the
deferred‑based SARs granted is measured
by discounting the share price on the
grant date using the assumed dividend
yield for the term of the SAR. The
amount recognised as an expense is only
adjusted when the SARs do not vest
due to non‑market‑related conditions.
SARs issued under the Santos Employee
Equity Incentive Plan (“SEEIP”) allow
eligible executives to receive SARs upon
the satisfaction of set non‑market
performance conditions. The fair value
of the SARs granted under this plan is
measured by discounting the share price
on the grant date using the assumed
dividend yield for the term of the SAR.
The amount recognised as an expense
is adjusted each reporting period based
on an estimate of the likelihood of
achieving the performance conditions.
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
Cash‑settled share‑based payment plans
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 benefits. 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 a 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.
General employee share plans
Santos operates two general employee
share plans, Share1000 Plan and
Sharematch Plan, under the Santos
Employee Share Purchase Plan, which
are open to eligible executives and
employees. The Share1000 Plan provides
for grants of fully paid ordinary shares in
the capital of the Company up to a value
determined by the Board.
The fair value per share is determined
by the volume Weighted Average Price
(“vWAP”) of ordinary Santos shares
on the Australian Securities Exchange
(“ASX”) during the week up to and
including the date of issue of the shares.
The fair value of shares granted is
recognised as an employee expense
with a corresponding increase in
issued capital.
The Sharematch Plan allows eligible
executives and employees to purchase
shares through salary sacrifice over a
maximum twelve‑month period, and to
receive a matched Share Acquisition
Rights (“SARs”) at a ratio set by the
Board.
The fair value per share is determined by
the vWAP of ordinary Santos shares on
the ASX during the week up to and
including the date of issue of the shares.
The fair value of shares is recognised as
an increase in issued capital with a
corresponding increase in loans
receivable.
The fair value of matched SARs is
measured by discounting the share price
on the grant date using the assumed
dividend yield for the term of the
matched SAR. The fair value is measured
at grant date and recognised as an
employee expense with a corresponding
increase in equity over the period during
which the eligible executive or employee
becomes unconditionally entitled to
the SARs.
Santos Eastern Star Gas Limited Employee
Incentive Plan
Under the Santos Eastern Star Gas
Limited Employee Incentive Plan,
eligible employees are granted ordinary
shares in Santos, in exchange for Eastern
Star Gas Limited (“ESG”) shares issued
under the Eastern Star Gas Limited
Employee Incentive Plan pursuant to
the acquisition of ESG. The cost of the
ESG shares acquired is determined by
reference to the fair value of the equity
and associated interest‑free employee
loans, which is measured using a monte
Carlo simulation method, taking into
account the contractual life of the loans
and the expectation of early repayment,
with a corresponding increase in equity.
These fully paid ordinary shares are not
quoted on the ASX as they are subject to
trading restrictions while the loans are
outstanding. Under the terms of the
plan, Santos holds a lien over the issued
shares and the employees have no
obligation to repay the outstanding
loans. The loans are granted with terms
of up to five years, and if the loans were
not repaid before expiration of the term,
the entitlement to the shares would be
forfeited and the shares would be sold
on‑market by Santos. The loans are
not recognised as receivables and an
increase in issued capital is recognised
upon receipt of payment of the loans or
proceeds of sales.
(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.
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
finance 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 specifically 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 17).
Borrowing costs incurred after
commencement of commercial operations
are expensed.
All other borrowing costs are recognised
in the income statement 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 fulfilled.
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Santos Annual Report 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
(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 classified
as equity.
Dividends
Dividends are recognised as a liability at
the time the Directors resolve to pay or
declare the dividend.
Transaction costs
Transaction costs of an equity
transaction are accounted for as a
deduction from equity, net of any related
income tax benefit.
(X) REvENUE
Revenue is recognised in the income
statement when the significant 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
benefits will flow 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
field (“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.
94
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
with the terms of the overriding‑royalty
agreements.
(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 significant 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.
Pipeline tariffs and processing tolls
(AA) LEASES
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.
Trading revenue
Trading revenue represents the net
revenue derived from the purchase and
subsequent sale of hydrocarbon products
from third parties where the risks and
benefits 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 financial 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 financial asset to
the net carrying amount of the financial
asset.
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 fulfilment of the
arrangement is dependent on the use of
a specific asset or assets and whether
the arrangement conveys a right to use
the asset.
Leases are classified as finance 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
classified 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 financial
position as a finance lease obligation.
Lease payments are apportioned between
finance charges and reduction of the
lease obligations so as to achieve a
constant rate of interest on the
remaining balance of the liability. Assets
under finance lease are depreciated over
the shorter of the estimated useful life
of the asset and the lease term if there
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
is no reasonable expectation 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 benefits 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) CARBON TAX
Carbon costs are recognised as an
operating expense in the income
statement as emissions are incurred.
Carbon costs that are recovered from
customers are recognised as sales
revenue in the income statement in
accordance with note 1(X).
(AC) 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
Office (“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 financial position.
Cash flows are included in the statement
of cash flows on a gross basis. The GST
components of cash flows arising from
investing and financing activities which
are recoverable from, or payable to,
the ATO are classified as operating
cash flows.
Similar taxes in other tax jurisdictions
are accounted for in a like manner.
(AD) TAXATION
Income tax
Income tax on the profit 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 profit 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 financial position approach,
providing for temporary differences
between the carrying amounts of assets
and liabilities for financial 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 profit; 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 profits will be available
against which the asset can be utilised.
For Petroleum Resource Rent Tax
(“PRRT”) purposes, the impact of future
augmentation on expenditure is included
in the determination of future taxable
profits when assessing the extent to
which a deferred tax asset can be
recognised in the statement of financial
position. Deferred tax assets are reduced
to the extent that it is no longer
probable that the related tax benefit
will be realised.
The Company and all of its wholly‑owned
Australian resident entities are part of a
tax‑consolidated group under Australian
taxation law. Santos Limited is the head
entity in the tax‑consolidated group.
Current tax expense or benefit, 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 financial
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.
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Santos Annual Report 2012
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.
Royalty‑related taxation
PRRT, Resource Rent Royalty and
Timor‑Leste’s Additional Profits Tax are
accounted for as income tax as described
above.
From 1 July 2012, the existing PRRT
regime was extended to apply to all
Australian petroleum production sourced
from projects located onshore, in
territorial waters and the North West
Shelf project area. On transition to the
extended PRRT regime, a starting tax
base is immediately available to be
deducted against the relevant project
profits, giving rise to a potential
deferred tax asset. The recoverability
of a deferred tax asset arising from
transition to the extended PRRT regime
has been assessed as described above.
(AE) DISCONTINUED OPERATIONS AND
NON‑CURRENT ASSETS HELD FOR SALE
A discontinued operation is a significant
component of the Group that has been
disposed of, or is classified 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 financial position.
Non‑current assets and disposal groups
are classified 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
96
principally through a sale transaction.
They are not depreciated or amortised.
For an asset or disposal group to be
classified 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.
(AF) 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 is
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 significant 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 fiscal 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.
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 in the
income statement. The carrying
amount of exploration and
evaluation assets and the
assumptions used in the estimation
of recoverable amount are disclosed
in notes 11 and 14 respectively.
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
1. SIGNIFICaNT aCCOuNTING POLICIES (CONTINuED)
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 18.
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 12
and 14 respectively.
Impairment of other land,
buildings, plant and equipment
The Group assesses whether other
land, buildings, plant and equipment
is 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 other land, buildings, plant and
equipment and the assumptions used
in the estimation of recoverable
amount are discussed in notes 13
and 14 respectively.
Royalty‑related taxation
From 1 July 2012, the Petroleum
Resource Rent Tax (“PRRT”) was
extended to all Australian onshore
oil and gas production licences.
Accounting for the implementation
of PRRT legislation involves
judgement around application of the
legislation including the combination
of production licences into PRRT
projects, the taxing point of projects
and the measurement of the starting
base of projects. In assessing the
recoverability of deferred tax assets,
estimates are required in respect of
future augmentation of expenditure
and the probable cash flows used
in determining the recoverability
of deferred tax assets. The key
assumptions used on accounting for
the transition to the extended PRRT
regime are discussed in note 1(AD).
In October 2012, following the
Full Federal Court’s decision in
Esso Australia Resources Pty Ltd
v Commissioner of Taxation (“Esso
Case”), the Commissioner of Taxation
released a decision impact statement
indicating that, inter alia, the outcome
of the Esso Case may mean that
contract liabilities cannot be
apportioned under the PRRT regime
and therefore are only deductible if
they are incurred wholly in relation
to the relevant project. In this
respect, in addition to those
assumptions identified above,
the Group has applied judgement in
respect of its assessment of the
applicability of the decision in the
Esso Case to the projects subject to
PRRT in which it holds an interest.
Based on the information available
to the Group as at the reporting
date, the Esso Case has had no
significant impact on the amounts
recorded in respect of the Group’s
royalty‑related taxation expense,
assets or liabilities in the consolidated
financial report for the year ended
31 December 2012.
The Australian Government
(“Government”) issued an
announcement on 14 December 2012
that stipulated that the result of the
Esso Case is inconsistent with the
policy intent of the PRRT regime and
the way it has been administered
since its commencement in 1987.
The Government has undertaken to
introduce amendments to the
legislation that will maintain the
policy intent of the PRRT and remove
the uncertainty on taxpayers’ ability
to deduct contract expenditures
which are apportioned between
projects. As at the date of this
report, the Government has yet
to introduce these amendments.
Assuming that changes to the
legislation are introduced and
enacted there will be no significant
impact on the amounts recorded in
respect of the Group’s royalty‑related
taxation expense, assets or liabilities
in the consolidated financial report.
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Santos Annual Report 2012
2. SEGmENT INFORmaTION
The Group has identified its operating segments to be the four business units of Eastern Australia; Western Australia and Northern Territory
(“WA & NT”); Asia Pacific; and Gladstone LNG (“GLNG”), based on the different geographical regions and the similarity of assets within those
regions. This is the basis on which internal reports are provided to the Chief Executive Officer for assessing performance and determining the
allocation of resources within the Group.
The Asia Pacific operating segment includes operations in Indonesia, Papua New Guinea, vietnam, India and Bangladesh.
The Chief Executive Officer monitors the operating results of its business units separately for the purposes of making decisions about
allocating resources and assessing performance. The basis of measurement of segment performance has changed from the previous financial
report. From 1 January 2012, royalty‑related taxation is no longer included in the measurement of segment performance, consistent with
a change in information provided to the Chief Executive Officer. Segment performance is measured based on earnings before interest, tax,
impairment, exploration and evaluation, and gains or losses on sale of non‑current assets and controlled entities (“EBITX”). Corporate and
exploration expenditure and inter‑segment eliminations are included in the segment disclosure for reconciliation purposes.
The Group operates primarily in one business: the exploration for, and development, production, transportation and marketing of,
hydrocarbons. Revenue is derived primarily from the sale of gas and liquid hydrocarbons and the transportation of crude oil.
98
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012 l
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Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
2. SEGmENT INFORmaTION (CONTINuED)
Revenue from external customers by geographical location of production
Australia
Other countries
Total revenue
Note
3
During the year revenue from two separate customers amounted to $1,127 million
(2011: $558 million from one customer), arising from sales from all segments
of the Group.
Non‑current assets (other than financial assets and deferred tax assets) by
geographical location
Australia
Papua New Guinea
Other countries
3. REvENuE aND OTHER INCOmE
Product sales:
Gas, ethane and liquefied gas
Crude oil
Condensate and naphtha
Liquefied petroleum gas
Total product sales*
Other revenue:
Overriding royalties
Pipeline tariffs and processing tolls
Other
Total other revenue
Total revenue
Other income:
2012
$million
2011
$million
2,792
507
3,299
10,897
2,025
531
13,453
1,319
1,401
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179
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994
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Insurance recoveries
Net gain on sale of exploration and evaluation assets
Net gain on sale of oil and gas assets
Net gain on sale of a controlled entity
Net loss on sale of available‑for‑sale financial assets
Non‑refundable deposit received
Other
Total other income
* Total product sales include third‑party product sales of $527 million (2011: $486 million).
1
–
11
1
(1)
–
4
16
–
200
329
–
–
15
1
545
101
Santos Annual Report 2012
3. REvENuE aND OTHER INCOmE (CONTINuED)
Net gain on sale of non‑current assets
Proceeds on disposals
Recoupment of current year exploration and evaluation expenditure
Proceeds after recoupment of current year exploration and evaluation expenditure
Book value of oil and gas assets disposed
Book value of other land, buildings, plant and equipment disposed
Recoupment of prior year exploration and evaluation expenditure
Book value of working capital disposed
Transaction costs
Total net gain on sale of non‑current assets
Comprising:
Net gain on sale of exploration and evaluation assets
Net gain on sale of oil and gas assets
Reconciliation to cash inflows from proceeds on disposal of non‑current assets
Proceeds after recoupment of current year exploration and evaluation expenditure
Foreign currency changes on settlement
Amounts to be received in the future
Amounts received from current year disposals
Amounts received from prior year disposals
Total proceeds on disposal of non‑current assets
Comprising:
Proceeds from disposal of exploration and evaluation assets
Proceeds from disposal of oil and gas assets
Proceeds from disposal of available‑for‑sale financial assets
Proceeds from disposal of other land, buildings, plant and equipment
2012
$million
2011
$million
23
–
23
(11)
–
–
(1)
–
11
–
11
11
23
–
–
23
252
275
51
223
1
–
275
1,332
(3)
1,329
(360)
(3)
(451)
18
(4)
529
200
329
529
1,329
(2)
(238)
1,089
11
1,100
653
444
–
3
1,100
102
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
4. ExPENSES
Cost of sales:
Cash cost of production:
Production costs:
Production expenses
Production facilities operating leases
Total production costs
Other operating costs:
Pipeline tariffs, processing tolls and other
Royalty and excise
Carbon costs
Total other operating costs
Total cash cost of production
Depreciation and depletion
Third‑party product purchases
Increase in product stock
Total cost of sales
Note
2012
$million
2011
$million
576
84
660
117
88
26
231
891
768
465
(35)
491
65
556
115
54
–
169
725
636
388
(12)
2,089
1,737
Other expenses:
Selling
Corporate
Depreciation
Foreign exchange losses/(gains)*
Losses/(gains) from change in fair value of derivative financial assets designated
as at fair value through profit or loss
Fair value hedges, (gains)/losses:
On the hedging instrument
On the hedged item attributable to the hedged risk
Exploration and evaluation expensed
Net impairment loss on exploration and evaluation assets
Net impairment loss on oil and gas assets
Net impairment loss on other land, buildings, plant and equipment
Net impairment reversal on receivables
Net impairment loss on available‑for‑sale financial assets
14(A)
14(B)
14(C)
Total other expenses
* The foreign exchange losses for the year ended 31 December 2012 include the following significant
amounts in relation to foreign functional currency subsidiaries: $17 million gain (2011: $30 million loss)
relating to the effects of foreign exchange on Australian dollar denominated tax bases and $17 million
loss (2011: $30 million gain) on foreign functional currency intercompany loans.
Profit before tax includes the following:
Depreciation and depletion:
Depletion of subsurface assets
Depreciation of plant and equipment
Depreciation of buildings
Total depreciation and depletion
minimum lease payments
23
96
5
2
1
(57)
49
165
5
101
–
–
–
390
404
368
1
773
85
31
94
5
(18)
(8)
(135)
148
167
13
118
1
(9)
4
411
341
299
1
641
82
103
Santos Annual Report 2012
5. NET FINaNCE (INCOmE)/COSTS
Finance income:
Interest income
Total finance income
Finance costs:
Interest expense:
Interest paid to third parties
Deduct borrowing costs capitalised
Unwind of the effect of discounting on provisions
Total finance costs
Net finance income
2012
$million
2011
$million
138
138
197
183
14
45
59
79
190
190
192
136
56
43
99
91
104
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
6. 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
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 profit:
Profit before tax
Prima facie income tax at 30% (2011: 30%)
Increase in income tax expense due to:
Foreign losses not recognised
Non‑deductible expenses
Change in tax bases of assets as a result of change in use
Tax adjustments relating to prior years
Other
Income tax expense
Royalty‑related taxation expense
Total taxation expense
Deferred tax charged/(credited) directly to equity:
Net exchange loss on translation of foreign operations
Net loss/(gain) on foreign currency loans designated as hedges of net investments
in foreign operations
Impairment of available‑for‑sale financial assets reclassified to the income statement
Net loss/(gain) on derivatives designated as cash flow hedges
Actuarial loss/(gain) on defined benefit plan
2012
$million
2011
$million
163
17
180
142
–
142
322
158
3
161
(86)
–
(86)
75
915
274
24
10
–
17
(3)
322
75
397
12
14
–
3
1
30
380
29
409
40
(9)
31
440
125
5
130
(43)
4
(39)
91
1,282
385
50
11
(25)
17
2
440
91
531
–
(6)
1
(7)
(4)
(16)
105
Santos Annual Report 2012
7. CaSH aND CaSH EquIvaLENTS
Cash at bank and in hand
Short‑term deposits
2012
$million
265
1,886
2,151
2011
$million
282
3,050
3,332
The carrying amounts of cash and cash equivalents represent fair value. Bank balances and short‑term deposits earn interest at floating rates
based upon market rates.
The Group’s usual cash management process includes investing cash in short‑term deposits. As at 31 December 2012, $49 million
(2011: $1,532 million) was placed in term deposits with original maturities greater than three months and up to nine months. All deposits
are held with financial institutions approved by the Board and are readily convertible to cash with commensurate interest adjustments
if required.
Restricted cash balances
Barracuda Ltd, a wholly‑owned subsidiary incorporated in Papua New Guinea, has cash and cash equivalents at 31 December 2012 of
US$16 million (2011: US$13 million) which can only be repatriated to Australia with the permission of the Internal Revenue Commission
of Papua New Guinea in accordance with the financing plan submitted in respect of PDL 3.
At 31 December 2012, $8 million (2011: $3 million) was held in short‑term deposits to support the issue of bank guarantees.
8. TRaDE aND OTHER RECEIvaBLES
Current
Trade receivables
Other receivables
Allowance for impairment loss on other receivables
Non‑current
Other receivables
ageing of trade and other receivables at the reporting date:
Trade and other 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
movement in provision for impairment loss:
Balance at 1 January
Impairment loss
Reversal of impairment loss
Release of provision
Balance at 31 December
106
2012
$million
2011
$million
349
165
–
514
17
466
33
17
8
7
–
–
531
–
–
–
–
–
318
581
–
899
25
877
11
10
8
10
8
–
924
22
–
(9)
(13)
–
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
8. TRaDE aND OTHER RECEIvaBLES (CONTINuED)
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 or other receivable is impaired.
No impairment loss (2011: $9 million impairment reversal) was recognised by the Group during the year.
9. 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
10. OTHER FINaNCIaL aSSETS
Current
Receivables due from other related entities
Interest rate swap contracts
Non‑current
Interest rate swap contracts
Cross‑currency swap contracts
Embedded derivatives
Available‑for‑sale financial assets
Receivables due from other related entities
Other
2012
$million
2011
$million
180
141
321
9
3
–
3
182
41
7
10
–
14
254
151
132
283
35
3
3
6
178
–
8
2
3
1
192
107
Santos Annual Report 2012
Total
$million
1,423
(37)
1,386
962
905
14
207
(456)
(58)
(13)
(159)
(16)
–
1,386
1,034
229
123
1,386
2012
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
Subsurface
assets
$million
2011
Plant and
equipment
$million
1,519
(37)
1,482
1,358
–
68
210
–
(41)
(1)
(81)
(30)
(1)
1,482
1,195
251
36
1,482
28
–
28
28
–
–
–
–
–
–
–
–
–
28
7
21
–
28
1,547
(37)
1,510
1,386
–
68
210
–
(41)
(1)
(81)
(30)
(1)
1,395
(37)
1,358
750
890
14
197
(370)
(58)
(13)
(36)
(16)
–
1,510
1,358
1,202
272
36
1,510
1,006
229
123
1,358
28
–
28
212
15
–
10
(86)
–
–
(123)
–
–
28
28
–
–
28
11. ExPLORaTION aND
EvaLuaTION aSSETS
Cost
Less impairment
Balance at 31 December
Reconciliation of movements
Balance at 1 January
Acquisition of controlled entities
Acquisitions of exploration and
evaluation assets
Additions
Disposals and recoupment
Exploration and evaluation expensed
Impairment losses
Transfer to oil and gas assets in development
Transfer to oil and gas assets in production
Exchange differences
Balance at 31 December
Comprising:
Acquisition costs
Successful exploration wells
Exploration and evaluation assets
pending determination of success
108
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
12. OIL aND GaS aSSETS
Cost
Less accumulated depreciation, depletion
2012
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
Subsurface
assets
$million
2011
Plant and
equipment
$million
Total
$million
10,061
11,913
21,974
9,060
9,508
18,568
and impairment
(6,019)
(4,280)
(10,299)
(5,565)
(3,935)
(9,500)
Balance at 31 December
4,042
7,633
11,675
3,495
5,573
9,068
Reconciliation of movements
Assets in development
Balance at 1 January
Acquisition of oil and gas assets
Additions
Disposals
Transfer from exploration and
evaluation assets
Transfer to oil and gas assets in production
Impairment losses
Exchange differences
508
22
377
(8)
81
–
–
(9)
2,533
–
1,975
(3)
–
–
–
(78)
3,041
22
2,352
(11)
81
–
–
(87)
Balance at 31 December
971
4,427
5,398
Producing assets
Balance at 1 January
Acquisitions of oil and gas assets
Additions
Transfer from exploration and
evaluation assets
Transfer from oil and gas assets in
development
Disposals
Depreciation and depletion
Net impairment losses
Impairment of exploration and evaluation
expendenture pending commercialisation
Exchange differences
Balance at 31 December
Total oil and gas assets
Comprising:
Exploration and evaluation expenditure
pending commercialisation
Other capitalised expenditure
2,987
27
529
30
–
–
(404)
(68)
(4)
(26)
3,071
4,042
26
4,016
4,042
3,040
3
549
6,027
30
1,078
–
30
–
(2)
(336)
(33)
–
(15)
3,206
7,633
–
7,633
7,633
–
(2)
(740)
(101)
(4)
(41)
6,277
11,675
26
11,649
11,675
573
–
307
–
36
(386)
(9)
(13)
508
2,611
33
469
16
386
(102)
(341)
(85)
–
–
2,987
3,495
39
3,456
3,495
1,080
–
1,953
–
123
(653)
(20)
50
2,533
2,650
10
264
–
653
(269)
(267)
(4)
–
3
3,040
5,573
–
5,573
5,573
1,653
–
2,260
–
159
(1,039)
(29)
37
3,041
5,261
43
733
16
1,039
(371)
(608)
(89)
–
3
6,027
9,068
39
9,029
9,068
109
Santos Annual Report 2012
2012
Land and
buildings
$million
Plant and
equipment
$million
Total
$million
Land and
buildings
$million
2011
Plant and
equipment
$million
Total
$million
84
(8)
76
66
–
11
–
–
(1)
76
462
546
(270)
192
175
–
52
(3)
–
(32)
192
(278)
268
241
–
63
(3)
–
(33)
268
72
(6)
66
45
25
–
(3)
–
(1)
66
427
(252)
175
156
1
51
–
(1)
(32)
175
499
(258)
241
201
26
51
(3)
(1)
(33)
241
13. OTHER LaND, BuILDINGS,
PLaNT aND EquIPmENT
Cost
Less accumulated depreciation and
impairment
Balance at 31 December
Reconciliation of movements
Balance at 1 January
Acquisition of controlled entities
Additions
Disposals
Impairment
Depreciation
Balance at 31 December
14. ImPaIRmENT OF NON‑CuRRENT aSSETS
(A) EXPLORATION AND EvALUATION ASSETS
At 31 December 2012 the Group reassessed the carrying amount of its exploration and evaluation assets for indicators of impairment in
accordance with the Group’s accounting policy (refer note 1(H)). As a result, the recoverable amounts of some specific exploration and
evaluation assets were formally reassessed, resulting in an impairment loss of $5 million (2011: $13 million). Estimates of recoverable
amounts of exploration and evaluation assets are based on the asset’s fair value less costs to sell.
area of interest
Segment
Description
2012
Carnarvon Basin
Tajikistan
WA & NT
Asia Pacific
Exploration area
Exploration area
Total impairment of exploration and evaluation assets
2011
Bangladesh
Asia Pacific
Exploration area
Total impairment of exploration and evaluation assets
(B) OIL AND GAS ASSETS
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
4
1
5
13
13
–
–
–
–
–
4
1
5
13
13
At 31 December 2012 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 cash‑generating units and some specific oil and gas
assets were formally reassessed, resulting in an impairment loss of $101 million (2011: $118 million).
Estimates of recoverable amounts of oil and gas assets are based on either fair value less costs to sell or value in use, determined by
discounting each asset’s estimated future cash flows at asset‑specific discount rates. The pre‑tax discount rates applied were equivalent
to post‑tax discount rates between 8.0% and 14.7% (2011: 8.3% and 14.4%), depending on the nature of the risks specific to each
asset.
110
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
14. ImPaIRmENT OF NON‑CuRRENT aSSETS (CONTINuED)
(B) OIL AND GAS ASSETS (CONTINUED)
Cash‑generating unit
Segment
Description
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
2012
Impairment/(reversal) of CGUs:
Thevenard
Legendre
Jabiru/Challis
Elang‑Kakatua
Sangu
Sampang
SE Gobe
WA & NT
WA & NT
WA & NT
WA & NT
Asia Pacific
Asia Pacific
Asia Pacific
Oil field
Oil field
Oil field
Oil field
Gas PSC
Oil and gas PSC
Oil and gas field
Total impairment of oil and gas assets
2011
Impairment/(reversal) of CGUs:
Legendre
Airlie
Thevenard
mutineer‑Exeter
Kipper
moonie
Sangu
WA & NT
WA & NT
WA & NT
WA & NT
Eastern Australia
Eastern Australia
Asia Pacific
Oil field
Oil field
Oil field
Oil field
Gas field
Oil field
Gas PSC
Impairment/(reversal) of specific
oil and gas assets:
Cooper Basin
Cooper Basin
Other Surat
Eastern Australia
Eastern Australia
Eastern Australia
Oil and gas field
Pipeline
Gas field
Total impairment of oil and gas assets
(C) OTHER LAND, BUILDINGS, PLANT AND EqUIPmENT
34
(4)
6
(3)
26
10
(1)
68
6
4
(5)
(4)
9
9
66
7
–
2
94
27
–
–
–
–
6
–
33
–
–
–
–
20
5
–
–
(1)
–
24
61
(4)
6
(3)
26
16
(1)
101
6
4
(5)
(4)
29
14
66
7
(1)
2
118
At 31 December 2012 the Group reassessed the carrying amount of its other land, buildings, plant and equipment assets for indicators
of impairment. As a result, the recoverable amounts of some specific other land, buildings, plant and equipment assets were formally
reassessed. No impairment loss was recognised by the Group during the year (2011: $1 million). Estimates of recoverable amounts of
other land, buildings, plant and equipment assets are based on its fair value less costs to sell.
asset
Segment
Description
Subsurface
assets
$million
Plant and
equipment
$million
Total
$million
2011
Other plant and equipment
Total impairment of other land,
buildings, plant and equipment
Corporate
Aircraft
–
–
1
1
1
1
111
Santos Annual Report 2012
15. DEFERRED Tax aSSETS
aND LIaBILITIES
2012
$million
2011
$million
2012
$million
2011
$million
2012
$million
2011
$million
assets
Liabilities
Net
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable
to the following:
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Available‑for‑sale financial assets
Trade receivables
Other receivables
Inventories
Derivative financial instruments
Other assets
Equity‑raising costs
Interest‑bearing loans and borrowings
Other liabilities
Provisions
Royalty‑related taxation
Other items
Tax value of carry‑forward losses recognised
–
–
16
–
1
–
–
–
–
6
–
26
243
–
–
–
–
–
20
2
–
–
–
–
–
11
–
–
237
–
–
14
(477)
(213)
–
–
–
(7)
(2)
(69)
(36)
–
(26)
–
–
(371)
(1)
(1)
(455)
(155)
–
–
(2)
(9)
(3)
(42)
(24)
–
(32)
(20)
–
(361)
(16)
–
Tax assets/(liabilities)
Set‑off of tax
Net tax assets/(liabilities)
292
(269)
23
284
(142)
142
(1,203)
269
(1,119)
142
(934)
(977)
unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Temporary differences in relation to investments in subsidiaries
Deductible temporary differences relating to royalty‑related taxation (net of income tax)
Other 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 sufficient future taxable profits
against which the benefits can be utilised. Tax losses of $67 million (2011: $66 million) will expire
between 2021 and 2028. The remaining deductible temporary differences and tax losses do not expire
under current tax legislation.
16. TRaDE aND OTHER PayaBLES
Trade payables
Non‑trade payables
112
(477)
(213)
16
–
1
(7)
(2)
(69)
(36)
6
(26)
26
243
(371)
(1)
(1)
(911)
–
(911)
(455)
(155)
20
2
(2)
(9)
(3)
(42)
(24)
11
(32)
(20)
237
(361)
(16)
14
(835)
–
(835)
2012
$million
2011
$million
2,939
3,625
269
349
7,182
1,550
–
239
347
2,136
786
164
950
764
241
1,005
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
17. 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
Finance leases
Bank loans – unsecured
Long‑term notes
Non‑current
Finance leases
Bank loans – secured
Bank loans – unsecured
medium‑term notes
Long‑term notes
Subordinated notes
2012
$million
2011
$million
1
14
–
15
1
1,168
170
107
846
1,397
3,689
1
17
151
169
2
695
77
105
868
1,345
3,092
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 5.61% as at 31 December 2012 (2011: 5.86%).
All secured interest‑bearing loans and borrowings, with the exception of the finance leases, are borrowed through Santos Finance Ltd, which
is a wholly‑owned subsidiary of Santos Limited. All interest‑bearing loans and borrowings by Santos Finance Ltd are guaranteed by Santos
Limited. All borrowings are unsecured, with the exception of the secured bank loans and finance leases.
Details of major credit facilities
(A) BANK LOANS – SECURED
Secured assets
year of maturity
Currency
PNG LNG
PNG LNG
2024/2026
USD
Effective interest rate
2012
%
4.61
2011
%
4.59
2012
$million
2011
$million
1,168
695
Loan facilities for the PNG LNG project, in which Santos entities hold an equity interest of 13.5%, were entered into by the joint venture
participants on 15 December 2009 and are provided by 17 commercial banks and six export credit agencies, bear fixed and floating rates
of interest and have estimated final maturity dates (subject to the date of practical completion of the PNG LNG project) of December
2024 and December 2026 respectively. As at 31 December 2012, US$557 million (A$537 million) of the facility limit remains undrawn.
The facilities include security over assets and entitlements of the participants in respect of the project. The carrying values of the
Group’s assets pledged as security are:
Trade and other receivables
Oil and gas assets – Assets in development
2012
$million
2011
$million
94
2,041
2,135
35
1,308
1,343
113
Santos Annual Report 2012
17. INTEREST‑BEaRING LOaNS aND BORROWINGS (CONTINuED)
(A) BANK LOANS – SECURED (CONTINUED)
The coordinated development and operating agreement is the key commercial agreement for the project and includes a “mandatory
default step‑up” provision under which prior to first cargo:
(i) parties which have not defaulted in the payment of a cash call for a licence area within the project are required to pay a pro‑rata
share of cash calls not paid by the defaulting parties; and
(ii) if a licence area fails to collectively remedy a payment default, non‑defaulting project participants from other licence areas are
required to pay a pro‑rata share of the amounts not paid by the defaulting licence area.
Where non‑defaulting parties make “mandatory default step‑up” payments they are entitled to dilute the equity interests of defaulting
parties at a penalty rate of 20%.
(B) BANK LOANS – UNSECURED
Term bank loans
year of maturity
2012–2017
Effective interest rate
Currency
USD
2012
%
0.82
2011
%
0.62
2012
$million
2011
$million
75
94
Term bank loans bear interest at the relevant interbank reference rate. The amount outstanding at 31 December 2012 is US$78 million
(A$75 million) (2011: US$95 million (A$94 million)).
Export credit agency supported loan facilities
At 31 December 2012, the Group had loan facilities of US$1,200 million (A$1,157 million) supported by various export credit agencies,
which have estimated maturity dates (subject to the date of practical completion of the GLNG project) between 2016 and 2024.
year of maturity
2016–2024
Effective interest rate
Currency
USD
2012
%
3.64
2011
%
2012
$million
2011
$million
–
109
–
Export credit agency loans bear interest at the relevant interbank reference rate plus a margin. The principal outstanding at
31 December 2012 is US$130 million (A$126 million) (2011: nil).
(C) mEDIUm‑TERm NOTES
The Group has a $1,000 million (2011: $1,000 million) Australian medium‑term note programme under which the following were issued
in 2005:
year of issue
year of maturity
2005
2015
Effective interest rate
2012
%
4.74
2011
%
5.66
2012
$million
2011
$million
107
105
114
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
17. INTEREST‑BEaRING LOaNS aND BORROWINGS (CONTINuED)
(D) LONG‑TERm NOTES
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
2010–2015
2010–2022
2017–2027
Effective interest rate
2012
%
2.05
1.92
1.06
2011
%
1.82
2.73
0.90
2012
$million
2011
$million
57
162
627
846
82
296
641
1,019
Long‑term notes bear interest at 5.95% to 8.44% (2011: 5.85% to 8.44%) fixed rate interest, which have been swapped to floating rate
commitments. The principal outstanding at 31 December 2012 is US$688 million (A$663 million) (2011: US$839 million (A$828 million)).
(E) SUBORDINATED NOTES
The Group has issued €1,000 million in subordinated notes, which mature after 60 years but which can be redeemed at the Group’s
option on or after 22 September 2017.
year of issue
year of maturity
2010
2070
Effective interest rate
2012
%
6.46
2011
%
7.26
2012
$million
2011
$million
1,397
1,345
The subordinated notes accrue fixed coupons at a rate of 8.25% (2011: 8.25%) per annum for the first seven years, and thereafter on a
floating rate basis plus a 6.85% margin. The subordinated notes are not convertible into Santos Limited ordinary shares.
(F) BILATERAL BANK LOAN FACILITy
As at 31 December 2012 the Group had bilateral bank loan facilities of A$1,050 million (2011: A$1,450 million) and US$1,100 million
(A$1,060 million) (2011: US$500 million (A$493 million)) which mature between 2015 and 2018. The facilities are undrawn at
31 December 2012.
115
Santos Annual Report 2012
18. PROvISIONS
Current
Employee benefits
Restoration
Remediation
Carbon
Other
Non‑current
Employee benefits
Defined benefit obligations (refer note 29)
Restoration
Remediation
Carbon
movement in provisions
2012
$million
2011
$million
89
53
7
20
4
173
12
40
1,589
5
6
1,652
84
46
3
–
2
135
9
50
1,106
8
–
1,173
movements in each class of provision during the financial year, other than provisions relating to employee benefits, are set out below:
Balance at 1 January 2012
Provisions made during the year
Provisions used during the year
Unwind of discount
Change in discount rate
Exchange differences
Balance at 31 December 2012
Restoration
Total restoration
$million
Total remediation
$million
Total carbon
$million
Total
$million
1,152
169
(23)
45
273
26
1,642
11
3
(2)
–
–
–
12
–
26
–
–
–
–
26
1,163
198
(25)
45
273
26
1,680
Provisions for future removal and restoration costs are recognised when 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 outflow of economic benefits 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 when there is a present obligation as a result of an unexpected event that occurs outside of
the planned operations of an asset.
Carbon
Provisions for carbon costs are recognised when there is a present obligation to settle the Group’s emissions of carbon dioxide equivalent.
116
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
19. OTHER FINaNCIaL LIaBILITIES
Current
Other
Non‑current
Cross‑currency swap contracts
Other
20. ISSuED CaPITaL
961,184,172 (2011: 944,469,750) listed ordinary shares, fully paid
54,500 (2011: 83,000) ordinary shares, paid to one cent
2012
$million
2011
$million
4
4
–
39
39
2
2
47
35
82
6,608
–
6,608
6,392
–
6,392
In accordance with changes to applicable corporations legislation effective from 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.
Note
2012
2011
Number of shares
2012
$million
2011
$million
movement in fully paid ordinary shares
Balance at 1 January
Shares issued in Eastern Star Gas Limited (“ESG”) acquisition
Santos ESG Employee Incentive Plan
Santos Dividend Reinvestment Plan (“DRP”)
DRP underwriting agreement
Santos Employee Share1000 Plan
Santos Employee Sharematch Plan
Shares issued on exercise of options
Shares issued on vesting of Share Acquisition Rights
Santos Executive Share Plan
944,469,750
–
–
10,274,438
5,509,612
142,008
491,856
–
268,008
28,500
20(A)
20(A)
20(B)
20(B)
30(A)
30(A)
30(B)
30(A,B)
30(F)
874,991,455
51,200,158
2,002,362
8,629,248
6,498,096
171,750
639,420
65,668
271,593
–
Balance at 31 December
961,184,172
944,469,750
6,392
–
5
126
77
2
6
–
–
–
6,608
5,514
673
10
108
75
2
9
1
–
–
6,392
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 2012 was $11.10 (2011: $12.24).
117
Santos Annual Report 2012
20. ISSuED CaPITaL (CONTINuED)
(A) SHARES ISSUED IN EASTERN STAR GAS LImITED ACqUISITION
Santos acquired Eastern Star Gas Limited (“ESG”) in 2011. The consideration included the issue of 0.06881 Santos Limited shares for
each ESG share on issue. On completion of the Scheme of Arrangement on 17 November 2011, 51,200,158 fully paid ordinary shares were
issued and $673 million was credited to the Company’s capital account. In addition, 2,002,362 restricted shares were issued to ESG
employees to replace their existing ESG employee incentive plan shares. During 2012, $5 million was received in respect of repayment
of loans in relation to these shares (2011: $10 million).
Refer note 30(C) for further details.
(B) SANTOS DIvIDEND REINvESTmENT PLAN
The Santos Dividend Reinvestment Plan is in operation. Shares are allocated at the arithmetic average of the daily weighted average
market price of the Company’s shares on the ASX over a period of seven business days commencing on the second business day after the
Dividend Record Date. At this time, the Board has determined that a 2.5% discount will apply to the Santos Dividend Reinvestment Plan
on the final dividend for the year ended 31 December 2012. The last date for the receipt of an election notice to participate in the
Santos Dividend Reinvestment Plan is the record date, 7 march 2013. The Santos Dividend Reinvestment Plan was fully underwritten for
the 2011 final dividend.
Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, allowing returns to shareholders
and benefits for other stakeholders to be maintained, and to retain an efficient capital structure. In order to optimise the capital structure,
the Group may adjust its dividend distribution policy, return capital to shareholders, issue new shares, draw or repay debt or undertake other
corporate initiatives consistent with its strategic objectives.
In applying these objectives, the Group aims to:
• minimise the weighted average cost of capital whilst retaining appropriate financial flexibility;
• ensure ongoing access to a range of debt and equity markets; and
• maintain an investment grade credit rating.
A range of financial metrics are used to monitor the capital structure including ratios measuring Gearing, Funds from Operations to Debt
(“FFO‑to‑Debt”) and Debt over Earnings before Interest, Tax, Depreciation and Amortisation (“Debt‑to‑EBITDA”). The Group monitors these
capital structure metrics on both an actual and forecast basis.
During 2012, Santos Limited maintained a corporate credit rating of BBB+ from Standard & Poor’s. The credit rating was placed on “negative
outlook” in January 2011 following the Group’s announcement of the final investment decision on the Gladstone LNG project and this rating
outlook remains in place.
118
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012 21. RESERvES aND RETaINED EaRNINGS
Reserves
Balance at 1 January 2011
Net exchange gain on translation of foreign operations
Net loss on foreign currency loans designated as hedges
of net investments in foreign operations
Impairment of available‑for‑sale financial assets
reclassified to the income statement
Net loss on derivatives designated as cash flow hedges
Balance at 31 December 2011
Balance at 1 January 2012
Net exchange loss on translation of foreign operations
Net gain on foreign currency loans designated as hedges
of net investments in foreign operations
Net gain on derivatives designated as cash flow hedges
Balance at 31 December 2012
Nature and purpose of reserves
Translation reserve
Translation
reserve
$million
Fair value
reserve
$million
Hedging
reserve
$million
Total
$million
(329)
6
(14)
–
–
(337)
(337)
(101)
32
–
(406)
(3)
–
–
3
–
–
–
–
–
–
–
2
–
–
–
(16)
(14)
(14)
–
–
8
(6)
(330)
6
(14)
3
(16)
(351)
(351)
(101)
32
8
(412)
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations where their functional currency is different from 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 financial assets until the financial asset is
derecognised.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related
to hedged transactions that have not yet occurred.
Retained earnings
Balance at 1 January
Net profit after tax
Net actuarial gain/(loss) on the defined benefit plan
Share‑based payments
Dividends paid
Balance at 31 December
2012
$million
2011
$million
2,926
519
1
13
(285)
3,174
2,421
753
(10)
25
(263)
2,926
119
Santos Annual Report 2012
22. DIvIDENDS
Dividends recognised during the year
Dividends recognised during the year by the Company are:
2012
Interim 2012 ordinary
Final 2011 ordinary
2011
Interim 2011 ordinary
Final 2010 ordinary
Dividend
per share
$
Total
$million
Franked/
unfranked
Payment
date
0.15
0.15
0.30
0.15
0.15
0.30
143
142
285
132
131
263
Franked
Franked
28 Sep 2012
30 mar 2012
Franked
Franked
30 Sep 2011
31 mar 2011
Franked dividends paid during the year were franked at the tax rate of 30%.
Dividends declared in respect of the year
Dividends declared in respect of the year by the Company are:
2012
Final 2012 ordinary*
Interim 2012 ordinary
2011
Final 2011 ordinary
Interim 2011 ordinary
Dividend
per share
$
Total
$million
Franked/
unfranked
Payment
date
0.15
0.15
0.30
0.15
0.15
0.30
144
143
287
142
132
274
Franked
Franked
28 mar 2013
28 Sep 2012
Franked
Franked
30 mar 2012
30 Sep 2011
* After the reporting date, the final 2012 ordinary dividend of $0.15 per share was proposed by the Directors. The financial effect of these dividends has not been
brought to account in the financial statements for the year ended 31 December 2012 and will be recognised in subsequent financial reports.
Dividend franking account
30% franking credits available to the shareholders of Santos Limited for future distribution,
after adjusting for franking credits which will arise from the payment of the current tax
liability at 31 December
2012
$million
2011
$million
993
994
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 $62 million (2011: $61 million).
120
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
23. EaRNINGS PER SHaRE
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of Santos Limited
by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of Santos Limited 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 profit after tax in the income statement
as follows:
Earnings used in the calculation of basic and diluted earnings per share
2012
$million
519
2011
$million
753
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:
Basic earnings per share
Partly paid shares
Executive share options
Share acquisition rights
Diluted earnings per share
Earnings per share attributable to the equity holders of Santos Limited
Basic earnings per share
Diluted earnings per share
2012
Number of shares
2011
954,590,328
888,464,970
53,854
237,610
3,993,374
958,875,166
63,885
498,386
2,777,746
891,804,987
2012
¢
54.4
54.1
2011
¢
84.8
84.4
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 employees have been classified as potential ordinary
shares and included in the calculation of diluted earnings per share in 2012. The number of shares included in the calculation is that
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 2011 was retrospectively adjusted for the effect of a 2.5% discount applicable to the Dividend
Reinvestment Plan in respect of the 2010 final dividend and 2011 interim dividend (refer note 20(B)).
During the year nil (2011: 65,668) options, 268,008 (2011: 271,593) SARs and 28,500 (2011: nil) partly paid shares 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 88,829
(2011: 72,138).
During the year 308,101 (2011: 226,568) options and 679,939 (2011: 390,704) SARs lapsed. 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
and SARs lapsed. The weighted average number included is 275,241 (2011: 154,202).
121
Santos Annual Report 2012
24. CONSOLIDaTED ENTITIES
Name
Country of incorporation
Name
Country of incorporation
Santos Limited (Parent Company)
Controlled Entities1:
Alliance Petroleum Australia Pty Ltd2
Basin Oil Pty Ltd2
Bridgefield Pty Ltd
Bridge Oil Developments Pty Ltd2
Bronco Energy Pty Ltd
Canso Resources Pty Ltd
Doce Pty Ltd
Fairview Pipeline Pty Ltd
Farmout Drillers Pty Ltd
Gidgealpa Oil Pty Ltd
Kipper GS Pty Ltd
Controlled entities of Kipper GS Pty Ltd
Santos Carbon Pty Ltd
Controlled entity of Santos Carbon Pty Ltd
SB Jethro Pty Ltd
moonie Pipeline Company Pty Ltd
Reef Oil Pty Ltd2
Santos Asia Pacific Pty Ltd
Controlled entities of Santos Asia Pacific 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 Ltd
Santos Browse Pty Ltd5
Santos CSG Pty Ltd
Santos Darwin LNG Pty Ltd2
Santos Direct Pty Ltd
Santos Facilities Pty Ltd
Santos Finance Ltd
Santos GLNG Pty Ltd
Controlled entity of Santos GLNG Pty Ltd
Santos GLNG Corp
Santos (Globe) Pty Ltd
Santos International Holdings Pty Ltd
Controlled entities of Santos International Holdings Pty Ltd
Barracuda Ltd
CJSC South Petroleum Company1
Lavana Ltd
Sanro Insurance Pte Ltd
Santos Americas and Europe Corporation
Controlled entities of Santos Americas and Europe Corp
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
Santos TPy CSG Corp
Santos Bangladesh Ltd
Santos Baturaja Pty Ltd3
Santos (BBF) Pty Ltd
Controlled entities of Santos (BBF) Pty Ltd
Santos (SPv) Pty Ltd
Controlled entity of Santos (SPV) Pty Ltd
Santos (madura Offshore) Pty Ltd
Santos Belida Pty Ltd3
Santos (Donggala) Pty Ltd
Santos Egypt Pty Ltd
Santos EOm Pty Ltd
Santos Hides Ltd
122
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
USA
AUS
AUS
PNG
KGz
PNG
SGP
USA
USA
USA
USA
AUS
USA
GBR
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
PNG
Santos International Pte Ltd
Santos International Operations Pty Ltd
Santos International ventures Pty Ltd
Santos Netherlands B.v.3
Santos Niugini Exploration Ltd
Santos OIG Pty Ltd
Santos (Papalang) Pty Ltd
Santos Petroleum ventures B.v.
Santos (Popodi) Pty Ltd
Santos Sangu Field Ltd
Santos vietnam Pty Ltd
zhibek Resources Ltd1
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 NSW Pty Ltd4,5
Controlled entities of Santos NSW Pty Ltd
Santos NSW (Betel) Pty Ltd5
Santos NSW (Hillgrove) Pty Ltd5
Santos NSW (Holdings) Pty Ltd5
Controlled entities of Santos NSW (Holdings) Pty Ltd
Santos NSW (LNGN) Pty Ltd5
Santos NSW (Pipeline) Pty Ltd5
Santos NSW (Sales) Pty Ltd5
Santos NSW (Narrabri Energy) Pty Ltd5
Controlled entities of Santos NSW (Narrabri Energy) Pty Ltd
Santos NSW (Eastern) Pty Ltd5
Santos NSW (Sulu) Pty Ltd5
Santos NSW (Tooncomet) Pty Ltd5
Santos NSW (Narrabri Power) Pty Ltd5
Santos NSW (Operations) Pty Ltd5
Santos (N.T.) Pty Ltd
Controlled entity of Santos (N.T.) Pty Ltd
Bonaparte Gas & Oil Pty Ltd
Santos Offshore Pty Ltd2
Santos Petroleum Pty Ltd2
Santos qLD Upstream Developments Pty Ltd3
Santos qNT Pty Ltd2
Controlled entities of Santos QNT Pty Ltd
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 Pty Ltd
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
Santos Upstream Pty Ltd
Santos TPC Pty Ltd
Santos Wilga Park Pty Ltd
Santos Resources Pty Ltd
Santos (TGR) Pty Ltd
Santos Timor Sea Pipeline Pty Ltd
SESAP Pty Ltd
vamgas Pty Ltd2
SGP
AUS
AUS
NLD
PNG
AUS
AUS
NLD
AUS
GBR
AUS
GBR
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
Country of incorporation
AUS – Australia
GBR – United Kingdom
KGz – Kyrgyz Republic
NLD – Netherlands
PNG – Papua New Guinea
SGP – Singapore
USA – United States of America
24. CONSOLIDaTED ENTITIES (CONTINuED)
Notes
1. Beneficial interests in all controlled entities are 100%, except:
• CJSC South Petroleum Company (70%); and
• Zhibek Resources Ltd (75%).
2. Company is party to a Deed of Cross Guarantee. Refer note 37.
3. Company incorporated during the year.
4. Company changed type from public to proprietary during the year.
5. The following companies changed name during the year:
• Santos Browse Pty Ltd (previously Coveyork Pty Ltd);
• Santos NSW Pty Ltd (previously Eastern Star Gas Limited);
• Santos NSW (Betel) Pty Ltd (previously Betel Gas Pty Ltd);
• Santos NSW (Eastern) Pty Ltd (previously Eastern Energy Australia Pty Ltd);
• Santos NSW (Hillgrove) Pty Ltd (previously Hillgrove Energy Pty Ltd);
• Santos NSW (Holdings) Pty Ltd (previously Eastern Star Gas Holdings Pty Ltd);
• Santos NSW (LNGN) Pty Ltd (previously Eastern Star Gas LNG Pty Ltd);
• Santos NSW (Narrabri Energy) Pty Ltd (previously Narrabri Energy Pty Ltd);
• Santos NSW (Narrabri Power) Pty Ltd (previously Narrabri Power Pty Ltd);
• Santos NSW (Operations) Pty Ltd (previously Eastern Star Operations Pty Ltd);
• Santos NSW (Pipeline) Pty Ltd (previously Eastern Star Gas Pipeline Pty Ltd);
• Santos NSW (Sales) Pty Ltd (previously Eastern Star Gas Sales Pty Ltd);
• Santos NSW (Sulu) Pty Ltd (previously Sulu Resources Pty Ltd); and
• Santos NSW (Tooncomet) Pty Ltd (previously Tooncomet Pty Ltd).
25. aCquISITIONS aND DISPOSaLS OF SuBSIDIaRIES
(A) ACqUISITIONS
There were no acquisitions of controlled entities during 2012.
During 2011 the following controlled entities were acquired and the operating results included in the income statement from the date
of acquisition:
Name of entity
Date of
acquisition
Beneficial
interest
%
Contribution to
consolidated
profit from
acquisition date to
consideration 31 December 2011
$million
Purchase
$million
Eastern Star Gas Limited Group*
28 Oct 2011
100
722
(2)
* Eastern Star Gas Limited and its controlled entities changed names during the year. Refer note 24.
On 28 October 2011, Santos obtained control of Eastern Star Gas Limited (“ESG”) through the acquisition of the remaining 79.03% of
ESG’s outstanding ordinary shares via a Scheme of Arrangement (“the Scheme”). As a result, the Group’s equity interest in ESG increased
from 20.97% to 100%. ESG is focussed on the exploration of coal seam gas in Australia. At the time of acquisition, ESG’s main activity
was the Narrabri Gas Project, which is located in Petroleum Exploration Licence (“PEL”) 238 adjacent to the township of Narrabri in
New South Wales. At the time of acquisition ESG held a 65% interest in PEL 238, with the Group holding the remaining 35%. If the
acquisition had occurred on 1 January 2011, the Group’s revenue for the year ended 31 December 2011 would have increased by
$5 million and the net profit attributable to equity holders of Santos Limited would have reduced by $20 million.
This acquisition was provisionally accounted for at 31 December 2011, as the fair value of the net assets acquired had not been finally
determined, however no adjustment to the fair value was required in 2012.
123
Santos Annual Report 2012
25. aCquISITIONS aND DISPOSaLS OF SuBSIDIaRIES (CONTINuED)
(A) ACqUISITIONS (CONTINUED)
Acquisition‑date fair value of consideration transferred:
Shares issued
Share‑based payments
Cash paid
Total consideration transferred
(B) DISPOSAL OF CONTROLLED ENTITy
2011
$million
673
14
35
722
On 8 February 2012, the Group disposed of its wholly‑owned subsidiary Boston L.H.F. Pty Ltd for $2 million, resulting in a gain on sale
of $1 million.
There were no disposals of controlled entities during 2011.
26. INvESTmENT IN aN aSSOCIaTE
Company
Country
Principal
activity
Eastern Star Gas Limited
Australia
Oil and gas
Ownership interest
2012
%
100
2011
%
100
2012
$million
2011
$million
–
–
In 2011 Santos obtained control of Eastern Star Gas Limited (“ESG”) through the acquisition of the remaining
79.03% of ESG’s outstanding ordinary shares via a Scheme of Arrangement. As a result, the Group’s equity
interest in ESG increased from 20.97% to 100% (refer note 25).
movement in the carrying amount of the Group’s investment in an associate
Balance at 1 January
Share of net losses, after tax
Fair value adjustment for step‑up acquisition from associate to subsidiary
Consideration for step‑up acquisition from associate to subsidiary
Balance at 31 December
The Group’s share of the associate’s income statement
Revenue
Net loss after tax
–
–
–
–
–
–
–
208
(9)
(6)
(193)
–
1
(9)
124
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
27. INTERESTS IN JOINT vENTuRES
(A) JOINT vENTURE ASSETS
The following are the significant joint ventures assets in which the Group is a joint venturer:
Joint venture
Cash‑generating unit
Principal activities
Interest
2012
%
Interest
2011
%
Oil and gas assets – Producing assets
Bayu‑Undan
Casino
Chim Sao
Fairview
Halyard/Spar
John Brookes
madura Offshore PSC (maleo)
mutineer‑Exeter*
Reindeer
Roma
SA Fixed Factor Area
Sampang PSC (Oyong, Wortel)
Stag
SWq Unit
Bayu‑Undan
Casino
vietnam (Block 12)
GLNG
varanus Island
varanus Island
madura PSC
mutineer‑Exeter
Reindeer
GLNG
Cooper Basin
Sampang PSC
Stag
Cooper Basin
Oil and gas assets – assets in development
GLNG Downstream
Kipper
PNG LNG
GLNG
Kipper
PNG LNG
Exploration and evaluation assets
Caldita/Barossa
Petrel, Tern & Frigate
PEL1 and 12
PEL238 and PAL2
PEL238 and PAL2
–
–
–
–
–
* Acquired additional interest in December 2012, subject to customary approvals.
Gas and liquids production
Gas production
Oil and gas production
Gas production
Gas production
Gas production
Gas production
Oil production
Gas production
Gas production
Oil and gas production
Oil and gas production
Oil and gas production
Gas production
LNG facilities in development
Gas development
Gas and liquids development
Contingent gas resource
Gas development
Contingent gas resource
Contingent gas resource
Contingent gas resource
11.5
50.0
31.9
22.8
45.0
45.0
67.5
41.6
45.0
30.0
66.6
45.0
66.7
60.1
30.0
35.0
13.5
25.0
40.0
65.0
80.0
69.2
11.5
50.0
31.9
22.8
45.0
45.0
67.5
33.4
45.0
30.0
66.6
45.0
66.7
60.1
30.0
35.0
13.5
40.0
40.0
65.0
80.0
69.2
125
Santos Annual Report 2012
27. INTERESTS IN JOINT vENTuRES (CONTINuED)
(B) JOINTLy CONTROLLED ENTITIES
The Group recognises its interests in the following jointly controlled entities using the proportionate consolidation method
of accounting:
Joint venture entity
CJSC KNG Hydrocarbons
Darwin LNG Pty Ltd
Easternwell Drilling Services Holdings Pty Ltd
GLNG Operations Pty Ltd
GLNG Property Pty Ltd
Lohengrin Pty Ltd
Papua New Guinea Liquefied Natural Gas Global Company LDC
Interest
2012
%
54.0
11.5
50.0
30.0
30.0
50.0
13.5
Interest
2011
%
54.0
11.5
50.0
30.0
30.0
50.0
13.5
The Group’s share of the assets, liabilities, income and expenses of the jointly controlled entities, which are included in the consolidated
financial statements using the proportionate consolidation method of accounting, are as follows:
Current assets
Non‑current assets
Total assets
Current liabilities
Non‑current liabilities
Net assets
Revenue
Expenses
(Loss)/profit before income tax
(C) JOINT vENTURE COmmITmENTS
2012
$million
2011
$million
824
1,287
2,111
782
1,189
140
375
(379)
(4)
570
822
1,392
507
713
172
362
(326)
36
The Group’s share of capital expenditure commitments and minimum exploration commitments
in respect of joint ventures are:
Capital expenditure commitments
minimum exploration commitments
2,968
139
4,458
126
126
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
28. NOTES TO THE STaTEmENT OF CaSH FLOWS
(A) RECONCILIATION OF CASH FLOWS FROm OPERATING ACTIvITIES
Profit after income tax
Add/(deduct) non‑cash items:
Depreciation and depletion
Exploration and evaluation expensed
Net impairment loss on exploration and evaluation assets
Net impairment loss on oil and gas assets
Net impairment loss on other land, buildings, plant and equipment
Net reversal of impairment loss on receivables
Net (gains)/losses on fair value hedges
Share‑based payment expense
Unwind of the effect of discounting on provisions
Change in fair value of financial assets designated as at fair value through profit or loss
Defined benefit plan expense
Foreign exchange losses/(gains)
Net gain on sale of exploration and evaluation assets
Net gain on sale of oil and gas assets
Net gain on sale of controlled entities
Net loss on sale of available‑for‑sale financial assets
Fair value adjustment for step‑up acquisition from associate to subsidiary
Share of net loss in an associate
Amortisation of prepaid loan transaction costs
Net cash provided by operating activities before changes in assets or liabilities
Add/(deduct) change in operating assets or liabilities, net of acquisitions or
disposals of businesses:
Decrease in trade and other receivables
Increase in inventories
Increase in other assets
Increase in net deferred tax liabilities
Increase in current tax liabilities
Decrease in trade and other payables
Increase in provisions
2012
$million
2011
$million
518
773
41
5
101
–
–
(8)
15
45
1
3
2
–
(11)
(1)
1
–
–
6
751
641
58
13
118
1
(9)
13
13
43
(8)
2
(18)
(200)
(329)
–
–
6
9
3
1,491
1,107
10
(38)
(51)
57
154
(15)
50
60
(17)
(49)
52
126
(46)
20
Net cash provided by operating activities
1,658
1,253
(B) NON‑CASH FINANCING AND INvESTING ACTIvITIES
Santos Dividend Reinvestment Plan
Consideration for acquisition of Eastern Star Gas Limited
(C) TOTAL TAXATION PAID
Income taxes paid
Cash outflow from operating activities
Cash outflow from investing activities
Royalty‑related taxation paid
Cash outflow from operating activities
(D) TOTAL BORROWING COSTS PAID
Cash outflow from operating activities
Cash outflow from investing activities
126
–
(24)
(124)
(142)
(290)
(19)
(175)
(194)
108
687
(200)
(248)
(157)
(605)
(81)
(132)
(213)
127
Santos Annual Report 2012
29. EmPLOyEE BENEFITS
(A) DEFINED BENEFIT PLAN
Defined benefit members of the Santos Superannuation Plan receive a lump sum benefit on retirement, death, disablement and
withdrawal. The defined benefit section of the plan is closed to new members. All new members receive accumulation‑only benefits.
2012
$million
2011
$million
amount recognised in the statement of financial position
Deficit in plan recognised in non‑current provisions (refer note 18)
Non‑current receivables
movements in the liability for net defined benefit obligations recognised in
the statements of financial position
Liability at 1 January
Expense recognised in income statement
Amount capitalised in oil and gas assets
Amount recognised in retained earnings
Employer contributions
Liability at 31 December
Expense recognised in the income statement
Service cost
Interest cost
Expected return on plan assets
The expense is recognised in the following line item in the income statement:
Cost of sales
amounts recognised in other comprehensive income
Actuarial gain/(loss) in the year
Tax effect
Net actuarial gain/(loss) in the year
Cumulative actuarial loss recognised in other comprehensive income, net of tax
Historical information for the current and previous periods
40
(16)
24
27
3
2
(2)
(6)
24
4
5
(6)
3
3
2
(1)
1
(22)
50
(23)
27
22
2
1
14
(12)
27
2
3
(3)
2
2
(14)
4
(10)
(23)
2012
$million
2011
$million
2010
$million
2009
$million
2008
$million
Present value of defined
benefit obligations
Fair value of plan assets
Deficit in plan
Experience adjustments
(gain)/loss on plan assets
Experience adjustments gain
on plan liabilities
190
(150)
40
(6)
–
128
192
(142)
50
12
(2)
173
(141)
32
5
(3)
170
(136)
34
(9)
(7)
175
(113)
62
43
(14)
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
29. EmPLOyEE BENEFITS (CONTINuED)
(A) DEFINED BENEFIT PLAN (CONTINUED)
Reconciliation of the fair value of plan assets
Opening fair value of plan assets
Expected return on plan assets
Actuarial gain/(loss)
Employer contributions
Contributions by plan participants
Benefits paid
Taxes and premiums paid
Transfers in
Closing fair value of plan assets
Reconciliation of the present value of the defined benefit obligations
Opening defined benefit obligations
Service cost
Interest cost
Contribution by plan participants
Actuarial loss
Benefits paid
Taxes and premiums paid
Closing defined benefit obligations
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 financial instruments; or
• any property occupied by, or other assets used by, the Group.
actual return on plan assets
Actual return on plan assets – gain/(loss)
Expected rate of return on plan assets
2012
$million
2011
$million
142
10
6
9
4
(19)
(2)
–
150
192
8
7
4
–
(19)
(2)
190
141
10
(12)
12
5
(11)
(4)
1
142
173
7
9
5
13
(11)
(4)
192
2012
%
2011
%
26
29
19
14
5
7
28
29
12
10
13
8
2012
$million
2011
$million
10
(1)
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.
129
Santos Annual Report 2012
29. EmPLOyEE BENEFITS (CONTINuED)
(A) DEFINED BENEFIT PLAN (CONTINUED)
2012
% p.a.
2011
% p.a.
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
2.6
nil
5.0
3.4
7.3
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 $5 million to the defined benefit superannuation plan in 2013.
(B) DEFINED CONTRIBUTION PLANS
The Group makes contributions to several defined contribution plans. The amount recognised as an expense for the year was $11 million
(2011: $8 million).
30. SHaRE‑BaSED PaymENT PLaNS
(A) CURRENT GENERAL EmPLOyEE SHARE PLANS
The Company operated two general employee share plans in 2012:
• Share1000, governed by the Santos Employee Share Acquisition Plan rules (“Share1000 Plan”); and
• Sharematch, governed by the Sharematch Plan rules (“Sharematch Plan”).
Broadly, the Share1000 Plan and the Sharematch Plan provide for Australian‑resident permanent eligible employees to be entitled to
acquire shares under the plans. Eligible employees have the option to participate in either the Share1000 Plan or the Sharematch Plan.
members of the Santos Leadership Team, Directors of the Company, casual employees, employees on fixed‑term contracts and employees
on international assignment are excluded from participating in the Share1000 Plan and the Sharematch Plan.
Share1000 Plan
The Share1000 Plan was introduced in 2010 with the first issue of shares pursuant to the plan being made in 2011. The Share1000 Plan
provides for grants of fully paid ordinary shares up to a value determined by the Board, being $1,000 per annum per eligible employee.
A trustee funded by the Group acquires the shares directly from the Company. The trustee holds the shares on behalf of the participants
in the plan until the shares are no longer subject to restrictions.
The employee’s ownership of shares allocated under the Share1000 Plan, and his or her right to deal with them, are subject to
restrictions until the earlier of the expiration of the three‑year restriction period and the time when he or she ceases to be an employee.
During the restriction period, participants are entitled to receive dividends, participate in bonus and rights issues and instruct the
trustee as to the exercise of voting rights.
130
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(A) CURRENT GENERAL EmPLOyEE SHARE PLANS (CONTINUED)
The following shares were issued pursuant to the Share1000 Plan during the period:
Date
2012
4 January 2012
2 July 2012
2011
4 January 2011
4 July 2011
Issued
shares
Number
6,400
135,608
142,008
82,200
89,550
171,750
Fair value
per share
$
12.4090
10.7600
13.1974
13.3026
The fair value per share is determined by the volume Weighted Average Price (“vWAP”) of ordinary Santos shares on the Australian
Securities Exchange (“ASX”) during the week up to and including the date of issue of the shares.
The amounts recognised in the financial statements of the Group in relation to the Share1000 Plan during the year were:
Employee expenses
Issued ordinary share capital
ShareMatch Plan
2012
$000
1,539
1,539
2011
$000
2,275
2,275
The Sharematch Plan was also introduced in 2010 as an alternative to the Share1000 Plan with the first issue of shares pursuant to
the plan being made in 2011. The Sharematch Plan provides an opportunity for eligible employees to purchase shares through salary
sacrifice, up to a maximum value of $5,000, and to receive a matched Share Acquisition Right (“SAR”) at a ratio set by the Board and
with vesting subject to conditions of service. The salary sacrifice deductions are made over a maximum twelve‑month period. In 2011
and 2012, the ratio was one matched SAR for each share purchased.
The employee’s ownership of shares allocated under the Sharematch Plan, and his or her right to deal with them, are subject to
restrictions until the earlier of the expiration of the restriction period (which will be approximately three, five or seven years from the
date of the offer, depending on any election made by the employee) and the time when he or she ceases to be an employee. During the
restriction period, participants are entitled to receive dividends, participate in bonus and rights issues and exercise voting rights.
131
Santos Annual Report 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(A) CURRENT GENERAL EmPLOyEE SHARE PLANS (CONTINUED)
The following shares were issued pursuant to the Sharematch Plan during the period:
Date
2012
4 January 2012
2 July 2012
2011
4 January 2011
4 July 2011
Issued
shares
Number
39,248
452,608
491,856
307,401
332,019
639,420
Fair value
per share
$
12.4090
10.7600
13.1974
13.3026
The following shares were issued in one tranche and subsequently forfeited and reallocated in a new tranche:
Number of shares
982
500
378
Original
tranche
Reallocated
tranche
4 July 2011
4 July 2011
4 January 2011
4 January 2012
2 July 2012
2 July 2012
The fair value per share is determined by the vWAP of ordinary Santos shares on the ASX during the week up to and including the date of
issue of the shares.
During the year the Company issued $5 million (2011: $8 million) of share capital under the Sharematch Plan. Cash of $5 million
(2011: $6 million) was received from employees under loan arrangements. The movement in loans receivable from employees during the
year was:
Employee loans at 1 January
Ordinary share capital issued during the year
Cash received during the year
Employee loans at 31 December
2012
$000
2,215
5,379
(5,155)
2,439
2011
$000
–
8,478
(6,263)
2,215
132
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(A) CURRENT GENERAL EmPLOyEE SHARE PLANS (CONTINUED)
During the financial year, the Company granted 493,716 (2011: 639,779) matched SARs to eligible employees as set out below. Shares
allocated to an employee upon the vesting of matched SARs will be subject to restrictions on dealing until the same restriction date as
that which applies to the shares allocated under the Sharematch Plan (effectively a maximum four‑year restriction period from the date
the shares are allocated following vesting of the matched SARs). No amount is payable on grant or vesting of the matched SARs.
Grant
2012
R07 – R09
R10 – R12
R01 – R03
R04 – R06
Total
2011
RO1 – RO3
RO4 – RO6
Total
year of
grant
End of
vesting
period
Beginning
of the year
Number
2012
2012
2011
2011
3 July 2014
1 July 2015
3 July 2013
3 July 2014
–
–
297,748
326,589
Granted
during
the year
Number
40,230
453,486
–
–
Lapsed
Number
vested
Number
End of
the year
Number
(402)
(4,202)
(12,648)
(14,594)
–
(3,251)
(8,883)
(6,187)
39,828
446,033
276,217
305,808
624,337
493,716
(31,846)
(18,321)
1,067,886
2011
2011
3 July 2013
3 July 2014
–
–
–
307,401
332,378
(8,141)
(5,414)
(1,512)
(375)
297,748
326,589
639,779
(13,555)
(1,887)
624,337
The fair value of services received in return for matched SARs granted is measured by reference to the fair value of matched SARs
granted. The estimate of the fair value of the services received is measured by discounting the share price on the grant date using the
assumed dividend yield for the term of the matched SAR.
matched SaRs grant
R07 – R09
R10 – R12
R01 – R03
R04 – R06
2012
2011
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Right life (weighted average, years)
Expected dividends (% p.a.)
11.93
12.65
–
2.5
2.4
10.06
10.91
–
3.0
2.8
12.47
13.19
–
2.5
2.3
12.61
13.47
–
3.0
2.2
133
Santos Annual Report 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(A) CURRENT GENERAL EmPLOyEE SHARE PLANS (CONTINUED)
The amounts recognised in the financial statements of the Group during the financial year in relation to matched SARs issued under the
Sharematch Plan were:
Employee expenses
Retained earnings
(B) EXECUTIvE LONG‑TERm INCENTIvE PROGRAmmE
2012
$000
3,651
3,651
2011
$000
2,196
2,196
The Company’s Executive Long‑term Incentive (“LTI”) Programme provides for invitations to be extended to eligible executives selected
by the Board. The Programme is governed by the Santos Employee Equity Incentive Plan (formerly known as the Employee Share
Purchase Plan) rules in respect of offers of SARs and the Santos Executive Share Option Plan rules in respect of offers of options.
The Santos Executive Share Option Plan rules have been in force since 1997, however no new issues of options have been made under
the plan since 2009. The Santos Employee Share Purchase Plan rules have been used as a basis of executive compensation since 2003
and were amended and renamed the Santos Employee Equity Incentive Plan in 2012. Each SAR and option is a conditional entitlement to
a fully paid ordinary share, subject to the satisfaction of performance or service conditions, on terms and conditions determined by the
Board. The Board has the discretion to cash‑settle SARs granted under the amended Santos Employee Equity Incentive Plan.
SARs and options carry no voting or dividend rights until the performance or service conditions are satisfied and, in the case of options,
when the options are exercised or, in the case of SARs, when the SARs vest and are converted into shares.
Upon cessation of employment, unvested SARs and options will in general lapse and be forfeited. However, if cessation occurs due to
death, disability or redundancy, or in other circumstances approved by the Board, then a proportion of the unvested SARs or options may
remain on foot (i.e. remain in the plan and not lapse) or vest (and in the case of options become exercisable).
Where there is a change in control, the Board may determine whether, and the extent to which, SARs and options may vest.
The 2011 and 2012 LTI Programme offers consisted only of SARs. Eligible executives were granted both Performance Awards and Deferred
Awards in 2011 but Deferred Awards were then discontinued as part of the regular LTI Programme and no SARs were granted in 2012.
Performance Awards only were granted to eligible executives in 2012.
134
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(B) EXECUTIvE LONG‑TERm INCENTIvE PROGRAmmE (CONTINUED)
Vesting of Performance Awards
All Performance Awards are subject to hurdles based on the Company’s Total Shareholder Return (“TSR”) relative to the ASX 100 over a
three‑year performance period to the end of the vesting period. There is no retesting of performance conditions. Each tranche of the
Performance Awards vests in accordance with the following vesting schedule, relative to the TSR condition:
TSR percentile ranking
< 50th percentile
= 50th percentile
51st to 75th percentile
≥ 75th percentile
TSR percentile ranking
< 50th percentile
= 50th percentile
51st to 100th percentile
Vesting of Deferred Awards
Grants I4 – I6, J1 – J6
% of grant vesting
Grants F3 – F5
% of grant vesting
–
50
Further 2.0% for each percentile
100
–
37.5
Further 1.5% for each percentile
Further 1.0% for each percentile over 75th
all other grants
% of grant vesting
–
33.33
Further 1.33% for each percentile
Each tranche of the Deferred Awards vests based on continuous service to the vesting date.
During the financial year, the Company granted 1,558,946 (2011: 1,012,010) SARs under the LTI Programme to eligible executives as set
out below. Shares allocated on vesting of SARs granted in 2011 and 2012 may be subject to further restrictions on dealing for five or
seven years after the original grant date, depending on whether the executive elected to extend the trading restrictions period beyond
the vesting date. Shares allocated on the vesting of SARs that were granted prior to 2012 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.
135
Santos Annual Report 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(B) EXECUTIvE LONG‑TERm INCENTIvE PROGRAmmE (CONTINUED)
year of
grant
End of
vesting
period
Beginning
of the year
Number
Granted
during
the year
Number
Lapsed
Number
vested
Number
End of
the year
Number
2012
2012
2011
2011
2010
2010
2009
2008
2008
2011
2010
2010
2009
2009
2011
2011
2010
2010
2010
2010
2009
2008
2008
2008
2008
2011
2010
2010
2010
2009
2009
2008
31 Dec 2014
31 Dec 2014
31 Dec 2013
31 Dec 2013
31 Aug 2013
31 Dec 2012
31 Dec 2011
31 Dec 2012
31 Dec 2011
28 Feb 2014
7 Nov 2012
1 mar 2013
1 mar 2012
1 mar 2012
31 Dec 2013
31 Dec 2013
31 Dec 2012
31 Aug 2013
31 Dec 2012
31 Dec 2012
31 Dec 2011
31 Dec 2012
31 Dec 2011
31 Dec 2010
31 Dec 2010
28 Feb 2014
7 Nov 2012
7 Nov 2011
1 mar 2013
1 mar 2012
1 mar 2012
2 may 2011
–
–
544,186
157,232
40,000
481,998
255,279
50,403
50,403
259,310
15,000
249,284
82,671
132,285
1,365,011
193,935
–
–
–
–
–
–
–
–
–
–
–
–
(133,073)
–
(66,325)
–
–
(84,502)
(255,279)
–
(50,403)
(27,219)
–
(29,490)
(945)
(1,839)
–
–
(1,218)
–
–
–
–
–
–
(7,820)
(15,000)
(13,477)
(81,726)
(130,446)
1,231,938
193,935
476,643
157,232
40,000
397,496
–
50,403
–
224,271
–
206,317
–
–
2,318,051
1,558,946
(649,075)
(249,687)
2,978,235
–
–
10,000
40,000
10,000
590,942
378,491
50,403
50,403
35,973
124,305
–
15,000
15,000
290,964
114,377
159,155
67,883
577,721
157,232
–
–
–
–
–
–
–
–
–
277,057
–
–
–
–
–
–
(33,535)
–
(10,000)
–
(10,000)
(101,434)
(88,549)
–
–
(4,676)
(21,545)
(17,747)
–
–
(36,629)
(31,706)
(18,020)
(3,308)
–
–
–
–
–
(7,510)
(34,663)
–
–
(31,297)
(102,760)
–
–
(15,000)
(5,051)
–
(8,850)
(64,575)
544,186
157,232
–
40,000
–
481,998
255,279
50,403
50,403
–
–
259,310
15,000
–
249,284
82,671
132,285
–
1,952,896
1,012,010
(377,149)
(269,706)
2,318,051
Grant
2012
Performance
J1 – J3
J4 – J6
I1 – I3
I4 – I6
H4
H1
G1
F5
F4
Deferred
DI1 – DI3
H6
H2
G3
G2
2011
Performance
I1 – I3
I4 – I6
H7
H4
H3
H1
G1
F5
F4
F3
F1
Deferred
DI1 – DI3
H6
H5
H2
G3
G2
F2
136
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(B) EXECUTIvE LONG‑TERm INCENTIvE PROGRAmmE (CONTINUED)
The Company has not granted options over unissued shares under the Executive Long‑term Incentive Programme since 2009. The
information as set out below relates to options issued under the Executive Long‑term Incentive Programme in 2009 and earlier:
year of
grant
End of
vesting
period
Beginning
of the year
Number
Lapsed
Number
Exercised
Number
End of
the year
Number
Exercisable
at end of
the year
Number
Grant
2012
Performance
G1
F5
F4
Deferred
G2
vested in prior years
Weighted average exercise
price ($)
2011
Performance
G1
F5
F4
F3
F1
Deferred
G2
F2
vested in prior years
Weighted average exercise
price ($)
2009 31 Dec 2011
2008 31 Dec 2012
2008 31 Dec 2011
176,125
131,976
131,976
(176,125)
–
(131,976)
2009
1 mar 2012
54,621
4,108,376
–
–
4,603,074
(308,101)
–
–
–
–
–
–
–
131,976
–
–
–
–
54,621
4,108,376
54,621
4,108,376
4,294,973
4,162,997
12.69
15.90
N/a
12.46
12.31
2009 31 Dec 2011
2008 31 Dec 2012
2008 31 Dec 2011
2008 31 Dec 2010
2008 31 Dec 2011
2009
2008
1 mar 2012
1 may 2011
197,959
131,976
131,976
94,193
620,445
65,717
271,694
3,381,350
(21,834)
–
–
(12,245)
(137,097)
(8,528)
(22,064)
(24,800)
–
–
–
–
–
176,125
131,976
131,976
81,948
483,348
–
–
–
81,948
483,348
(2,568)
–
(63,100)
54,621
249,630
3,293,450
–
249,630
3,293,450
4,895,310
(226,568)
(65,668)
4,603,074
4,108,376
12.79
15.28
10.65
12.69
12.28
The options outstanding at 31 December 2012 have an exercise price in the range of $8.46 to $17.36, and a weighted average remaining
contractual life of 3.95 years (2011: 5.1 years).
During the year nil (2011: 65,668) options were exercised.
The fair value of shares issued as a result of exercising options is the market price of shares of the Company on the ASX as at close of
trading on their issue date.
The amounts recognised in the financial statements of the Group in relation to executive share options exercised during the financial
year were:
Issued ordinary share capital
2012
$000
–
2011
$000
699
137
Santos Annual Report 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(B) EXECUTIvE LONG‑TERm INCENTIvE PROGRAmmE (CONTINUED)
Valuation of SARs – Performance Awards
The fair value of services received in return for SARs granted is measured by reference to the fair value of SARs granted. The estimate
of the fair value of the services received for the Performance Awards are measured based on a monte Carlo simulation method. The
contractual life of the SARs is used as an input into this model. Expectations of early exercise are incorporated into a monte Carlo
simulation method. The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life
of the share rights), adjusted for any expected changes to future volatility due to publicly available information.
The following table includes the valuation assumptions used for Performance Awards SARs granted during the current and prior years:
Performance awards
J1 – J3
J4 – J6
I1 – I3
I4 – I6
2012
2011
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Expected dividends (% p.a.)
Risk‑free interest rate (based on Commonwealth
Government bond yields, % p.a.)
9.97
14.08
–
29.8
3.0
2.1
3.3
10.45
14.08
–
30.1
3.0
2.1
3.7
10.23
16.28
–
46.6
3.0
2.3
5.1
12.08
16.28
–
46.6
3.0
2.3
5.1
Valuation of SARs – Deferred Awards
The estimate of the fair value of the services received for the Deferred Awards are measured by discounting the share price on the grant
date using the assumed dividend yield for the term of the SAR.
The following table includes the valuation assumptions used for Deferred Awards SARs granted during 2011. No Deferred Awards SARs
were granted during 2012:
Deferred awards
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Right life (weighted average, years)
Expected dividends (% p.a.)
Financial statement effect
2011
DI1 – DI3
15.25
16.28
–
3.0
2.3
The amounts recognised in the financial statements of the Group during the financial year in relation to equity‑settled share‑based
payment grants issued under the LTI Programme were:
Employee expenses:
SARs
Options
Total employee expenses
Retained earnings
138
2012
$000
8,983
20
9,003
9,003
2011
$000
8,011
861
8,872
8,872
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(B) EXECUTIvE LONG‑TERm INCENTIvE PROGRAmmE (CONTINUED)
Cash‑settled share‑based payments
As a result of the 2009 Entitlement Offer, issued at a 26.9% discount to the closing price of the shares before the announcement of the
Entitlement Offer, the Board determined that for every unvested SAR and option as at the time of the Entitlement Offer, eligible senior
executives would be entitled to a payment of $1.31 per SAR and option if and when those applicable SARs and options are converted
to shares.
The amounts recognised in the financial statements of the Group during the financial year in relation to cash‑settled share‑based
payment grants issued under the LTI Programme were:
Balance of liability at 1 January
Employee expenses
Revaluation
Cash payments
Balance of liability at 31 December
Intrinsic value of vested liability
2012
$000
2,051
49
(129)
(278)
1,693
1,604
2011
$000
2,112
367
(107)
(321)
2,051
1,543
(C) SANTOS EASTERN STAR GAS LImITED EmPLOyEE INCENTIvE PLAN
Santos acquired Eastern Star Gas Limited (“ESG”) in 2011. Under the ESG employee incentive plan, eligible ESG employees were granted
shares in ESG with interest‑free loans extended for terms of up to five years. The shares issued ranked equally with other issued ordinary
shares and were not quoted on the ASX as they were subject to trading restrictions while there were loans outstanding (“ESG Plan
Shares”).
As part of the acquisition of ESG, Santos issued Santos ESG Plan Shares in respect of the ESG Plan Shares for the same consideration as
ordinary ESG shares (i.e. 0.06881 Santos shares for each unquoted ESG Plan Share). These Santos ESG Plan Shares are subject to the
same terms and conditions as the ESG Plan Shares including trading restrictions until repayment of the loan balance and are not quoted
on the ASX while there are loans outstanding. Should the employees not repay the interest‑free loans during the term period, they
forfeit the shares, which will then be sold on‑market. The loans therefore have not been recognised as receivables. Employees are
entitled to dividends on these shares while the interest‑free loans are outstanding.
Financial statement effect
On 17 November 2011, 2,002,362 shares were granted to eligible ESG employees at a weighted average exercise price of $7.82.
No further shares have been issued under this plan.
In the period from 17 November 2011 to 31 December 2011, employee loans in respect of 1,061,634 shares were repaid at a weighted
average exercise price of $7.40, resulting in trading restrictions being lifted on those shares and an increase in the Company’s share
capital. During 2012 a total of $5 million employee loans were repaid (2011: $10 million). At 31 December 2012, loans were still
outstanding in respect of 223,628 (2011: 940,728) shares at a weighted average exercise price of $11.37 (2011: $8.28). The weighted
average remaining contractual life for the outstanding employee loans in respect of these shares is 2.2 years (2011: 1.2 years).
The range of exercise prices for shares outstanding at the end of the year was $9.01 to $15.26 (2011: $4.65 to $15.26).
139
Santos Annual Report 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(C) SANTOS EASTERN STAR GAS LImITED EmPLOyEE INCENTIvE PLAN (CONTINUED)
Valuation of Santos ESG Plan Shares
The fair value of services received in return for shares and interest‑free loans granted is measured by reference to the fair value of shares
granted. The estimate of the fair value of the services received for these shares and interest‑free loans are measured based on a monte
Carlo simulation method. The contractual life of the interest‑free loan is used as an input into this model. Expectations of early exercise
are incorporated into a monte Carlo simulation method. The expected volatility is based on the historic volatility (calculated based on
the weighted average remaining life of the share rights), adjusted for any expected changes to future volatility based on publicly
available information.
The following table includes the valuation assumptions used for shares and interest‑free loans granted as part of the ESG acquisition:
Santos ESG Plan Shares
Grant date
Share price on grant date ($)
Expected volatility (weighted average, % p.a.)
Expected dividends (% p.a.)
Risk‑free interest rate (based on Commonwealth Government bond yields, % p.a.)
2011
28 Oct 2011
13.20
41.0
2.7
3.9 – 4.3
(D) 2012–2015 FOUR‑yEAR STRATEGy GRANT
During the financial year the Company granted 205,339 (2011: nil) SARs to the CEO under the Santos Employee Equity Incentive Plan
(“SEEIP”), referred to as the 2012–2015 Four‑year Strategy Grant. The issue of SARs under this arrangement was approved by shareholders
at the 2012 Annual General meeting (“AGm”).
As described more fully in the Notice of meeting to the 2012 AGm, the award is split into five equal tranches with separate performance
targets that relate to:
• GLNG Start‑Up – loading of first LNG cargo on or before 30 June 2015;
• GLNG Cost – project cost within or under budget;
• Production Growth – targeting 77 mmboe or more by 31 December 2015;
• Reserves Growth – targeting 2P reserve/production cover of 18 years or more at 31 December 2015; and
•
Operations Integrity – maintaining an annual score of 90% or more against various environmental health and safety metrics while
ensuring no High Impact or Critical Environment incidents occur over the 2012–2015 period.
The SARs have been granted at no cost, and no amount is payable on vesting of the SARs if the performance conditions are met.
Each SAR entitles the CEO to one fully paid ordinary share which will rank equally with shares in the same class or, at the discretion
of the Board, cash to the same value. Performance testing will occur in 2016.
The SARs carry no voting or dividend rights unless and until they vest and are converted into shares.
140
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(D) 2012–2015 FOUR‑yEAR STRATEGy GRANT (CONTINUED)
Valuation of SARs
The estimate of the fair value of the services received for the award is measured by discounting the share price on the grant date using
the assumed dividend yield for the term of the SARs.
The following table includes the valuation assumptions used for 2012–2015 Four‑year Strategy Grant granted during the current year:
2012–2015 Four‑year Strategy Grant
Fair value at grant date ($)
Share price on grant date ($)
Exercise price ($)
Right life (weighted average, years)
Expected dividends (% p.a.)
2012
10.57
11.57
–
3.5
2.59
The amounts recognised in the financial statements of the Group during the financial year in relation to the 2012–2015 Four‑year
Strategy Grant were:
Employee expenses
Retained earnings
(E) LEGACy PLAN – GENERAL EmPLOyEES
SESAP
2012
$000
375
375
2011
$000
–
–
The SESAP, governed by the Santos Employee Share Acquisition Plan Rules (“SESAP Rules”), was replaced by the Share1000 Plan
(also governed by the SESAP Rules) and the Sharematch Plan in 2010. No shares have been issued pursuant to the SESAP since 2009.
The SESAP enabled permanent eligible employees with at least one year of completed service to acquire shares under the plan. Senior
executives who reported directly to the CEO and managing Director, participants in the LTI Programme, casual employees and Directors
of the Company were excluded from participating in this plan. Employees were not eligible to participate under the plan while they were
resident overseas unless the Board decided otherwise.
The SESAP provided for the grants of fully paid ordinary shares up to a value of $1,000 per annum per eligible employee. A trustee
funded by the Group acquired shares directly from the Company. The trustee held the shares on behalf of the participants in the plan
until the shares were no longer subject to restrictions. Current restrictions on remaining shares held in trust for SESAP ended in 2012.
The employee’s ownership of shares allocated under the SESAP, and his or her right to deal with them, were 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. During the restriction period, participants were entitled to receive dividends, participate in bonus and rights issues and
instruct the trustee as to the exercise of voting rights. At the end of the restriction period, shares were transferred to eligible employees
at no cost to the employee.
At 31 December 2012, the total number of shares acquired under the plan since its commencement was 2,408,566.
141
Santos Annual Report 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(F) LEGACy PLAN – EXECUTIvES
Santos Executive Share Plan
The Santos Executive Share Plan (“SESP”) operated between 1987 and 1997, when it was discontinued. Under the terms of the SESP,
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 financial year there were 83,000 SESP shares on issue. During the financial year, 28,500 (2011: nil) SESP shares
were fully paid and $87,690 (2011: nil) was received by the Company. During 2011, no SESP shares converted to ordinary shares. As at
31 December 2012 there were 54,500 (2011: 83,000) plan shares outstanding.
Santos Executive Share Purchase Plan
The Santos Executive Share Purchase Plan (“SESEP”) operated in 2003 and 2004, governed by the executive long‑term component of the
Santos Employee Share Purchase Plan rules. No shares have been issued under the SESEP since 2004. At 31 December 2012, the total
number of shares acquired under SESEP since its commencement was 220,912.
The shares allocated pursuant to the SESEP were allotted to a trustee at no cost to participants, to be held on their behalf.
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. At 31 December 2012, 30,430 (2011: 35,725) shares remain on trust until
December 2013 or July 2014, applicable to the 2003 and 2004 grants respectively. During this time, the shares are subject to forfeiture
if participants act fraudulently or dishonestly or in breach of their obligations to any Group company. During the period the shares are
held on trust, participants are entitled to receive dividends, participate in bonus and rights issues and instruct the trustee as to the
exercise of voting rights.
(G) 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. In 2010 and earlier years, Directors who participated in the NED Share Plan elected to sacrifice all or part of
their fees in return for an allocation of fully paid ordinary shares of equivalent value. The NED Share Plan therefore did not involve any
additional remuneration for participating Directors.
Shares were allocated quarterly and were 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 office or until ten years have elapsed since the allocation
of the shares, whichever is earlier.
The NED Share Plan was suspended in 2011 and closed in 2012. Accordingly, no non‑executive Directors participated in the NED
Share Plan in 2012 or 2011 and no shares were allocated under the plan in those years. A total of 72,137 shares were allocated to
non‑executive Directors during the life of the NED Share Plan, of which as at 31 December 2012, 46,279 (2011: 46,279) are still
subject to restrictions, for periods up to 2020.
142
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
30. SHaRE‑BaSED PaymENT PLaNS (CONTINuED)
(H) AmOUNTS RECOGNISED IN THE FINANCIAL STATEmENTS
The amounts recognised in the financial statements of the Group during the financial year in relation to shares issued under employee
share plans are as follows:
Statement of financial position:
Current general employee share plans – Sharematch Plan
Executive long‑term incentive programme:
Share options
Cash‑settled
Acquisition of Eastern Star Gas Limited
Issued capital:
Current general employee share plans:
Share1000 Plan
Sharematch Plan
Executive long‑term incentive programme – share options
Retained earnings:
Current general employee share plans – matched SARs
Executive long‑term incentive programme – equity‑settled
Acquisition of Eastern Star Gas Limited
2012–2015 Four‑year Strategy Grant
Employee expenses:
Current general employee share plans:
Share1000 Plan
matched SARs
Executive long‑term incentive programme:
Equity settled
Cash‑settled
2012–2015 Four‑year Strategy Grant
Note
30(A)
30(B)
30(B)
30(C)
30(A)
30(A)
30(B)
30(A)
30(B)
30(C)
30(D)
30(A)
30(A)
30(B)
30(B)
30(D)
2012
$000
5,379
–
80
–
5,459
1,539
5,379
–
6,918
3,651
9,003
–
375
13,029
(1,539)
(3,651)
(9,003)
80
(375)
(14,488)
5,459
2011
$000
8,478
699
(260)
13,767
22,684
2,275
8,478
699
11,452
2,196
8,872
13,767
–
24,835
(2,275)
(2,196)
(8,872)
(260)
–
(13,603)
22,684
143
Santos Annual Report 2012
31. KEy maNaGEmENT PERSONNEL DISCLOSuRES
(A) KEy mANAGEmENT PERSONNEL COmPENSATION
Short‑term employee benefits
Post‑employment benefits
Other long‑term benefits
Share‑based payments
2012
$000
11,210
211
163
3,772
15,356
2011
$000
10,547
234
223
2,521
13,525
(B) LOANS TO KEy mANAGEmENT PERSONNEL
There have been no loans made, guaranteed or secured, directly or indirectly, by the Group or any of its subsidiaries at any time
throughout the year to any key management person, including their related parties.
144
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
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148
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
32. RELaTED PaRTIES
Identity of related parties
Santos Limited 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 10 as to amounts owing from other related entities;
• notes 17 and 36 as to Santos Limited’s parent company financial guarantees provided for its controlled entities;
• note 24 as to its controlled entities;
• note 26 as to interests in an associate;
• note 27 as to interests in joint ventures; and
• note 31 as to disclosures relating to key management personnel.
33. REmuNERaTION OF auDITORS
The auditor of Santos Limited is Ernst & young.
(A) AUDIT AND REvIEW SERvICES
Amounts received or due and receivable for an audit or review of the financial report
of the entity and any other entity in the Group by:
Ernst & young (Australia)
Overseas network firms of Ernst & young (Australia)
Overseas other audit firms
(B) OTHER SERvICES
Amounts received or due and receivable for other services in relation to the entity
and any other entity in the Group by:
Ernst & young (Australia) for other assurance, taxation and other services
Overseas network firms of Ernst & young (Australia) for taxation services
2012
$000
2011
$000
1,690
211
–
1,901
582
57
639
1,600
166
8
1,774
611
22
633
149
Santos Annual Report 2012
34. COmmITmENTS FOR ExPENDITuRE
The Group has the following commitments for expenditure:
(A) CAPITAL COmmITmENTS
Capital expenditure contracted for at reporting date for which no amounts have been
provided in the financial statements, payable:
Not later than one year
Later than one year but not later than five years
Later than five years
(B) mINImUm EXPLORATION COmmITmENTS
minimum exploration commitments for which no amounts have been provided in
the financial statements or capital commitments, payable:
Not later than one year
Later than one year but not later than five years
Later than five 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 the Group.
(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 five years
Later than five years
2012
$million
2011
$million
2,248
822
82
3,152
104
166
–
270
128
282
389
799
2,346
1,879
–
4,225
69
203
–
272
124
396
421
941
The Group leases floating production, storage and offtake facilities, floating storage offloading facilities, LNG carriers 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 office 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 the Consumer Price Index.
During the year ended 31 December 2012 the Group recognised $85 million (2011: $82 million) as an expense in the income statement
in respect of operating leases.
150
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
34. COmmITmENTS FOR ExPENDITuRE (CONTINuED)
(D) FINANCE LEASE COmmITmENTS
Finance lease commitments are payable as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
Total minimum lease payments
The Group has finance leases for various items of plant and equipment with a carrying
amount of $1 million (2011: $2 million). 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) 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
2012
$million
2011
$million
1
1
–
2
6
1
2
–
3
6
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’ Report that are not recognised as liabilities and are not included in the
compensation of key management personnel.
(F) COmmITmENT ON REmOvAL OF SHAREHOLDER CAP
Pursuant to a Deed of Undertaking to the Premier of South Australia dated 16 October 2007 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 Benefits Programme specified in the deed
totalling $60 million over a ten‑year period from the date the legislation was enacted. As at 31 December 2012, approximately
$26 million (2011: $32 million) remains to be paid over the remainder of the ten‑year period through to 29 November 2017; and
continue to maintain the South Australian Cooper Basin asset’s Head Office and Operational Headquarters together with other roles
in South Australia for ten years subsequent to the date the legislation was enacted. At 31 December 2012, if this condition had not
been met, the Company would have been liable to pay approximately $50 million (2011: $60 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.
35. CONTINGENT LIaBILITIES
Native title
A number of the Australian interests of the Group are located within areas which are the subject of one or more claims or applications for
native title determination. Whatever the outcome of those claims or applications, it is not believed that they will significantly impact the
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.
151
Santos Annual Report 2012
36. PaRENT ENTITy DISCLOSuRES
Selected financial information of the ultimate parent entity in the Group, Santos Limited, is as follows:
Net profit for the period
Total comprehensive income
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Retained earnings
Total equity
2012
$million
2011
$million
284
285
2,490
12,349
1,568
4,930
6,608
811
7,419
348
340
3,642
11,940
1,327
4,751
6,392
797
7,189
(A) COmmITmENTS OF THE PARENT ENTITy
The parent entity’s capital expenditure commitments and minimum exploration
commitments are:
Capital expenditure commitments
minimum exploration commitments
186
2
144
5
(B) GUARANTEES ENTERED INTO By THE PARENT ENTITy IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES
Interest‑bearing loans and borrowings, as disclosed in note 17, with the exception of the finance leases, are arranged mainly through
Santos Finance Ltd which is a wholly‑owned subsidiary of Santos Limited. All interest‑bearing loans and borrowings are guaranteed by
Santos Limited.
(C) CONTINGENT LIABILITIES OF THE PARENT ENTITy
Native title
A number of the Australian interests of Santos Limited are located within areas which are the subject of one or more claims or
applications for native title determination. Whatever the outcome of those claims or applications, it is not believed that they will
significantly impact the Company’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.
152
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
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 financial 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 (“Deed”). The effect of the Deed is that the Company has guaranteed to pay any deficiency 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;
• Basin Oil Pty Ltd;
• Bridge Oil Developments Pty Ltd;
• Reef Oil Pty Ltd;
• Santos (BOL) Pty Ltd;
• Santos Darwin LNG Pty Ltd;
• Santos (NARNL Cooper) Pty Ltd;
• 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.
Basin Oil Pty Ltd was added as a party to the Deed during the year. Santos Petroleum management Pty Ltd executed a Revocation Deed which
was lodged with ASIC on 21 December 2012. It will cease to be a party to the Deed six months after that date.
153
Santos Annual Report 2012 37. DEED OF CROSS GuaRaNTEE (CONTINuED)
Set out below is a consolidated income statement, consolidated statement of comprehensive income and summary of movements in
consolidated retained earnings for the year ended 31 December 2012 of the Closed Group:
Consolidated income statement
Product sales
Cost of sales
Gross profit
Other revenue
Other income
Other expenses
Interest income
Finance costs
Profit before tax
Income tax expense
Royalty‑related taxation expense
Total taxation expense
Net profit for the period
Consolidated statement of comprehensive income
Net profit for the period
Other comprehensive income, net of tax:
Net exchange (loss)/gain on translation of foreign operations
Net actuarial gain/(loss) on defined benefit plan
Total comprehensive income
Summary of movements in Closed Group’s retained earnings
Retained earnings at 1 January
Adjustment to retained earnings for company added to Deed during the year
Net profit for the period
Net actuarial gain/(loss) on defined benefit plan
Dividends to shareholders
Share‑based payment transactions
Retained earnings at 31 December
2012
$million
2,613
(2,028)
2011
$million
2,380
(1,858)
585
223
20
(394)
136
(126)
444
(97)
(41)
(138)
306
306
(3)
1
304
1,168
24
306
1
(285)
13
1,227
522
338
365
(542)
184
(234)
633
(124)
(51)
(175)
458
458
1
(10)
449
958
–
458
(10)
(263)
25
1,168
154
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
37. DEED OF CROSS GuaRaNTEE (CONTINuED)
Set out below is a consolidated statement of financial position as at 31 December 2012 of the Closed Group:
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other financial assets
Tax receivable
Total current assets
Non‑current assets
Receivables
Other financial 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
Tax liabilities
Provisions
Total current liabilities
Non‑current liabilities
Deferred income
Interest‑bearing loans and borrowings
Deferred tax liabilities
Provisions
Other non‑current liabilities
Total non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
2012
$million
2011
$million
1,968
1,131
266
3
–
3,368
30
3,162
670
5,213
173
11
9,259
3,143
1,072
252
8
12
4,487
25
3,237
617
4,744
147
4
8,774
12,627
13,261
619
28
82
170
899
4
2,372
236
1,295
7
3,914
4,813
7,814
6,608
(21)
1,227
7,814
550
38
95
139
822
–
3,699
266
926
6
4,897
5,719
7,542
6,392
(18)
1,168
7,542
155
Santos Annual Report 2012
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 financial risk management strategy is to seek to ensure that the Group is able to fund its corporate
objectives and meet its obligations to stakeholders. Derivative financial instruments may be used to hedge exposure to fluctuations in
foreign exchange rates, interest rates and commodity prices.
The Group uses various methods to measure the types of financial 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 specific financial risks, such as foreign exchange
risk, interest rate risk and credit risk, approved derivative and non‑derivative financial 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 flow 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, borrowings denominated
in US dollars and Euros and foreign currency capital and operating expenditure. In order to economically hedge foreign currency risk,
the Group from time to time enters into forward foreign exchange, foreign currency swap and foreign currency option contracts.
All foreign currency denominated borrowings of Australian dollar (“AUD”) functional currency companies are either designated as a
hedge of US dollar denominated investments in foreign operations (2012: US$896 million; 2011: US$934 million), or swapped using
cross‑currency swaps to US dollars and designated as a hedge of US dollar denominated investments in foreign operations
(2012: US$1,410 million; 2011: $1,410 million). As a result, there were no net foreign currency gains or losses arising from translation
of US dollar denominated borrowings recognised in the income statement in 2012.
monetary items, including financial assets and liabilities, denominated in currencies other than the functional currency of an operation,
are periodically restated to Australian dollar equivalents, and the associated gain or loss is taken to the income statement. The exception
is foreign exchange gains or losses on foreign currency provisions for restoration at operating sites which are capitalised in oil and gas
assets.
Based on the Group’s net financial assets and liabilities at 31 December 2012, the following table demonstrates the estimated sensitivity
to a ±13 cent movement in the US dollar exchange rate (2011: ±17 cent) and a ±9 cent movement in the Euro exchange rate
(2011: ±9 cent) with all other variables held constant, on post‑tax profit and equity:
Impact on post‑tax profit:
AUD/USD +13 cents (2011: +17 cents)
AUD/USD –13 cents (2011: –17 cents)
AUD/EUR +9 cents (2011: +9 cents)
AUD/EUR –9 cents (2011: –9 cents)
Impact on equity:
AUD/USD +13 cents (2011: +17 cents)
AUD/USD –13 cents (2011: –17 cents)
AUD/EUR +9 cents (2011: +9 cents)
AUD/EUR –9 cents (2011: –9 cents)
2012
$million
2011
$million
22
(22)
–
–
22
(22)
–
–
(26)
26
–
–
(26)
26
–
–
The above sensitivity will vary depending on the Group’s financial asset and liability profile over time. The ±13 cent sensitivity in the
US dollar exchange rate and ±9 cent sensitivity in the Euro exchange rate is the Group’s estimate of reasonably possible changes over
the following financial year, based on recent volatility experienced in the market.
156
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
38. FINaNCIaL RISK maNaGEmENT (CONTINuED)
(B) mARKET RISK
Cash flow 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 flow interest rate
risk. Borrowings issued at fixed 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 floating rate
basis. Interest rate swaps, denominated in Australian dollars and US dollars, have been entered into as fair value hedges of medium‑term
notes, long‑term notes and subordinated debt, respectively. When transacted, these swaps had maturities ranging from 1 to 20 years,
aligned with the maturity of the related notes. At 31 December 2012, the Group had interest rate swaps with a notional contract amount
of $763 million (2011: $859 million).
The net fair value of swaps at 31 December 2012 was $182 million (2011: $181 million), comprising assets of $182 million and liabilities
of nil (2011: assets of $181 million and liabilities of nil). These amounts were recognised as fair value derivatives.
Based on the net debt position as at 31 December 2012, taking into account interest rate swaps, it is estimated that if US London
Interbank Offered Rate (“LIBOR”) interest rates changed by ±0.30% (2011: ±0.42%), Euro Interbank Offered Rate (“EURIBOR”) by
±1.29% (2011: ±0.61%) and Australian Bank Bill Swap reference rate (“BBSW”) by ±1.47% (2011: ±0.65%), with all other variables
held constant, the impact on post‑tax profit and equity would be:
Impact on post‑tax profit as a result of changing interest rates:
US +0.30%/EU +1.29%/AU +1.47%
(2011: US +0.42%/EU +0.61%/AU +0.65%)
US –0.30%/EU –1.29%/AU –1.47%
(2011: US –0.42%/EU –0.61%/AU –0.65%)
Impact on equity as a result of changing interest rates:
US +0.30%/EU +1.29%/AU +1.47%
(2011: US +0.42%/EU +0.61%/AU +0.65%)
US –0.30%/EU –1.29%/AU –1.47%
(2011: US –0.42%/EU –0.61%/AU –0.65%)
2012
$million
2011
$million
21
(21)
21
(21)
8
(8)
8
(8)
This assumes that the change in interest rates is effective from the beginning of the financial year and the net debt position and
fixed/floating mix is constant over the year. However, interest rates and the debt profile 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 financial year and
reflects annual interest rate volatility. Changes in interest rates over the following year may be greater or less than the US LIBOR
±0.30%, EURIBOR ±1.29% and the Australian BBSW ±1.47% sensitivity employed in the estimates above.
Cash flow hedge accounting
The Group has issued €1,000 million subordinated notes with an average fixed interest rate of 8.25%.
In order to reduce the variability of the Australian dollar cash flows arising from the Euro principal and interest payments to September
2017, the Group entered into cross‑currency interest rate swap contracts in march 2011, under which it has a right to receive interest at
fixed Euro rates and pay interest at floating US dollar interest rates. These contracts are in place to cover all remaining principal and
interest payments on €950 million of the subordinated notes. The Euro rates were fixed at 8.25% and the fixed US dollar margins range
between 5.18% and 5.349%.
€50 million of the subordinated notes have been swapped to a fixed US dollar interest rate of 8.48% for seven years.
157
Santos Annual Report 2012
38. FINaNCIaL RISK maNaGEmENT (CONTINuED)
(B) mARKET RISK (CONTINUED)
The cross‑currency interest rate swap contracts are recognised at fair value and all gains and losses attributable to the hedged risks are
recognised in the hedge reserve and reclassified into the income statement when the interest expense is recognised.
The movement in hedge reserve is as follows:
Opening balance
Charged to comprehensive income
Closing balance
Commodity price risk exposure
2012
$million
2011
$million
(14)
8
(6)
2
(16)
(14)
The Group is exposed to commodity price fluctuations 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 2012
the Group has no open oil price swap contracts (2011: nil), and therefore is not exposed to movements in commodity prices on financial
instruments. The Group continues to monitor oil price volatility and to assess the need for commodity price hedging.
(C) CREDIT RISK
Credit risk for the Group arises from investments in cash and cash equivalents, derivative financial instruments and deposits with banks
and financial institutions, as well as credit exposures to customers including outstanding receivables and committed transactions, and
represents the potential financial 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 for counterparties, which for banks and financial
institutions are based upon their long‑term credit rating.
Rating
AAA, AA, AA–
A+, A, A–
approved
counterparties
6
13
Total
credit limit
$million
11,950
6,950
Total
exposure*
$million
4,204
1,393
Exposure
range
$million
0 – 1,512
0 – 397
* The sum of all cash deposits plus accrued interest, bank account balances, undrawn credit facility limits and derivative mark‑to‑market gains.
If customers are independently rated these ratings are used, otherwise the credit quality of the customer is assessed by taking into
account its financial position, past experience and other factors including credit support from a third party. Individual risk limits for
banks and financial 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 are
monitored by line management.
In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not
significant. The Group does not hold collateral, nor does it securitise its trade and other receivables.
158
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
38. FINaNCIaL RISK maNaGEmENT (CONTINuED)
(C) CREDIT RISK (CONTINUED)
At the reporting date there were no significant concentrations of credit risk within the Group and financial instruments are spread
amongst a number of financial institutions to minimise the risk of counterparty default. The maximum exposure to credit risk is
represented by the carrying amount of financial assets of the Group (excluding investments), which have been recognised in the
statement of financial position.
(D) LIqUIDITy RISK
The Group adopts a prudent liquidity risk management strategy and seeks to maintain sufficient liquid assets and available committed
credit facilities to meet short‑term to medium‑term liquidity requirements. The Group’s objective is to maintain flexibility 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 financial liabilities, and financial assets held to manage liquidity
risk. The relevant maturity groupings are based on the remaining period to the contractual maturity date, at the reporting date. The
amounts disclosed in the table are the contractual undiscounted cash flows comprising principal and interest repayments. Estimated
variable interest expense is based upon appropriate yield curves as at 31 December 2012.
Less than
1 year
$million
1 to 2
years
$million
2 to 5
years
$million
more than
5 years
$million
2012
Financial assets held to manage liquidity risk
Cash
Derivative financial assets
Interest rate swap contracts
Cross‑currency swap contracts
Non‑derivative financial liabilities
Trade and other payables
Obligations under finance leases
Bank loans
medium‑term notes
Long‑term notes
Subordinated debt
2011
Financial assets held to manage liquidity risk
Cash
Derivative financial assets
Interest rate swap contracts
Non‑derivative financial liabilities
Trade and other payables
Obligations under finance leases
Bank loans
medium‑term notes
Long‑term notes
Subordinated debt
Derivative financial liabilities
Cross‑currency swap contracts
2,163
38
24
(950)
(1)
(62)
(6)
(43)
(105)
1,058
3,362
41
(1,005)
(1)
(57)
(6)
(202)
(105)
21
2,048
–
38
25
–
(1)
(61)
(6)
(102)
(105)
(212)
–
32
–
(2)
(63)
(6)
(44)
(105)
12
(176)
–
83
(34)
–
–
(545)
(106)
(351)
(1,590)
(2,543)
–
52
–
–
(365)
(113)
(230)
(316)
(36)
(1,008)
–
46
–
–
–
(1,201)
–
(458)
–
(1,613)
–
25
–
–
(861)
–
(702)
(1,383)
(143)
(3,064)
159
Santos Annual Report 2012
38. FINaNCIaL RISK maNaGEmENT (CONTINuED)
(E) FAIR vALUES
The financial assets and liabilities of the Group are all initially recognised in the statement of financial position at their fair value in
accordance with the accounting policies in note 1. The fair values of receivables, payables, interest‑bearing liabilities and other financial
assets and liabilities which are not subsequently measured at fair value approximates their carrying value.
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments:
Available‑for‑sale financial assets
The fair value of available‑for‑sale financial 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 flows 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 flows 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 flows, discounted at the market rate of
interest at the reporting date. Where these cash flows 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 flows, 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
2012
%
0.2 – 5.0
0.2 – 5.0
2011
%
0.6 – 5.4
0.6 – 4.8
The Group uses the following hierarchy for determining and disclosing the fair value of financial 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 significant effect on the recorded fair value are observable, either directly
or indirectly;
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
160
Notes to the Consolidated Financial Statementsfor the year ended 31 December 2012
38. FINaNCIaL RISK maNaGEmENT (CONTINuED)
(E) FAIR vALUES (CONTINUED)
The Group held the following financial instruments measured at fair value:
Total
$million
Level 1
$million
Level 2
$million
Level 3
$million
2012
assets measured at fair value
Financial assets at fair value through profit and loss:
Interest rate swap contracts
Cross‑currency swap contracts
Embedded derivatives
Available‑for‑sale financial assets:
Equity shares
Liabilities measured at fair value
Financial liabilities at fair value through profit and loss:
Long‑term notes
medium‑term notes
2011
assets measured at fair value
Financial assets at fair value through profit and loss:
Interest rate swap contracts
Embedded derivatives
Available‑for‑sale financial assets:
Equity shares
Liabilities measured at fair value
Financial liabilities at fair value through profit and loss:
Long‑term notes
medium‑term notes
Cross‑currency swap contracts
182
41
7
10
(846)
(107)
181
8
2
(1,019)
(105)
(47)
–
–
–
10
–
–
–
–
2
–
–
–
182
41
7
–
(846)
(107)
181
8
–
(1,019)
(105)
(47)
–
–
–
–
–
–
–
–
–
–
–
–
During the reporting periods ended 31 December 2012 and 31 December 2011, 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 22 February 2013, the Directors of Santos Limited declared a final dividend on ordinary shares in respect of the 2012 financial year.
The dividend has not been provided for in the 31 December 2012 financial statements. Refer to note 22 for dividends declared after
31 December 2012.
161
Santos Annual Report 2012
Directors’ Declaration
For the year ended 31 December 2012
In accordance with a resolution of the Directors of Santos Limited (“the Company”), we state that:
1. In the opinion of the Directors:
(a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001 (Cth), including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2012 and of its performance for the
year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations 2001 (Cth);
(b) the financial statements and notes comply with International Financial Reporting Standards as disclosed in note 1(A); and
(c) 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 (Cth) for the financial year ended 31 December 2012.
3. As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified 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 22nd day of February 2013
On behalf of the Board:
Director
Adelaide
Director
162
Independent Audit Report
to the members of Santos Limited
Report on the Financial Report
We have audited the accompanying financial report of Santos
Limited, which comprises the consolidated statement of financial
position as at 31 December 2012, the consolidated income statement,
the consolidated statement of comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of
cash flows for the year then ended, notes comprising a summary of
significant accounting policies and other explanatory information,
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 financial year.
Directors’ responsibility for the financial report
The Directors of the Company are responsible for the preparation of
the financial report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001 and
for such internal controls as the Directors determine are necessary
to enable the preparation of the financial report that is free from
material misstatement, whether due to fraud or error. In Note 1(A),
the Directors also state, in accordance with Accounting Standard
AASB 101 Presentation of Financial Statements, that the financial
statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report
based on our audit. We conducted our audit in accordance with
Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable
assurance about whether the financial report is free from material
misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement
of the financial report, whether due to fraud or error. In making
those risk assessments, the auditor considers internal controls
relevant to the entity’s preparation and fair presentation of the
financial 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 financial report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit we have complied with 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 referred to in the Directors’ Report.
Opinion
In our opinion:
1. the financial report of Santos Limited is in accordance with
the Corporations Act 2001, including:
(a) giving a true and fair view of the consolidated entity’s
financial position as at 31 December 2012 and of its
performance for the year ended on that date; and
(b) complying with Australian Accounting Standards and
the Corporations Regulations 2001; and
2. the financial report also complies with International Financial
Reporting Standards as disclosed in Note 1(A).
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 58 to
75 of the Directors’ Report for the year ended 31 December 2012.
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.
Opinion
In our opinion, the Remuneration Report of Santos Limited for the
year ended 31 December 2012, complies with section 300A of the
Corporations Act 2001.
Ernst & Young
T S Hammond
Partner
Adelaide
22 February 2013
Liability limited by a scheme approved under Professional Standards Legislation
163
Santos Annual Report 2012
Auditor’s Independence Declaration
to the Directors of Santos Limited
In relation to our audit of the financial report of Santos Limited for the year ended 31 December 2012, 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
T S Hammond
Partner
Adelaide
22 February 2013
Liability limited by a scheme approved under Professional Standards Legislation
164
Information for shareholders
NOTICE OF MEETING
The Annual General Meeting of Santos
Limited will be held in Hall F at Adelaide
Convention Centre, North Terrace, Adelaide,
South Australia, on Thursday 9 May 2013 at
10:00 am.
FINAL DIVIDEND
The 2012 final ordinary dividend will be paid
on 28 March 2013 to shareholders registered
in the books of the Company at the close of
business on 7 March 2013 in respect of fully
paid shares held at record date.
SECURITIES EXCHANGE LISTING
Santos Limited. Incorporated in Adelaide,
South Australia, on 18 March 1954. Quoted
on the official list of the Australian Securities
Exchange (ordinary shares code STO).
DIRECTORS
PR Coates (Chairman), DJW Knox (Managing
Director), KC Borda, KA Dean, RA Franklin,
H Goh, RM Harding, GJW Martin, JS Hemstritch.
SECRETARY
DTJ Lim
CHANGE OF SHAREHOLDER DETAILS
Shareholders can access their current
shareholding details and change many of
these details online via the Santos Limited
website, www.santos.com. The website
requires you to quote your Shareholder
Reference Number (“SRN”) or Holder
Identification 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.
INVESTOR INFORMATION AND SERVICES
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:
• webcasts of investor briefings;
• an email alert facility where people can
register to be notified, free of charge, of
Santos’ News Announcements via email;
and
• an RSS feed of Santos’ News Announcements,
which allows people to view these
announcements using RSS reader software.
The Santos website provides a full history of
Santos’ dividend payments and equity issues.
Shareholders can also check their holdings
and payment history via 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, Interim Report and the
Sustainability Report are the major sources of
printed information about Santos. Printed
copies of the reports are available from the
Share Registry 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
Investor information, other than that
relating to a shareholding, can be
obtained from:
Investor Relations, Santos Limited
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
2012 Full-Year Results announcement
22 February 2013
Ex-dividend date for 2012 full-year dividend
1 March 2013
Record date for 2012 full-year dividend
7 March 2013
Payment date for 2012 full-year dividend
28 March 2013
Annual General Meeting
9 May 2013
2013 Interim Results announcement
16 August 2013
Ex-dividend date for 2013 interim dividend
22 August 2013
Record date for 2013 interim dividend
28 August 2013
Payment date for 2013 interim dividend
30 September 2013
Dates may be subject to change.
QUARTERLY REPORTING CALENDAR
2013 First Quarter Activities Report
19 April 2013
2013 Second Quarter Activities Report
19 July 2013
2013 Third Quarter Activities Report
18 October 2013
2013 Fourth Quarter Activities Report
17 January 2014
Dates are subject to change and
are published on the Santos website,
www.santos.com.
165
Santos Annual Report 2012
Securities Exchange
and Shareholder Information
Listed on Australian Securities Exchange at 28 February 2013 were 958,913,588 fully paid ordinary shares. Unlisted were 27,250 partly paid
Plan 0 shares, 27,250 partly paid Plan 2 shares, 1,114,666 fully paid ordinary shares issued pursuant to the ShareMatch Plan, 30,430 fully
paid ordinary shares held on trust and issued pursuant to the Santos Executive Share Purchase Plan (“SESEP”), 944,970 restricted fully paid
ordinary shares issued to eligible senior executives pursuant to the Santos Employee Share Purchase Plan (“SESPP”), 46,279 fully paid
ordinary shares issued pursuant to the Non-executive Director Share Plan (“NED Share Plan”) and 208,147 restricted fully paid ordinary
shares pursuant to the Eastern Star Gas Limited Employee Incentive Plan (“ESG Plan”).
There were 110,961 holders of all classes of issued ordinary shares, including: 4 holders of Plan 0 shares; 4 holders of Plan 2 shares; 1,545
holders of ShareMatch shares; 6 beneficial holders of SESEP shares; 61 holders of restricted shares pursuant to the SESPP; 4 holders of NED
Share Plan shares; and 9 holders of ESG Plan shares. This compared with 111,131 holders of all classes of issued ordinary shares a year
earlier.
On 28 February 2013 there were also: 42 holders of 4,162,997 Options granted pursuant to the Santos Executive Share Option Plan; 86
holders of 2,735,675 Share Acquisition Rights pursuant to the SESPP; and 1,545 holders of 1,114,666 Share Acquisition Rights pursuant to
the ShareMatch Plan.
The listed issued ordinary shares plus the ordinary shares issued pursuant to the SESPP, and the restricted shares issued pursuant to the
SESPP, ShareMatch Plan, NED Share Plan and ESG Plan, represent all of the voting power in Santos. The holdings of the 20 largest holders of
ordinary shares represent 65.09% of the total voting power in Santos (63.41% on 29 February 2012). The largest shareholders of fully paid
ordinary shares in Santos as shown in the Company’s Register of Members at 28 February 2013 were:
Name
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
JP Morgan Nominees Australia Limited
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
AMP Life Limited
Australian Foundation Investment Company Limited
HSBC Custody Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Ltd
Argo Investments Limited
QIC Limited
RTS Nominees Pty Limited
Mr John Charles Ellice-Flint
HSBC Custody Nominees (Australia) Limited-GSCO ECA
HSBC Custody Nominees (Australia) Limited – A/c 2
Citicorp Nominees Pty Limited
Ecapital Nominees Pty Limited
Total:
166
No. of Shares
212,065,945
145,531,552
100,087,489
44,128,845
32,709,191
24,440,832
9,422,511
8,735,399
7,789,362
5,855,887
4,556,778
4,266,666
4,207,959
4,146,142
3,118,324
2,994,888
2,862,437
2,856,222
2,364,610
2,000,005
%
22.12
15.18
10.44
4.60
3.41
2.55
0.98
0.91
0.81
0.61
0.47
0.44
0.44
0.43
0.33
0.31
0.30
0.30
0.25
0.21
624,141,044
65.09
Analysis of Shares – Range of Shares Held
1–1,000
1,001–5,000
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
48,820
49,344
8,349
4,298
150
110,961
2,586
44.00
44.47
7.52
3.87
0.14
100.00
2.49
12.06
6.18
9.09
70.18
100.00
Substantial Shareholders as disclosed by notices received by the Company as at 28 February 2013: Nil
For Directors’ Shareholdings see the Directors’ Report as set out on page 49 of this Annual Report.
Voting Rights
Every member present in person of 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.
167
Santos Annual Report 2012 Santos Group Interests
As at 5 March 2013
Joint Venture and Permits
%
Interest
Joint Venture and Permits
%
Interest
Joint Venture and Permits
%
Interest
Note: In South Australia PPL =
Petroleum Production Licence and
PL = Pipeline Licence.
In Queensland PPL = Pipeline Licence,
PL = Petroleum Lease, PLA = Petroleum
Lease Application and PAL = Petroleum
Assessment Lease.
Interests shown are beneficial interests.
Indicates Santos operated
EASTERN AUSTRALIA
South Australia
Cooper Basin
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,
143-146, 148-151, 153-155,
159-166, 172, 174-180, 189-190,
193, 195-196, 228, 230-238
(Fixed Factor Area)
PPL 26, PPL 76, PPL 77, PPL 118,
PPLs 121-123, PPL 125, PPL 131,
PPL 136, PPL 147, PPL 152,
PPL 156, PPL 158, PPL 167,
PPL 182, PPL 187, PPL 194,
PPL 201, PPL 229
(Patchawarra East)
Facilities
PL 2 (Moomba to Pt Bonython
Liquid Pipeline)
PL 5 (Ballera to Moomba Pipeline)
PL 9 (Stokes to Mettika Pipeline)
PL 15 (Moon to Kerna Pipeline)
PL 17
(Jackson to Moomba Pipeline)
PL 20
(Cook to Merrimelia Pipeline)
Eromanga Basin
PPL 206, PPL 208, PPL 215
(Derrilyn Unit)
PEL 114, PPL 225, PPL 226,
PPL 227, PRL 28, PRL 29, PRL 30
PPL 211 (Reg Sprigg West)
168
66.6
72.3
66.6
60.1
60.1
60.1
100.0
55.0
65.0
100.0
54.2
Queensland
Cooper Basin
ATP 633P
Alkina
ATP 259P (Aquitaine A)
PL 86, PL 131, PL 146, PL 177,
PL 208, PL 254
ATP 259P(Aquitaine B)
PL 59, PL 60, PL 61,
PL 81, PL 83, PL 85, PL 97,
PL 106, PL 108, PL 111,
PL 112, PL 132, PL 135,
PL 139, PL 147, PL 151,
PL 152, PL 155, PL 205,
PL 207, PL 288, PL 410
ATP 259P (Aquitaine C)
PL 138, PL 154
ATP 259P (Innamincka)
PL 58, PL 80, PL 136, PL 137,
PL 156, PL 159, PL 249, PLA 409
ATP 259P (Naccowlah)
PL 23, PL 24, PL 25, PL 26,
PL 35, PL 361, PL 62, PL 761,
PL 77, PL 781, PL 79, PL 82,
PL 87, PL 107, PL 109, PL 133,
PL 149, PL 175, PL 181, PL 182,
PL 189, PL 302, PLA 287
ATP 259P (Total 66)
PL 34, PL 37, PL 63, PL 68,
PL 751, PL 84, PL 88, PL 110
PL 129, PL 130, PL 134, PL 140,
PL 142, PL 143, PL 144, PL 150,
PL 168, PL 178, PL 186, PL 193,
PL 241, PL 255, PL 301,
PPL 8, PPL 14
ATP 259P (Wareena)
PL 113, PL 114, PL 141, PL 145,
PL 148, PL 153, PL 157, PL 158,
PL 187, PL 188, PLA 411, PPL 138
ATP 11742
PPL 12, PPL 13, PPLs 16-18,
PPL 31, PPLs 34-40, PPLs 46-48,
PPL 62, PPLs 64-72, PPLs 78-82,
PPL 84, PPL 86, PPLs 94-96,
PPL 98, PPL 101, PPL 105,
PPL 113, PPL 142, PPL 169,
PPL 170 (SWQ Unit)
PL 117 (ex Faulconer)
PPL 127 (Tickalara to SA Border)
PPL 128 (Jackson to Tickalara)
50.0
72.0
52.5
55.0
47.8
70.0
Eromanga Basin
PL 551 (50/40/10)
ATP 267P1 (Nockatunga)
PL 244, PL 245, PL 33, PL 501,
PL 511
ATP 269P
ATP 299P1 (Tintaburra)
PL 29, PL 38, PL 391, PL 521,
PL 571, PL 95, PL 169, PL 170,
PPL 109, PPL 110, PPL 111,
PPL 112, PPL 293, PPL 294,
PPL 295, PPL 298
ATP 636P2
ATP 661P2
ATP 752P (Barta)
PLA 303, PPL 137
ATP 752P (Wompi)
ATP 765P2
ATP 766P2
ATP 783P2
ATP 820P2
ATP 1063P2
Denison Trough
ATP 337P1, PLA 4492, PLA 4502,
PLA 4512
55.5
ATP 553P
Bowen Basin
ATP 337P (Mahalo)
ATP 337P, (Denison)
PL 10, PL 11, PL 41, PL 42, PL 43,
PL 44, PL 45, PL 54, PL 67, PL 173,
PL 183, PL 218, PLA 448, PLA 454,
PLA 457
ATP 592P (Spring Gully)
PL 195, PL 203, PLA 414,
PLA 415, PLA 416, PLA 417,
PLA 418, PLA 419
ATP 685P (Cockatoo Creek)
ATP 972P (Ramyard)
PL 176 (Scotia domestic)
Surat Basin
ATP 212 P (Major)
PL 30, PL 741
ATP 336P (Waldegrave)
PL 10 W1, PL 11 W1, PL 121,
PL 28, PL 69, PL 891
70.0
61.2
100.0
60.1
100.0
100.0
100.0
60.0
100.0
6.8
89.0
100.0
100.0
45.0
30.0
100.0
100.0
30.0
100.0
100.0
50.0
50.0
30.0
50.0
4.0
50.0
7.0
100.0
15.0
53.8
Joint Venture and Permits
%
Interest
Joint Venture and Permits
%
Interest
Joint Venture and Permits
ATP 470P (Redcap)
PL 264
ATP 470P (Formosa Downs)
PL 71
ATP 606P (Combabula)
PLA 297, PLA 403, PLA 404,
PLA 405,PLA 406,PLA 407,
PLA 408, PLA 412, PLA 413,
PLA 444
ATP 623, PL 200 (Spring Gully)
ATP 701P (Spring Gully)
PL 204
PL 1 (Cabawin Farmount)
PL 1 (Cabawin Exclusion)
PL 1 (Moonie)
PL 21 (Alton)
PL 21 (Alton Farmount)
PL 2 (Kooroon)
PL 111 (Snake Creek East)
PL 12 (Trinidad)
PL 12 (Oberina)
PL 15 Sub Lease (Boxleigh)
PL 17 (Up Stratum)
PL 211, PL 22, PL 27, PL 64
(Balonne)
PL 71 (Parnook)
PL 315 (Drillsearch (PL5K))13
PL 315 (Mascotte (PL 5M))13
Facilities
PPL 1 (Moonie to Brisbane
Pipeline)
PPL 6 (Jackson to Moonie)
New South Wales
Gunnedah Basin
PEL 1
PEL 61, 3 (Edendale)
PEL 61,3 (Remainder)
PEL 121,3
PEL 2381,3
PEL 2381
PEL 4271, 3, 8
PEL 4281, 3, 9
PEL 4331
PEL 4341
%
Interest
10.0
5.5
PEL 4501
PEL 4521
PEL 4561
PEL 4621
PAL 23
PPL 33
Victoria
6.0
2.7
0.2
50.0
100.0
100.0
100.0
63.5
57.5
75.0
100.0
100.0
100.0
100.0
12.5
8.0
25.0
50.0
100.0
82.8
65.0
55.4
53.7
65.0
80.0
69.2
34.6
27.7
80.0
80.0
Gippsland Basin
VIC/RL 3 (Sole)
VIC/L 21 (Patricia-Baleen)
VIC/L 25 (Kipper)
VIC/L 25 (Unit)
PL 230
(Patricia-Baleen Onshore Pipeline)
VIC/PL 31
(Patricia-Baleen Offshore Pipeline)
VIC/PL 31(V)
(Patricia-Baleen Onshore (Vic)
Pipeline)
VIC/PL 31(V) (Patricia-Baleen
Offshore (Vic) Pipeline)
Otway Basin
VIC/P 44, VIC/RL 2 (V)
VIC/L 22 (Minerva)
VIC/L 24 (Casino)
VIC/L 30 (Henry)
VIC/RL 11
(Martha Retention Lease)
VIC/RL 12
(Blackwatch Retention Lease)
PL 251
(Casino to Iona Onshore Pipeline)
VIC/33
(Minerva offshore Pipeline)
VIC/PL 37
(Casino Offshore Pipeline)
VIC/PL 42
(Henry to Casino Pipeline)
VIC/PL 37(V)
(Casino Offshore Vic Pipeline)
Northern Territory
Amadeus Basin
OL 4, OL 5 (Mereenie)
Pipeline 2 (Mereenie Pipeline)
100.0
100.0
GLNG14
Queensland
15.0
Bowen Basin
100.0
80.0
80.0
ATP 336P1 (Roma), PL 31, PL 61,
PL 71, PL 81, PL 91, PL 101, PL 111
PL 131, PL 931, PL 309, PL 310,
PL 314, PL 315, PLA 478, PLA 479
ATP 526P (Fairview), PL 90,
PL 91, PL 92, PL 99, PL 100,
PL 232, PL 233, PL 234,
PL 235, PL 236, PPL 76, PPL 922
ATP 631P, PLA 281, PLA 2822
ATP 653P (Arcadia)4, 5
PLA 420, PLA 421, PLA 440
ATP 655P1 (Taringa)
100.0
100.0
50.0
35.0
100.0
ATP 665P
100.0
ATP 708P
ATP 745P5, 1
ATP 803P
ATP 804P5
ATP 868P
PL 176 (Scotia)
PPL 118 (Comet Ridge to
Wallumbilla Pipeline)
PPL 147-148, PPL 164
(Fairview Laterals)
PPL 148 (Roma Lateral)
PPL 166-168 (Gladstone
Transmission Pipeline)
PFL 10 (Gladstone LNG Plant)
WESTERN AUSTRALIA
AND NORTHERN TERRITORY
Northern Territory
Bonaparte Basin
AC/L 1 (Jabiru), AC/L 2 (Challis),
AC/L 3 (Cassini)
NT/P 61 (Caldita)
NT/P 69 (Barossa)
NT/RL 1 (Petrel)
100.0
100.0
50.0
10.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
McArthur Basin
EP 161, EP 162, EP 189,
EP(A) 2992
EP(A) 2882
100.0
100.0
30.0
22.8
24.6
22.8
30.0
30.0
30.0
22.8
30.0
21.2
30.0
30.0
30.0
30.0
30.0
30.0
30.0
10.3
25.0
25.0
35.0
50.0
100.0
169
Santos Annual Report 2012
Joint Venture and Permits
Kyrgyz Republic7
%
Interest
Closed Joint Stock Company South
Petroleum Company (SPC)
The Santos Group holds a 70% equity
interest in SPC, which is the legal and
beneficial holder of the Tuzluk licence.
Closed Joint Stock Company KNG
Hydrocarbons (KNG HC)
The Santos Group holds a 75% equity
interest in Zhibek Resources Limited,
which in turn own 72% of KNG HC,
which is the legal and beneficial holder
of the Tashkumyr licence.
1. Under renewal.
2. Under application.
3. CSG.
4. Also covers Surat Basin.
5. Percentage interest represents Santos group entitlement to
production. Costs are allocated on different percentages.
6. Subject to government approval.
7. Santos is preparing for country exit.
8. Currently 50% pending completion of transfer.
9. Currently 40% pending completion of transfer.
10. Sale pending completion.
11. PNG LNG Project (unitisation of PDL 1 and other licence)
– Santos share is 13.5%
12. SE Gobe Unit (unitisation of PDLs 3 & 4) – Santos share
is 9.4%.
13. These are areas within PL 315 (formerly PL 5) that were
specifically excluded from the GLNG project.
14. Santos has a 30% interest in the jointly held project
company that operates the GLNG downstream interests.
Notes: ATPs under application are referenced with footnote 2.
PLs under application are listed in report as PLAs
Santos Group Interests
(continued)
Joint Venture and Permits
EP 357, TR/4, L 13, TL/4, TL/7
and L 12 (Thevenard Is)
Timor Sea & Timor Gap
Bayu Undan
JPDA 03-12
ASIA PACIFIC
Bangladesh
Bengal Basin
Block 16 Exploration, Block 16
Sangu (Sangu)
India
North East Coast Basin
NEC-DWN-2004/1
NEC-DWN-2004/2
Indonesia
East Java Sea
Madura Offshore PSC
(Maleo and Peluang)
Sampang PSC (Oyong and Wortel)
Kutei Basin
Papalang PSC
Popodi PSC
South Sumatra Basin
GMB Air Komering6
GMB Belida6
Ogan Komering I PSC
Ogan Komering II PSC
Papuan Basin
JV - Warim
Papua New Guinea
Papuan Basin
PRL 9
PDL 111
PDL 312
Vietnam
Nam Con Son Basin
Block 013/03
Block 12W
Phu Khanh Basin
Block 123
%
Interest
35.7
11.5
11.5
100.0
100.0
100.0
67.5
45.0
20.0
20.0
10.0
10.0
10.0
10.0
20.0
40.0
24.0
15.9
65.0
31.9
50.0
Joint Venture and Permits
Western Australia
Bonaparte Basin
WA-18-P, WA-40-R (Frigate)
WA-27-R (Tern)
WA-459-P
WA-6-R (Petrel West)
Browse Basin
%
Interest
40.0
40.0
100.0
35.0
30.0
47.8
30.0
30.0
63.6
22.6
37.4
45.0
66.7
22.6
41.6
41.6
18.7
45.0
45.0
22.6
45.0
15.0
24.8
42.0
37.5
37.3
45.0
37.3
45.0
24.8
75.0
75.0
28.6
WA-274-P
WA-281-P
WA-408-P
WA-410-P
WA-411-P
Carnarvon Basin
WA-1-P
WA-8-L (Talisman)
WA-13-L (East Spar)
WA-15-L (Stag)
WA-20-L (Legendre)
WA-26-L (Mutineer)
WA-27-L (Exeter)
WA-33R (Maitland)
WA-38-R (Oryx)
WA-41-L (Reindeer)
WA-45
WA-45-L (Spar)
WA-45-R
WA-49-R
WA-191-P
Fletcher
Finucane
WA-208-P
WA-209-P10
WA-209-P (Hurricane)
WA-214-P, WA-29-L
(John Brookes), WA-50-R
WA-290-P
WA-323-P
WA-330-P
L 1 H, L 10, WA-7-L EP 61,
EP 62, TP/2, TP/14, TPL/9,
TR/6 (Barrow Island)
170
Index
A
Announcements
Annual General Meeting
Asia Pacific
Audit Committee
Auditor’s Independence Declaration
173
165
22–23
29, 35–36
164
D
Directors
Directors’ remuneration
Directors’ Report
Diversity
Dividends
24–25, 30–38, 49, 165, 167
69, 73
49–57, 76
14–15, 41–43
3, 6, 55
P
People and
Remuneration Committee
PNG LNG
Production and sales
B
Board of Directors
4–6
12–13
43
28–29, 35–38
inside front cover
78
81
C
Chairman’s and
Chief Executive Officer’s review
Chief Financial Officer’s review
Code of conduct
Committees
Company profile
Consolidated Income Statement
Consolidated Statement of Cash Flows
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Continuous disclosure
Cooper Basin
Corporate governance
82
79
80
44
16–17
28–44
24–25
E
Earnings per share
Eastern Australia
Environment, Health, Safety
and Sustainability Committee
F
Finance Committee
Financial Report
G
GLNG
Greenhouse gas emissions
Group interests
I
Information for shareholders
N
Nomination Committee
Notes to the Consolidated
Financial Statements
35–36, 38
22–23
8–9
58–75
10–11
38–41
6, 14–15
26–27
166–7
44
6, 14–15
46–47
58, 60, 63–64, 75
R
Remuneration Report
Reserves and resources
Risk management
S
Safety
Santos Leadership Team
Securities exchange and
shareholder informaton
Securities Trading Policy
Sustainability
T
10-year summary
Total shareholder return
(TSR)
V
Values
Vision and strategy
inside front cover
7
3, 47
16–17
35–37
35–37
78–162
6, 20–21
15
168–170
165
35–37
83–161
O
Operating and financial highlights
Organisation chart
W
Western Australia
and Northern Territory
World of Santos
2–3
45
18–19
inside front cover
171
Santos Annual Report 2012 Glossary
Aboriginal
Refers to both Aboriginal and Torres Strait
Islander people.
barrel/bbl
The standard unit of measurement for all oil and
condensate production. One barrel = 159 litres
or 35 imperial gallons.
boe
Barrels of oil equivalent.
carbon dioxide equivalent (CO2e)
A measure of greenhouse gases (e.g. carbon
dioxide, methane, nitrous oxide) with the
equivalent global warming potential as carbon
dioxide when measured over a specific time.
the company
Santos Ltd and its subsidiaries.
condensate
A natural gas liquid that occurs in association
with natural gas and is mainly composed of
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 significant 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 unrefined liquid petroleum
or hydrocarbons.
CSG
Coal seam gas. Predominantly methane gas
stored within coal deposits or seams.
cultural heritage
Definitions of cultural heritage are highly
varied. Cultural heritage can be considered to
include property (such as landscapes, places,
structures, artefacts and archives) or a social,
intellectual or spiritual inheritance.
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.
greenhouse gas
A gas that contributes to the greenhouse
effect by absorbing infrared radiation.
• Scope 1 – direct greenhouse emissions.
• Scope 2 – indirect greenhouse emissions.
hydrocarbon
Compounds containing only the elements
hydrogen and carbon, which may exist as
solids, liquids or gases.
joules
Joules are the metric measurement unit for
energy.
• A gigajoule (GJ) is equal to 1 joule × 109
• A terajoule (TJ) is equal to 1 joule × 1012
• A petajoule (PJ) is equal to 1 joule × 1015
liquid hydrocarbons (liquids)
A sales product in liquid form; for example,
condensate and LPG.
LNG
Liquefied natural gas. Natural gas that has been
liquefied by refrigeration to store or transport
it. Generally, LNG comprises mainly methane.
lost-time injury
A lost-time injury is a work-related injury or
illness that results in a permanent disability,
or time lost from work of one day/shift or more.
LPG
Liquefied petroleum gas. A mixture of light
hydrocarbons derived from oil-bearing strata
which is gaseous at normal temperatures but
which has been liquefied by refrigeration or
pressure to store or transport it. Generally,
LPG comprises mainly propane and butane.
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.
mmbtu
Million British Thermal Units.
oil
A mixture of liquid hydrocarbons of different
molecular weights.
proven reserves (1P)
Reserves that, to a high degree of certainty
(90% confidence), 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.
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% confidence), are recoverable. There is
relatively high risk associated with these
reserves.
sales gas
Natural gas that has been processed by
gas plant facilities and meets the required
specifications under gas sales agreements.
Santos
Santos Limited and its subsidiaries.
seismic survey
Data used to gain an understanding of rock
formations beneath the earth’s surface using
reflected sound waves.
top quartile
Top 25%.
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.
medical treatment injury
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 first aid treatment. Santos
classifies injuries that result in modified duties
as medical treatment injuries.
Conversion
Crude oil
Sales gas
Condensate/
naphtha
LPG
1 barrel = 1 boe
1 petajoule = 171,937 boe
1 barrel = 0.935 boe
1 tonne = 8.458 boe
mmboe
Million barrels of oil equivalent.
For a comprehensive online conversion
calculator tool, visit the Santos website
at www.santos.com
172
Major announcements made in 2012
13 January 2012
13 January 2012
19 January 2012
21 January 2012
01 February 2012
08 February 2012
14 February 2012
15 February 2012
17 February 2012
22 February 2012
25 February 2012
06 March 2012
28 March 2012
19 April 2012
01 May 2012
02 May 2012
03 May 2012
07 May 2012
17 May 2012
07 June 2012
25 June 2012
28 June 2012
19 July 2012
31 July 2012
Fletcher Finucane oil development sanctioned; Santos lifts interest in project
Update on Pilliga Forest investigation
2011 Fourth Quarter Activities Report
Santos extends partnership with Santos Tour Down Under to 2016
First gas from Wortel
2011 Reserves Report
Economic benefits of CSG to NSW affirmed
Santos finds gas at Sangu-11
Santos lifts full-year net profit by 51% to $753 million; underlying net profit up 20% to $453 million
Review of Eastern Star Gas operations
Official opening of Devil Creek gas plant by Western Australian Premier
NSW Draft Regional Land Use Plans onerous
Coal seam gas critical to NSW energy security
2012 First Quarter Activities Report
NSW Committee Report on CSG
GLNG to purchase 365 PJ of gas from Origin Energy
Santos 2012 AGM address
Santos submission on NSW Government Strategic Regional Land Use Policy
One thousand export cargoes from Port Bonython
Santos and ConocoPhillips enter agreement with SK E&S to progress the development of Caldita Barossa
NSW landholders and communities to benefit from new approach to CSG compensation
GLNG brings forward US$2.5 billion of upstream capital expenditure
2012 Second Quarter Activities Report
Namoi Catchment Water Study shows no harmful impact on water volumes
17 August 2012
Santos reports $262 million net profit for the first half of 2012
11 September 2012
NSW Strategic Regional Land Use Policy
02 October 2012
18 October 2012
19 October 2012
22 October 2012
08 November 2012
12 November 2012
15 November 2012
19 November 2012
12 December 2012
Santos farms-in as operator to onshore Amadeus and Pedirka Basin permits
2012 Third Quarter Activities Report
Santos announces start of Australia’s first commercial shale gas production
Santos appoints Hock Goh to Board
Santos welcomes the Energy White Paper
PNG LNG capacity increased, first LNG on track for 2014; capital cost estimate increased to US$19 billion
Pilliga Forest rehabilitation continues as Santos announces new water facility
Gas discovery at Crown in the Browse Basin
Santos farms-in to onshore McArthur Basin in the Northern Territory
173
Santos Annual Report 2012 Santos Limited
ABN 80 007 550 923
REGISTERED AND HEAD OFFICE
Ground Floor Santos Centre
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Adelaide South Australia 5000
GPO Box 2455
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Telephone: +61 8 8116 5000
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SHARE REGISTER
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Telephone:
Within Australia: 1300 017 716
From overseas: +61 3 9938 4343
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OFFICES
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GPO Box 1010
Telephone: +61 7 3838 3000
Facsimile: +61 7 3838 3350
Dhaka
Santos Sangu Field Limited
IDB Bhaban (9th Floor)
E/8-A Rokeya Sharani
Sher-e-Bangla Nagar, Agargaon
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Telephone: +880 2918 3111 Ext 4575
Facsimile: +880 2918 3130
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Gladstone Queensland 4680
Telephone: +61 7 4978 8410
Facsimile: +61 7 4978 8444
Gunnedah
206 Conadilly Street
Gunnedah New South Wales 2380
Telephone: +61 2 6741 5100
Facsimile: +61 2 6741 5101
174
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
Jakarta
Santos Asia Pacific Pty Ltd
Level 4 Ratu Plaza Office 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
Narrabri
125 Maitland Street
Narrabri NSW 2390
Telephone: +61 2 6792 9035
Facsimile: +61 2 6792 9089
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
Perth
Level 1, 40 The Esplanade
Perth Western Australia 6000
Telephone: +61 8 9333 9500
Facsimile: +61 9333 9571
Port Bonython
PO Box 344
Whyalla South Australia 5600
Telephone: +61 8 8649 0100
Facsimile: +61 8 8649 0200
Port Moresby
Barracuda Ltd
PO Box 1159
Level 8 Pacific Place Building
Cnr Musgrave Street and
Champion Parade
Port Moresby
Papua New Guinea
Telephone: +675 321 2633
Facsimile: +675 321 2847
Roma
39 Currey Street
PO Box 329
Roma Queensland 4455
Telephone: +61 7 4624 2100
Facsimile: +61 7 4624 2140
Singapore
Santos International Pte Ltd
50 Collyer Quay
#05-03 OUE Bayfront
Singapore 049321
Telephone: +65 6403 3309
Facsimile: +65 6403 3329
Sydney
Level 7, 51 Pitt Street
Sydney New South Wales 2000
Telephone: +61 2 9251 5599
Facsimile: +61 2 9251 2299
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