Annual Report
2019
ABN 80 007 550 923
This 2019 Annual Report is a summary of Santos’ operations,
activities and financial position as at 31 December 2019.
All references to dollars, cents or $ in this document are
to US currency, unless otherwise stated.
An electronic version of this report is available on Santos’ website,
www.santos.com
Santos’ Corporate Governance Statement can be viewed at:
www.santos.com/who-we-are/corporate-governance
CONTENTS
1
2
4
About Santos
Financial Overview
Message from the Chairman and from the
Managing Director & Chief Executive Officer
8 Board of Directors
11 Santos Leadership Team
14 Reserves Statement
18 Directors’ Report
32 Remuneration Report
59 Financial Report
135 Directors’ Declaration
136 Independent Auditor’s Report
142 Auditor’s Independence Declaration
143 Securities Exchange and Shareholder Information
145 Glossary
146 Corporate Directory
Cover image:
Darwin LNG, Wickham Point, Northern Territory
About Santos
An Australian energy pioneer
Santos is an Australian natural gas company.
Established in 1954, the Company’s purpose is
to provide sustainable returns for our shareholders
by supplying reliable, affordable and cleaner energy
to improve the lives of people in Australia and Asia.
Five core long-life natural gas assets sit at the heart of a clear and consistent strategy to
Transform, Build and Grow the business: Western Australia, the Cooper Basin, Queensland
and NSW, Northern Australia and Timor-Leste, and Papua New Guinea. Each core asset
provides stable production, long-term revenue streams and significant upside opportunities.
With one of the largest exploration and production acreages in Australia, a significant and
growing footprint in Papua New Guinea and a strategic infrastructure position, Santos is well
positioned to benefit from the growing global demand for energy.
To deliver our vision to be Australia’s leading natural gas company by 2025, we will aspire to:
•
•
•
•
•
•
reduce emissions and improve air quality across Asia and Australia by displacing coal with
natural gas, and support the economic development of combined gas and renewable
energy solutions;
be the leading national supplier of domestic gas in Australia;
be a leading regional LNG supplier by increasing LNG sales to our Asian customers to
over 4.5 million tonnes per annum;
be recognised as the safest and lowest-cost onshore gas developer in Australia;
become the market leader in running the safest and lowest-cost facilities and
infrastructure operations;
contribute positively to the communities in which we operate by providing jobs, energy
supply and local partnerships;
•
develop our people and culture to deliver our vision.
Santos today is a safe, low-cost, reliable and high-performance business, proudly delivering
the economic and environmental benefits of natural gas to homes and businesses
throughout Australia and Asia.
Santos Annual Report 2019 / 1
Santos Annual Report 2019 / 1
Financial Overview
Sales volume
mmboe
Sales revenue
US$million
Production
mmboe
84.1
83.4
78.3
94.5
64.3
3,100
2,442 2,594
4,033
3,660
57.7
61.6 59.5 58.9
75.5
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
Free cash flow
US$million
Underlying net profit
after tax
US$million
Net profit after tax
US$million
1,138
1,006
618
206
-739
318
54
75
727 719
630 674
-1,953 -1,047 -360
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
Unit production costs
US$ per boe
Capital expenditure
US$million
Net debt
US$million
10.35
1,288
8.45 8.07 8.05
7.24
1,016
625
682
759
4,749
3,492
3,549
3,325
2,731
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2 / Santos Annual Report 2019
2019 Sales volumes
mmboe
2019 Production
mmboe
Own product
Third-party product
73.5
21.0
Sales gas and ethane
37.2
LNG
Oil
Condensate
LPG
25.3
7.7
4.0
1.3
2019 Sales revenue
US$million
Average realised oil price
US$ per barrel
LNG
1,515
Sales gas and ethane
1,172
Oil
Condensate
LPG
927
335
84
75.1
72.0
53.8
46.4
57.8
2015
2016
2017
2018 2019
2019 Results
Sales volume
Production
Average realised oil price
Net profit after tax
Underlying net profit after tax
Sales revenue
Operating cash flow
Free cash flow
EBITDAX
Total assets
Earnings per share
Dividends declared
Number of employees
mmboe
mmboe
US$ per barrel
US$million
US$million
US$million
US$million
US$million
US$million
US$million
US cents
2015
64.3
57.7
53.8
-1,953
54
2,442
811
-739
1,454
15,949
-169.5
A20cps
2,946
2016
84.1
61.6
46.4
-1,047
75
2,594
840
206
1,199
15,262
-58.2
–
2,366
2017
83.4
59.5
57.8
-360
318
3,100
1,248
618
1,428
13,706
-17.3
–
2,080
2018
78.3
58.9
75.1
630
727
3,660
1,578
1,006
2,160
16,811
30.2
US9.7cps
2,190
2019
94.5
75.5
72.0
674
719
4,033
2,046
1,138
2,457
16,509
32.4
US11cps
2,178
Santos Annual Report 2019 / 3
Santos Annual Report 2019 / 3
Message from the Chairman and from the
Managing Director & Chief Executive Officer
Dear Shareholder,
In 2016 Santos unveiled a new corporate
strategy to Transform, Build and Grow
the business to restore and drive
shareholder value.
Over the past four years, the successful
implementation of this strategy has
resulted in a simplified and high-graded
portfolio of five core long-life asset
hubs. Non-core assets have been sold
and value accretive acquisitions have
delivered operatorship of low-cost,
strategic domestic gas assets and LNG
infrastructure.
Our disciplined Operating Model and
focus on safe, low-cost, efficient
operations has underpinned our
competitive advantage and provided
the framework for the continued
generation of strong and stable cash
flows. Dividends have been reinstated and
our strengthened balance sheet remains
supportive of our disciplined growth
strategy.
In 2019, the ongoing successful execution
of the Transform, Build and Grow strategy
delivered:
• Record free cash flow of
$1,138 million
• Record sales volumes of 94.5 mmboe
• Record production volumes
75.5 mmboe
• Underlying net profit after tax
of $719 million, and
• Dividends of US11 cents per share,
fully franked, which includes the final
2019 dividend of US5 cents per share
Our portfolio of assets are now
geographically diverse and balanced
between onshore and offshore operations,
between natural gas and liquids and our
4 / Santos Annual Report 2019
sales volumes between oil price-linked
and CPI-linked contracts. Not only are
we a leading national supplier of domestic
gas across both the east and west
coast markets here in Australia, but our
LNG projects are benefiting from rapid
urbanisation and the switch from coal
to natural gas as Asian countries seek to
reduce air pollution and lower greenhouse
gas emissions.
Our disciplined Operating Model
continues to ensure that the whole
Company remains focused on continuous
improvement. With each of our five
core long-life asset hubs required to
generate free cash flow at an oil price
of less than US$40 per barrel, we are
constantly looking at ways to challenge
the status quo to drive efficiencies and
deliver greater shareholder value. In 2019,
our relentless focus on safe, low-cost,
efficient operations resulted in a free cash
flow breakeven oil price of US$29 per
barrel, before hedging.
The successful implementation of our
disciplined Operating Model enables
Santos to continue to fund the Transform,
Build and Grow strategy in a lower oil
price environment and importantly,
benefit from significant cash generation in
a higher oil price environment. Free cash
flow generation is critical to the continued
success of our business as these
proceeds are used to pay sustainable
dividends, reduce debt, replace reserves
and resources, and fund major
growth projects.
Our acquisition of ConocoPhillips’
northern Australia assets, coming just
12 months after we bought Quadrant
Energy in Western Australia, is testament
to the strength of the Company and
the hard work of our people to turn the
business around and drive shareholder
value. The value accretive acquisition is
fully aligned with our growth strategy to
build on existing infrastructure positions
and delivers operatorship and control of
strategic LNG infrastructure at Darwin.
OPERATING PERFORMANCE
Our focus on safe, low-cost, efficient
operations continued to drive strong
results across each of our five core
long-life asset hubs in 2019.
Western Australia
The successful integration of Quadrant
Energy into the Santos business over
the course of 2019 transformed the scale
of our operations in Western Australia
and also significantly strengthened
our offshore operating expertise
and capabilities.
As a result of the acquisition and strong
operating performance, sales volumes
increased 134% to 30.4 mmboe and
production volumes 147% to 30.9 mmboe.
A successful appraisal program in the
shallow, shelf-waters of the Bedout
and Carnarvon Basins confirmed larger
than anticipated resource volumes
and significantly de-risked future
development options.
The Dorado appraisal program resulted
in a significant resource upgrade and
proved the Bedout Basin, where Santos
has a controlling position, to be a world
class liquids-rich petroleum system with
high quality reservoirs. Development
options for the Dorado discovery are
currently being worked through and are
expected to result in an initial oil and
condensate development followed by a
future gas phase development. Front End
Engineering and Design (FEED) for the
project is targeted to commence in the
second quarter of 2020.
Building on our exploration and
appraisal success in the Bedout Basin,
in September we were pleased to be
awarded new acreage on-trend with the
Dorado discovery in a joint venture with
BP. We are excited at the opportunity
to increase our exposure to this highly
prospective region, leveraging our shallow
water offshore operating expertise
to build on the success of our 2019
drilling campaign.
In the Carnarvon Basin, the drilling of the
Corvus-2 gas appraisal well confirmed one
of the largest columns ever discovered
across the North West Shelf. With 100%
ownership of two gas plants in the region,
near-term development opportunities
are consistent with our brownfield
growth strategy to build on existing
infrastructure positions.
Western Australia is now Santos’ largest
asset hub where our high-margin,
conventional, natural gas assets are
backed by medium- to long-term
CPI-linked contracts and our heavy sweet
crude oil is commanding a significant
premium to the Brent oil price due to the
high demand for viscous, low sulfur crude
on the back of cleaner global ship-fuel
standards.
Cooper Basin
In the Cooper Basin our low-cost
disciplined Operating Model continues to
underpin our capital allocation decisions
supporting more efficient outcomes. In
2019, drilling activity increased 35% to 115
wells and production grew for the second
consecutive year to 15.8 mmboe.
Advances in drilling technology drove
development costs down further and
contributed to enhanced reservoir
deliverability. Project cycle times were
again a focus with the fastest ever total
well execution recorded of 4 days,
rig release to rig release.
The opportunity sets within the Basin
continue to grow now that we have
significantly reduced the cost base of the
asset. The appraisal of Moomba South
was the first of several large-scale project
appraisal programs focused on resource
conversion. In 2019 our drilling activity
combined with the successful appraisal
program at Moomba South delivered
a 183% 2P reserves replacement. This
is the first time since 2012 that the
Cooper has more than replaced its
annual production.
With current resources of approximately
300 million barrels of oil equivalent, the
Cooper Basin will remain a high-value
swing producer supportive of east coast
gas markets as well as the strong Asian
demand for LNG for decades to come.
Queensland & NSW
In Queensland a record 393 wells were
drilled across the GLNG acreage, a 29%
increase on 2018. Well cost discipline
was maintained despite the higher level
of activity as we continued to maximise
value from our regional expertise and
low-cost Operating Model.
Upstream gas production continued to
build throughout the year and in October,
GLNG achieved its targeted sales run-rate
of 6 mtpa. With the right rigs in place,
experienced crews and high volume,
repeatable drilling program in motion,
we are confident that upstream field
performance will continue to improve and
underpin our new sales run-rate target of
~6.2 mtpa from 2020.
competition will put downward pressure
on gas prices. We have committed 100
percent of Narrabri gas to the domestic
market, enough to supply up to half of
NSW’s needs and help support about
300,000 jobs in NSW that rely on natural
gas. Santos is awaiting a decision on
its Environmental Impact Assessment
submission which is expected in the
first-half of 2020.
Northern Australia & Timor-Leste
In Northern Australia & Timor-Leste,
Darwin LNG continued its strong
operating performance in 2019, producing
2.9 million tonnes of LNG.
On 14 October, we announced the value
accretive acquisition of ConocoPhillips’
northern Australia business, delivering
shareholders operating interests in
long-life, low-cost natural gas assets and
strategic LNG infrastructure.
The acquisition is supportive of a Final
Investment Decision (FID) on the low
risk, brownfield Barossa project to
supply backfill gas to Darwin LNG. The
Barossa project is expected to extend
the operating life of Darwin LNG by more
than 20 years and more than double
Santos’ production in Northern Australia
& Timor-Leste.
The Bayu-Undan field is expected to
come to the end of its field life in late
2022 with life extension works planned
at Darwin LNG plant prior to backfill
production coming online in late 2024. In
light of this, Santos is also working with
our joint venture partners to evaluate infill
drilling opportunities to extend the life of
the Bayu-Undan reservoirs.
In New South Wales, we remain focused
on securing approval for the Narrabri Gas
Project. Manufacturers on the east coast
are calling for more gas supply and more
Onshore, following the successful
stimulation of the Tanumbrini-1 well in
the McArthur Basin and the approval
of environmental plans by the Northern
Santos Annual Report 2019 / 5
Santos Annual Report 2019 / 5
Message from the Chairman and from the
Managing Director & Chief Executive Officer
continued
Territory government, we now expect to
drill two appraisal wells in 2020 following
the wet season. The McArthur Basin
has significant gas resources and has
the potential to provide feed gas to
support future backfill and/or expansion
opportunities through Darwin LNG.
PNG
PNG LNG continues to be a well-run,
high-performing asset in our portfolio,
delivering 8.5 million tonnes of LNG
in 2019, up 15% following the severe
earthquake that impacted the Southern
Highland and Hela Provinces in 2018.
Santos’ acreage position in PNG is
supportive of our long-term commitment
to the region as we look to work with
our joint-venture partners and the PNG
Government to continue to align interests
to support and participate in opportunities
through the PNG LNG project.
RESILIENCE AND OPPORTUNITIES
IN A LOWER CARBON FUTURE
Natural gas today remains a crucial part of
the energy mix if we are to solve the twin
challenges of reducing carbon emissions
while meeting the growing demand for
secure and reliable power generation.
Santos is committed to a lower-carbon
future and our Climate Change Policy
guides the Company’s activities to reduce
carbon emissions as it produces the
reliable, affordable and cleaner energy
required to meet domestic and global
demand. Through the commitments made
in our Climate Change Policy, Santos
is striving to contribute to the global
aspiration to limit temperature rise to
less than 2 degrees Celsius.
We have set medium-term targets that
align to these objectives and have set
a pathway to achieving our long-term
aspiration of net-zero emissions by 2050.
6 / Santos Annual Report 2019
The transition to a lower-carbon future
also creates opportunities for Santos with
natural gas expected to account for a
quarter of total global energy demand by
2040 in all IEA (International Energy Agency)
World Energy Outlook 2018 scenarios.
In 2016 Santos set up an Energy Solutions
business to build resilience and identify
and create opportunities for a lower
carbon future. Since then, more than
100,000 tonnes of annual CO2 emissions
reduction have been delivered with many
more opportunities identified.
In 2019 we made significant investments
to deploy renewable energy and recover
waste heat across our operations, as well
as test for large scale commercial carbon
capture and storage (CCS) in the Cooper
Basin, which has the potential to store 20
million tonnes of carbon dioxide per year.
Australia could be a world leader in CCS
and create an exciting new industry
supporting hydrogen production and
ensuring the sustainability of existing
industries including oil and gas, steel, coal,
cement and chemicals.
Australia has a competitive advantage
in CCS, built on the availability of vast,
high quality storage reservoirs; the skills,
technology, expertise and infrastructure
of the oil and gas industry; and a strong
reputation for environmental regulation
and carbon measurement and accounting
integrity.
We think CCS is an exciting opportunity
for Santos and in the future, for our
customers as well.
To learn more about the Company’s
resilience as well as the opportunities in a
lower carbon future, we would encourage
you to read our third Climate Change
Report, available on our website at
www.santos.com
LOOKING AHEAD
It has been 50 years since the very first
molecule of natural gas from our Moomba
processing plant in the Cooper Basin
arrived in suburban Blair Athol, less than
10 kilometres from the Adelaide CBD.
As an Australian energy pioneer, we are
proud that from these humble beginnings,
our Company has now grown into a
leading supplier of secure and reliable
energy for homes and industry across the
nation and LNG into Asia.
As we look to build on our recent success,
it was pleasing to see our 2020 Graduate,
Apprenticeship and Traineeship programs
attract exceptional talent and for Santos
to increasingly be considered an employer
of choice.
Female representation was strong across
all the programs accounting for 60% of
our Apprenticeship intake and 50% of
our Traineeship intake. Of the Graduate
program, 45% of the intake were female,
the highest proportion since the program
was launched.
In order to continue to attract and retain
talent within the organisation and support
employees to better balance work and
family life, in 2019 Santos increased its
paid parental leave and introduced a
child care subsidy. This initiative builds
on Santos’ leadership in this area, having
introduced paid maternity leave over
a decade ago, and being the first, and
still one of only a few companies in the
resources sector to offer ‘superannuation
top-ups’ for periods of unpaid maternity
leave.
In 2020 we will continue to execute
our clear and consistent strategy to
Transform, Build and Grow the business
to deliver a safe, low-cost, reliable and
high performance business.
of Quadrant Energy highlight a business
that has transformed and is positioned for
further success.
Santos remains committed to our stated
purpose which is to provide sustainable
returns for our shareholders by supplying
reliable, affordable and cleaner energy
to improve the lives of people in Australia
and Asia.
On behalf of the Board, we would like
to thank you, our shareholders, for your
continued support. We remain committed
to driving shareholder value as we target
production of 120 mmboe by 2025.
Yours sincerely,
KEITH SPENCE
Chairman
KEVIN GALLAGHER
Managing Director
and Chief Executive Officer
•
•
•
•
•
In Northern Australia & Timor-Leste
we will look to complete the
ConocoPhillips acquisition and take a
Final Investment Decision (FID) on
the Barossa project to supply backfill
gas to Darwin LNG.
In Western Australia we are targeting
Front End Engineering and Design
(FEED) on our Dorado oil and
condensate development to bring
these resources to market.
In Papua New Guinea we continue to
work with our joint-venture partners
and the PNG Government to safely
commercialise the country’s gas
resources and provide support to
local communities across a wide
range of economic and social
programs.
In Queensland & New South Wales
we are targeting sales of ~6.2 mtpa
at GLNG and expect a determination
for the Narrabri Gas Project from the
NSW Department of Planning ahead
of a decision by the Independent
Planning Commission.
In the Cooper Basin, in addition to our
focus on improved capital efficiency
to unlock additional resources, we are
seeking to advance our carbon
capture and storage project to offset
emissions and generate new sources
of revenue.
In summary, our clear and consistent
strategy to focus on low-cost, long life
assets utilising our existing infrastructure
positions to generate sustainable free
cash flow through the oil price cycle
continues to deliver strong shareholder
returns. Our balance sheet is positioned
to deliver these growth opportunities
in our portfolio. Record financial
performance, good cost control, resource
growth and the successful integration
Santos Annual Report 2019 / 7
Santos Annual Report 2019 / 7
Board of Directors
KEITH SPENCE
KEVIN GALLAGHER
YASMIN ALLEN
BCom, FAICD
Ms Allen is an independent non-executive
Director. She joined the Board on 22 October
2014 and is the Chair of the People and
Remuneration Committee and a member of
the Audit and Risk Committee and Nomination
Committee.
Ms Allen has extensive experience in finance
and investment banking, including senior roles
at Deutsche Bank AG, ANZ and HSBC Group
Plc, as former Chairman of Macquarie Global
Infrastructure Funds, and a former Director
of EFIC (Export, Finance and Insurance
Corporation). Ms Allen was appointed a
member of the Australian Government
Takeovers Panel in March 2017 and is
presently the Acting President, is a member
(and former Council member) of Chief
Executive Women and a former non-executive
Director of Insurance Australia Group (2004
to 2015).
Other Current Directorships: Director
of Cochlear Limited (since 2010), National
Portrait Gallery (since 2013), The George
Institute for Global Health (since 2014), ASX
Limited and ASX Clearing and Settlement
boards (since 2015), Chair of Advance (since
2018), member of the Australian Government
Takeovers Panel (since 2017), and Chair of
the Digital Technology Skills Organisation Pilot
(since 2020).
Former Directorships in the last 3 years:
Nil.
Chairman
BSc (First Class Honours in Geophysics),
FAIM
Mr Spence is an independent non-executive
Director. He joined the Board on 1 January
2018 and became Chairman on 19 February
2018. He is Chairman of Santos Finance Ltd
and Chair of the Nomination Committee.
Mr Spence has over 40 years’ experience
in managing and governing oil and gas
operations in Australia, Papua New Guinea,
the Netherlands and Africa.
A geologist and geophysicist by training,
Mr Spence commenced his career as an
exploration geologist with Woodside Petroleum
Limited in 1977. He subsequently joined Shell
(Development) Australia, where he worked
for 18 years. In 1994, he was seconded to
Woodside to lead the North West Shelf
Exploration team. In 1998, he left Shell to
join Woodside. He retired from Woodside in
2008 after a 14-year tenure in top Executive
positions in the company. He has expertise in
exploration and appraisal, development, project
construction, operations and marketing.
Upon his retirement he took up several board
positions, working in oil and gas, energy,
mining, engineering and construction services
and renewable energy. This included Clough
Limited, where he served as Chairman from
2010 to 2013, Geodynamics Limited, where
he served as a non-executive Director from
2008 to 2016 (including as Chairman from
2010 to 2016) and Oil Search Limited, where
he served as a non-executive Director from
2012 to 2017. Mr Spence is also a past Chair
of the National Offshore Petroleum Safety and
Environmental Management Authority Board
and led the Commonwealth Government’s
Carbon Storage Taskforce.
Other Current Directorships: Chair of
Base Resources Limited (since 2015), non-
executive Director of Independence Group NL
(since 2014) and Murray and Roberts Holdings
Limited (since 2015).
Former Directorships in the last 3 years:
Oil Search Limited (2012 to 2017).
Managing Director and
Chief Executive Officer
BEng (Mechanical) Hons, FIEAust
Mr Gallagher joined Santos as Managing
Director and Chief Executive Officer on
1 February 2016, bringing more than 25 years’
international experience in managing oil and
gas operations. Mr Gallagher is a member
of the Environment, Health, Safety and
Sustainability Committee and is also a Director
of Santos Finance Limited.
Mr Gallagher commenced his career as a
drilling engineer with Mobil North Sea, before
joining Woodside in Australia in 1998.
At Woodside, Mr Gallagher led the drilling
organisation through rapid growth, delivering
several Australian and international
development projects and exploration
campaigns, before leading the Australian
oil business. Then, as CEO of the North
West Shelf Venture, he was responsible for
production from Australia’s first ever LNG
project, which underpinned a new domestic
gas market, fuelling the mining sector and
other industries in Western Australia.
In 2011, Mr Gallagher joined Clough Limited
as CEO and Managing Director where, over
four years, he transformed the business and
delivered record financial results. He oversaw
the development of innovative programs to
improve safety and drive productivity and
executed an international expansion strategy.
Since joining Santos, Mr Gallagher has
delivered a Transform, Build, Grow strategy
that has instituted a disciplined low-cost
operating model, strengthened the balance
sheet and improved production. Under
Mr Gallagher’s leadership, Santos is now
focused on a long-life portfolio of natural
gas assets with some exciting oil and liquids
opportunities and is well positioned to deliver
significant growth and sustainable returns to
shareholders throughout the oil price cycle.
Other Current Directorships:
Chair of APPEA (since 2019).
Former Directorships in the last 3 years:
Nil.
8 / Santos Annual Report 2019
GUY COWAN
HOCK GOH
YU GUAN
BSc (Hons), Engineering, FCA (UK), MAICD
BEng (Hons) Mech Eng
MSc, E&E EMBA
Mr Cowan is an independent non-executive
Director. He joined the Board on 10 May
2016 and is the Chair of the Audit and Risk
Committee and a Director of Santos Finance
Limited.
Mr Cowan had a 23-year career with Shell
International in various senior commercial and
financial roles. His last two roles were as CFO
and Director of Shell Oil US and CFO of Shell
Nigeria. He was CFO of Fonterra Co-operative
Ltd between 2005 and 2009. Mr Cowan
was a Director of Ludowici Limited (2009 to
2012) where he chaired the Audit and Risk
Committee and was also a Shell-appointed
alternate Director of Woodside between 1992
and 1995.
Other Current Directorships: Chair of
Queensland Sugar Limited (since 2015) and
Buderim Ginger Ltd (since 2018), Director of
Winson Group Pty Ltd (since 2014).
Former Directorships in the last 3 years:
Director of UGL Limited (2008 to 2017).
Mr Goh is an independent non-executive
Director. He joined the Board on 22 October
2012 and is a member of the Environment,
Health, Safety and Sustainability Committee,
Audit and Risk Committee and Nomination
Committee.
Mr Goh has more than 35 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. He previously held managerial and
staff positions in Asia, the Middle East and
Europe. Mr Goh commenced his career as
a field engineer on the rigs in Indonesia and
subsequently in Roma and Sale in Australia.
Mr Goh is a former Operating Partner of Baird
Capital Partners Asia, based in China, (2007
to 2012) and non-executive Director of Xaloy
Holding Inc in the US (2006 to 2008) and
BPH Energy Ltd (2007 to 2015).
Other Current Directorships: Non-
executive Director of Stora Enso Oyj (Finland)
(since 2012), AB SKF (Sweden) (since 2014)
and Vesuvius PLC (UK) (since 2015).
Former Directorships in the last 3 years:
Chair of MEC Resources (2005 to 2018) and
Director of Harbour Energy (2015 to 2018).
Mr Guan is a non-executive Director. He joined
the Board on 3 May 2019 as a nominee of a
substantial shareholder and is a member of
the People and Remuneration Committee.
Mr Guan has more than 22 years of
professional experience, including five years
in China’s Ministry of Power and State Power
Cooperation, and 18 years in management
roles in multi-national companies. His
industry experience covers power and
energy in China and the US. His specialties
include corporate management, business
management, corporate M&A, and investment
and construction management for large-scale
power and energy infrastructures.
Other Current Directorships: President
and Board member of ENN Ecological (since
2018).
Former Directorships in the last 3 years:
Nil.
COMMITTEES OF THE BOARD
Audit and Risk Committee
Nomination Committee
People and Remuneration
Committee
Environment, Health,
Safety and Sustainability
Committee
Mr G Cowan (Chair)
Ms Y Allen
Mr H Goh
Ms J McArdle
Mr K Spence (Chair)
Ms Y Allen
Mr H Goh
Mr P Hearl
Ms Y Allen (Chair)
Dr V Guthrie
Mr P Hearl
Mr Y Guan
Mr P Hearl (Chair)
Mr K Gallagher
Mr H Goh
Dr V Guthrie
Santos Annual Report 2019 / 9
Santos Annual Report 2019 / 9
Board of Directors
continued
VANESSA GUTHRIE
PETER HEARL
JANINE MCARDLE
Hon DSc, PhD, BSc (Hons)
Dr Guthrie is an independent non-executive
Director. She joined the Board on 1 July
2017 and is a member of the People and
Remuneration Committee and Environment,
Health, Safety and Sustainability Committee.
Dr Guthrie has more than 30 years’ experience
in the resources sector in diverse roles such
as operations, environment, community and
indigenous affairs, corporate development and
sustainability.
She has qualifications in geology, environment,
law and business management including a
PhD in geology. She was awarded an Honorary
Doctor of Science from Curtin University in
2017 for her contribution to sustainability,
innovation and policy leadership in the
resources industry. She is an active member of
the Australian Institute of Company Directors
and Chief Executive Women, and a Fellow
of the Australian Academy of Technological
Sciences and Engineering.
Other Current Directorships: Director
of Australian Broadcasting Corporation
(since 2017), Adelaide Brighton Limited
(since 2018) and Tronox Holding PLC (since
2019), member of the Association of Mining
and Exploration Companies, Deputy Chair
of Western Australian Cricket Association,
Council member of Curtin University, member
of the Australia–India Council and member of
the Vocational Education and Training Expert
Skills Panel.
Former Directorships in the last 3 years:
Director of Vimy Resources Limited (2017
to 2018).
BCom. (UNSW With Merit), FAICD, MAIM,
MAMA
Mr Hearl is an independent non-executive
Director. He joined the Board on 10 May 2016
and is Chair of the Environment, Health,
Safety and Sustainability Committee, a
member of the People and Remuneration
Committee and the Nomination Committee.
He previously served on the Company’s Audit
and Risk Committee.
During an 18-year career in the oil industry
with Exxon in Australia and the USA, he held
a variety of senior marketing, operations,
logistics and strategic planning positions. Mr
Hearl joined YUM Brands (formerly PepsiCo
Restaurants) as KFC Australia’s Director of
Operations in 1991. He subsequently had
several senior international leadership roles,
as well as being President of Pizza Hut USA,
before assuming the global role of YUM
Brands’ Chief Operations and Development
Officer in 2006, based in Dallas, Texas and
Louisville, Kentucky, and from where he retired
in 2008.
Other Current Directorships: Director of
Telstra Ltd (since 2014), Chairman-Elect of
Endeavour Group Ltd (since 2019), Member of
Investment Committee of the Stepping Stone
Foundation, a Sydney based NFP (since 2018).
Former Directorships in the last 3 years:
Chair of Woolworths Petrol Pty Ltd (2018),
Director of Treasury Wine Estates (2012
to 2017).
BS (Chemical Engineering), MBA
Ms McArdle is an independent non-executive
Director. She joined the Board on 23 October
2019 and is a member of the Audit and Risk
Committee.
Ms McArdle has more than 30 years’
experience in the global oil and gas industry.
She most recently spent 13 years with
Apache Corporation in the United States,
where she held roles including Executive
Officer, Senior Vice President of Global Gas
Monetization, President of Kitimat LNG
Co, and Vice President, Worldwide Oil and
Gas Marketing. Prior to joining Apache, she
worked with Acquila Energy for nine years in
the United States and United Kingdom, in a
senior leadership position with responsibilities
across trading, mergers and acquisition and
e-commerce. Ms McArdle is also the Founder,
CEO and President of Apex Strategies, a
global consultancy business providing advisory
services to companies engaged in midstream
and downstream operations within the energy
industry.
Other Current Directorships: Member
of University of Nebraska’s College of
Engineering Advisory Board (since 2017).
Former Directorships in the last 3 years:
Director of Halcon Resources (2018 to 2019)
and Palmer Drug Abuse Program in Houston,
Texas (2003 to 2018).
10 / Santos Annual Report 2019
Santos Leadership Team
KEVIN GALLAGHER
DAVID BANKS
BRETT DARLEY
JODIE HATHERLY
Managing Director and
Chief Executive Officer
Executive Vice President
Onshore Oil and Gas
Executive Vice President
Offshore Oil and Gas
BEng (Mechanical) Hons, FEIAust
BE (Hons), MBA, GAICD
BEng (Civil), SPE
Mr Gallagher’s biography can
be read on page 8.
David joined Santos in 2018 and
is responsible for Santos’ onshore
upstream business.
David has over 25 years’
international and domestic
experience in the upstream oil
and gas industry. He started his
career with Schlumberger in
Southeast Asia before joining BHP
in Australia in 1994. Whilst at BHP,
David’s roles included operational,
technical and functional
leadership roles including General
Manager Shale Oil, Vice President
HSE, Vice President Shale Drilling
and Completion and Bass Strait
Asset Manager. Beyond business
and function leadership, David led
BHP’s Petroleum Transformation
and was Integration Manager for
US shale assets.
Brett joined Santos in 2018.
He has more than 30 years’
experience in the upstream oil
and gas industry, both in Australia
and overseas, with technical,
operational, commercial and
management experience across
varied assets, onshore and
offshore.
Before moving to Santos, Brett
held senior leadership roles
including Chief Executive Officer
of Quadrant Energy, Managing
Director and Region Vice
President for Apache Energy
Limited, Vice President of Drilling
and Completions at Woodside
Energy and Drilling Manager at
Santos.
Brett holds a Bachelor of Civil
Engineering degree from the
University of Queensland and
is a Chartered Engineer. He is a
current member of the Curtin
Business School Advisory Council,
an elected member of the General
Council of the Chamber of
Commerce and Industry of WA,
and a member of the Society of
Petroleum Engineers.
General Counsel and Vice
President Legal, Risk and
Governance
BA, LLB
Jodie joined Santos in 2019.
She is the General Counsel
and Company Secretary of the
Santos Group and is responsible
for legal, company secretariat,
risk, governance and corporate
environment, health and safety
across the business. Jodie joined
Santos from INPEX Australia,
where she was General Counsel
and General Manager Legal for
the Ichthys LNG project and
INPEX’s Australia business.
Jodie brings to the table a
demonstrated history of delivering
some of the biggest projects in
the oil and gas industry.
Jodie commenced her career in
the legal private sector before
taking on senior in-house roles in
the oil and gas industry. Jodie also
serves on the advisory board of
the Curtin University Law School
as well as Muscular Dystrophy
WA. Jodie was recognised on The
Legal 500 GC Powerlist Australia
in 2018.
Santos Annual Report 2019 / 11
Santos Annual Report 2019 / 11
Santos Leadership Team
continued
ANGUS JAFFRAY
NAOMI JAMES
ANTHONY NEILSON
BILL OVENDEN
Executive Vice President
Exploration and New Ventures
BSc (Hons) Geology and
Geophysics
Bill joined Santos in 2002 and is
accountable for developing and
executing a targeted exploration
and appraisal strategy across
Santos’ core asset hubs, while
identifying new high-value
exploration targets.
Bill is a geologist with over 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 Sun Oil,
Kufpec, ExxonMobil and Ampolex.
He joined Santos after working
for ExxonMobil in Indonesia.
Bill is a member of the APPEA
Exploration Committee.
Executive Vice President
Midstream Infrastructure
and Energy Solutions
LLB (Hons), MLM
Naomi joined Santos in 2016 and
is responsible for Santos’ oil, gas
and LNG processing facilities at
Moomba, Port Bonython and
Darwin and for Santos’ Energy
Solutions team established to
pursue new low-carbon revenue
and growth opportunities.
Previously Naomi was Executive
Vice President EHS and
Governance, with responsibility
for Santos’ risk and audit, legal,
company secretary, sustainability,
safety, environment and access
functions.
Prior to joining Santos, Naomi
held a range of functional and
line leadership roles with Arrium
including Chief Executive of the
Group’s non-integrated steel
businesses, Chief Legal Officer
and Chief Executive, Strategy,
leading major acquisitions
and divestments, business
restructuring and turnaround and
the legal, company secretary,
government affairs and strategy
functions.
Naomi has previously worked in
private practice at law firms in
Australia and the UK.
Chief Financial Officer
B.Comm; MBA; FFin; FCA
Anthony joined Santos as Chief
Financial Officer in 2016 and
is responsible for the finance,
tax, treasury, strategy, business
development, investor relations
and IT functions. He brings over
25 years’ experience in chartered
accounting, banking and
corporate financial roles including
over 15 years’ experience in the
upstream and downstream oil and
gas industry.
Prior to joining Santos, Anthony
was CEO of Roc Oil Company
Ltd (ROC), which was acquired in
2014 by Hong Kong-listed investor
Fosun International Limited.
Previously, Anthony was Chief
Financial Officer of ROC (ASX
listed) and has held commercial,
finance and business services
roles at Caltex Australia, Credit
Suisse First Boston (London) and
Arthur Andersen (Sydney).
Anthony holds a Masters of
Business Administration from
Australian Graduate School of
Management and is a Fellow of
the Financial Services Institute
of Australasia and a Fellow of
Chartered Accountants Australia
and New Zealand.
Executive Vice President
People and Sustainability
BA (Hons) Geography, MBA
Angus joined Santos in 2016
and was appointed Executive
Vice President People and
Sustainability in February 2019,
with responsibility for human
resources, remuneration and
performance, organisational
and learning development,
public affairs, sustainability,
and organisational integration.
He previously held the roles
of Executive Vice President
Strategy, Business Development
and Technology and Executive
Vice President Organisational
Integration.
Angus has over 20 years of
leadership and consulting
experience as a Director of Azure
Consulting, a Partner at The
Boston Consulting Group and a
Supply Chain Manager with the
global packaging group Crown
Cork and Seal.
At Azure Consulting, Angus
supported companies in
developing strategy and driving
organisational change. At BCG,
Angus set up the Perth office,
led the Australian Operations
practice and was a core member
of both the Mining and Metals
practice and the Energy Practice.
He served clients in Australia,
New Zealand, Asia, Europe
and North America building
strong capabilities in strategy,
operational efficiency and running
transformation programs. As a
Supply Chain Manager, Angus
was accountable for procurement,
planning, logistics and product
delivery.
12 / Santos Annual Report 2019
VINCE SANTOSTEFANO
PETTER UNDEM
TRACEY WINTERS
BRETT WOODS
Executive Vice President
Production Operations
BEng (Civil), SPE
Vince joined Santos in 2016 and
is responsible for the provision of
technical and operational services
to increase the scale and strategic
value of Santos’ assets.
Vince retired from Woodside
Energy in November 2013 as
Chief Operating Officer. As COO
he was responsible for Woodside’s
producing Business Units; the
Production Function including
six LNG trains with associated
offshore infrastructure, four
FPSOs, the Marine Division and
the Brownfields Projects Group.
During 2014 and 2015, Vince
was engaged in Board work as
a non-executive Director and
various management-consulting
assignments. Vince has a deep
and respected knowledge of
the industry, with significant
experience in onshore and
offshore operations and asset
management. He has a proven
capability to manage a demanding
workload and to drive cultural
change.
Strategic Adviser External
Affairs
Executive Vice President
Developments
BSc (Australian
Environmental Studies)
BSc (Hons) Geology
and Geophysics
Tracey joined Santos in 2017
and is responsible for government
engagement and strategic
communications.
Tracey joined Santos with 30
years of experience in the oil
and gas industry, in diverse
roles including government
and regulatory affairs,
media and communications,
environment, land access, project
commercialisation, construction
and asset management. Tracey
held a senior role in federal
resources and energy policy and
politics for seven years and over
more than a decade built and
ran a successful consultancy
serving some of Australia’s
biggest resources companies and
delivering major project approvals
for some of the nation’s biggest
gas and pipeline projects. From
2011 to 2016, Tracey drove the
environmental approvals and land
access processes to deliver the
QCLNG project.
Prior to joining Santos, Tracey
was an adviser to Caltex on
public affairs and strategic issues
management, in particular wage
underpayment by franchisees.
Brett joined Santos in 2013 and
is accountable for development
across Santos’ onshore and
offshore assets, including
major capital projects, drilling
and completions, and reservoir
development, as well as
overseeing Santos’ joint
venture in PNG LNG.
At Santos, Brett has previously
held the roles of Executive Vice
President Onshore Upstream, and
Vice President, Eastern Australia.
Brett has held other roles within
Santos including responsibilities
for exploration in Western
Australia and the Northern
Territory, leading the Western
Australian offshore operations
including development of Fletcher
Finucane, Darwin LNG and the
domestic gas business.
Brett has 25 years of oil and gas
industry experience including
senior management, technical
and business development roles
at Woodside Energy and as CEO
and Managing Director of Rialto
Energy. He has a track record of
delivering projects and efficient
exploration and production
operations and has both domestic
and international experience.
Brett is a graduate of the Harvard
Business School Advanced
Management Program.
Executive Vice President
Marketing, Trading and
Commercial
MSc (PE), MBA (High Hons)
Petter joined Santos in August
2019 and has responsibility for
the marketing and trading of
all Santos gas, LNG and liquid
hydrocarbon products as well as
the commercial and procurement
functions.
Petter has over 32 years’
experience in the oil and gas
industry both overseas and
in Australia and joined Santos
from Total, Paris, where he held
the position of Deputy Vice
President New Ventures E&P.
Petter commenced his career
as a petroleum engineer with
Total and held engineering and
management positions in both
Exploration and Production.
From 2009 to 2011, Petter was
Business Development Director
of Total E&P UK before joining
Total Austral in Argentina in the
same position, where he was
responsible for technical studies
for new development projects,
corporate planning and strategy,
new business ventures, joint
venture partners, commercial
sales and commercial gas
strategy. From 2015 to 2018,
Petter was Managing Director
(Country Chair) for Total E&P
Australia.
Petter has a Master of Science
in Petroleum Engineering from
the Norwegian Institute of
Technology and a Master of
Business Administration in General
Administration and Finance from
the Booth School of Business,
University of Chicago, USA.
Santos Annual Report 2019 / 13
Santos Annual Report 2019 / 13
Reserves Statement
for the year ended 31 December 2019
RESERVES AND RESOURCES
Proved plus probable (2P) reserves increased by 42 million barrels of oil equivalent (mmboe) before production in 2019. The annual 2P
reserves replacement ratio (RRR) was 56% and the three-year RRR 152%.
Successful appraisal and development activity in the Australian onshore assets added 36 mmboe to 2P reserves during the year. The
Cooper Basin achieved 183% RRR by adding 29 mmboe 2P reserves before production (including 18 mmboe from the successful
Moomba South project) and 7 mmboe was added in Queensland including the successful Arcadia appraisal. A net 6 mmboe was added
in the Western Australia offshore assets.
2C contingent resources increased to over 1.9 billion barrels of oil equivalent, primarily due to increases in Dorado (+46 mmboe) and
Barossa (+34 mmboe), and a maiden booking in the Northern Territory McArthur Basin shale (+22 mmboe).
Santos’ acquisition of ConocoPhillips’ business in northern Australia and Timor-Leste announced in October 2019 is expected to
complete in the first quarter of 2020, subject to third-party consents and regulatory approvals. Had the acquisition completed on 31
December 2019, it would have increased 2019 2P reserves by 39 mmboe to 1,028 mmboe (106% 2P RRR) and 2C contingent resources
by 480 mmboe to 2,400 mmboe (before any sell-down of the acquired interests).
RESERVES AND 2C CONTINGENT RESOURCES (SANTOS SHARE AS AT 31 DECEMBER)
Santos share
Proved reserves
Proved plus probable reserves
2C contingent resources
Unit
mmboe
mmboe
mmboe
2019
548
989
1,920
2018
586
1,022
1,800
%change
(7%)
(3%)
7%
RESERVES AND 2C CONTINGENT RESOURCES BY PRODUCT (SANTOS SHARE AS AT 31 DECEMBER 2019)
Santos share
Proved reserves
Proved plus probable reserves
2C contingent resources
KEY METRICS
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
000 tonnes
2,930
5,277
9,506
20
38
150
21
36
125
526
1,169
2,217
Annual proved reserves replacement ratio
Annual proved plus probable reserves replacement ratio
Three-year proved plus probable reserves replacement ratio
Organic annual proved plus probable reserves replacement ratio
Organic three-year proved plus probable reserves replacement ratio
Developed proved plus probable reserves as a percentage of total reserves
Reserves life1
1
2P reserves life as at 31 December 2019 using annual production of 75 mmboe.
14 / Santos Annual Report 2019
Total
mmboe
548
989
1,920
49%
56%
152%
56%
62%
55%
13 years
PROVED RESERVES
Santos share as at 31 December 2019
Asset
Cooper Basin
Queensland & NSW1
PNG
Northern Australia &
Timor-Leste
Western Australia
Total 1P
Sales gas
Crude oil Condensate
LPG
All products
mmboe
PJ
271
830
770
20
1,039
2,930
mmbbl
mmbbl
000 tonnes
Developed Undeveloped
8
-
0
-
12
20
4
0
8
0
8
21
502
-
-
24
-
526
48
101
86
4
151
390
14
42
53
-
47
157
Percentage of total proved reserves that are unconventional
1 Queensland proved sales gas reserves include 655 PJ GLNG and 175 PJ other Santos non-operated Eastern Queensland assets.
Proved reserves reconciliation
Product
Sales gas
Crude oil
Condensate
LPG
Total 1P
Revisions
and
extensions
Net
acquisitions
and
divestments
171
5
2
115
37
-
-
-
-
-
2018
Production
3,123
23
23
562
586
(363)
(8)
(4)
(151)
(75)
Unit
PJ
mmbbl
mmbbl
000 tonnes
mmboe
Total
62
143
140
4
198
548
26%
2019
2,930
20
21
526
548
Santos Annual Report 2019 / 15
Santos Annual Report 2019 / 15
Reserves Statement
for the year ended 31 December 2019
continued
PROVED PLUS PROBABLE RESERVES
Santos share as at 31 December 2019
Asset
Cooper Basin
Queensland & NSW1
PNG
Northern Australia &
Timor-Leste
Western Australia
Total 2P
Sales gas
Crude oil Condensate
LPG
All products
mmboe
PJ
690
1,871
1,108
30
1,578
5,277
mmbbl
mmbbl
000 tonnes
Developed Undeveloped
16
-
0
-
21
38
9
0
13
1
14
36
1,132
-
-
37
-
1,169
98
102
128
6
209
543
54
220
75
-
97
446
Percentage of total proved plus probable reserves that are unconventional
1 Queensland proved plus probable sales gas reserves include 1,441 PJ GLNG and 430 PJ other Santos non-operated Eastern Queensland assets.
Proved plus probable reserves reconciliation
Product
Sales gas
Crude oil
Condensate
LPG
Total 2P
2018 Production
Revisions and
extensions
5,408
45
39
1,259
1,022
(363)
(8)
(4)
(151)
(75)
232
1
1
61
42
Net
acquisitions
and
divestments
-
-
-
-
-
Unit
PJ
mmbbl
mmbbl
000 tonnes
mmboe
Total
153
322
203
6
306
989
33%
2019
5,277
38
36
1,169
989
2C CONTINGENT RESOURCES
Santos share as at 31 December 2019
Asset
Cooper Basin
Queensland & NSW
PNG
Northern Australia & Timor-Leste
Western Australia
Total 2C
2C Contingent resources reconciliation
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
000 tonnes
All products
mmboe
1,308
2,648
405
3,341
1,805
9,506
33
0
-
-
117
150
18
0
3
49
55
2,217
-
-
-
-
294
455
72
620
479
125
2,217
1,920
Product
Total 2C (mmboe)
2018
1,800
Revisions and
Production
extensions Discoveries
Net
acquisitions
and
divestments
-
17
29
74
2019
1,920
16 / Santos Annual Report 2019
10 Petroleum reserves and contingent resources are
typically prepared by deterministic methods with support
from probabilistic methods.
11 Any material concentrations of undeveloped petroleum
reserves that have remained undeveloped for more than
5 years: (a) are intended to be developed when required
to meet contractual obligations; and (b) have not been
developed to date because they have not yet been
required to meet contractual obligations.
12 The petroleum reserves replacement ratio is the ratio of
the change in petroleum reserves (excluding production)
divided by production. Organic reserves replacement
ratio excludes net acquisitions and divestments.
13
Information on petroleum reserves and contingent
resources quoted in this reserves statement is rounded
to the nearest whole number. Some totals in the tables
may not add due to rounding. Items that round to zero
are represented by the number 0, while items that are
actually zero are represented with a dash “-“.
14 Qualified Petroleum Reserves and Resources Evaluators
Name
B Pribyl
J Bunz
Employer
Professional
Organisation
Santos Ltd
SPE
Santos Ltd
APEGA
B Camac
Santos Ltd
SPE, PESA
C Harwood
Santos Ltd
PESA, AAPG
S Lawton
Santos Ltd
D Nicolson
Santos Ltd
N Pink
D Smith
A White
Santos Ltd
NSAI
Santos Ltd
SPE
SPE
SPE
SPE
SPE
SPE: Society of Petroleum Engineers
APEGA: The Association of Professional Engineers and
Geoscientists of Alberta
PESA: Petroleum Exploration Society of Australia
AAPG: American Association of Petroleum Geologists
Abbreviations
1P
2P
GJ
LNG
LPG
mmbbl
mmboe
NGLs
PJ
tcf
TJ
proved reserves
proved plus probable reserves
gigajoules
liquefied natural gas
liquefied petroleum gas
million barrels
million barrels of oil equivalent
natural gas liquids
petajoules
trillion cubic feet
terajoules
Conversion factors
Sales gas and ethane, 1 PJ
171,937 boe
Crude oil, 1 barrel
1 boe
Condensate, 1 barrel
0.935 boe
LPG, 1 tonne
8.458 boe
Notes
1
This reserves statement:
a
b
c
is based on, and fairly represents, information and
supporting documentation prepared by, or under the
supervision of, the qualified petroleum reserves and
resources evaluators listed in note 14 of this reserves
statement. Details of each qualified petroleum
reserves and resources evaluator’s employment and
professional organisation membership are set out in
note 14 of this reserves statement; and
as a whole has been approved by Barbara Pribyl,
who is a qualified petroleum reserves and resources
evaluator and whose employment and professional
organisation membership details are set out in note
14 of this reserves statement; and
is issued with the prior written consent of Barbara
Pribyl as to the form and context in which the
estimated petroleum reserves and contingent
resources and the supporting information are
presented.
2 The estimates of petroleum reserves and contingent
resources contained in this reserves statement are
as at 31 December 2019.
3 Santos prepares its petroleum reserves and contingent
resources estimates in accordance with the 2007
Petroleum Resources Management System (PRMS)
sponsored by the Society of Petroleum Engineers (SPE).
4 This reserves statement is subject to risk factors
associated with the oil and gas industry. It is believed
that the expectations of petroleum reserves and
contingent resources reflected in this statement are
reasonable, but they may be affected by a range of
variables that could cause actual results or trends
to differ materially, including but not limited to: price
fluctuations, actual demand, currency fluctuations,
geotechnical factors, drilling and production results,
gas commercialisation, development progress, operating
results, engineering estimates, loss of market, industry
competition, environmental risks, physical risks,
legislative, fiscal and regulatory developments, economic
and financial markets conditions in various countries,
approvals and cost estimates.
5 All estimates of petroleum reserves and contingent
resources reported by Santos are prepared by, or under
the supervision of, a qualified petroleum reserves and
resources evaluator or evaluators. Processes are
documented in the Santos Reserves Policy, which is
overseen by a Reserves Committee. The frequency of
reviews is dependent on the magnitude of the petroleum
reserves and contingent resources and changes indicated
by new data. If the changes are material, they are
reviewed by the Santos internal technical leaders and
externally audited.
6 Santos engages independent experts Gaffney, Cline &
Associates, Netherland, Sewell & Associates, Inc. and
RISC Advisory Pty Ltd 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 2019 petroleum
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 tables included in this
reserves statement represent a reasonable estimate of
Santos’ petroleum reserves and contingent resources
position as at 31 December 2019.
7 Unless otherwise stated, all references to petroleum
reserves and contingent resources quantities in this
reserves statement are Santos’ net share.
8 Reference points for Santos’ petroleum reserves and
contingent resources and production are defined points
within Santos’ operations where normal exploration and
production business ceases, and quantities of produced
product are measured under defined conditions prior to
custody transfer. Fuel, flare and vent consumed to the
reference points are excluded.
9 Petroleum reserves and contingent resources are
aggregated by arithmetic summation by category and
as a result, proved reserves may be a very conservative
estimate due to the portfolio effects of arithmetic
summation.
Santos Annual Report 2019 / 17
Santos Annual Report 2019 / 17
Directors’ Report
Directors’ Report
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 2019, 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
Allen
Cowan
Gallagher
Goh
Guan
Guthrie
Hearl
McArdle
Shi
Spence
Other Names
Yasmin Anita
Guy Michael
Kevin Thomas
Hock
Yu
Vanessa Ann
Peter Roland
Janine Marie
Eugene
Keith William (Chairman)
Shareholdings in Santos Limited
48,883
33,600
713,298
67,215
–
16,437
48,808
5,000
–
65,000
The above-named Directors held office during the financial year. Mr Eugene Shi retired as a Director on 2 May 2019. Mr Yu Guan was
appointed as a Director on 3 May 2019. Ms Janine McArdle was appointed as a Director on 23 October 2019.
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 Gallagher holds 2,628,586 share acquisition rights (SARs) and 220,149 restricted deferred shares. No other
Director holds options or SARs.
Details of the qualifications, experience and special responsibilities of each Director are set out in the Directors’ biographies on pages 8,
9 and 10 of this Annual Report. This information includes details of other listed company directorships held during the last three years.
18 / Santos Annual Report 2019
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 set out below:
Table of Directors’ meetings
Directors’
Meeting
Audit & Risk
Committee
Environment
Health, Safety
& Sustainability
Committee
People &
Remuneration
Committee
Nomination
Committee
Attended/Held1
Attended/Held1
Attended/Held1
Attended/Held1
Attended/Held1
7 of 7
7 of 7
7 of 7
7 of 7
4 of 4
7 of 7
7 of 7
2 of 2
0 of 3
7 of 7
4 of 4
3 of 4
n/a
4 of 4
n/a
n/a
n/a
n/a
1 of 1
n/a
n/a
n/a
4 of 4
4 of 4
n/a
4 of 4
4 of 4
n/a
n/a
n/a
4 of 4
n/a
n/a
n/a
2 of 2
4 of 4
4 of 4
n/a
1 of 1
n/a
4 of 4
n/a
n/a
4 of 4
n/a
n/a
4 of 4
n/a
n/a
4 of 4
Director
Allen
Cowan
Gallagher
Goh
Guan2
Guthrie
Hearl
McArdle3
Shi4
Spence
Yasmin A.
Guy M.
Kevin T.
Hock
Yu
Vanessa A.
Peter R.
Janine M.
Eugene
Keith W.
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 Mr Yu Guan was appointed as a Director on 3 May 2019 and as a member of the People and Remuneration Committee on 21 August 2019.
3 Ms Janine Marie McArdle was appointed as a Director on 23 October 2019 and as a member of the Audit and Risk Committee on 28 November 2019.
4 Mr Eugene Shi retired as a Director on 2 May 2019.
Santos Annual Report 2019 / 19
Directors’ Report
Directors’ Report
continued
OPERATING AND FINANCIAL REVIEW
Santos’ principal activities during 2019 were the exploration for, and development, production, transportation and marketing of,
hydrocarbons. There were no significant changes in the nature of these activities during the year. Revenue is derived primarily from the
sale of gas and liquid hydrocarbons.
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
EBITDAX1
Exploration and evaluation expensed
Depreciation and depletion
Net impairment loss
Change in future restoration assumptions
EBIT1
Net finance costs
Taxation (expense)/benefit
Net profit/(loss) for the period and attributable to equity holders of Santos
Underlying profit for the period1
Underlying earnings per share (cents)1
2019
mmboe
75.5
94.5
2018
mmboe
58.9
78.3
US$million
US$million
4,033
2,457
(103)
(1,000)
(61)
2
1,295
(277)
(344)
674
719
34.5
3,660
2,160
(105)
(667)
(100)
46
1,334
(228)
(476)
630
727
34.9
Variance
%
28
21
10
14
(2)
50
(39)
(96)
(3)
21
(28)
7
(1)
(1)
1
EBITDAX (earnings before interest, tax, impairment, depreciation (or depletion), amortisation and exploration and evaluation expense), 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 23 for the reconciliation from net profit to underlying profit for the period. Underlying earnings per share represents underlying profit for the period
divided by the weighted average number of shares on issue during the year. The non-IFRS financial information is unaudited, however the numbers have been extracted from the audited
financial statements.
Sales volume
mmboe
Product sales revenue
$million
Production volume
mmboe
84.1
83.4
78.3
94.5
64.3
3,100
2,442 2,594
4,033
3,660
57.7
61.6 59.5 58.9
75.5
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
Sales volumes of 94.5 million barrels of
oil equivalent (mmboe) were 21% higher
than the previous year reflecting a full-
year contribution from the acquisition
of Quadrant Energy combined with
higher volumes in the Cooper Basin and
Queensland. PNG volumes recovered
following the Highlands earthquake in 2018.
Sales revenue increased 10% compared to
the previous year to $4 billion, primarily due
to higher sales volumes partially offset by
lower realised prices. The average realised
oil price decreased 4% to US$72/bbl and
the average realised domestic gas price
decreased 14% to US$4.31/GJ. LNG prices
were stable at US$9.77/mmBtu.
Production was up 28% to a record 75.5
mmboe primarily due to the Quadrant
acquisition, higher production in the Cooper
Basin and Queensland, and recovery in
PNG production following the Highlands
earthquake in 2018. This was partially offset
by the sale of Santos’ Asian assets in the
second half of 2018.
20 / Santos Annual Report 2019
Review of operations
Santos’ operations are focused on five core, long-life asset hubs: Cooper Basin, Queensland and NSW, Papua New Guinea, Northern
Australia and Timor-Leste, and Western Australia.
Cooper Basin
The Cooper Basin produces natural gas, gas liquids and crude oil. Gas is sold primarily to domestic retailers, industry and for the
production of liquefied natural gas, while gas liquids and crude oil are sold in domestic and export markets.
Santos’ strategy in the Cooper Basin is to deliver production growth by being a low-cost business, increasing reserves, investing in
new technology to lower development and exploration costs, increasing utilisation of infrastructure including the Moomba plant and
assessing the significant potential for carbon capture and storage.
Cooper Basin
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2019
15.8
23.2
1,164
7.77
529
308
2018
15.5
21.6
1,146
8.17
518
245
Cooper Basin EBITDAX of $529 million is 2% higher than 2018, primarily due to higher volumes and lower costs.
Cooper Basin production increased for the second consecutive year to 15.8 mmboe. Santos’ share of sales gas and ethane production
of 61.5 petajoules (PJ) was 2% higher than the previous year (60.6 PJ) as new development activity more than offset the impact of
natural field decline. Santos’ share of crude oil production of 3.2 mmbbl was in-line with the previous year.
Queensland and NSW
GLNG produces liquefied natural gas (LNG) for export to global markets from the LNG plant at Gladstone. Gas is also sold into the
domestic market. Santos has a 30% interest in GLNG.
The LNG plant has two LNG trains with a combined capacity of 8.6 mtpa. Production from Train 1 commenced in September 2015 and
Train 2 in May 2016. Feed gas is sourced from GLNG’s upstream fields, Santos portfolio gas and third-party suppliers.
The LNG plant produced 5.2 million tonnes of LNG in 2019 and shipped 87 cargoes. Annual LNG production was higher than the
previous year (4.9 million tonnes) due to the ramp-up in GLNG upstream equity gas supply.
Santos aims to build GLNG gas supply through upstream development, seek opportunities to extract value from existing infrastructure
and drive efficiencies to operate at lowest cost.
Queensland and NSW
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2019
13.0
22.4
1,055
5.51
624
260
2018
12.2
22.0
1,016
5.77
570
244
Queensland and NSW EBITDAX of $624 million increased by 9% compared to 2018. This was a result of higher volumes and lower costs.
Santos Annual Report 2019 / 21
Santos Annual Report 2019 / 21
Directors’ Report
Directors’ Report
continued
Papua New Guinea
Santos’ business in PNG is centred on the PNG LNG project. Completed in 2014, PNG LNG produces LNG for export to global markets,
as well as sales gas and gas liquids. Santos has a 13.5% interest in PNG LNG.
The LNG plant near Port Moresby has two LNG trains with the combined capacity to produce more than eight million tonnes per
annum. Production from both trains commenced in 2014.
The LNG plant produced 8.5 million tonnes of LNG in 2019 and shipped 111 cargoes. Annual LNG production was higher than the
previous year (7.4 million tonnes) due to recovery from the 2018 earthquake.
Santos’ strategy in PNG is to work with its partners to align interests, and support and participate in backfill and expansion opportunities
at PNG LNG.
PNG
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2019
12.8
12.1
663
6.23
540
51
2018
11.2
10.8
630
6.23
506
39
PNG EBITDAX of $540 million increased 7% compared to 2018, mainly due to the resumption of normal operations during 2019, not
interrupted by the earthquake that occurred in 2018.
Northern Australia and Timor-Leste
Santos’ business in northern Australia is focused on the Bayu-Undan/Darwin LNG (DLNG) project. In operation since 2006, DLNG
produces LNG and gas liquids for export to global markets. Santos has an 11.5% interest in DLNG.
The LNG plant near Darwin has a single LNG train with a capacity of 3.7 mtpa. The plant produced 2.9 million tonnes of LNG in 2019 and
shipped 46 cargoes. Annual LNG production was lower than the previous year (3.3 million tonnes), in-line with the shipping schedule.
Santos’ strategy in northern Australia is to support plans to progress Darwin LNG backfill, expand the Company’s acreage footprint and
appraise the onshore McArthur Basin.
In October 2019, Santos announced the acquisition of ConocoPhillips’ business in northern Australia and Timor-Leste, including
Darwin LNG, Bayu-Undan, Barossa and Poseidon for $1.39 billion plus a $75 million contingent payment subject to FID on Barossa.
The acquisition provides operating interests in long-life, low-cost natural gas assets and strategic LNG infrastructure consistent with
Santos’ core asset growth strategy. The acquisition will increase Santos’ interests in DLNG to 68.4% and Barossa to 62.5%, before
any subsequent sell-downs. Completion is expected around the end of the first quarter of 2020, subject to third-party consents and
regulatory approvals.
The Barossa project is planned to backfill Darwin LNG. Successful development of Barossa would extend the operating life of Darwin
LNG for more than 20 years and significantly increase Santos’ production in northern Australia.
Santos also intends to appraise the onshore gas potential of the McArthur Basin in the Northern Territory in 2020 with two horizontal
wells planned.
Northern Australia and Timor-Leste
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2019
3.1
3.1
165
2018
3.7
3.6
183
21.75
20.17
102
50
116
66
Northern Australia and Timor-Leste EBITDAX of $102 million was 12% lower than 2018 due to lower sales volumes and lower realised
LNG pricing.
22 / Santos Annual Report 2019
Western Australia
Santos is one of the largest producers of domestic natural gas in Western Australia and is also a significant producer of oil and natural
gas liquids.
In late 2018, Santos completed the acquisition of Quadrant Energy for $2.15 billion plus contingent payments related to the Bedout
Basin. Quadrant significantly strengthened Santos’ position in Western Australia, including 100% ownership and operatorship of the
Varanus Island and Devil Creek domestic gas hubs, and a leading position in the highly prospective Bedout Basin.
Santos successfully completed the appraisal of the Dorado field (Santos 80% interest) in the Bedout Basin in 2019. A FEED-entry
decision for a potential Dorado development is targeted for the second quarter of 2020.
Western Australia
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2019
30.9
30.4
955
7.30
684
270
2018
12.5
13.0
422
8.68
283
93
Western Australia EBITDAX of $684 million was 142% higher than 2018.
Gas and liquids production in Western Australia was significantly higher in 2019 due to the Quadrant acquisition. Santos’ share of gas
production was up 130% to 145 PJ, while oil production increased by 370% to 4.5 mmbbl.
Net profit
The 2019 net profit attributable to equity holders of Santos Limited of $674 million is $44 million higher than the net profit of $630
million in 2018. This increase is primarily due to lower impairment losses of $46 million after tax ($94 million in 2018) and higher sales
revenue as a result of higher volumes, partly offset by lower realised pricing.
Net profit includes items before tax of $59 million ($45 million after tax), as referred to in the reconciliation of net profit to underlying
profit below. Underlying profit was $719 million, $8 million lower than 2018.
Reconciliation of net profit/(loss) to underlying profit1
Net profit after tax attributable to equity holders
of Santos Limited
Add/(deduct) the following:
Net gains on sales of non-current assets
Impairment losses
Fair value adjustments on embedded derivatives
and hedges
Fair value adjustments on commodity hedges
Costs associated with acquisitions and disposals
Underlying profit1
2019 US$million
2018 US$million
Gross
Tax
Net
Gross
Tax
Net
(12)
61
4
6
–
59
4
(15)
(1)
(2)
–
(14)
674
(8)
46
3
4
–
45
719
(112)
100
2
67
58
115
18
(6)
-
(21)
(9)
(18)
630
(94)
94
2
46
49
97
727
1 Underlying profit is a non-IFRS measure that is presented to provide an understanding of the underlying performance of Santos’ operations. The measure excludes the impacts of asset
acquisitions, disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments and fluctuations
in exchange rates. The non-IFRS financial information is unaudited, however the numbers have been extracted from the financial statements which have been subject to audit by the
Company’s auditor.
Santos Annual Report 2019 / 23
Santos Annual Report 2019 / 23
Directors’ ✥eport
Directors’ Report
continued
Financial position
Summary of financial position
Exploration and evaluation assets
Oil and gas assets and other land, buildings, plant and equipment
Restoration provision
Other net assets/(liabilities)1
Total funds employed
Net debt2
Net tax assets/(liabilities)3
Net assets/equity
2019
US$million
2018
US$million
Variance
US$million
1,187
11,619
(2,282)
456
10,980
(3,325)
21
7,676
981
11,402
(2,093)
308
10,598
(3,549)
230
7,279
206
217
(189)
148
382
224
(209)
397
1 Other net assets/(liabilities) comprises trade and other receivables, prepayments, inventories, other financial assets, share of investments in joint ventures, offset by trade and other
payables, deferred income, provisions and other financial liabilities.
2 Net debt reflects the net borrowings position and includes interest-bearing loans, net of cash and interest rate and cross-currency swap contracts.
3 Net tax assets/(liabilities) comprises deferred tax assets and tax receivable, offset by deferred tax liabilities and current tax payable.
Impairment of assets
During the Company’s regular review of asset carrying values, Santos undertook an impairment review as part of the preparation of its
2019 full-year accounts.
At 31 December 2019, non-cash, after-tax impairment losses of $46 million were recognised. The total after-tax impairment losses relate
to the impairment of late-life producing assets and exploration and evaluation assets.
Exploration and evaluation assets
Exploration and evaluation assets were $1,187 million compared to $981 million at the end of 2018, a increase of $206 million, due to the
acquisition of Quadrant Energy, 2019 capital expenditure, including drilling in Dorado, Roc South-1, Barossa Caldita and South Amadeus,
along with evaluation studies, in addition to acquisition costs comprising interests in Muruk and South Nicholson; offset by impairment
losses before tax of $24 million and exploration and evaluation expenses of $24 million.
Oil and gas assets and other land, buildings, plant and equipment
Oil and gas assets and other land and buildings, plant and equipment of $11,619 million were $217 million higher than in 2018 mainly due
to the right-of-use assets raised as a result of the adoption of AASB 16 Leases accounting standard, and 2019 capital expenditure across
Cooper Basin, GLNG, WA Offshore and PNG; offset by depreciation and depletion charges.
Restoration provision
Restoration provision balances have increased by $189 million to $2,282 million mainly due to a change in discount rates, offset by
revised restoration cost estimates and favourable exchange differences.
Net debt
Net debt of $3,325 million was $224 million lower than at the end of 2018 primarily as a result of the repayment of debt facilities during
2019, offset by the issue of a new Reg-S bond and free cash flow before asset acquisitions and divestments of $1,138 million.
Net tax assets/(liabilities)
Net tax assets/(liabilities) of $21 million have decreased by $209 million in comparison to 2018 primarily as a result of the finalisation of
the acquisition of Quadrant Energy and associated tax bases, and the utilisation of carry-forward tax losses recognised by the group.
Net assets/equity
Total equity increased by $397 million to $7,676 million at year end. The increase primarily reflects the net profit after-tax attributable to
owners of Santos of $674 million, partially offset by payments of dividends to shareholders of $251 million.
Future commitments
Due to the nature of Santos’ operations, the Company has future obligations for capital expenditure, for which no amounts have been
provided in the financial statements. Santos also has certain requirements to perform minimum exploration work and spend minimum
amounts of money pursuant to the terms of the granting of petroleum exploration permits in order to maintain rights of tenure. The
minimum exploration commitments are less than the normal level of exploration expenditures expected to be undertaken by the
Company.
24 / Santos Annual Report 2019
Oil price hedging
The objectives of Santos’ oil price hedging policy are to reduce the effect of commodity price volatility and support annual capital
expenditure plans. The Company will continue to monitor commodity market conditions and will enter hedging transactions as
appropriate.
As at 31 December 2019, the Company has hedged 6.2 million barrels of production, using a re-participating three-way option structure
with an average floor price of $54.19/bbl, a temporary ceiling of $69.03/bbl and re-participation at $76.78/bbl.
Business strategy and prospects for future financial years
Business strategy
Santos’ clear and consistent Transform, Build, Grow strategy drives shareholder value by utilising a disciplined, low-cost operating model
to deliver strong cash flows through the oil price cycle. Five core, long-life asset hubs sit at the heart of the Company’s operations, each
with significant upside potential.
The successful execution of the strategy since 2016 has transformed the Company into a safe, reliable and low-cost producer positioned
for disciplined growth and sustainable shareholder returns.
Disciplined execution combined with targeted acquisitions have reduced the Company’s breakeven oil price, which was approximately
US$29 per barrel in 2019, and delivered operated interests in long-life, low-cost assets and strategic LNG infrastructure.
The Company is now positioned for disciplined growth leveraging existing infrastructure in all five core asset hubs and is targeting annual
production of 120 mmboe by 2025, more than double the output in 2018.
This disciplined growth portfolio includes:
•
Barossa LNG
• Dorado liquids
•
PNG LNG expansion
• GLNG ramp-up to ~6.2 mtpa sales from 2020
• Cooper Basin production growth
Santos is also executing a focused exploration strategy to identify new high-value targets and unlock future core assets.
The Company is also focused on generating new revenue through maximising utilisation of its infrastructure and implementing low-
carbon energy solutions projects such as carbon capture and storage.
Prospects for future financial years
Santos has a clear strategy and a solid platform for growth. The business focus is aligned with the strategy as the Company continues
to drive efficiencies through the low-cost operating model and progress growth opportunities across the five core asset hubs. This focus
will enable Santos to remain a low-cost and high-performing business with significant upside opportunities across the portfolio.
Natural gas is expected to supply a quarter of the world’s total energy demand by 2040, according to forecasts from the International
Energy Agency. Santos remains confident in the long-term underlying demand for energy and particularly natural gas due to Asian
economic growth, the rising global population, rapid urbanisation in developing economies and growing demand for lower-emissions
fuels. Through its Energy Solutions business, Santos is also investing in projects to lower emissions and assessing the significant
potential for carbon capture and storage in the Cooper Basin.
Santos expects 2020 sales volumes to be in the range of 99–107 mmboe and production to be in the range of 79–87 mmboe. Capital
expenditure is expected to be approximately $1.5 billion. 2020 guidance assumes completion of the acquisition of ConocoPhillips’
business in Northern Australia and Timor-Leste and expected sell-down of 25% interests in Bayu-Undan and Darwin LNG both occur at
the end of the first quarter of 2020.
Material business risks
The achievement of Santos’ purpose and vision, business strategy, production growth outlook and future financial performance is
subject to various risks including the material business risks summarised below. Santos undertakes steps to identify, assess and manage
these risks and operates under a Board-approved enterprise-wide Risk Management Framework.
This summary is not an exhaustive list of all risks that may affect the Company, nor have they been listed in any particular order of
materiality.
Santos Annual Report 2019 / 25
Santos Annual Report 2019 / 25
Directors’ (cid:0)eport
Directors’ Report
continued
Strategic risks
Volatility in oil and gas prices
Santos’ business relies primarily on the production and sale of oil and gas products (including LNG) to a variety of buyers under a range
of short-term and long-term contracts. The majority of oil and gas produced (or to be produced) in Santos’ portfolio will be sold under
sales contracts where the sale price is linked to the global price of oil. Lower global oil prices will therefore reduce Santos’ revenues and
the profitability of its operations.
Global oil prices are affected by numerous factors beyond the Company’s control and historically these have fluctuated widely. Santos’
three-tiered strategy, Operating Model and Hedging Policy introduced in 2016 directly address oil price risk to build resilience to oil price
fluctuations. This includes a clear focus on cash flow management, operational and cost efficiencies, debt reduction and production
growth opportunities.
Santos’ acquisition of Quadrant in 2018 adds conventional domestic natural gas assets backed by medium- to long-term CPI-linked
offtake contracts to complement Santos’ predominantly oil-linked revenues.
Oil and gas reserves development
Calculations of recoverable oil and gas reserves and resources contain significant uncertainties, which are inherent in the reservoir
geology, seismic and well data available and other factors such as project development and operating costs, together with commodity
prices. A failure to successfully develop existing reserves may impact Santos’ ability to fully support LNG, gas or oil under customer
contracts.
Santos has adopted a reserves management process that is consistent with the Society of Petroleum Engineers’ Petroleum Resource
Management System. The Company’s reserves and resources estimations are subject to independent audits and evaluations on a rolling
basis.
Santos applies an integrated management system across all aspects of business performance, including reserves estimation and delivery.
Progress against key reserves metrics is routinely reviewed by senior management and the Board, and reserves estimates are published
annually (pages 14 to 17).
Exploration and reserves replacement
Santos’ long-term prospects are also directly related to the success of efforts to replace existing oil and gas reserves as they are
depleted through production, from either exploration or acquisition. Exploration activities are subject to geological and technological
uncertainties and the failure to replace utilised reserves is a risk inherent in the industry.
Exploration risks are managed through an established exploration prospect evaluation methodology and risking process. In addition,
business development processes identify, review and progress opportunities to build reserves through acquisition in support of the
Company’s strategy to Transform, Build and Grow the business.
Demand and market
The demand for oil, gas, LNG and other products Santos markets may be adversely affected by a range of external factors including
competition from alternative suppliers or other sources of energy supply, and changes in consumer behaviour or government policy.
A robust business strategy development and review process considers independent oil, gas and LNG market forecasts, and other
relevant macro-economic factors, to assess the Company’s portfolio under a range of scenarios, to enable the delivery of plans in
support of the Company’s purpose and vision.
Project development
Investment is undertaken in a variety of oil and gas projects to extract, process and supply oil and gas to a variety of customers,
including long-term high-volume contracts to supply feedstock gas to the GLNG project. Failure to deliver or protracted delays in
delivering projects may occur for various reasons, including unanticipated economic, financial, operational, engineering, technical,
environmental, contractual, regulatory, community and/or political events. Delays, changes in scope, cost increases or poor performance
outcomes pose risks that may impact the Company’s financial performance.
Santos has comprehensive project management and governance, risk management and reporting practices in place. Progress and
performance of material projects is regularly reviewed by senior management and the Board.
Joint venture arrangements
Much of Santos’ business is carried out through joint ventures. The use of joint ventures is common in the oil and gas exploration and
production industry and serves to mitigate the risk and associated cost of exploration, production and operational failure. However,
failure of agreement or alignment with joint venture partners, or the failure of third-party joint venture operators, could have a material
impact on Santos’ business. The failure of joint venture partners to meet their commitments and share costs and liabilities can result in
increased costs to Santos.
26 / Santos Annual Report 2019
Santos has defined critical expectations and requirements for participation in and operation of joint ventures in order to optimise the
Company’s commercial and operational interests. The Company works closely with its joint venture partners to reduce the risk of
misalignment in joint venture activities.
Operational risks
Technical and engineering
Santos is exposed to risks in relation to its ongoing oil and gas exploration and production activities, such as failure of drilling and
completions equipment, pipeline and facilities integrity failures, major processing or transportation incidents, release of hydrocarbons
or other substances, security incidents and other well control and process safety risks, which may have an adverse effect on Santos’
profitability and results of operations.
An integrated management system is applied across all operational activities to manage and monitor operations performance and
material risk controls. The management system includes all relevant technical, operational, asset reliability and integrity standards and
incident management standards and competency requirements. The system is designed to ensure the Company meets regulatory and
industry standards in all operations.
Access and licence to operate
Santos has interests in areas that may be subject to claims by communities and landowners, who may have concerns over the social or
environmental impacts of oil and gas operations or the distribution of oil and gas royalties and access to mining- and petroleum-related
benefits. This has the potential to impact on land access or result in community unrest and activism and may adversely impact on the
Company’s reputation.
A number of Santos interests are subject to one or more claims or applications for native title determination. In Australia, compliance
with the requirements of the Native Title Act 1993 (Cth) can delay the grant of mineral and petroleum tenements and subsequent
timing of exploration, development and production activities.
Santos and its operating joint venture partners work closely with all relevant stakeholders, including governments, communities,
landowners and indigenous groups, to ensure all concerns are fairly addressed and managed, and Santos’ operations benefit from their
support. In addition, Santos and its operating joint venture partners develop and employ security and risk management plans, and are
committed to conducting operations in a way that protects the security of its personnel, facilities and operations.
Santos has a long history of safe and sustainable operations working with communities and landholders across the country. Land access
agreements are in place and a team of experienced community and land access representatives work with Aboriginal stakeholders,
landholders and communities to ensure that issues are understood and addressed appropriately.
Cyber security
Cyber security risks, including threats to information and operational systems from computer viruses, unauthorised access, cyber-attack
and other similar disruptions, have evolved rapidly and can impact all sectors of the economy, including the energy sector. The increasing
technological advances in operations require monitoring and protection to ensure cyber security threats are appropriately managed
and prevented. Cyber security risks may lead to disruption of critical business processes, a breach of privacy and theft of commercially
sensitive information. A cyber event may lead to adverse impacts on Santos’ profitability and reputation.
Focused cyber security risk management is incorporated into Santos’ risk management and assurance processes and practices across
the Company’s business and operational information management systems.
Workforce
Santos’ future success is significantly influenced by the expertise and continued service of certain key executives and technical
personnel. An inability to attract or retain such personnel could adversely affect business continuity and, as such, employment
arrangements and succession plans are designed to secure and retain the services of key personnel. Key workforce metrics and
succession plans are routinely reviewed by senior management and the Board.
Environmental, safety and sustainability risks
Health, safety and environment
The size, nature and complexity of Santos’ operations pose risks in relation to the health and safety of employees and contractors, and a
range of environmental risks exist when carrying out exploration and production activities. Environmental incidents, and real or perceived
threats to the environment or the amenity of local communities, could result in a loss of Santos’ licence to operate, leading to delays,
disruption or the shut-down of exploration and production activities.
Santos has a comprehensive approach to management of health, safety and environmental risks. The Company’s management system
integrates technical and engineering requirements with personal health and safety requirements to comprehensively manage health,
safety and environmental risks within Company operations.
Santos Annual Report 2019 / 27
Santos Annual Report 2019 / 27
Directors’ Report
Directors’ Report
continued
Climate change
Santos anticipates its activities will be subject to increasing regulation and costs associated with climate change and the management of
carbon emissions.
Strategic, regulatory and operational risks and opportunities associated with climate change are incorporated into policy, strategy and
risk management processes and practices. The Company actively monitors current and emerging climate change risk and proactively
takes steps to prevent and mitigate any impacts on its objectives and activities. Reduction of waste and emissions is an integral part of
delivery of cost efficiencies and forms part of the Company’s routine operations.
Financial risks
The financial risk management strategy seeks to ensure that Santos is able to fund its corporate objectives and meet its obligations
to stakeholders. Financial risk management is carried out by a central treasury department that operates in line with a Board-
approved policy and framework. The framework and principles for overall financial risk management address specific financial risks,
such as commodity price risk, foreign exchange risk, interest rate risk and credit risk, approved derivative and non-derivative financial
instruments, and liquidity management.
An oil price hedging policy is in place with the objective of reducing the effect of commodity price volatility and to support annual capital
expenditure plans. Santos continues to monitor commodity market conditions and will enter hedging transactions as appropriate.
Foreign currency
Foreign exchange risk arises from commercial transactions and valuations of assets and liabilities that are denominated in a currency
that is not the entity’s functional currency.
Exposure to foreign currency risk arises principally through the sale of products denominated in currencies other than the functional
currency, and capital and operating expenditure incurred in currencies other than US$, principally A$. Santos also holds investment
interests in domestic operations whose net assets are exposed to foreign currency translation risk.
A foreign currency hedging policy is in place with the objective of reducing the effect of foreign currency exchange rate volatility and
to support annual capital expenditure plans. Santos continues to monitor foreign currency market conditions and will enter hedging
transactions as appropriate.
Credit
Credit risk represents a potential financial loss if counterparties fail to perform as contracted, and arises from investments in cash and
cash equivalents, derivative financial instruments and deposits with banks and financial institutions. Credit exposures exist to customers
in the form of outstanding receivables and committed transactions.
Access to capital and liquidity
Santos’ business and, in particular, the development of large-scale projects, relies on access to debt and equity financing. The ability to
secure financing, or financing on acceptable terms, may be adversely affected by volatility in the financial markets. These effects may be
global or affecting a particular geographic region, industry or economic sector. Access to debt and equity funding may also be negatively
affected by a downgrade in its credit rating.
Santos had $3.0 billion in liquidity (cash and undrawn bilateral bank facilities) available as at 31 December 2019.
Contract and counterparty risks
As part of its ongoing commercial activities, Santos is party to a number of material contracts including finance agreements,
infrastructure access agreements, agreements for the sale and purchase of hydrocarbon, transportation agreements, joint venture
agreements, and engineering, procurement and construction (EPC) contracts. Santos also enters into sale and purchase contracts with
third parties for the sale and purchase of natural gas, LNG and other products.
The economic effects of these contracts over their term may be impacted by fluctuations in commodity prices, price reviews,
operational performance and other market conditions. Failure to perform material obligations under these contracts by Santos and/or
the applicable counterparties, or to secure any extensions or amendments to these contracts, may result in a material impact on Santos’
operations and financial results.
Santos tracks key contractual obligations and monitors performance across its material contracts.
Political and legal risks
Political, legal and regulatory
Santos’ business is subject to various laws and regulations in each of the jurisdictions in which it operates that relate to the
development, production, marketing, pricing, transportation and storage of its products. A change in the laws which apply to the
Company’s business, or the way in which it is regulated, could have a materially adverse effect on Santos’ business, on the results of
28 / Santos Annual Report 2019
operations and the Company’s financial performance. For example, a change in taxation laws, environmental laws or land access laws
could have a material effect on the Company.
The domestic gas business and GLNG project, including its ability to purchase gas, develop future growth projects and meet supply
commitments’, may also be adversely impacted by any governmental intervention, including limitations on LNG export volumes and the
redirection of gas from export to domestic markets. Any such intervention may also have broader implications for the future of the gas
industry in Australia.
Continuous monitoring of legislative and regulatory changes and associated risks is undertaken and regular engagement with regulators
and governments supports the management of risks arising from these changes.
Litigation and dispute
The nature of Santos’ business means that it is likely to be involved in litigation or regulatory actions arising from a wide range of
matters. Santos may also be involved in investigations, inquiries or disputes, debt recoveries, commercial and contractual disputes, native
title claims, land tenure and access disputes, environmental claims or occupational health and safety claims. Any of these claims or
actions could result in delays, increase costs or otherwise adversely impact Santos’ assets and operations, and adversely impact Santos’
financial performance and future financial prospects.
Santos has an experienced legal team that monitors and manages potential and actual claims, actions and disputes.
Material prejudice
As permitted by sections 299(3) and 299A(3) of the Corporations Act 2001 (Cth), Santos has omitted some information from the above
Operating and Financial Review in relation to the Company’s business strategy, future prospects and likely developments in operations
and the expected results of those operations in future financial years on the basis that such information, if disclosed, would be likely to
result in unreasonable prejudice (for example, because the information is premature, commercially sensitive, confidential or could give a
third party a commercial advantage). The omitted information typically relates to internal budgets, forecasts and estimates, details of the
business strategy, and contractual pricing.
Forward-looking statements
This report contains forward-looking statements, including statements of current intention, opinion and predictions regarding the
Company’s present and future operations, possible future events and future financial prospects. While these statements reflect
expectations at the date of this report, they are, by their nature, not certain and are susceptible to change. Santos makes no
representation, assurance or guarantee as to the accuracy of or likelihood of fulfilling any such forward-looking statements (whether
express or implied) and, except as required by applicable law or the ASX Listing Rules, disclaims any obligation or undertaking to publicly
update such forward-looking statements.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The Material Business Risks section (pages 25 to 29) refers to risks which, if materialised, may have a significant effect on the state of
affairs of the Company.
Dividends
On 19 February 2020, the Directors resolved to pay a fully franked final dividend of US5 cents per fully paid ordinary share on 26 March
2020 to shareholders registered in the books of the Company at the close of business on 26 February 2020 (“Record Date”). This final
dividend amounts to approximately US$104 million. The Board also resolved that the Dividend Reinvestment Plan (DRP) will not be in
operation for the 2019 final dividend.
In addition, a fully franked interim dividend of US6 cents per share was paid to members on 26 September 2019. The DRP was not in
operation for the interim dividend.
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 management system. Environmental compliance performance is
monitored on a regular basis and in various forms, including audits conducted by regulatory authorities and by the Company, either
through internal or external resources.
On 19 March 2019, Santos received a penalty infringement notice and $12,615 fine from the Queensland Department of Environment
and Science for a loss of pond hydraulic integrity incident.
On 27 June 2019, Santos received two penalty infringement notices and two fines totalling $26,100 from the Queensland Department of
Environment and Science for an unauthorised release of contaminants to land and failure to operate measures, plant and equipment in a
proper and effective manner.
Santos Annual Report 2019 / 29
Santos Annual Report 2019 / 29
Directors’ Report
Directors’ Report
continued
On 20 September 2019, Santos received a penalty infringement notice and $13,055 fine from the Queensland Department of
Environment and Science for a produced water release to a watercourse.
On 8 November 2019, Santos received a penalty infringement notice and $13,345 fine from the Queensland Department of Environment
and Science for a black smoke release causing an environmental nuisance.
The consolidated entity undertook corrective measures in respect of the infringements to prevent re-occurrences.
POST BALANCE DATE EVENTS
On 19 February 2020, the Directors of Santos Limited resolved to pay a final dividend on ordinary shares in respect of the 2019 financial
year. The financial effect of these dividends has not been brought to account in the full-year Financial Report for the year ended
31 December 2019.
SHARES UNDER OPTION AND UNVESTED SHARE ACQUISITION RIGHTS (SARS)
Options
There are no unissued ordinary shares of Santos Limited under options at the date of this report.
Unvested SARs
Unissued ordinary shares of Santos Limited under unvested SARs at 31 December 2019 are as follows:
Date SARs granted
14 June 2016
17 March 2017
19 May 2017
29 September 2017
21 March 2018
1 April 2018
7 May 2018
9 July 2018
14 November 2018
15 March 2019
12 April 2019
18 April 2019
9 May 2019
7 June 2019
18 July 2019
24 July 2019
20 August 2019
30 August 2019
4 October 2019
Number of shares under unvested SARs
3,828,286
3,506,507
671,641
492,660
2,737,455
700,452
520,183
407,336
7,649
2,595,423
48,234
469,987
637,631
49,772
10,734
567,876
26,364
1,271,549
238,023
18,787,762
Since 31 December 2019, 28,923 additional SARs have been granted over unissued ordinary shares of Santos Limited.
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 32 of this report and in note 7.2 to the Financial Report.
30 / Santos Annual Report 2019
SHARES ISSUED ON THE EXERCISE OF OPTIONS AND ON THE VESTING OF SARS
Options
No options were exercised during the year ended 31 December 2019 or up to the date of this report.
Vested SARs
The following ordinary shares of Santos Limited were allocated during the year ended 31 December 2019 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
31 August 2016
19 April 2017
29 September 2017
9 July 2018
14 November 2018
24 July 2019
Number of shares issued
560,560
80,571
15,372
10,532
7,650
1,636
676,321
Since 31 December 2019, no ordinary shares of Santos Limited have been allocated on the vesting of SARs granted under the SEEIP and
ShareMatch.
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 32
of this report and in notes 7.2 and 7.3 to the Financial Report.
Santos Annual Report 2019 / 31
Santos Annual Report 2019 / 31
Directors’ Report
Remuneration Report
MESSAGE FROM YASMIN ALLEN, PEOPLE AND REMUNERATION COMMITTEE CHAIR
Dear fellow Shareholders,
On behalf of the Board, I am pleased to introduce Santos’ Remuneration Report for 2019.
The purpose of this introductory message is to summarise key remuneration outcomes for 2019 and the link to Santos’ performance.
I also want to flag the outcomes of a review of Santos’ Executive Reward Strategy and some changes to reward arrangements for
2020 onwards, which will further align Executive reward at Santos with performance and shareholder interests.
Your Company has performed very strongly in 2019 including the delivery of:
•
•
•
•
•
•
improved safety and environmental performance;
record annual production, sales volumes and sales revenue;
strong onshore performance driven by the continued focus on our disciplined operating model;
successful appraisal of the Dorado field offshore Western Australia adding significant resources;
record free cash flow and lower production costs; and
announcement of the acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets.
Following assessment of the Company’s performance in 2019, the Board has approved a Company Scorecard result of 120% of its target
performance level out of a possible 167%. This has been used to determine Short-Term Incentive (STI) awards. Further detail on the KPIs
and performance assessment is available in Table 3 on page 41.
Long-Term Incentive (LTI) awards granted in 2016 were tested following the end of their four-year performance period at 31 December
2019. The Company delivered Total Shareholder Return outcomes which placed it in the top quartile against both the ASX100 and the S&P
Global 1200 Energy Index comparator groups. The Company also achieved Free Cash Flow Breakeven Point of US$23.72 in 2019, compared
to the circa US$50/boe at the time of grant and a Return on Average Capital Employed of 139% of Weighted Average Cost of Capital. As a
result 100% of the 2016 LTI awards vested. This followed eight consecutive years of the LTI not vesting and reflects the strong turnaround
achieved since 2016.
Realised Remuneration outcomes for 2019 are shown in Table 11 on page 47. Realised Remuneration includes the value of equity-related
awards which vested during the year, valued at the share price on the vesting date, which includes the value of share price appreciation
between award and vesting.
Nearly three-quarters (72%) of the CEO’s Realised Remuneration for 2019 as disclosed in Table 11 resulted from performance related equity
awards which vested in full. The value at vesting included significant share price appreciation between the awards being granted (in 2016 in
respect of the LTI and 2018 in respect of the Deferred 2017 STI) and vesting, demonstrating strong alignment with shareholders.
The Board believes that total remuneration outcomes are aligned with the Company’s performance in 2019 and the significant value which
has been generated for shareholders.
EXECUTIVE REWARD STRATEGY REVIEW AND CHANGES TO REWARD ARRANGEMENTS FOR 2020 ONWARDS
A holistic review of the Company’s Reward Strategy was conducted during 2019. The review identified several opportunities to strengthen the
alignment of Executives and shareholders and further drive a performance culture which will be implemented for 2020 including the following:
•
•
•
A Minimum Shareholding Requirement has been introduced which will require the CEO and Executive Vice Presidents to build over a
five-year period and then maintain, a minimum shareholding of Santos shares. The minimum shareholding is set as a fixed number of shares
which for the CEO is approximately three times annual Total Fixed Remuneration (TFR) and for Executive Vice Presidents is approximately
one and a half times the average TFR. These levels of minimum shareholdings are significant, compared to typical market practice.
The proportion of pay at risk and linked to performance will be increased within the overall mix. The target fixed pay positioning for
Executive remuneration will be set below market median, with incentives set at a level that delivers competitive total remuneration
contingent on the delivery of Santos’ disciplined operating model and the challenging performance targets on the Company Scorecard
and Long-Term Incentive awards. The impact of these changes is described further in section 4 of the Remuneration Report.
The Free Cash Flow Breakeven Point (FCFBP) and Return on Average Capital Employed (ROACE) performance conditions attaching
to 2020 LTI awards are being made more challenging to reflect the significant improvements in company performance realised in recent
years. For the 2020 LTI award, the FCFBP at which full vesting is achieved is being reduced from US$35/boe to US$30/boe. Threshold
vesting of the ROACE component will only occur if ROACE is more than 110% of Weighted Average Cost of Capital (it was 100% for the
2019 awards) and 100% vesting will only be achieved if ROACE is equal to or greater than 140% of Weighted Average Cost of Capital
(compared to 120% for the 2019 awards).
Thank you for taking the time to review our Remuneration Report.
Yasmin Allen
Chair, People and Remuneration Committee
32 / Santos Annual Report 2019
The Directors of Santos present this Remuneration Report for the consolidated entity for the year ended 31 December 2019. The
information provided in this Report has been audited as required by section 308(3C) of the Corporations Act 2001 (Cth) (Corporations
Act) and forms part of the Directors’ Report.
The Remuneration Report outlines the Company’s key remuneration activities in 2019 and remuneration information for Key
Management Personnel (KMP) of the consolidated entity for the purposes of the Corporations Act and Accounting Standards, as set
out below.
Remuneration is disclosed in US$ (unless otherwise indicated) with all remuneration components having been converted from A$ to
US$ using an average rate of $0.6880 for 2019 and $0.7475 for 2018. This means year-on-year changes in remuneration amounts when
stated in US$ are partly attributable to exchange rate variations and not necessarily a change in the amount paid in A$.
Report structure
The Remuneration Report is set out in the following sections
1. KMP covered by the Remuneration Report and summary of 5-year Company performance
2. Remuneration governance
3. Executive remuneration approach
4. Remuneration mix
5. Short-Term Incentive framework and 2019 outcomes
6. Long-Term Incentive and vesting outcomes
7. Realised Remuneration (non-IFRS and non-audited)
8. Statutory remuneration for Executive KMP
9. KMP equity
10. Key terms of Executive KMP employment contracts
11. Non-executive Director (NED) Remuneration
Santos Annual Report 2019 / 33
Santos Annual Report 2019 / 33
Directors’ Report
Remuneration Report
continued
1. KMP COVERED BY THE REMUNERATION REPORT AND SUMMARY OF 5-YEAR COMPANY PERFORMANCE
KMP are the personnel who had authority and responsibility for planning, directing and controlling the activities of the Company’s major
financial, commercial and operating divisions during 2019. The KMP for 2019 are set out in Table 1.
Table 1: 2019 Key management personnel
Executive KMP
Non-executive Directors
Kevin Thomas Gallagher,
Managing Director and Chief Executive Officer (CEO)
David Maxwell Banks, EVP Onshore Oil and Gas
Brett Anthony Darley, EVP Offshore Oil and Gas
Anthony Myles Neilson, Chief Financial Officer (CFO)
Vincent Santostefano, EVP Production Operations
Petter Undem, EVP Marketing, Trading and Commercial1
Brett Kenneth Woods, EVP Developments
Keith William Spence, Independent non-executive Chair
Yasmin Anita Allen, Independent non-executive Director
Guy Michael Cowan, Independent non-executive Director
Hock Goh, Independent non-executive Director
Yu Guan, non-executive Director3
Vanessa Ann Guthrie, Independent non-executive Director
Peter Roland Hearl, Independent non-executive Director
Janine Marie McArdle, Independent non-executive Director4
Philip Ambrose Byrne, EVP Marketing, Trading and Commercial2
Eugene Shi, non-executive Director5
1
Petter Undem commenced as KMP on 5 August 2019
2 Philip Byrne ceased being KMP on 4 August 2019
3 Yu Guan commenced as KMP on 3 May 2019
4
Janine McArdle commenced as KMP on 23 October 2019
5 Eugene Shi ceased being KMP on 2 May 2019
Table 2 sets out the Company’s performance over the past five years in respect of key financial and non-financial indicators and the STI
and LTI awards during this period.
Table 2: Key metrics of Company performance 2015 – 2019
Injury frequency:
Total recordable case frequency
Lost time injury rate1
Moderate harm rate2
Production (mmboe)
Reserve replacement rate – 2P organic (one-year average %)
Net profit/(loss) after tax3 (US$m)
Dividends per ordinary share (cents)
Share price – closing price on last trading day of year4 (A$)
2015
2016
2017
2018
2019
2.8
0.5
-
57.7
0
2.2
0.4
-
61.6
19
3.5
0.4
-
59.5
62
(1,953)
(1,047)
(360)
A 20
3.68
0
4.02
0
5.45
4.5
0.6
0.4
58.9
69
630
US 5
5.48
4.3
0.6
0.3
75.5
56
674
US 11
8.18
Company Scorecard result expressed as % of target of 100%
89.3%
115.3%
118.0% 138.8% 120.0%
LTI performance (% vesting) – shown against final year of performance period
0%
0%
0%
0%
100%
1
The outcome for 2018 and prior years is presented as a 3-year average. Annual performance reporting applied in 2019.
2 Moderate harm rate was introduced in 2018 as the Company adopted a harm-based approach, in addition to lost time reporting for injury classification.
3
2015 Net Profit After Tax (NPAT) figures have been translated from A$ to US$ at an applicable exchange rate for the year for comparison purposes following the change in the Company’s
presentation currency in 2016.
4 The closing share price on the last trading day of 2014 was A$7.18.
34 / Santos Annual Report 2019
2. REMUNERATION GOVERNANCE
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) and reviewing whether they are aligned to the Company’s values, strategic direction and risk appetite.
The Committee operates under a Charter approved by the Board and regularly conducts a review of its performance, structure,
objectives and purpose. The Committee Charter is available on the Company’s website at www.santos.com.
External advisors and remuneration advice
The Board has adopted a protocol for engaging and seeking advice from independent remuneration consultants. In 2019, some
remuneration benchmarking exercises were undertaken to provide information on market remuneration levels for KMP, however no
remuneration recommendations were provided by remuneration consultants.
Santos Annual Report 2019 / 35
Santos Annual Report 2019 / 35
Directors’ Report
Remuneration Report
continued
3. EXECUTIVE REMUNERATION APPROACH
The fundamental purpose of Santos’ remuneration policy is to develop and maintain an effective remuneration framework which
supports and reinforces the ongoing successful execution of the Transform, Build, Grow business strategy and the delivery of Vision
2025. The following diagram includes adjustments to the remuneration approach which are applicable from 2020.
Remuneration policy objective
Attracting, motivating and retaining
talented and qualified Executives
Focusing Executives to deliver
superior performance
Align Executive and shareholder
interests
Enabled through the Company’s Executive remuneration framework
Total Fixed Remuneration (TFR)
(base salary plus superannuation)
• Remuneration levels are market-
aligned against similar roles in
comparable companies.
•
•
Individual remuneration is set with
regard to the Executive’s role and
responsibilities and also the
individual’s experience and
competencies.
The target market position for
fixed remuneration for Executives
is below market median in line
with the Company’s cost focus.
Short-term incentive (STI)
Long-term incentive (LTI)
•
•
•
Long-term incentives are delivered
as Share Acquisition Rights
(SARs).
Vesting of long-term incentives is
contingent on achieving
performance hurdles that are
aligned with creation of long-term
shareholder value (Relative Total
Shareholder Return, Return On
Average Capital Employed and the
generation of strong stable cash
flows through the oil price cycle).
Executives cannot hedge equity
incentives that are unvested or
subject to restrictions. These
incentives are also subject to
clawback.
•
•
•
•
•
A significant component of
remuneration is “at risk”. The value
to the Executive is dependent on
the Company and individual
meeting challenging targets.
Short-Term Incentive levels are set
to ensure that total compensation
appropriately rewards the delivery
of Santos’ operating model and
the increasingly demanding STI
scorecard metrics.
Short-term incentive outcomes
are based on a balanced scorecard
of annual performance measures
aimed at delivering challenging
outcomes for the Company
across a range of financial, safety,
environment, growth and
culture KPIs.
Half (50%) of Executives’ STI
award is delivered as cash
following the end of the
performance year.
The other 50% is delivered in
equity, subject to a further
two-year restriction period.
36 / Santos Annual Report 2019
4. REMUNERATION MIX
The remuneration mix indicates the extent to which Executive remuneration is:
•
•
fixed and not at risk;
variable and at risk.
The charts below show the remuneration mix for the CEO and Senior Executives at the following performance levels:
• Minimum comprises TFR for the year only;
•
Target comprises TFR for the year, STI at the target level (provided half in cash and half in deferred equity vesting two years after
the end of the performance year) and target LTI. LTI awards are allocated on a face value basis. Vesting of awards is subject to the
achievement of the relevant performance conditions. The target LTI values in the charts below are shown on a “fair value” basis by
applying a 40% discount to the face value of the award; and
• Maximum comprises TFR, STI at the maximum level (provided half in cash and half in deferred equity vesting two years after the end
of the performance year) and the maximum LTI being the face value of the award.
The value of the STI deferred equity award and LTI does not include the impact of future share price movements or dividend payments.
The actual remuneration mix in any year varies with actual performance and incentive outcomes.
2019 CEO remuneration quantum and mix
The remuneration quantum and mix for the CEO at minimum, target and maximum performance for 2019 is shown in Chart 1.
Chart 1: 2019 CEO remuneration quantum and mix
Minimum
100%
1,956
Target
36%
16%
16%
32%
5,477
Maximum
25%
19%
19%
37%
7,830
0
2,000
4,000
6,000
8,000
10,000
A$’000
TFR
STI Cash
STI Deferred Equity
LTI
• Minimum: 2019 TFR of A$1,956,150.
•
Target: 2019 TFR, STI at the target level (a cash award of 45% of TFR and a deferred equity award of 45% of TFR) and target LTI of
90% of TFR.
• Maximum: 2019 TFR, STI at the maximum level (a cash award of 75% of TFR and a deferred equity award of 75% of TFR) and the
maximum LTI award of 150% of TFR.
Santos Annual Report 2019 / 37
Santos Annual Report 2019 / 37
Directors’ Report
Remuneration Report
continued
2019 Senior Executive remuneration mix and quantum
The remuneration quantum and mix for Senior Executives at minimum, target and maximum performance for 2019 is shown in Chart 2.
Chart 2: 2019 Senior Executive remuneration quantum and mix
Minimum
Target
Maximum
100%
1.00
47%
15%
15%
23%
2.11
35%
18%
18%
29%
2.85
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Multiple of TFR
TFR
STI Cash
STI Deferred Equity
LTI
Quantum is expressed as a multiple of TFR as Senior Executives have different TFRs.
• Minimum: 2019 TFR only.
•
Target: 2019 TFR, STI at the target level (a cash award of 31.5% of TFR and a deferred equity award of 31.5% of TFR) and target LTI
award of 48% of TFR.
• Maximum: 2019 TFR, STI at the maximum level (a cash award of 52.5% of TFR and a deferred equity award of 52.5% of TFR) and
the maximum LTI award of 80% of TFR.
The STI opportunity in Mr Banks’ 2019 incentive structure differs from other Senior Executives. This is set out in Table 5.
Changes to remuneration mix for 2020
Following the Executive reward strategy review conducted in 2019 the incentive arrangements for the CEO and Senior Executives were
recalibrated to place a greater proportion of Executive remuneration at risk and aligned with Company performance.
2020 CEO remuneration quantum and mix
The remuneration quantum and mix for the CEO at minimum, target and maximum performance for 2020 is shown in Chart 3.
Chart 3: 2020 CEO remuneration quantum and mix
Minimum
100%
2,010
Target
32%
16%
16%
36%
6,191
Maximum
22%
19%
19%
40%
8,985
0
2,000
4,000
6,000
8,000
10,000
TFR
STI Cash
STI Deferred Equity
LTI
A$’000
• Minimum: 2020 TFR of A$2,010,000.
•
Target: 2020 TFR, STI at the target level (a cash award of 50% of TFR and a deferred equity award of 50% of TFR) and target LTI
of 108% of TFR.
• Maximum: 2020 TFR, STI at the maximum level (a cash award of 83.5% of TFR and a deferred equity award of 83.5% of TFR) and
the maximum LTI award of 180% of TFR.
38 / Santos Annual Report 2019
2020 Senior Executive remuneration quantum and mix
The remuneration quantum and mix for Senior Executives at minimum, target and maximum performance for 2020 is shown in Chart 4.
Chart 4: 2020 Senior Executive remuneration quantum and mix
Minimum
Target
Maximum
100%
1.00
43%
31%
0.00
0.50
1.00
16%
16%
25%
2.35
19%
1.50
Multiple of TFR
19%
31%
3.25
2.00
2.50
3.00
3.50
TFR
STI Cash
STI Deferred Equity
LTI
Quantum is expressed as a multiple of TFR as Senior Executives have different TFRs
• Minimum: 2020 TFR only.
•
Target: 2020 TFR, STI at the target level (a cash award of 37.5% of TFR and a deferred equity award of 37.5% of TFR) and target
LTI of 60% of TFR.
• Maximum: 2020 TFR, STI at the maximum level (a cash award of 62.5% of TFR and a deferred equity award of 62.5% of TFR) and
the maximum LTI award of 100% of TFR.
Santos Annual Report 2019 / 39
Santos Annual Report 2019 / 39
Directors’ Report
Remuneration Report
continued
5. SHORT-TERM INCENTIVE FRAMEWORK AND 2019 OUTCOMES
The STI framework aligns Executive interests with the delivery of the operating model and the Company’s challenging short-term
operational and financial goals for the year. Goals are chosen to drive outcomes and behaviours that support safe operations and the
delivery of the business outcomes which will delight shareholders and lead to long-term growth in shareholder value.
STI award is based on performance for a one-year period. Half (50%) of the award is provided as deferred equity, restricted for two
years. Deferral provides increased alignment with shareholders and encourages longer-term thinking given the equity exposure.
Deferred STI is forfeited if the Executive leaves the Company during the vesting period due to resignation or summary dismissal
(including for fraud or misconduct). STI awards are also subject to clawback.
The Company’s annual performance is assessed using the Company Scorecard. The Scorecard contains a balance of challenging
financial and operational KPIs which support the execution of the business strategy and which drive business performance. In 2019,
Scorecard KPIs covered a range of areas including production, operating efficiency, safety, growth and culture.
The measures include lagging indicators to assess the Company’s past performance, as well as forward-looking indicators to ensure the
Company is positioning itself effectively for future growth. The Board believes that this Scorecard is balanced and focuses the CEO and
Senior Executives on achieving the key outcomes necessary to deliver stronger returns to shareholders.
The STI award is subject to a free cash flow gate that requires that the Company is free cash flow positive for an STI award to be made,
regardless of performance against all other KPIs. This is aligned with the Company’s position to its shareholders under the Dividend
Policy which is to deliver strong cash flows through the oil price cycle.
The actual STI pool for the year is set by reference to the Company Scorecard result (2019 results are outlined in Table 3 on page 41).
The Scorecard result is generally applied as a percentage of the target pool size (subject to the application of any Board discretion).
The Company Scorecard is comprised of a range of KPIs with set threshold, target and stretch goals agreed with the Board at the
start of the performance year. The relative importance of each KPI is determined and assigned a proportionate weighting of the total
Scorecard result.
Each KPI receives a percentage score relative to target performance, as follows:
•
•
•
•
0% for performance below threshold,
67–100% for performance between threshold and target,
100–167% for performance between target and stretch, and
167% for performance at or above stretch.
The KPI weightings are then applied to these scores to derive a rating for each KPI. The overall Scorecard result is a weighted average
of KPI scores.
The 2019 Scorecard has a maximum result of 167% of target. This maximum result can only be achieved for exceptional Company
performance. The Board believes the above method of assessment is rigorous and provides a balanced assessment of the Company’s
performance.
The People and Remuneration Committee formally assesses the Company’s performance against the overall Scorecard at the end of
each financial year, and this forms the basis of a recommendation to the Board.
The CEO assesses Senior Executive performance and determines STI award proposals which are then formally endorsed by the People
and Remuneration Committee. The Board assesses the CEO’s performance and determines his STI award.
40 / Santos Annual Report 2019
Performance against 2019 Company Scorecard
The Company’s performance against the 2019 Company Scorecard, as assessed by the Board resulted in an outcome of 120% of target.
This outcome is used to set the available STI pool. Individual STI outcomes will depend on Executives’ contractual entitlements and
individual performance during the year, as detailed in Table 5 on page 43.
Table 3 provides further details of Scorecard KPIs and the Company’s performance against them.
Table 3: 2019 Company Scorecard – KPI performance
KPI
Rationale
Performance
n
o
i
t
c
u
d
o
r
P
)
%
0
3
(
t
s
o
C
)
%
0
2
(
Production (mmboe)
(adjusted for disposals)
Unit production cost
(US$/boe)
(adjusted for disposals)
Free cash flow breakeven
point (FCFBP)
(US$/bbl)
&
s
e
v
r
e
s
e
R
t
n
e
m
n
o
r
i
v
n
E
&
y
t
e
f
a
S
) Company 2P reserves life
%
0
2
(
(years)
s
e
c
r
u
o
s
e
R
)
%
0
3
(
Cooper 2P + 2C reserves &
resources life (years)
Personal safety
Measured by the number of
moderate harm injuries per million
hours worked over the 12-month
period.
Process safety & environment
Measured by the number of
Tier 1 and Tier 2 loss of
containment of hydrocarbon
incidents.
Measured by the number of
environmental incidents of
moderate or greater consequence.
Result
(relative
to target
of 100%)
100%
167%
(capped)
Production is critical to the
Company’s profitability which is a key
measure of the Company’s overall
performance, underpinning annual
earnings and cash flow.
Included to ensure that the Company
maintains its cost and efficiency focus
for every unit of production
Production of 75.5 mmboe delivered
at Target performance.
Unit Production Cost US$7.24/boe
exceeds Stretch performance.
Included to ensure continual reduction
in the Company’s cost base and to
reinforce Santos’ disciplined operating
model.
Free Cash Flow Breakeven Point
US$23.72/bbl (including impact
of hedges) exceeds Stretch
performance.
A viable reserves position and track
record for maintaining and growing
reserves life ensures the Company
is a more attractive and sustainable
business.
The Company is committed to
providing a workplace without injury
or illness.
Company 2P Reserves Life is 13 years
and below Threshold.
Cooper Reserves and Resources Life
is 23 years, which is between Target
and Stretch performance.
70%
Moderate harm rate of 0.28 and no
severe harm incidents yielded stretch
performance. Moderate harm is
defined as temporary disablement
or medium-term impairment.
Lost time injury rate was 0.57.
The integrated target for Environment
and Process Safety represents the
Company’s commitment to reducing
the number of process safety-
related incidents with potential
for high impact consequences,
and the occurrence of significant
environmental incidents.
There were four Tier 1 and four
Tier 2 loss of containment
incidents, which is a significant
improvement on 2018. There were no
environmental incidents of moderate
or greater consequence. Combined,
the outcome exceeds Stretch
performance.
167%
(capped)
Santos Annual Report 2019 / 41
Santos Annual Report 2019 / 41
Directors’ Report
Remuneration Report
continued
Result
(relative
to target
of 100%)
93%
KPI
Community
Emissions
)
%
0
1
(
y
t
i
l
i
i
b
a
n
a
t
s
u
S
Culture and capability
Continuous improvement
Rationale
Performance
The Company aims to make
meaningful, positive long-term
contributions in the communities it
operates.
The Company is held to account on
emissions to air, land and water within
targets and transparent reporting, in
line with the recommendations of the
G20 Task Force on Climate-related
Financial Disclosures.
Included to reinforce the importance
of cultural improvement and
employee engagement as well as the
development of capability to support
future business growth.
Included to ensure business activity
complies within the Company’s policies,
procedures and management standards,
and continuous improvement thereof.
Community sentiment remains strong
in the Port Bonython, Cooper Basin,
Roma and Gladstone communities,
with areas requiring the greatest
improvement being Narrabri,
Exmouth/Karratha and Darwin.
Threshold performance was achieved.
Projects implemented within
operations resulting in 1.5% (101
ktCO2e) emissions reduction. FEED
entry has been achieved for Carbon
Capture and Storage, a step change
emissions reduction project. Stretch
performance was achieved.
Capability plans were developed for
each of the business and corporate
functions. The program for leadership,
culture and diversity was agreed
and the 2019 employee survey was
delivered. This resulted in Threshold
performance.
Internal audits rendered an outcome
at Threshold performance.
2019 STI OUTCOME FOR THE CEO
The CEO’s performance is primarily assessed using the Company Scorecard. In determining the CEO’s final STI payment for 2019, the Board
also considered outcomes outside of the Scorecard and the impact of the CEO’s personal performance and leadership on corporate activities
which have grown shareholder value, future proofed the business, and improved leadership, culture and stakeholder engagement.
Key elements that comprise the CEO’s performance include:
•
•
•
the successful integration of Quadrant Energy into Santos and the realisation of significant value accretive synergies;
strong stakeholder engagement and industry thought leadership; and
improvement of organisational capability and safety leadership.
The STI amount for 2019 represents an outcome which is 132% of the target amount (79% of maximum STI opportunity). This represents
a moderated amount which is slightly above the Company Scorecard outcome of 120% of target. This delivers an STI amount for 2019 of
US$1,598,847, of which half will be awarded as cash, and the other half will be awarded as Deferred Shares, restricted for two years.
2019 STI outcomes for Senior Executives
The Company performance result based on the Company Scorecard outcomes outlined above sets the size of the pool. Individual allocations
of the pool are then modified to reflect individual performance and demonstration of the Santos Values.
The Company’s performance against the 2019 STI Scorecard, as assessed by the Board, resulted in a score of 120% of target (72% of maximum).
The 2019 STI outcomes for the Senior Executives ranged from 89% to 150% of target (53% to 90% of their maximum opportunity),
depending on their individual performance contribution. Half (50%) of STI outcomes will be delivered as cash, and the other half (50%) will
be awarded as Restricted Shares, restricted for two years.
Further detail of each individual Senior Executive’s outcome is provided in Table 5 on page 43.
All Senior Executives had KPIs relating to environment, health, safety, culture and leadership. Role-specific KPIs by Senior Executive are set
out in Table 4 below.
42 / Santos Annual Report 2019
Table 4: Senior Executive role-specific KPIs
Note, some KPIs contain commercially sensitive information that cannot be detailed here.
Senior Executive
KMP Role
Role-specific KPIs
DM Banks
EVP Onshore Oil and Gas
BA Darley
EVP Offshore Oil and Gas
AM Neilson
Chief Financial Officer
Production volume and cost
•
• Development cost
•
2C to 2P conversion rate
• Wells drilled and connected
• Growth strategy implementation
•
Achieved emission redirection targets
•
Production volume and cost
• WA and NT Capex projects
•
•
Transition of Quadrant to Santos
Achieved emission redirection targets
Balance sheet improvement
• Corporate cost reduction
•
• Capital management
•
•
Finance and supply chain systems and structure
Investor relations outcomes
V Santostefano
Chief Operations Officer
BK Woods
EVP Developments
P Undem
From 5 August 2019
PA Byrne
From 1 January to 4 August 2019
EVP Marketing,
Trading and Commercial
EVP Marketing,
Trading and Commercial
• Operated processing costs
•
•
Low-cost operations and maintenance service delivery
Production support and optimisation
• Major Growth Project production targets
• Resource to reserves maturation
• Operational cost efficiency
•
Progressed Energy Solutions emission reduction project
including Carbon Capture and Storage
•
•
•
•
•
•
Sales (LNG, Domestic Gas and Liquids)
LNG trading
Improvements in commercial arrangements
Sales (LNG, Domestic Gas and Liquids)
LNG trading
Improvements in commercial arrangements
Table 5 sets out the individual STI outcomes for Senior Executives in 2019, as a percentage of their STI target and maximum STI opportunity.
Table 5: Senior Executive 2019 STI outcomes
Target 2019 STI
(% of TFR)
Actual 2019 STI
(% of TFR)
2019 STI as a %
of Maximum
% of Maximum
STI forfeited
Directors
KT Gallagher
Senior Executives
DM Banks
BA Darley
AM Neilson
V Santostefano
P Undem1
BK Woods
Former Senior Executive
PA Byrne
1 Mr Undem's 2019 STI award is pro-rated for six months based on his appointment terms.
54%
63%
63%
63%
63%
63%
63%
90%
118.8%
79.2%
81.0%
79.4%
90.7%
71.8%
30.2%
75.6%
90.0%
75.6%
86.4%
68.4%
57.6%
72.0%
20.8%
10.0%
24.4%
13.6%
31.6%
42.4%
28.0%
55.9%
53.3%
46.7%
Santos Annual Report 2019 / 43
Santos Annual Report 2019 / 43
Directors’ Report
Remuneration Report
continued
6. LONG-TERM INCENTIVE AND VESTING OUTCOMES
The LTI aligns the interests of Senior Executives with the creation of long-term shareholder value.
The relative TSR performance criteria provide for vesting when there are strong shareholder returns against relevant peer groups. The
FCFBP and ROACE measures vest when the Company demonstrates underlying operational efficiency which generates free cash flow
throughout the oil price cycle, and disciplined use of capital to generate shareholder returns over a four-year period.
LTI amounts are based on a set percentage of the Executive’s TFR allocated on a face value basis and provided in the form of Share
Acquisition Rights (SARs). SARs are a conditional entitlement to a fully paid ordinary share at zero price, subject to satisfaction of the
relevant performance conditions.
If SARs vest, shares are automatically allocated to the Executive. Nothing is payable by Executives if SARs vest. Trading in these shares
is subject to compliance with the Company’s Securities Dealing Policy and the Minimum Shareholding Requirement.
The Board has discretion to settle the value of vesting SARs in cash.
Share Acquisition Rights have a four-year performance period. This period represents 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 2019 LTI is assessed against four equally weighted performance measures described in Table 6.
Table 6: LTI performance measures and rationale
Weighting
Performance measures
Description and Rationale
25%
25%
25%
25%
Relative TSR measured
against companies of the
ASX100
Relative TSR measured
against companies of the
S&P Global 1200 Energy
Index (GEI)
Free Cash Flow Breakeven
Point (FCFBP)
Return on Average Capital
Employed (ROACE)
compared with weighted
average cost of capital
(WACC)
The calculation of TSR takes into account share price and dividend yield and
is therefore a robust and objective measure of shareholder returns.
TSR continues to effectively align the interests of individual Senior Executives
with that of the Company’s shareholders by motivating Senior Executives to
achieve superior shareholder outcomes relative to Santos’ competitors for
investor capital and its energy sector peers.
FCFBP is the US$ oil price at which cash flows from operating activities
equal cash flows from investing activities, as published in the Company’s
financial statements. As the aim of the performance hurdle is to measure the
performance of the underlying business, the Board has discretion to adjust
the FCFBP for individual material items including asset acquisitions and
disposals that may otherwise distort the measurement.
ROACE is measured as the underlying earnings before interest and tax (EBIT)
divided by the average capital employed, being shareholders’ equity plus net
debt, as published in the Company’s financial statements.
The use of ROACE as a performance measure aligns Senior Executives with
shareholder interests by focusing on the efficient and disciplined use of capital
to generate shareholder returns.
44 / Santos Annual Report 2019
The vesting scales set out in the tables below apply to both the CEO’s and Senior Executives’ LTI performance grants. SARs that do not
vest upon testing of the performance condition lapse. There is no re-testing of the performance condition.
Table 7: Relative TSR against the ASX100 and S&P GEI
TSR percentile ranking
Below 51st percentile
51st percentile
76th percentile and above
straight line pro-rata vesting in between
Table 8: Free Cash Flow Breakeven Point (FCFBP)
FCFBP
Above US$40/bbl
Equal to US$40/bbl
Equal to or below US$35/bbl
straight line pro-rata vesting in between
% of grant vesting
0%
50%
100%
% of grant vesting
0%
50%
100%
When the FCFBP hurdle was introduced in 2016, Santos’ FCFBP was approximately US$50/bbl. There was concern from some
shareholders that this KPI could result in under investment in onshore drilling activity leading to further production decline and reserves
liquidation. However, over the past four years Santos has increased investment in drilling across Queensland and Cooper Basin onshore
operations year on year and in 2019 achieved a record drilling activity level of more than 500 wells drilled. Production has also increased
in Queensland and the Cooper basin during this period with resource and reserves growth also achieved in the Cooper basin.
FCFBP being a non-market measure is tested and audited internally and all results externally audited as part of the Annual Report
release. The Board has discretion to adjust the results on this measure, based on the agreed methodology.
Table 9: Return On Average Capital Employed (ROACE)
ROACE
Below 100% of WACC
Equal to 100% of WACC
Equal to or above 120% of WACC
straight line pro-rata vesting in between
% of grant vesting
0%
50%
100%
ROACE being a non-market measure is tested and audited internally and all results externally audited as part of the Annual Report
release. The Board has discretion to adjust the results on this measure, based on the agreed methodology.
Changes to vesting schedules for 2020 awards
For 2020 LTI awards, the stretch level to achieve full vesting of the FCFBP component will be set at equal to or below US$30/bbl. This
better reflects the significantly improved cost base of the business but recognises that there is an optimal level of investment required
to sustain the business.
In addition, the ROACE targets will also be lifted. The gate-opener to achieve any vesting will be increased so that Santos’ ROACE must
be at least equal to 110% of WACC and if that measure is satisfied, then vesting will be determined using the scale in Table 10 below. Full
vesting of the ROACE component will be achieved for an outcome of equal to or greater than 140% of WACC, compared to equal to or
greater than 120% of WACC for the 2019 award.
Table 10: Return On Average Capital Employed (ROACE) for 2020 awards
ROACE percentile ranking
Santos ROACE <= 110% of WACC
Santos ROACE > 110% of WACC then:
Relative ROACE >= 140% of WACC
straight line pro rata vesting in between
% of grant vesting
0%
50%
100% vesting
Santos Annual Report 2019 / 45
Santos Annual Report 2019 / 45
Directors’ Report
Remuneration Report
continued
Treatment on termination and change of control
Generally, if an Executive resigns or is summarily dismissed, their unvested SARs will lapse. In all other circumstances (including death,
total and permanent disability, redundancy and termination by mutual agreement), unvested SARs remain on foot and will vest or lapse
in accordance with their original terms, unless the Board determines otherwise.
Where there is a change in control, the Board may determine whether, and the extent to which, SARs may vest.
Clawback
The share plan rules give the Company the discretion to lapse or forfeit unvested equity awards under the STI or LTI programs, and claw
back any vested shares or cash paid in certain circumstances.
These circumstances include dishonest or fraudulent conduct, breach of material obligations, miscalculation or error, a material
misstatement or omission in the accounts of a group company or events which require re-statement of the group’s financial accounts in
circumstances where an LTI or deferred STI award would not otherwise have been granted or would not have vested. This is in addition
to any rights the Company has under the plan rules and general legal principles to seek to recover payments made in error.
Securities hedging
Under the Company’s Securities Dealing Policy, Directors, Executives and employees cannot enter into hedging or other financial
arrangements which operate to limit the economic risk associated with holding Santos securities prior to the vesting of those securities
or while they are subject to a holding lock or restriction on dealing.
Performance results for the 2016 LTI award
The 2016 LTI award was tested over the four-year performance period 1 January 2016 to 31 December 2019.
For the 2016 LTI grant, a base share price of A$3.85 was used instead of the 2015 year-end share price which was lower. This was
the price shareholders paid to exercise their entitlements under the accelerated pro-rata renounceable rights issue announced by the
Company on 9 November 2015. The CEO who joined the Company in February 2016 agreed to adopt the same starting share price for
alignment with the Executives.
Santos achieved an adjusted Total Shareholder Return of 129% over the performance period, placing it at the 79th percentile against
the ASX100 comparator group and at the 96th percentile against the S&P Global 1200 Energy Index comparator group.
Chart 5: TSR Performance against ASX100 and S&P Global 1200 Energy Index
250
200
150
100
50
Santos $8.18
TSR 129%
S&P ASX100
S&P Global Energy Index
Dec 15
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Jun 19
Dec 19
Santos’ FCFBP for the FCFBP component was US$23.72 (including the impact of hedging). ROACE was 139% of WACC.
This means 100% of each of these components has vested.
As a result, the 2016 LTI awards vested in full. This followed eight consecutive years of the LTI not vesting.
46 / Santos Annual Report 2019
7. REALISED REMUNERATION
Table 11 shows Realised Remuneration for the CEO and Senior Executives in 2018 and 2019.
Realised Remuneration differs from statutory remuneration reported in Table 12 and other statutory tables which are prepared in
accordance with the Corporations Act and Accounting Standards which require a value to be placed on share-based payments at the
time of grant, and to be reported as remuneration, even though the CEO and Senior Executives may ultimately not realise any actual
value from the share-based payments.
The Realised Remuneration table is shown in Australian dollars (the currency in which remuneration is paid), whereas the statutory
tables are shown in US dollars which is the Company’s reporting currency. Showing remuneration in Australian dollars removes the
impact of exchange rate movements.
Realised Remuneration has been calculated as:
•
TFR paid in the year;
• Cash STI awards earned in respect of performance for the year (albeit paid after the end of the year);
• Deferred STI awards from prior years which vested in the year; and
•
LTI SARs which were tested at 31 December in the year.
Vesting deferred STI awards and SARs are valued at the closing share price on 31 December of the respective year. Termination
payments and leave movements are not included in the table below.
Table 11: Realised Remuneration (non-IFRS and non-audited)
Year
TFR1
Cash STI2
2017
Deferred
STI that
vested in
20193
Executive Director
KT Gallagher
Managing Director and
Chief Executive Officer
Senior Executives
DM Banks
EVP Onshore Oil & Gas
BA Darley
EVP Offshore Oil & Gas
AM Neilson
Chief Financial Officer (CFO)
V Santostefano
EVP Production Operations
P Undem
EVP Marketing, Trading and Commercial
BK Woods
EVP Developments
Former Senior Executive
PA Byrne
EVP Marketing, Trading and Commercial
A$
A$
A$
1,956,150
1,161,953
1,890,000
1,175,600
766,752
608,488
715,755
58,333
840,000
77,000
853,771
822,500
878,927
859,562
307,853
–
764,063
742,500
290,600
22,300
333,400
31,200
–
–
–
–
408,200
280,280
347,800
317,600
361,500
56,700
–
290,600
327,900
–
250,954
207,528
–
–
235,208
172,938
419,686
700,000
237,482
286,700
85,653
–
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Other
vested
grants
A$
–
851,246
Other5
A$
Total
A$
6,069
6,082
11,263,722
4,531,416
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,614
1,094
–
–
6,069
6,082
60,417
–
6,069
6,082
3,758
6,082
1,006,355
80,633
1,185,014
109,294
1,542,251
1,170,300
2,898,302
1,434,672
424,970
–
2,434,760
1,249,420
746,579
992,782
LTI4
A$
7,372,798
–
–
–
–
–
–
–
1,444,752
–
–
–
1,138,820
–
–
–
1
TFR comprises base salary and superannuation. The amounts shown here are actually received TFR, i.e. they are pro-rated amounts for the period that Executives were in KMP roles.
2 The “Cash STI” column reflects the 50% of the STI award for 2019 performance for continuing Executives that will be paid in cash. The remaining 50% will be awarded as equity restricted
for two years.
3 The deferred restricted equity from the 2017 STI award that vested on 31 December 2019, at a closing share price of A$8.18.
4 The 2016 LTI was tested at the end of its performance period on 31 December 2019 and 100% of awards vested. The value shown in the table is based on the closing share price on
31 December 2019 of A$8.18. For the value of share-based payments calculated in accordance with the Accounting Standards, see Table 12 “Statutory Executive KMP remuneration details”
on page 49.
5
“Other” comprises ad hoc payments treated as remuneration, such as assignment and mobilisation allowances and other non-monetary benefits.
Santos Annual Report 2019 / 47
Santos Annual Report 2019 / 47
Directors’ Report
Remuneration Report
continued
Notes on Mr Gallagher’s Realised Remuneration for 2019
Mr Gallagher’s Realised Remuneration for 2019 included the following at-risk performance related elements:
•
•
•
The cash component of Mr Gallagher’s Short-Term Incentive award based on 2019 performance;
The value of Mr Gallagher’s deferred Short-Term Incentive award from 2017 which vested on 31 December 2019; and
The value of Mr Gallagher’s Long-Term Incentive award from 2016 which was tested at 31 December 2019.
Mr Gallagher’s 2019 STI award was awarded at 132% of target in line with the Company Scorecard outcome. This will be delivered half in
cash and half in deferred Santos equity. The basis for this award is described in section 5 above.
Mr Gallagher’s 2017 STI was awarded two thirds in cash and one third in Restricted Shares. The Restricted Shares vested on 31
December 2019. The award was allocated at A$5.30 and the closing price on 31 December 2019 was A$8.18.
Chart 6: Realised value of Mr Gallagher’s 2017 deferred STI
Chart 7: Realised value of Mr Gallagher’s 2016 LTI
1.00
0.75
m
$
A
0.50
0.25
0.00
0.27
0.77
0.50
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$
A
8.0
6.0
4.0
2.0
0.0
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Value at grant
Share price growth
Value at vesting
Value at grant
Share price growth
Value at vesting
As noted above, Santos achieved top quartile performance against both TSR comparator groups and achieved stretch outcomes on the
FBFBP and ROACE measures, meaning 100% of the 2016 LTI vested.
Mr Gallagher’s 2016 LTI allocation had a face value at grant of A$2.7m, being 150% of his then TFR. The value based on the closing
share price on 31 December 2019 of A$8.18 was A$7.37m, meaning 63.4% of the value delivered from the 2016 LTI came from share
price growth over the 4-year vesting period.
48 / Santos Annual Report 2019
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Santos Annual Report 2019 / 49
Santos Annual Report 2019 / 49
Directors’ Report
Remuneration Report
continued
Tables 13 and 14 contain details of the number and value of SARs and shares granted, vested and lapsed for the CEO in 2019.
Table 13: 2019 SARs outcomes for the CEO
Granted
Vested3
Number1
Maximum
value2
US$
Number
Value
US$
Lapsed
Number
SARs
535,442
2,151,363
901,320
5,072,485
–
1
The SARs granted to the CEO relate to his 2019 LTI performance grant as approved at the 2019 Annual General Meeting (AGM). This grant relates to the LTI award for the four-year
performance period ending on 31 December 2022.
2 Maximum value represents the fair value of LTI grants received in 2019 determined in accordance with AASB 2 Share-based Payment. The fair value of each SAR as at the grant date of
9 May 2019 is A$5.84. Details of the assumptions underlying the valuations are set out in note 7.2 to the financial statements. The minimum total value of the grant to the CEO, if the
applicable vesting conditions are not met, is nil in all cases. All values have been converted to US$.
3 The number of SARs vested for the CEO relates to the CEO's 2016 LTI performance grants as approved at the 2016 Annual General Meeting. This was tested based on performance to
31 December 2019 with 100% of the award vested as described in section 6.
Table 14: 2019 Restricted Shares outcomes for the CEO
Granted
Vested
Number1
Maximum
value
US$
Number 2
Value
US$
Lapsed
Number
Shares
220,149
1,032,974
93,735
527,526
–
1
The restricted shares granted to the CEO relate to his 2018 STI award. The maximum value is the fair value of the 2018 STI grant of deferred shares received in 2018 determined with AASB
2 Share-based Payment. The fair value of the deferred 2018 STI grant as at the grant date of 15 March 2019 was A$6.82. The minimum total value of the restricted shares granted to the
CEO is nil. All values have been converted to US$.
2 This relates to the 2017 STI grant that was deferred for two years from 1 January 2018 to 31 December 2019 and vested in full on 31 December 2019.
Tables 15 and 16 contain details of the number and value of SARs and shares granted, vested and lapsed for Senior Executives in 2019.
No Senior Executive had any options granted, vesting or lapsing in 2019.
Table 15: Movements in SARs for Senior Executives
Senior Executives
DM Banks
BA Darley
AM Neilson
V Santostefano
P Undem
BK Woods
Former Senior Executives
PA Byrne
Total
1
This relates to the 2019 LTI award.
Granted1
Vested3
Number
Maximum
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US$
Number
Value
US$
–
–
–
–
–
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104,744
426,618
306,8734
1,345,5505
124,197
129,097
109,489
112,226
104,744
991,370
505,849
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457,092
176,620
993,989
–
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139,220
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426,618
–
–
4,151,557
315,840
1,777,497
Lapsed
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2 Maximum value represents the fair value of LTI grants received in 2019 determined in accordance with AASB 2 Share-based Payment. The fair value of each SAR as at the grant date
of 15 March 2019 is A$5.92. Details of the assumptions underlying the valuations are set out in note 7.2 to the financial statements. The minimum total value of the grant to the Senior
Executives, if the applicable vesting conditions are not met, is nil in all cases. All values have been converted to US$.
3 Vesting of SARs that relates to the 2016 LTI award. The value is determined by the share price of A$8.18 on the date of vesting at 31 December 2019.
4 Number of SARs comprises a sign-on grant of 88,879, a 2018 LTI award of 95,367 and a 2019 LTI award of 122,627.
5 Fair value of LTI grants differ as they relate to separate time periods in 2018 and 2019. The value of Mr Darley’s sign-on grant was based on the fair value unit price of A$6.89,
the 2018 LTI award on A$6.21 and the 2019 LTI award on A$6.13. The grant date and fair valuation for all three grants was 18 April 2019.
6 The fair value for Mr Undem’s 2019 LTI award was determined A$6.16 as at 4 October 2019.
50 / Santos Annual Report 2019
Table 16: Movements in Restricted Shares for Senior Executives
DM Banks
BA Darley
AM Neilson
V Santostefano
P Undem
BK Woods
PA Byrne
Total
Granted1
Vested
Number
Maximum
value2
Number
45,355
5,823
65,112
67,677
–
61,404
53,670
US$
212,813
27,322
305,516
317,551
–
288,117
251,828
–
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30,679
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10,4713
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–
–
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172,657
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1,403,147
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1
This relates to the 2018 STI award delivered as Restricted Shares.
2 For the Restricted Shares, maximum value represents the fair value of 2018 STI shares determined in accordance with AASB 2 Share-based Payment. The fair value of the deferred STI
grant as at the grant date of 15 March 2019 was A$6.82. The minimum total value of the grant, if the applicable vesting conditions are not met, is nil. All values have been converted to US$.
3 This relates to the 2017 STI grant that was deferred for two years from 1 January 2018 to 31 December 2019 and vested in full on 31 December 2019 after cessation of Mr Byrne’s term as
KMP on 4 August 2019.
Santos Annual Report 2019 / 51
Santos Annual Report 2019 / 51
Directors’ Report
Remuneration Report
continued
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I
T
L
6
1
0
2
e
h
T
.
9
1
0
2
t
s
u
g
u
A
4
n
o
P
M
K
s
a
m
r
e
t
i
s
h
f
o
n
o
i
t
a
s
s
e
c
r
e
t
f
a
9
1
0
2
r
e
b
m
e
c
e
D
1
3
n
o
d
e
t
s
e
v
t
n
a
r
g
I
T
S
d
e
r
r
e
f
e
D
7
1
0
2
s
’
e
n
r
y
B
r
M
1
2
Executive KMP SARs and Restricted Shares
Tables 18 and 19 set out the movement during the reporting period in the number of SARs and deferred shares of the Company held
directly, indirectly or beneficially, by each KMP, including their related parties. There are no options held by KMPs.
Table 18 – Movement in Executive KMP SARs
Grant
date
Balance at
1 Jan 2019
Rights
granted
Rights
vested1
Rights
lapsed
Balance at
31 Dec 2019
%
Vested
in the
year
%
Forfeited
in the
year
Financial
year of
vesting
Directors
KT Gallagher
29/6/16
19/5/17
7/5/18
9/5/19
Total
Senior Executives
DM Banks
BA Darley
21/3/18
9/7/18
15/3/19
Total
18/4/19
18/4/19
18/4/19
Total
AM Neilson
17/3/17
21/3/18
15/3/19
Total
V Santostefano 29/6/16
17/3/17
21/3/18
15/3/19
Total
4/10/19
Total
P Undem
BK Woods
29/6/16
17/3/17
21/3/18
15/3/19
Total
901,320
671,641
520,183
–
–
–
–
535,442
(901,320)
–
–
–
2,093,144 535,442 (901,320)
102,752
800
–
–
–
104,744
103,552
104,744
–
–
–
–
88,879 2
95,3673
122,6274
306,873
199,004
121,834
–
–
–
124,197
320,838
124,197
176,620
169,154
126,642
–
–
–
–
129,097
–
–
–
–
–
–
–
–
–
–
–
–
(176,620)
–
–
–
472,416
129,097 (176,620)
–
–
109,489
109,489
–
–
139,220
133,333
110,091
–
–
–
–
112,226
(139,220)
–
–
–
382,644
112,226 (139,220)
Former Senior Executives
PA Byrne
21/3/18
15/3/19
Total
102,752
–
–
104,744
102,752
104,744
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
0%
671,641
520,183
535,442
1,727,266
102,752
800
104,744
208,296
88,879
95,367
122,627
306,873
199,004
121,834
124,197
445,035
–
100%
0%
169,154
126,642
129,097
424,893
109,489
109,489
–
100%
0%
133,333
110,091
112,226
355,650
102,752
104,744
207,496
2019
2020
2021
2022
2021
2021
2022
2021
2021
2022
2020
2021
2022
2019
2020
2021
2022
2022
2019
2020
2021
2022
2021
2022
1 Rights Vested represents SARs that had satisfied their vesting performance conditions at 31 December 2019. The rights vested do not convert to ordinary shares until 2020.
2 Mr Darley received a sign on award to compensate him for interests forgone upon commencement with Santos which will vest three years after his commencement subject to continued
employment at the vesting date.
3 Mr Darley commenced employment with Santos following the acquisition of Quadrant Energy. Mr Darley received an LTI award for 2018 from Santos which was granted following his
commencement on similar terms to other Santos executives. Mr Darley did not receive an LTI award from Quadrant Energy in respect of 2018.
4 Mr Darley’s LTI award for 2019.
Santos Annual Report 2019 / 53
Santos Annual Report 2019 / 53
Directors’ Report
Remuneration Report
continued
Table 19 – Movements in Executive KMP Restricted Shares
Grant
date
Balance at
1 Jan 2019
Restricted
Shares
granted
Restricted
Shares
vested
Restricted
Shares
forfeited
Balance at
31 Dec 2019
%
Vested
in the
year
%
Forfeited
in the
year
Financial
year of
vesting
Directors
KT Gallagher
5/3/18
15/3/19
Total
93,735
–
(93,735)
–
220,149
–
93,735
220,149
(93,735)
Senior Executives
DM Banks
BA Darley
AM Neilson
15/3/19
Total
15/3/19
Total
5/3/18
15/3/19
Total
V Santostefano
5/3/18
P Undem
BK Woods
15/3/19
Total
Total
5/3/18
15/3/19
Total
–
–
–
–
45,355
45,355
5,823
5,823
–
–
–
–
34,264
–
(34,264)
–
65,112
–
34,264
30,679
65,112
(34,264)
–
(30,679)
–
67,677
–
30,679
67,677
(30,679)
–
–
28,754
–
–
–
–
–
(28,754)
–
61,404
–
28,754
61,404
(28,754)
Former Senior Executives
PA Byrne
5/3/18
15/3/19
Total
10,471
–
(10,471)1
–
53,670
–
10,471
53,670
(10,471)1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
0%
220,149
220,149
45,355
45,355
5,823
5,823
–
100%
0%
65,112
65,112
–
100%
0%
67,677
67,677
–
–
–
61,404
61,404
100%
0%
–
100%
0%
53,670
53,670
2019
2020
2020
2020
2019
2020
2019
2020
2019
2020
2019
2020
1 Mr Byrne’s 2017 Deferred STI grant vested on 31 December 2019 after cessation of his term as KMP on 4 August 2019.
Loans to key management personnel
There have been no loans made, guaranteed or secured, directly or indirectly, by the Company or any of its subsidiaries at any time
throughout the year to any KMP, including to their related party.
54 / Santos Annual Report 2019
10. KEY TERMS OF EMPLOYMENT CONTRACTS FOR EXECUTIVE KMP
The main terms of employment contracts for Executive KMP are set out in Table 20.
Table 20 – Executive KMP contract terms
KT Gallagher
Contract
duration
Ongoing
Notice period –
Company
Notice Period –
Individual
12 months
12 months
Other KMP
Ongoing
6 months
6 months
Termination provision
Employment may be ended
immediately in certain
circumstances including
misconduct, incapacity and
mutual agreement or in the
event of a fundamental
change in the CEO’s role
or responsibility.
The Company may elect to
pay the CEO in lieu of any
unserved notice period. If
termination is by mutual
agreement the CEO will
receive a payment of $1.5m.
In the case of death,
incapacity or fundamental
change the CEO is entitled
to a payment equivalent to
12 months’ base salary.
In a company-initiated
termination, the Company
may make a payment in lieu
of notice equivalent to the
TFR that the Senior 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.
Santos Annual Report 2019 / 55
Santos Annual Report 2019 / 55
Directors’ Report
Remuneration Report
continued
11. NON-EXECUTIVE DIRECTOR REMUNERATION
Remuneration policy
The key objectives of Santos’ non-executive Director remuneration policy and how these are implemented through the Company’s
remuneration framework are as follows:
Remuneration policy objective
Securing and retaining talented,
qualified Directors
Promoting independence
and impartiality
Aligning Director
and shareholder interest
Enabled through the non-executive Director Remuneration Framework
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.
Non-executive Director's performance
is assessed at the time of re-election.
Santos encourages its non-executive
Directors to build a long-term stake in
the Company
Non-executive Directors are required
to acquire and maintain a shareholding
in the Company equivalent in value to
one year’s remuneration
Under the Minimum Shareholding Requirement, non-executive Directors must acquire (over a four-year period) and maintain a
shareholding in the Company equal in value to at least one year’s remuneration (base fee and committee fees).
Maximum aggregate amount
Total fees paid to all non-executive Directors in a year, including Board Committee fees, must not exceed A$2,600,000, being the
amount approved by shareholders at the 2013 AGM.
Remuneration
Fees paid to non-executive Directors are reviewed periodically and are fixed by the Board. Table 21 summarises the current fee structure
for main Board and committees.
Table 21: Non-executive Directors’ annual fee structure1
Board
Audit and Risk Committee
Environment, Health, Safety and Sustainability Committee
Nomination Committee3
People and Remuneration Committee
1
Fees are shown inclusive of superannuation.
Chair2
A$
521,325
42,000
29,000
N/A
39,000
Member
A$
185,325
21,000
19,000
10,000
21,000
2 The Chair of the Board does not receive any additional fees for serving on or chairing any Board committee.
3 The Chair of the Board is the Chair of the Nomination Committee, in accordance with its Charter.
Directors may also be paid additional fees for special duties or exertions and are entitled to be reimbursed for all business-related
expenses. The total remuneration provided to each non-executive Director in 2018 and 2019 is shown in Table 22.
56 / Santos Annual Report 2019
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).
Statutory remuneration for non-executive Directors
Details of the fees and other benefits paid to non-executive Directors in 2019 are set out in Table 22. Differences in fees received
between 2018 and 2019 reflect changes in roles and responsibilities (i.e. Chair or Committee appointments) and currency movements
as fees are paid in Australian dollars but disclosed in US dollars.
No share-based payments were made to any non-executive Director.
Table 22: 2019 and 2018 non-executive Director remuneration
Short-term benefits
Retirement benefits
Director
Year
Directors’ fees
(incl. committee fees)
Fees for special
duties or exertions
YA Allen
GM Cowan
H Goh
Y Guan2
V Guthrie
PR Hearl
J McArdle3
K Spence
Former Director
E Shi4
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
US$
161,376
174,007
142,112
154,759
161,312
174,748
80,444
–
140,736
148,667
154,496
165,971
21,682
–
344,384
339,523
48,042
153,824
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Superannuation1
US$
14,288
15,167
13,501
14,702
591
410
8,407
–
13,370
14,123
14,288
15,167
2,060
–
14,288
15,167
4,716
15,167
Share-based
payments
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$
175,664
189,174
155,613
169,461
161,903
175,158
88,851
–
154,106
162,790
168,784
181,138
23,742
–
358,672
354,690
52,758
168,991
1
Includes superannuation guarantee payments. Superannuation guarantee payments are made to Mr Goh and Ms McArdle only in relation to days worked in Australia.
2 Mr Guan joined the Board on 3 May 2019 and was appointed as a member of the People and Remuneration Committee on 21 August 2019.
3 Ms McArdle joined the Board on 23 October 2019 and was appointed as a member of the Audit and Risk Committee on 28 November 2019.
4 Mr Shi retired from the Board on 2 May 2019.
Santos Annual Report 2019 / 57
Santos Annual Report 2019 / 57
Directors’ Report
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 permit the Company to 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.
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 2019 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 2019, 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 2020. 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
Amounts paid or payable to the Company’s auditor, Ernst & Young, for non-audit services provided during the year were:
Taxation and other services
$2,592,000
Assurance services not required to be
performed by the Company's auditor
$226,000
Other assurance services required by legislation
to be performed by the Company’s auditor
$47,000
The Directors are satisfied, based on the advice of the Audit and Risk Committee, that the provision of the non-audit services detailed
above by Ernst & Young is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth).
The reason for forming this opinion is that all non-audit services have been reviewed by the Audit and Risk Committee to ensure they
do not impact the impartiality and objectivity of the auditor.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 (Cth) is set out on
page 142.
ROUNDING
Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 applies
to the Company. Accordingly, amounts have been rounded off in accordance with that Instrument, unless otherwise indicated.
This report is made out on 19 February 2020 in accordance with a resolution of the Directors.
Director
58 / Santos Annual Report 2019
Financial Report
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
60
61
62
63
64
65
SECTION 1
BASIS OF PREPARATION
PAGE
SECTION 5
FUNDING AND RISK MANAGEMENT
1.1 Statement of compliance
1.2 Key events in the current period
1.3 Significant accounting judgements,
estimates and assumptions
1.4 Foreign currency
SECTION 2
FINANCIAL PERFORMANCE
2.1 Segment information
2.2 Revenue from contracts with customers
2.3 Expenses
2.4 Taxation
2.5 Earnings per share
2.6 Dividends
2.7 Other income
65
65
66
67
5.1 Interest-bearing loans and borrowings
5.2 Net finance costs
5.3 Issued capital
5.4 Reserves and accumulated losses
5.5 Financial risk management
PAGE
SECTION 6
GROUP STRUCTURE
68
71
74
75
78
79
80
6.1 Consolidated entities
6.2 Acquisitions and disposals of subsidiaries
6.3 Joint arrangements
6.4 Parent entity disclosures
6.5 Deed of Cross Guarantee
SECTION 7
PEOPLE
SECTION 3
CAPITAL EXPENDITURE, OPERATING ASSETS
AND RESTORATION OBLIGATIONS
7.1 Employee benefits
PAGE
7.2 Share-based payment plans
3.1 Exploration and evaluation assets
3.2 Oil and gas assets
3.3 Impairment of non-current assets
3.4 Restoration obligations and other provisions
3.5 Leases
3.6 Commitments for expenditure
SECTION 4
WORKING CAPITAL MANAGEMENT
4.1 Cash and cash equivalents
4.2 Trade and other receivables
4.3 Inventories
4.4 Trade and other payables
7.3 Key management personnel disclosures
SECTION 8
OTHER
8.1 Contingent liabilities
8.2 Events after the end of the reporting period
8.3 Remuneration of auditors
8.4 Accounting policies
Directors’ Declaration
Independent Auditor’s Report
Auditor’s Independence Declaration
81
82
85
89
90
93
PAGE
94
95
96
96
PAGE
97
99
100
101
101
PAGE
110
113
115
118
119
PAGE
121
122
128
PAGE
129
129
129
130
135
136
142
Santos Annual Report 2019 / 59
Financial Report
Consolidated Income Statement
for the year ended 31 December 2019
Revenue from contracts with customers – Product sales
Cost of sales
Gross profit
Revenue from contracts with customers – Other
Other income
Impairment of non-current assets
Other expenses
Finance income
Finance costs
Share of net profit of joint ventures
Profit before tax
Income tax expense
Royalty-related tax expense
Total tax expense
Net profit for the period attributable to owners of Santos Limited
Earnings per share attributable to the equity holders of Santos Limited (¢)
Basic profit per share
Diluted profit per share
Dividends per share (¢)
Paid during the period
Declared in respect of the period
Note
2.2
2.3
2.2
2.7
3.3
2.3
5.2
5.2
6.3(c)
2.4(a)
2.4(b)
2.5
2.5
2.6
2.6
2019
US$million
2018
US$million
4,033
(2,714)
3,660
(2,329)
1,319
153
109
(61)
(233)
37
(314)
8
1,018
(341)
(3)
(344)
674
32.4
32.1
12.2
11.0
1,331
113
180
(100)
(194)
30
(258)
4
1,106
(439)
(37)
(476)
630
30.2
30.0
3.5
9.7
The Consolidated Income Statement is to be read in conjunction with the notes to the consolidated financial statements.
60 / Santos Annual Report 2019
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2019
Net profit for the period
Other comprehensive income/(loss), net of tax
Items to be reclassified to the income statement in subsequent periods
Exchange loss on translation of foreign operations
Foreign currency translation reserve recycled to the income statement
Tax effect
Loss on foreign currency loans designated as hedges
of net investments in foreign operations
Tax effect
(Loss)/gain on derivatives designated as cash flow hedges
Tax effect
Net other comprehensive income/(loss) to be reclassified
to the income statement in subsequent periods
Items not to be reclassified to the income statement in subsequent periods
Remeasurement of defined benefit obligation
Tax effect
Fair value changes on financial liabilities designated at fair value
due to own credit risk
Tax effect
Net other comprehensive (loss)/income not to be reclassified
to the income statement in subsequent periods
Other comprehensive loss, net of tax
Total comprehensive income attributable to owners of Santos Limited
2019
US$million
2018
US$million
674
630
–
–
–
–
–
–
–
(8)
2
(6)
(6)
–
–
–
(6)
1
(5)
(5)
(11)
663
(245)
(72)
–
(317)
(171)
51
(120)
4
(1)
3
(434)
3
(1)
2
–
–
–
2
(432)
198
The Consolidated Statement of Comprehensive Income is to be read in conjunction with the notes to the consolidated financial
statements.
Santos Annual Report 2019 / 61
Financial Report
Consolidated Statement of Financial Position
as at 31 December 2019
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Contract assets
Inventories
Other financial assets
Current tax assets
Total current assets
Non-current assets
Prepayments
Contract assets
Investments in joint ventures
Other financial assets
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Deferred tax assets
Goodwill
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other liabilities
Contract liabilities
Lease liabilities
Interest-bearing loans and borrowings
Current tax liabilities
Provisions
Other financial liabilities
Total current liabilities
Non-current liabilities
Other liabilities
Contract liabilities
Lease liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Provisions
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Equity attributable to owners of Santos Limited
Total equity
Note
4.1
4.2
2.2(b)
4.3
5.5(g)
2.2(b)
6.3(b)
5.5(g)
3.1
3.2
2.4(d)
6.2(a)
4.4
2.2(b)
3.5
5.1
3.4
5.5(g)
2.2(b)
3.5
5.1
2.4(d)
3.4
5.5(g)
5.3
5.4
5.4
2019
US$million
(Restated)
2018
US$million
1,067
554
40
23
301
195
–
2,180
–
130
13
29
1,187
11,396
223
870
481
14,329
16,509
719
–
125
114
196
38
122
5
1,319
1
233
311
3,800
811
2,329
29
7,514
8,833
7,676
9,010
759
(2,093)
7,676
7,676
1,316
521
32
28
288
28
13
2,226
16
157
31
31
981
11,283
119
1,486
481
14,585
16,811
661
3
38
1
966
63
116
6
1,854
2
335
61
3,891
1,206
2,159
24
7,678
9,532
7,279
9,031
607
(2,359)
7,279
7,279
The Consolidated Statement of Financial Position is to be read in conjunction with the notes to the consolidated financial statements.
62 / Santos Annual Report 2019
Consolidated Statement of Cash Flows
for the year ended 31 December 2019
Note
2019
US$million
2018
US$million
Cash flows from operating activities
Receipts from customers
Interest received
Dividends received
Pipeline tariffs and other receipts
Payments to suppliers and employees
Restoration expenditure
Exploration and evaluation seismic and studies
Royalty and excise paid
Borrowing costs paid
Income taxes paid
Royalty-related taxes paid
Insurance proceeds
Other operating activities
Net cash provided by operating activities
4.1(b)
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
Acquisition of subsidiary, net of cash acquired
Costs associated with acquisition of subsidiaries
Proceeds from disposal of non-current assets
Proceeds from disposal of subsidiaries
Net proceeds associated with disposal
Borrowing costs paid
Return of capital – investment in joint ventures
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Drawdown of borrowings
Repayment of borrowings
Repayment of lease liabilities
Purchase of shares on-market (Treasury shares)
Net cash (used in)/provided by financing activities
Net (decrease)/increase 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
2.7
2.6
5.3
4.1
4,266
37
15
146
(1,892)
(24)
(83)
(90)
(227)
(30)
(97)
28
(3)
2,046
(222)
(619)
(18)
(18)
(177)
(5)
10
–
18
(15)
13
(1,033)
(251)
592
(1,474)
(87)
(31)
(1,251)
(238)
1,316
(11)
1,067
3,740
30
6
106
(1,816)
(36)
(98)
(85)
(194)
(69)
(13)
3
4
1,578
(66)
(490)
(10)
(10)
(1,933)
(10)
26
126
–
(6)
–
(2,373)
(73)
1,193
(220)
–
(10)
890
95
1,231
(10)
1,316
The Consolidated Statement of Cash Flows is to be read in conjunction with the notes to the consolidated financial statements.
Santos Annual Report 2019 / 63
Financial Report
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
Equity attributable to owners of Santos Limited
US$million
Note
Balance at 1 January 2018
Transfer retained profits to accumulated
profits reserve
Items of comprehensive income
Net profit for the period
Other comprehensive (loss)/income
for the period
Total comprehensive (loss)/income
for the period
Transactions with owners in their capacity
as owners
Dividends paid
On-market share purchase
(Treasury shares)
Share-based payment transactions
Foreign
currency
trans-
lation Hedging
reserve
reserve
Issued
capital
Accum-
ulated
profits
reserve
Accum-
ulated
losses
Total
equity
9,034
(528)
(16)
595
(1,934)
7,151
–
–
–
–
–
(10)
7
–
–
(437)
(437)
–
–
–
–
–
3
3
–
–
–
2.6
5.3
1,063
(1,063)
–
630
630
2
(432)
632
198
–
–
6
(73)
(10)
13
–
–
–
(73)
–
–
Balance at 31 December 2018
9,031
(965)
(13)
1,585
(2,359)
7,279
Opening balance adjustment on adoption of new
accounting standard (refer note 8.4(c))
Balance at 1 January 2019
Transfer retained profits to accumulated
profits reserve
Reclassification of own credit risk reserve
Items of comprehensive income
Net profit for the period
Other comprehensive loss
for the period
Total comprehensive (loss)/income
for the period
Transactions with owners in their capacity
as owners
Shares issued
Dividends paid
On-market share purchase
(Treasury shares)
Share-based payment transactions
5.3
2.6
5.3
–
9,031
–
(965)
–
(13)
–
1,585
(6)
(2,365)
(6)
7,273
–
–
–
–
–
1
–
(31)
9
–
–
–
–
–
–
–
–
–
–
14
–
(11)
(11)
–
–
–
–
400
–
(400)
(14)
–
–
–
–
–
–
(251)
–
–
674
674
–
(11)
674
663
–
–
–
12
1
(251)
(31)
21
Balance at 31 December 2019
9,010
(965)
(10)
1,734
(2,093)
7,676
The Consolidated Statement of Changes in Equity is to be read in conjunction with the notes to the consolidated financial statements.
64 / Santos Annual Report 2019
Notes to the Consolidated Financial Statements
for the year ended 31 December 2019
Section 1: Basis of Preparation
This section provides information about the basis of preparation of the Financial Report, and certain accounting policies
that are not disclosed elsewhere in the Financial Report. Accounting policies specific to individual elements of the financial
statements are located within the relevant section of the report.
1.1 STATEMENT OF COMPLIANCE
The consolidated Financial Report of Santos Limited (“the Company”) for the year ended 31 December 2019 was authorised for issue in
accordance with a resolution of the Directors on 19 February 2020.
The consolidated Financial Report of the Company for the year ended 31 December 2019 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 of the Group. The Group is a for-profit entity for
the purpose of preparing the Financial Report. The nature of the operations and principal activities of the Group are described in the
Directors’ Report.
This consolidated Financial Report is:
•
•
•
•
•
a general purpose Financial Report that has been prepared in accordance with the requirements of the Corporations Act 2001
(Cth), Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board
(“AASB”);
compliant with Australian Accounting Standards as issued by the AASB and International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board, including new and amended accounting standards issued and
effective for reporting periods beginning on or after 1 January 2019;
presented in United States dollars (“US$”);
prepared on the historical cost basis except for derivative financial instruments and other financial instruments measured at fair
value; and
rounded to the nearest million dollars, unless otherwise stated, in accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191.
1.2 KEY EVENTS IN THE CURRENT PERIOD
The financial position and performance of the Group was particularly impacted by the following events and transactions during the year:
•
•
•
•
•
production of 75.5 mmboe (2018: 58.9 mmboe), and sales of 94.5 mmboe (2018: 78.3 mmboe);
average realised oil price of $71.99 per barrel compared to $75.05 per barrel in 2018;
net profit after tax of $674 million for 2019 (2018: $630 million);
free cash flow generated of $1,138 million for 2019 (2018: $1,006 million); and
net debt decreased to $3,325 million at 31 December 2019, from $3,549 million at 31 December 2018.
Santos Annual Report 2019 / 65
Financial Report
Notes to the Consolidated Financial Statements
Section 1: Basis of Preparation
1.3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The carrying amounts of certain assets and liabilities are often determined based on management’s judgement regarding estimates and
assumptions of future events. The key judgements, estimates and assumptions that have a significant risk of causing a material adjustment
to the carrying amount of certain assets and liabilities within the next annual reporting period are disclosed in the following notes:
• Note 2.4 Taxation
• Note 3.1 Exploration and evaluation assets
• Note 3.2 Oil and gas assets
• Note 3.3 Impairment of non-current assets
• Note 3.4 Restoration obligations and other provisions
• Note 3.6 Leases
• Note 6.2 Acquisitions and disposals of subsidiaries
In addition to the significant judgements referenced above, other areas of estimation and judgement are highlighted throughout the
Financial Report.
66 / Santos Annual Report 2019
1.4 FOREIGN CURRENCY
Functional and presentation currency
The Group’s financial statements are presented in United States dollars (“US$”), as that presentation currency most reliably reflects the
global business performance of the Group as a whole and is more comparable with our peers.
The functional currency of the Parent changed from Australian dollars (“A$”) to United States dollars, effective 1 January 2019 (refer
note 8.4(b)).
The assets, liabilities, income and expenses of non-US dollar denominated functional operations are translated into US dollars using the
following applicable exchange rates:
Foreign currency amount
Income and expenses
Assets and liabilities
Equity
Reserves
Applicable exchange rate
Average rate prevailing for the relevant period
Period-end rate
Historical rate
Historical and period-end rate
Statement of cash flows
Average rate prevailing for the relevant period
Foreign exchange differences resulting from translation to presentation currency are initially recognised in the foreign currency
translation reserve and subsequently transferred to the income statement on disposal of the operation.
The period-end exchange rate used was A$/US$ 1:0.7000 (2018: 1:0.7044).
Transactions and balances
Transactions in currencies other than an entity’s functional currency 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 currencies other than an entity’s
functional currency are translated 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 at historical cost in currencies other than an entity’s functional currency are
translated using the exchange rate at the date of the initial transaction. Non-monetary assets and liabilities denominated in currencies
other than an entity’s functional currency that are stated at fair value are translated to the functional currency at foreign exchange rates
ruling at the dates the fair value was determined.
Group companies
The results of subsidiaries with a functional currency other than US$ (the functional currency of the Parent) are translated to US$ as
at the date of each transaction. The assets and liabilities are translated to US$ at foreign exchange rates ruling at the reporting date.
Foreign exchange differences arising on translation 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.
Also refer to note 5.5(c) for further details on the net investment hedge in place.
Santos Annual Report 2019 / 67
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
This section focuses on the operating results and financial performance of the Group. It includes disclosures of segmental
financial information, taxes, dividends and earnings per share, including the relevant accounting policies adopted in each area.
2.1 SEGMENT INFORMATION
The Group has identified its operating segments to be the five key assets/operating areas of the Cooper Basin, Queensland & NSW,
Papua New Guinea (“PNG”), Northern Australia & Timor-Leste, and Western Australia, based on the nature and geographical location
of the assets, and “Other” non-core assets. 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.
In the prior period, the assets acquired as part of the Quadrant Energy acquisition were incorporated into the Western Australia
segment, since acquisition date of 27 November 2018.
Segment performance is measured based on earnings before interest, tax, impairment, exploration and evaluation, depletion,
depreciation and amortisation (“EBITDAX”). Corporate and exploration expenditure and inter-segment eliminations are included in the
segment disclosure for reconciliation purposes.
Changes to segment information
As at 1 January 2019, the “Asia” reporting segment was no longer required, due to the divestment of the majority of the assets that were
reported under that segment. Further, the “Northern Australia” reporting segment has been renamed “Northern Australia & Timor-
Leste” following the signing of the new maritime boundary between Australia and Timor-Leste during 2019. Comparative disclosures
have been restated to a consistent basis.
68 / Santos Annual Report 2019
2.1 SEGMENT INFORMATION (CONTINUED)
US$million
Revenue
Product sales to external customers
Inter-segment sales1
Revenue – other from external customers
Queens-
land
& NSW
2019
Cooper
Basin
2019
951
151
62
960
62
33
Total segment revenue
1,164
1,055
(123)
(74)
(475)
(2)
39
529
(207)
–
(2)
–
320
(71)
(87)
(242)
(72)
41
624
(274)
–
(11)
–
339
Costs
Production costs
Other operating costs
Third-party product purchases
Inter-segment purchases1
Other
EBITDAX
Depreciation and depletion
Exploration and evaluation expensed
Net impairment loss
Change in future restoration assumptions
EBIT
Net finance costs
Profit before tax
Income tax expense
Royalty-related tax (expense)/benefit
Net profit
Asset additions and acquisitions:
Exploration and evaluation assets
Oil and gas assets2, 3
Northern
Australia &
Timor- Western
Leste Australia
2019
2019
Corporate,
exploration,
elimin-
ations
& other
2019
PNG
2019
652
–
11
663
(80)
(51)
(1)
–
9
540
(135)
–
(10)
–
395
165
–
–
165
(67)
–
–
–
4
102
(48)
–
–
–
54
921
–
34
955
(225)
(13)
–
–
(33)
684
(320)
–
(36)
2
330
Total
2019
4,033
–
153
4,186
(546)
(306)
(885)
–
8
2,457
(1,000)
(103)
(61)
2
1,295
(277)
1,018
(341)
(3)
674
260
1,143
1,403
384
(213)
13
184
20
(81)
(167)
74
(52)
(22)
(16)
(103)
(2)
–
(143)
(277)
(341)
–
55
–
55
(13)
(1)
–
5
6
8
418
426
13
401
414
12
119
131
52
5
57
120
200
320
1
2
3
Inter-segment pricing is determined on an arm’s length basis. Inter-segment sales and purchases are eliminated on consolidation.
Includes impact on restoration assets following changes in future restoration provision assumptions (refer note 3.4).
Includes impact of AASB 16 recognition of right-of-use assets (refer note 3.5).
2019 Revenue from external customers
by geographical location
US$million
2019 Non-current assets by geographical location
(excluding financial and deferred tax assets)
US$million
Australia
3,519
Papua New Guinea
663
Other
Total
4
4,186
Australia
Papua New Guinea
Other
Total
10,176
2,691
82
12,949
Santos Annual Report 2019 / 69
❋✁✂✄✂☎✁✄✆ ✝eport
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.1 SEGMENT INFORMATION (CONTINUED)
US$million
Revenue
Product sales to external customers
Inter-segment sales1
Revenue – other from external customers
Queens-
land
& NSW
2018
Cooper
Basin
2018
975
105
66
957
47
12
Total segment revenue
1,146
1,016
(127)
(68)
(421)
(3)
(9)
518
(196)
–
–
–
322
(71)
(80)
(293)
(33)
31
570
(167)
–
(12)
22
413
Costs
Production costs
Other operating costs
Third-party product purchases
Inter-segment purchases1
Other
EBITDAX
Depreciation and depletion
Exploration and evaluation expensed
Net impairment loss
Change in future restoration assumptions
EBIT
Net finance costs
Profit before tax
Income tax expense
Royalty-related tax benefit/(expense)
Net profit
Asset additions and acquisitions:
Exploration and evaluation assets
Oil and gas assets2
Northern
Australia &
Timor- Western
Leste Australia
2018
2018
Corporate,
exploration,
elimin-
ations
& other
2018
PNG
2018
621
–
9
630
(70)
(52)
–
–
(2)
506
(123)
–
(33)
–
350
183
–
–
183
(74)
–
–
–
7
116
(51)
–
–
–
65
408
–
14
422
(108)
(17)
–
–
(14)
283
(99)
–
(8)
24
200
Total
2018
3,660
–
113
3,773
(474)
(315)
(847)
–
23
2,160
(667)
(105)
(100)
46
1,334
(228)
1,106
(439)
(37)
630
692
2,778
3,470
516
(152)
12
376
(24)
(98)
(133)
36
10
167
(31)
(105)
(47)
–
(16)
(228)
(439)
7
5
61
66
5
6
–
1
(56)
18
215
233
14
195
209
30
47
77
34
30
64
591
2,230
2,821
1
2
Inter-segment pricing is determined on an arm’s length basis. Inter-segment sales and purchases are eliminated on consolidation.
Includes impact on restoration assets following changes in future restoration provision assumptions (refer note 3.4).
2018 Revenue from external customers
by geographical location
US$million
2018 Non-current assets by geographical location
(excluding financial and deferred tax assets)
US$million
Australia
Papua New Guinea
Vietnam
Indonesia
Total
2,962
630
124
57
3,773
Australia
9,760
Papua New Guinea
2,705
Other
Total
122
12,587
70 / Santos Annual Report 2019
2.2 REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers is recognised in the income statement when the performance obligations are considered met,
which is when control of the hydrocarbon products or services provided are transferred to the customer. Revenue is recognised at an
amount that reflects the consideration the Group expects to be entitled to, net of goods and services tax or similar taxes.
Revenue from contracts with customers – Product sales
Revenue from contracts with customers – product sales is recognised using the “sales method” of accounting. The sales method results
in revenue being recognised based on volumes sold under contracts with customers, at the point in time where performance obligations
are considered met. Generally, regarding the sale of hydrocarbon products, the performance obligation will be met when the product is
delivered to the specified measurement point (gas) or point of loading/unloading (liquids). No adjustments are made to revenue for any
differences between volumes sold to customers and unsold volumes that the Group is entitled to sell based on its working interest.
The Group’s sales of crude oil, liquefied natural gas, ethane, condensate, LPG, and in some contractual arrangements, natural gas, are
based on market prices. In contractual arrangements with market-based pricing, at the time of the delivery, there is only a minimal risk of
a change in transaction price to be allocated to the product sold. Accordingly, at the point of sale where there is not a significant risk of
revenue reversal relative to the cumulative revenue recognised, there is no constraining of variable consideration.
The Group applies the allocation exception that allows an entity to allocate the market price to product sales as delivered, rather than
recognising an average price over the term of the contract. For those contractual arrangements based on market pricing, the aggregate
transaction price allocation to unsatisfied performance obligations is fully constrained at the end of the reporting period. Revenue for
existing contracts will be recognised over varying contract tenures.
During the year, revenue from one customer amounted to $651 million (2018: $489 million), arising from sales from one segment of the
Group.
Contract liabilities
On acquisition of Quadrant Energy (refer note 6.2(a)), pre-existing revenue contracts were fair valued, resulting in contract liabilities
being recognised. The contract liabilities represent the differential in contract pricing and market price, and will be realised as
performance obligations are considered met in the underlying revenue contract. To the extent the contract liability represents the
fair value differential between contract price and market price, it will be unwound through “revenue – other” upon satisfaction of the
performance obligation.
Contract liabilities – Deferred revenue
A contract liability for deferred revenue is recorded for obligations under sales contracts to deliver natural gas in future periods for which
payment has already been received. Where the period between when payment is received and performance obligations are considered
met, is more than 12 months, an assessment will be made for whether a significant financing component is required to be accounted for.
Deferred revenue liabilities unwind as “revenue from contracts with customers”, upon settlement of the obligation, and if a significant
financing component associated with deferred revenue exists, this will be recognised as “interest expense” over the life of the contract.
Contract assets
On acquisition of Quadrant Energy (refer note 6.2(a)), pre-existing revenue contracts were fair valued, resulting in contract assets
being recognised. The contract assets represent the differential in contract pricing and market price, and will be realised as performance
obligations are considered met in the underlying revenue contract. The contract asset will be unwound through other expenses. Where
different tranches exist within a contractual arrangement, individual contracts acquired may contain both a contract liability in respect of
deferred revenue and a contract asset arising from revenue contracts being fair valued on acquisition.
Santos Annual Report 2019 / 71
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.2 REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)
(a) Revenue from contracts with customers
2019
US$million
2018
US$million
Product sales
Gas, ethane and liquefied natural gas
Crude oil
Condensate and naphtha
Liquefied petroleum gas
Total product sales1
Revenue – other
Liquidated damages
Pipeline tolls & tariffs
Contract liabilities – recognised on settlement of obligation
Other
Total revenue – other
Total revenue from contracts with customers
1
Total product sales include third-party product sales of $1,022 million (2018: $997 million).
(b) Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers:
Acquired contract assets
Current
Acquired contract assets
Non-current
Acquired contract assets
Total acquired contract assets
Contract liabilities
Current
Acquired contract liabilities
Deferred revenue
Non-current
Acquired contract liabilities
Deferred revenue
Total contract liabilities
72 / Santos Annual Report 2019
2,687
927
335
84
4,033
26
76
7
44
153
4,186
2,518
757
300
85
3,660
11
84
–
18
113
3,773
2019
US$million
(Restated)
2018
US$million
23
23
130
130
153
6
119
125
20
213
233
358
28
28
157
157
185
6
32
38
27
308
335
373
2.2 REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)
(b) Assets and liabilities related to contracts with customers (continued)
The following table illustrates the movement in contract asset and contract liability balances for the current reporting period:
Note
2019
US$million
(Restated)
2018
US$million
Acquired contract assets
Opening balance
Contract assets arising from acquisition
Other expenses
Total acquired contract assets
Acquired contract liabilities
Opening balance
Contract liabilities arising from acquisition
Revenue – other
Contract liabilities – Deferred income
Opening balance
Deferred revenue arising from acquisition
Additional receipts in advance
Revenue from contracts with customers – product sales
Interest accretion for financing component
Other
Total contract liabilities
2.3
2.2(a)
5.2
185
–
(32)
153
33
–
(7)
26
340
–
45
(65)
18
(6)
332
358
–
185
–
185
–
33
–
33
131
209
–
–
–
–
340
373
Santos Annual Report 2019 / 73
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2019
US$million
2018
US$million
546
–
546
56
158
(16)
97
11
306
852
622
377
999
885
(22)
436
38
474
64
169
(18)
82
18
315
789
417
248
665
847
28
2,714
2,329
12
54
–
1
11
9
(5)
6
103
32
10
233
14
75
58
2
(146)
17
(15)
67
105
–
17
194
2.3 EXPENSES
Cost of sales:
Production costs
Production expenses
Production facilities – operating leases
Total production costs
Other operating costs
LNG plant costs
Pipeline tariffs, processing tolls and other
Movements in onerous contracts
Royalty and excise
Shipping costs
Total other operating costs
Total cash cost of production
Depreciation and depletion:
Depreciation of plant, equipment and buildings
Depletion of subsurface assets
Total depreciation and depletion
Third-party product purchases
(Increase)/decrease in product stock
Total cost of sales
Other expenses
Selling
General & administration
Costs associated with acquisitions and disposals
Depreciation
Foreign exchange losses/(gains)
Fair value hedges losses/(gains)
On the hedging instrument
On the hedged item attributable to the hedged risk
Fair value losses on commodity derivatives (oil hedges)
Exploration and evaluation expensed
Contract assets recognised upon satisfaction
of the performance obligation
Other
Total other expenses
74 / Santos Annual Report 2019
2.4 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 in relation to items recognised directly 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.
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from,
or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted at the reporting date in the countries where the Group operates and generates taxable income. Where applicable, tax balances
include an estimate of any amounts expected to be paid to settle uncertain tax positions if it is probable that an amount will settle the
obligation, and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of an amount
of tax payable to be reimbursed, the expense relating to the income tax payable is presented in the income statement net of any
reimbursement that is virtually certain. If the effect of the time value of money is material, current tax payable is discounted.
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. The head entity and the controlled entities in the tax-consolidated group
continue to account for their own current and deferred tax amounts. 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 and a tax sharing
agreement.
Royalty-related tax
Petroleum Resource Rent Tax (“PRRT”), Resource Rent Royalty and Timor-Leste’s and PNG’s Additional Profits Tax are accounted for
as income tax.
Santos Annual Report 2019 / 75
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.4 TAXATION (CONTINUED)
Income tax and royalty-related tax recognised in the income statement for the Group are as follows:
(a) Income tax expense
Current tax expense/(benefit)
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior years
Total income tax expense
(b) Royalty-related tax expense
Current tax expense
Current year
Deferred tax (benefit)/expense
Origination and reversal of temporary differences
Total royalty-related tax expense (net of income tax benefit)
(c) Numerical reconciliation between pre-tax net profit and tax expense
Profit before tax
Prima facie income tax expense at 30% (2018: 30%)
Increase/(decrease) in income tax expense due to:
Foreign losses not recognised
Non deductible expenses
Exchange and other translation variations
Tax adjustments relating to prior years
Other
Income tax expense
Royalty-related tax expense (net of income tax benefit)
Total tax expense
2019
US$million
2018
US$million
44
(3)
41
264
36
300
341
78
78
(75)
(75)
3
1,018
305
(4)
6
–
33
1
341
3
344
70
(4)
66
365
8
373
439
36
36
1
1
37
1,106
332
4
3
99
4
(3)
439
37
476
76 / Santos Annual Report 2019
2.4 TAXATION (CONTINUED)
(d) Deferred tax assets and liabilities
Deferred tax is determined using the statement of financial position approach, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the appropriate tax bases.
The following temporary differences are not provided for:
•
•
the initial recognition of assets or liabilities that affect neither accounting or taxable profit; nor
differences relating to investments in subsidiaries to the extent it is probable that they will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the reporting date.
Significant judgement – Uncertain tax positions
The calculation of the Group’s tax charge involves a degree of estimation and judgement in respect of certain items for which the
ultimate tax determination is uncertain.
The Group recognises deferred tax assets only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Future taxable profits are estimated by internal budgets and forecasts. Deferred tax assets are
reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Assets
Liabilities
Net
Recognised deferred tax
assets and liabilities
2019
US$million
(Restated)
2018
2019
US$million US$million
(Restated)
2018
2019
US$million US$million
(Restated)
2018
US$million
Exploration and evaluation assets
Oil and gas assets
Other assets
Derivative financial instruments
Interest-bearing loans and borrowings
Provisions
Royalty-related tax
Other items
Tax value of carry-forward
losses recognised
58
647
34
18
184
44
–
2
751
64
644
88
–
126
73
397
19
882
(289)
(801)
(90)
(20)
–
–
(479)
–
–
(85)
(668)
(111)
(16)
–
–
(947)
(186)
–
Tax assets/(liabilities)
Set-off of tax
Net tax assets
1,738
(868)
870
2,293
(807)
1,486
(1,679)
868
(2,013)
807
(811)
(1,206)
(231)
(154)
(56)
(2)
184
44
(479)
2
751
59
–
59
(21)
(24)
(23)
(16)
126
73
(550)
(167)
882
280
–
280
Santos Annual Report 2019 / 77
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.4 TAXATION (CONTINUED)
(d) Deferred tax assets and liabilities (continued)
Accounting judgement and estimate – Deferred taxes unrecognised
Deferred tax assets have not been recognised in respect of the following items set out below, because it is not probable that the
temporary differences will reverse in the future and that there will be sufficient future taxable profits against which the benefits can
be utilised. There are no tax losses which are expected to expire. The remaining deductible temporary differences and tax losses do
not expire under current tax legislation.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Temporary differences in relation to investments in subsidiaries
Deductible temporary differences relating to royalty-related tax (net of income tax)
Tax losses
2019
US$million
2018
US$million
3,814
1,428
440
5,682
4,500
5,858
228
10,586
2.5 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit or loss for the year attributable to ordinary equity holders of
Santos Limited by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by adjusting basic earnings per share by the weighted average number of ordinary
shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Earnings used in the calculation of basic and diluted earnings per share reconciles to the net profit or loss after tax in the income
statement as follows:
2019
US$million
2018
US$million
Earnings used in the calculation of basic and diluted earnings per share
674
630
The weighted average number of shares used for the purpose of calculating diluted earnings per share reconciles to the number used to
calculate basic earnings per share as follows:
Basic earnings per share
Dilutive potential ordinary shares
Diluted earnings per share
Earnings per share attributable to the equity holders of Santos Limited
Basic earnings per share
Diluted earnings per share
2019
Number of shares
2018
Number of shares
2,083,007,100
16,499,100
2,083,028,582
15,065,580
2,099,506,200
2,098,094,162
2019
¢
32.4
32.1
2018
¢
30.2
30.0
78 / Santos Annual Report 2019
2.6 DIVIDENDS
Dividends are recognised as a liability at the time the Directors resolve to pay or declare the dividend.
Dividends recognised during the year
2019
2018 Final ordinary dividend – paid on 28 March 2019
2019 Interim ordinary dividend – paid on 26 September 2019
2018
2018 Interim ordinary dividend – paid on 27 September 2018
Dividends declared in respect of the year
2019
Final ordinary dividend
Interim ordinary dividend
2018
Final ordinary dividend
Interim ordinary dividend
Dividend franking account
30% franking credits available to the shareholders of Santos Limited
for future distribution
Franked/
unfranked
Dividend
per share
US¢
Total
US$million
Franked
Franked
Franked
Franked/
unfranked
Franked
Franked
Franked
Franked
6.2
6.0
12.2
3.5
3.5
127
124
251
73
73
Dividend
per share
US¢
Total
US$million
5.0
6.0
11.0
6.2
3.5
9.7
104
124
228
127
73
200
2019
US$million
2018
US$million
232
331
Santos Annual Report 2019 / 79
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.7 OTHER INCOME
Other income
Change in future restoration assumptions
Gain on sale of non-current assets
Gain on disposal of subsidiaries
Other income associated with lease arrangements
Insurance recoveries
Overriding royalties
Dividend income
Other
Total other income
Net gain on sale of non-current assets:
Proceeds on disposals
Adjusted for:
Note
3.4
3.5
Book value of oil and gas liabilities disposed
Book value of other land, buildings, plant and equipment disposed
Book value of working capital disposed
Total net gain on sale of non-current assets
Comprising:
Net gain on sale of oil and gas assets
Net gain on sale of other land, buildings, plant and equipment
Reconciliation to cash inflows from proceeds on disposal of non-current assets:
Proceeds after recoupment of current year exploration and
evaluation expenditure
Amounts received from disposals
Total proceeds on disposal of non-current assets
Comprising:
Proceeds from disposal of oil and gas assets
Proceeds from disposal of other land, buildings, plant and equipment
Proceeds from disposal of working capital
2019
US$million
2018
US$million
2
12
–
42
28
13
2
10
109
10
–
–
2
12
12
–
12
10
10
10
12
–
(2)
10
46
56
56
–
3
9
3
7
180
26
34
(4)
–
56
52
4
56
26
26
26
18
8
–
26
80 / Santos Annual Report 2019
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
This section includes information about the assets used by the Group to generate profits and revenue, specifically information
relating to exploration and evaluation assets, oil and gas assets, associated restoration obligations, and commitments for capital
expenditure not yet recognised as a liability.
The life cycle of the Group’s assets is summarised as follows:
Exploration
and evaluation
Appraisal drilling
Development
Production
Decommissioning
Abandonment
and restoration
3.1 EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation expenditure
Exploration and evaluation activity involves the search for hydrocarbon resources, the determination of technical feasibility and the
assessment of commercial viability of an identified resource. 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 acquiring interests in new exploration and evaluation assets, the cost of successful wells and appraisal costs relating to
determining development feasibility, which are capitalised as intangible exploration and evaluation assets.
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:
•
•
such expenditure is expected to be recovered through successful development and commercial exploitation of the area of
interest or, alternatively, by its sale; or
the exploration activities in the area of interest have not yet reached a stage that 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. 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.
No amortisation is charged during the exploration and evaluation phase.
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.
Exploration licence and leasehold property acquisition costs are capitalised as intangible assets. Licence costs paid in connection with a
right to explore in an existing exploration area are capitalised and amortised over the term of the permit.
Santos Annual Report 2019 / 81
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
3.1 EXPLORATION AND EVALUATION ASSETS (CONTINUED)
Significant judgement – Exploration and evaluation
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 resources 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 impaired through the income statement.
Cost
Less: Impairment
Balance at 31 December
Reconciliation of movements
Balance at 1 January
Acquisitions
Additions
Disposals
Expensed relating to unsuccessful wells
Impairment losses
Transfer to oil and gas assets in production
Exchange differences
Balance at 31 December
Comprising:
Acquisition costs
Successful exploration wells
Pending determination of success
3.2 OIL AND GAS ASSETS
2019
US$million
2,527
(1,340)
1,187
(Restated)
2018
US$million
2,530
(1,549)
981
981
18
242
–
(24)
(24)
(6)
–
1,187
675
440
72
1,187
459
606
86
(2)
(10)
(129)
–
(29)
981
667
242
72
981
Oil and gas assets are usually single oil or gas fields being developed for future production or that 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 and approval of commercial
development occurs, the field enters its development phase from the exploration and evaluation phase. Expenditure on the construction,
installation or completion of infrastructure facilities such as platforms, pipelines, and the drilling of development wells, as well as
exploration and evaluation costs, are capitalised as tangible assets within oil and gas assets. Other subsurface expenditures include the
costs of de-watering coal seam gas fields to provide access to coal seams to enable production from coal seam gas reserves. De-
watering costs include the costs of extracting, transporting, treating and disposing of water during the development phase of the coal
seam gas fields.
When commercial operation commences, the accumulated costs are transferred to oil and gas producing assets.
82 / Santos Annual Report 2019
3.2 OIL AND GAS ASSETS (CONTINUED)
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.
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 3.1.
Exploration and evaluation amounts capitalised in respect of oil and gas assets are separately disclosed in the table below.
Depreciation and depletion
Depreciation charges are calculated to write-off the 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.
Depreciation of onshore buildings, plant and equipment and corporate assets is calculated using the straight-line method of depreciation
from the date the asset is available for use, unless a units of production method represents a more reasonable allocation of the asset’s
depreciable value 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
Pipelines
20 – 50 years
10 – 30 years
Plant and facilities
10 – 50 years
Depreciation of offshore plant and equipment is calculated using the units of production method from the date of commencement of
production.
Depletion charges are calculated to amortise the depreciable value of carried forward exploration, evaluation and subsurface
development expenditure over the life of the estimated Proved plus Probable (“2P”) reserves for a hydrocarbon reserve, together with
future subsurface costs necessary to develop the respective hydrocarbon reserve.
Significant judgement – Estimates of reserve quantities
The estimated quantities of Proved plus Probable (“2P”) hydrocarbon reserves reported by the Group are integral to the calculation
of depletion and depreciation expense and incorporated into the assessment of 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.
Accounting judgement and estimate – Depletion charges
Depletion and certain depreciation charges are calculated using the units of production method. This is based on barrels of oil equivalent
which will amortise the cost of carried-forward exploration, evaluation and subsurface development expenditure (“subsurface assets”)
over the life of the estimated 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.
Santos Annual Report 2019 / 83
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
3.2 OIL AND GAS ASSETS (CONTINUED)
2019
Subsurface
assets
Plant and
Total
equipment
US$million US$million US$million
Subsurface
assets
US$million
(Restated)
2018
Plant and
equipment
US$million
Total
US$million
9,646
16,544
26,190
9,441
16,187
25,628
(6,506)
(8,288)
(14,794)
(6,365)
(7,980)
(14,345)
Cost
Less: Accumulated depreciation,
depletion and impairment
Balance at 31 December
3,140
8,256
11,396
3,076
8,207
11,283
Reconciliation of movements
Assets in development
Balance at 1 January
Additions1
Transfer to oil and gas assets
in production
Exchange differences
Balance at 31 December
Producing assets
Balance at 1 January
Additions1,2
Acquisition
Transfer from exploration and
evaluation assets
Transfer from oil and gas assets
in development
Disposals
Depreciation and depletion
Net impairment (losses)/reversals
Exchange differences
Balance at 31 December
Total oil and gas assets
Comprising:
Exploration and evaluation
expenditure pending
commercialisation
Other capitalised expenditure
134
10
(90)
–
54
2,942
428
–
6
90
–
(377)
(3)
–
3,086
3,140
156
21
(123)
–
54
8,051
684
–
–
123
–
(622)
(34)
–
8,202
8,256
290
31
(213)
–
108
10,993
1,112
–
6
213
–
(999)
(37)
–
11,288
11,396
55
3,085
3,140
6
8,250
8,256
61
11,335
11,396
119
16
–
(1)
134
2,019
212
1,176
–
–
(148)
(239)
29
(107)
2,942
3,076
86
2,990
3,076
65
91
–
–
156
7,333
159
1,124
–
–
(8)
(405)
–
(152)
8,051
8,207
184
107
–
(1)
290
9,352
371
2,300
–
–
(156)
(644)
29
(259)
10,993
11,283
5
8,202
8,207
91
11,192
11,283
1.
2.
Includes impact on restoration assets following changes in future restoration provision assumptions (refer note 3.4).
Includes impact of AASB 16 recognition of right-of-use assets (refer note 3.5).
84 / Santos Annual Report 2019
3.3 IMPAIRMENT OF NON-CURRENT ASSETS
Impairment of goodwill
Goodwill arises as a result of a business combination and has an indefinite useful life which is not subject to amortisation. Goodwill is
initially measured at cost and is subsequently measured at cost less any accumulated impairment losses. For the purposes of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating
units (“CGU”) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units. Goodwill that is created on acquisition as a consequence of deferred tax balances is tested for impairment net
of those associated deferred tax balances. Goodwill is tested at least annually for impairment and more frequently if events or changes
in circumstances indicate that it might be impaired.
Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the
disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal.
Impairment of oil and gas assets
The carrying amounts of the Group’s oil and gas assets are reviewed at each reporting date to determine whether there is any
indication of impairment or impairment reversal. Where an indicator of impairment or impairment reversal exists, a formal estimate of the
recoverable amount is made.
a)
Indicators of impairment – Exploration and evaluation assets
The carrying amounts of the Group’s exploration and evaluation assets are reviewed at each reporting date, to determine whether
any of the following indicators of impairment exists:
•
•
•
•
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
substantive expenditure on further exploration for, and evaluation of, mineral resources in the specific area is not budgeted or
planned; or
exploration for, and evaluation of, resources in the specific area have not led to the discovery of commercially viable quantities of
resources, and the Group has decided to discontinue activities in the specific area; or
sufficient data exists to indicate that although a development is likely to proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful development or from sale.
b) Cash-generating units – Oil and gas assets
Oil and gas assets, land, buildings, plant and equipment are assessed for impairment on a CGU basis. A CGU is the smallest
grouping of assets that generates independent cash inflows, and generally represents oil and gas fields, that are being produced
through a common facility.
Individual assets within a CGU may become impaired if their ongoing use changes or if the benefits to be obtained from ongoing
use are likely to be less than the carrying value of the individual asset. An impairment loss is recognised in the income statement
whenever the carrying amount of an asset or its CGU exceeds its recoverable amount.
Impairment losses or reversal of impairment losses
An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its CGU (including any amount
of allocated goodwill) exceeds its recoverable amount. Impairment losses recognised in respect of CGUs are allocated to reduce goodwill
first (if goodwill is included within the carrying amount of the CGU) and then allocated to reduce the carrying amount of the assets in
the CGU on a pro-rata basis.
A reversal of impairment losses is recognised in the income statement when the recoverable amount of an asset or CGU exceeds
its carrying amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying
amount that would have been determined, if no impairment loss had been recognised.
Santos Annual Report 2019 / 85
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
3.3 IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED)
Recoverable amount
The recoverable amount of an asset or CGU is the greater of its fair value less costs of disposal (“FVLCD”) (based on level 3 fair value
hierarchy) and its value-in-use (“VIU”), using an asset’s estimated future cash flows (as described below) discounted to their 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.
Significant judgement – Impairment of oil and gas assets
For oil and gas assets, the expected future cash flow estimation is based on a number of factors, variables and assumptions, the most
important of which are estimates of reserves, future production profiles, commodity prices, costs and foreign exchange rates. Current
climate change legislation is also factored into the calculation and future uncertainty around climate change risks continue to be
monitored. In most cases, the present value of future cash flows is most sensitive to estimates of future oil price and discount rates.
The estimated future cash flows for the VIU calculation are based on estimates, the most significant of which are hydrocarbon reserves,
future production profiles, commodity prices, operating costs including third-party gas purchases and any future development costs
necessary to produce the reserves. Under a FVLCD calculation, future cash flows are based on estimates of hydrocarbon reserves in
addition to other relevant factors such as value attributable to additional resource and exploration opportunities beyond reserves based
on production plans.
Estimates of future commodity prices are based on the Group’s best estimate of future market prices with reference to external market
analysts’ forecasts, current spot prices and forward curves. Future commodity prices are reviewed at least annually. Where volumes are
contracted, future prices are based on the contracted price.
Future Brent prices (US$/bbl) used were:
2020
65.00
2021
66.30
20221
72.83
20231
74.28
20241
75.77
20251
77.29
1
Based on US$70/bbl (2020 real) from 2022 escalated at 2.0% p.a.
Forecasts of the exchange rate for foreign currencies, where relevant, are estimated with reference to observable external market data
and forward values, including analysis of broker and consensus estimates. The future estimated rates applied were (A$/US$):
2020
0.70
2021
0.72
2022
0.72
20231
0.75
1
From 2023 the long-term exchange rate assumption remains at A$:US$0.75.
The discount rates applied to the future forecast cash flows are based on the weighted average cost of capital, adjusted for risks where
appropriate, including functional currency of the asset, and risk profile of the countries in which the asset operates. The range of pre-tax
discount rates that have been applied to non-current assets is between 11% and 19%.
In the event that future circumstances vary from these assumptions, the recoverable amount of the Group’s oil and gas assets could
change materially and result in impairment losses or the reversal of previous impairment losses.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact on others and individual
variables rarely change in isolation. Additionally, management can be expected to respond to some movements, to mitigate downsides
and take advantage of upsides, as circumstances allow. Consequently, it is impracticable to estimate the indirect impact that a change
in one assumption has on other variables and hence, on the likelihood, or extent, of impairments, or reversals of impairments, under
different sets of assumptions in subsequent reporting periods.
86 / Santos Annual Report 2019
3.3 IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED)
Impairment expense
Current assets
Assets held for sale, subsequently disposed of
Total impairment of current assets
Non-current assets
Exploration and evaluation assets
Oil and gas assets
Total impairment of non-current assets
Total impairment
2019
US$million
2018
US$million
–
–
24
37
61
61
47
47
53
–
53
100
Recoverable amounts and resulting impairment write-downs recognised in the year ended 31 December 2019:
2019
Segment
Oil and gas assets – producing:
Barrow
Other
Western Australia
Various
Total impairment of oil and gas assets
Exploration and evaluation assets:
Gunnedah Basin
PNG – PPL 395 & PPL 464
Other
Queensland & NSW
PNG
Various
Total impairment of exploration and evaluation assets
Total impairment of oil and gas assets and exploration and
evaluation assets
Subsurface
assets
Recoverable
amount1
US$million US$million US$million US$million
Plant and
equipment
Total
–
3
3
11
9
4
24
27
34
–
34
–
–
–
–
34
34
3
37
11
9
4
24
61
nil
nil
nil2
nil2
nil2
1 Recoverable amounts represent the carrying values of assets before deducting the carrying value of restoration liabilities. All producing oil and gas asset amounts are calculated using the
value-in-use (“VIU”) method, whilst all exploration and evaluation asset amounts use the fair value less costs of disposal (“FVLCD”) method.
2
Impairment of exploration and evaluation assets relates to certain individual licenses/areas of interest that have been impaired to nil.
Oil and gas assets
Barrow
The impairment of Barrow has arisen due to an increase in oil and gas asset carrying values, following remeasurement of restoration
obligations. The recoverable amount of the asset is nil.
Santos Annual Report 2019 / 87
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
3.3 IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED)
Recoverable amounts and resulting impairment write-downs recognised in the year ended 31 December 2018:
2018
Segment
Exploration and evaluation assets:
Gunnedah Basin
PNG – PPL 426
PNG – PPL 261
WA-214 (Davis 1)
Queensland & NSW
PNG
PNG
Western Australia
Total impairment of exploration and evaluation assets
Subsurface
assets
Recoverable
amount
US$million US$million US$million US$million
Plant and
equipment
Total
12
29
4
8
53
–
–
–
–
–
12
29
4
8
53
nil1
nil1
nil1
nil1
1
Impairment of exploration and evaluation assets relates to certain individual licences/areas of interest that have been impaired to nil.
Exploration and evaluation assets
The impairment of PNG – PPL 426 and PNG – PPL 261 has arisen mainly from the impact of uncertainty around access to necessary
infrastructure and viability and timing of future third-party export routes.
88 / Santos Annual Report 2019
3.4 RESTORATION OBLIGATIONS AND OTHER PROVISIONS
Provisions recognised for the period are as follows:
Current
Restoration obligations
Other provisions
Non-current
Restoration obligations
Other provisions
Restoration obligations
Note
2019
US$million
(Restated)
2018
US$million
59
63
122
2,223
106
2,329
59
57
116
2,034
125
2,159
Provisions for future removal and environmental restoration costs are recognised where there is a present obligation as a result of
exploration, development, production, transportation or storage activities having been undertaken, and it is probable that future 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 and 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 or observed industry analogs. 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. In the event the restoration provision is reduced, the cost of the related oil and gas asset is reduced by an
amount not exceeding its carrying value. If the decrease in restoration provision exceeds the carrying amount of the asset, the excess is
recognised immediately in the income statement as other income.
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.
Significant judgement – 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, and the extent of restoration activities required.
The Group has recorded provisions for restoration obligations as follows:
Current provision
Non-current provision
Movements in the provision during the financial year are set out below:
Balance at 1 January 2019
Provisions made and changes to assumptions during the year
Provisions used during the year
Unwind of discount
Change in discount rate
Exchange differences
Balance at 31 December 2019
2019
US$million
2018
US$million
59
2,223
2,282
59
2,034
2,093
Total restoration
US$million
2,093
(156)
(35)
48
342
(10)
2,282
Santos Annual Report 2019 / 89
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
3.4 RESTORATION OBLIGATIONS AND OTHER PROVISIONS (CONTINUED)
Other provisions
In addition to the provision for restoration shown above, other items for which a provision has been recorded are:
Current
Employee benefits
Onerous contracts
Other provisions
Non-current
Employee benefits
Defined benefit obligations
Onerous contracts
Remediation provision
Other provisions
3.5 LEASES
Definition of a lease
Note
7.1
7.1
7.1
2019
US$million
(Restated)
2018
US$million
56
2
5
63
12
–
8
21
65
106
55
2
–
57
9
1
29
–
86
125
The Group has adopted AASB 16 Leases from 1 January 2019 (refer note 8.4(c) for related transition disclosures).
The Group assesses whether a contract is or contains a lease based on the new definition of a lease. Under AASB 16, a contract
is, or contains a lease, if the contract conveys a right to control the use of an identified asset for a period of time in exchange for
consideration.
The Group as a lessee
Recognition of lease liabilities and right-of-use assets
Under AASB 16, as a lessee the Group will recognise a right-of-use asset, representing its right to use the underlying asset, and a lease
liability, for all leases with a term of more than 12 months; exempting those leases where the underlying asset is deemed to be of a
low value.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date, i.e. when the underlying asset is
first available for use. The right-of-use asset is initially measured to be equal to the lease liability and adjusted for any lease incentives
received, initial direct costs and estimates of costs to dismantle or remove the underlying leased asset. Subsequently the right-of-use
asset is measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate, adjusted for asset-specific factors.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the
amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether purchase,
renewal or termination options are reasonably certain to be exercised.
The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include purchase,
renewal or termination options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease
term, which affects the value of lease liabilities and right-of-use assets recognised.
90 / Santos Annual Report 2019
3.5 LEASES (CONTINUED)
Modifications to lease arrangements
In the event that there is a modification to a lease arrangement, a determination of whether the modification results in a separate lease
arrangement being recognised needs to be made.
Where the modification does result in a separate lease arrangement needing to be recognised, due to an increase in scope of a lease
through additional underlying leased assets and a commensurate increase in lease payments, the measurement requirements as
described above need to be applied.
Where the modification does not result in a separate lease arrangement, from the effective date of the modification, the Group
will remeasure the lease liability using the redetermined lease term, lease payments and applicable discount rate. A corresponding
adjustment will be made to the carrying amount of the associated right-of-use asset. Additionally, where there has been a partial or full
termination of a lease, the Group will recognise any resulting gain or loss in the income statement.
Lease impact on joint operating arrangements
Where lease arrangements impact the Group’s joint operating arrangements (“JOA”), the facts and circumstances of each lease
arrangement in a JOA are assessed to determine the Group’s rights and obligations associated with the lease arrangement.
The Group applies judgement in its determination of which party directs the use of a leased asset. Outlined below are a number of
scenarios that could exist for lease arrangements which impact the Group’s JOAs:
1) Where it has been determined that the Group directs the use of the leased asset, and is the only party with legal obligation
to pay the lessor, the Group will recognise the full lease liability and right-of-use asset on its statement of financial position.
Depreciation is then recognised on the entire right-of-use asset, however, other income would be recognised for any amount
of the lease payments that are recoverable from other parties, representing other income associated with lease arrangements; or
2)
3)
If it has been determined that the leased asset is either jointly controlled by all parties in a joint operation, or is utilised by a single
joint operation, and the Group is the only party with a legal obligation to pay the lessor, the Group will recognise the full lease
liability, its net share of the right-of-use asset, a receivable for the amounts recoverable from other parties; or
In instances where it has been determined that all parties to the joint arrangement jointly have the right to control the leased
asset and all parties have a legal obligation to make lease payments to the lessor, the Group will recognise only its net share of
the lease liability and right-of-use asset on its consolidated statement of financial position.
The Group’s leasing activities
The Group leases a number of different types of assets, including properties and plant and production equipment, such as oil rigs. The
lease arrangements have varying renewal and termination options. Lease terms for major categories of leased asset are shown below:
• Oil rigs
• Marine vessels, including LNG tankers
• Helicopters
•
Building office space
1 – 5 years
3 – 30 years
1 – 5 years
10 – 20 years
•
Other plant and production equipment
2 – 20 years
The Group presents the following in relation to AASB 16, within its consolidated statement of financial position:
•
•
•
“Other land, buildings, plant and equipment” or “Oil and gas assets” – right-of-use assets are presented in either,
depending on the type of leased asset;
“Lease liabilities” – Lease liabilities; and
“Other financial assets” – Sublease receivables.
Set out below are the carrying amounts of right-of-use assets recognised and their movements during the period:
US$million
31 December 2018 – assets relating to previously
recognised finance leases
Transition – right-of-use assets recognised 1 January 2019
Additions
Depreciation
Balance at 31 December 2019
Oil and gas
assets
Other land,
buildings, plant
and equipment
54
185
140
(84)
295
–
79
32
(6)
105
Total
54
264
172
(90)
400
Santos Annual Report 2019 / 91
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets
and Restoration Obligations
3.5 LEASES (CONTINUED)
Where the payments made under a lease contract would previously have been capitalised, the depreciation on the corresponding right-
of-use asset is capitalised in lieu. During the period, $26 million of depreciation on right-of-use assets has been capitalised and forms a
component of additions to “Oil and gas assets”, this capitalisation results in a difference between the amount of depreciation expense
recorded during the period and the movement in accumulated depreciation.
Set out below are the carrying amounts of lease liabilities and the movements during the period:
31 December 2018 – lease liabilities relating to previously recognised finance leases
Transition – lease liabilities recognised 1 January 2019
Additions
Accretion of interest
Payments
Foreign exchange gain on lease liabilities
Balance at 31 December 2019
Set out below are the maturity of the lease liabilities:
Not later than one year
Later than one year but not later than five years
Later than five years
Minimum lease payments
Future finance charges
Total lease liabilities1
Lease liabilities
Current
Non-current
Total lease liabilities at 31 December 2019
1
For leases not yet commenced at reporting date refer to note 3.6.
Short-term and low-value lease asset exemptions
Lease liabilities
US$million
62
280
172
19
(106)
(2)
425
2019
US$million
2018
US$million
117
241
217
575
(150)
425
114
311
425
9
37
106
152
(90)
62
1
61
62
The Group had total cash outflows for leases of $286 million in 2019, including outflows for short-term leases, leases of low-value assets,
and variable lease payments.
For the 12-month period ended 31 December 2019, the following payments have been made for lease arrangements that have been
classified as short-term or for low-value assets:
Short-term leases
Leases for low-value assets
Total payments made
92 / Santos Annual Report 2019
2019
US$million
55
56
111
3.5 LEASES (CONTINUED)
Variable lease payments
The Group holds lease contracts which contain variable payments based on the usage profile of the leased asset. The type and
quantum of activities undertaken utilising these assets (primarily oil rigs) is entirely at the Group’s discretion in response to operational
requirements.
The lease liability and corresponding right-of-use asset for these lease contracts is calculated based on the fixed rental payment
components of the contracts. The table below indicates the relative magnitude of variable payments to fixed payments made during the
year ended 31 December 2019, for those lease contracts which contain a variable payment component.
Fixed payments (included in calculation of lease liability)
Variable payments
Total payments made for leases with a variable payment component
2019
US$million
105
70
175
Other income associated with lease arrangements
Where it has been determined that the Group directs the use of the leased asset, and is the only party with legal obligation to pay the
lessor, the Group recognises other income for any amount of the lease payments that are recoverable from other parties, representing
“other income associated with lease arrangements” in the income statement. For the year ending 31 December 2019, the amount
recognised was $42 million (2018: $nil).
3.6 COMMITMENTS FOR EXPENDITURE
The Group has certain obligations to perform minimum exploration work and expend minimum amounts of money pursuant to the terms
of the granting of petroleum exploration permits in order to maintain rights of tenure.
These commitments may be varied as a result of renegotiations of the terms of the exploration permits, licences or contracts or
alternatively upon their relinquishment. The minimum exploration commitments are less than the normal level of exploration expenditures
expected to be undertaken by the Group.
The Group has the following commitments for expenditure for which no liabilities have been recorded in the financial statements as the
goods or services have not been received, including commitments for non-cancellable lease arrangements where the lease term has not
commenced:
Capital
Minimum exploration
Leases
Commitments
2019
US$million
2018
2019
US$million US$million
2018
2019
US$million US$million
20181
US$million
Not later than one year
Later than one year but not later
than five years
Later than five years
106
98
–
204
112
12
–
124
71
251
2
324
180
417
3
600
1
3
–
4
34
106
102
242
1 Refer to note 8.4(c) for a reconciliation of lease commitments disclosed to the lease liability recognised on transition to AASB 16 Leases.
Santos Annual Report 2019 / 93
Financial Report
Notes to the Consolidated Financial Statements
Section 4: Working Capital Management
This section provides information about the Group’s working capital balances and management, including cash flow
information. Cash flow management is a significant consideration in running our business in an efficient and resourceful
manner. We also consider inventories which contribute to the business platform for generating profits and revenues.
4.1 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances and short-term deposits that are readily convertible to cash, are subject to an
insignificant risk of changes in value, and generally have an original maturity of three months or less.
The carrying amounts of cash and cash equivalents represent fair value. Bank balances and short-term deposits earn interest at floating
rates based upon market rates.
Cash at bank and in hand
Short-term deposits
(a) Restricted cash balances
2019
US$million
2018
US$million
344
723
1,067
467
849
1,316
In accordance with the terms of the PNG LNG project financing, cash relating to the Group’s interest in undistributed cash
flows from the PNG LNG project is required to be held in restricted bank accounts. As at 31 December 2019 $99 million
(2018: $147 million) was held in these accounts.
(b) Reconciliation of cash flows from operating activities
2019
US$million
2018
US$million
Net profit after income tax
Add/(deduct) non-cash items:
Depreciation and depletion
Exploration and evaluation expensed – unsuccessful wells
Net impairment loss
Net loss on fair value derivatives
Share-based payment expense
Unwind of the effect of discounting on provisions
Foreign exchange losses/(gains)
Gain on sale of non-current assets and subsidiaries
Other income associated with disposal
Other
Net cash provided by operating activities before changes in assets or liabilities
Add/(deduct) change in operating assets or liabilities, net of acquisitions
or disposals of businesses:
Increase in trade and other receivables
(Increase)/decrease in inventories
Decrease in other assets
Increase in net deferred tax assets
(Decrease)/increase in net current tax liabilities
Increase/(decrease) in trade and other payables
Decrease in provisions
674
1,000
24
61
10
12
53
11
(12)
(7)
(2)
1,824
(1)
(13)
8
221
(12)
32
(13)
630
667
10
100
69
11
46
(146)
(112)
–
(2)
1,273
–
13
4
336
25
(60)
(13)
Net cash provided by operating activities
2,046
1,578
94 / Santos Annual Report 2019
4.1 CASH AND CASH EQUIVALENTS (CONTINUED)
(c) Reconciliation of liabilities arising from financing activities to financing cash flows
US$million
Balance at 1 January 2018
Financing cash flows1
Non-cash changes:
Changes in fair values
Reclassification to current liability
Other
Balance at 31 December 2018
Balance at 1 January 2019
Lease liabilities recognised on transition to AASB 16
Financing cash flows1
Non-cash changes:
Changes in fair values
Reclassification to current liability
Additions to lease liabilities
Other
Balance at 31 December 2019
Short-term
borrowings
Long-term
borrowings
Lease
liabilities
Assets held
to hedge
borrowings
206
(220)
–
977
3
966
966
–
(974)
7
210
–
(13)
196
3,674
1,193
(19)
(977)
20
3,891
3,891
–
92
(3)
(210)
–
30
3,800
63
–
(1)
–
–
62
62
280
(87)
–
–
172
(2)
425
Total
3,882
973
7
–
23
4,885
4,885
280
(969)
12
–
172
15
(61)
–
27
–
–
(34)
(34)
–
–
8
–
–
–
(26)
4,395
1
Financing cash flows consist of the net amount of proceeds from borrowings, repayments of borrowings and repayment of lease liabilities in the statement of cash flows.
4.2 TRADE AND OTHER RECEIVABLES
Trade and other receivables are initially recognised at transaction price, which in practice is the equivalent of cost, less any impairment
losses.
Long-term receivables are initially recognised at fair value and are subsequently stated at amortised cost, less any impairment losses.
Trade receivables are non-interest-bearing and settlement terms are generally within 30 days.
Trade receivables
Other receivables
2019
US$million
2018
US$million
348
206
554
368
153
521
Due to the nature of the Group’s receivables, their carrying amount is considered to approximate their fair value.
The Group applies the simplified approach to providing for expected credit losses for all trade receivables as set out in note 5.5(e).
Santos Annual Report 2019 / 95
Financial Report
Notes to the Consolidated Financial Statements
Section 4: Working Capital Management
4.3 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:
•
•
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
petroleum products, which comprise extracted crude oil, liquefied petroleum gas, condensate and naphtha stored in tanks and
pipeline systems and processed sales gas and ethane stored in subsurface reservoirs, are valued using the absorption cost
method.
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
4.4 TRADE AND OTHER PAYABLES
2019
US$million
2018
US$million
186
115
301
20
173
115
288
9
Trade and other payables are recognised when the related goods or services are received, at the amount of cash or cash equivalents
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.
Trade payables
Non-trade payables
2019
US$million
2018
US$million
507
212
719
503
158
661
The carrying amounts of trade and other payables are considered to approximate their fair values, due to their short-term nature.
96 / Santos Annual Report 2019
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
Our business has exposure to capital, credit, liquidity and market risks. This section provides information relating to our
management of, as well as our policies for measuring and managing, these risks.
Capital risk management objectives
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 to earnings before interest, tax, depreciation and amortisation (“Debt-to-EBITDA”). The Group monitors
these capital structure metrics on both an actual and forecast basis.
At 31 December 2019 Santos Limited’s corporate credit rating was BBB- (stable outlook) from Standard & Poor’s.
5.1 INTEREST-BEARING LOANS AND BORROWINGS
Interest-bearing loans and borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequent to initial
recognition, interest-bearing loans and 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. The carrying values of the
Group’s interest-bearing loans and borrowings are shown below.
Fixed-rate notes that are hedged by interest rate swaps are recognised at fair value.
All borrowings are unsecured, with the exception of the secured bank loans and lease liabilities.
All interest-bearing loans and borrowings, with the exception of secured bank loans and lease liabilities, 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. Refer to note 3.5 for disclosures related to leases.
Current
Bank loans – secured
Bank loans – unsecured
Long-term notes
Non-current
Bank loans – secured
Bank loans – unsecured
Long-term notes
Ref
(a)
(b)
(c)
(a)
(b)
(c)
2019
US$million
2018
US$million
136
60
–
196
1,187
978
1,635
3,800
156
657
153
966
1,318
1,535
1,038
3,891
Santos Annual Report 2019 / 97
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.1 INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
The Group’s weighted average interest rate on interest-bearing liabilities was 5.47% for the year ended 31 December 2019 (2018:
5.28%).
(a) Bank loans – secured
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
(b) Bank loans – unsecured
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
98 / Santos Annual Report 2019
PNG LNG
US dollars
$1,371 million (2018: $1,537 million)
$1,371 million (2018: $1,537 million)
$1,323 million (2018: $1,474 million) including prepaid amounts
6.45% (2018: 6.10%)
2024 and 2026
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 commercial banks and export credit agencies, bear fixed and floating rates of
interest and have final maturity dates of June 2024 and June 2026 respectively.
Assets pledged as security and restricted cash
The PNG LNG facilities include security over assets and entitlements of the participants
in respect of the project. The total carrying value of the Group’s assets pledged as
security is $2,738 million at 31 December 2019 (2018: $2,762 million).
As referred to in note 4.1, under the terms of the project financing, cash relating to the
Group’s interest in undistributed project cash flows is required to be held in secured bank
accounts.
Term bank loans
US dollars
$700 million (2018: $1,200 million)
$700 million (2018: $1,200 million)
$695 million (2018: $1,194 million) including prepaid amounts
4.08% (2018: 4.18%)
2024
Term bank loans bear a floating interest rate. During 2019 Santos repaid the $500 million
2-year bridge facility.
Export credit agency supported loan facilities
US dollars
$343 million (2018: $1,001 million)
$343 million (2018: $1,001 million)
$343 million (2018: $998 million) including prepaid amounts
3.75% (2018: 3.02%)
2020–2024
Loan facilities are supported by various export credit agencies and bear a floating
interest rate. During 2019 Santos repaid the remaining $600 million balance of the
uncovered facility.
5.1 INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
(c) Long-term notes
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
5.2 NET FINANCE COSTS
Borrowing costs
US private placement notes
US dollars
$227 million (2018: $377 million)
$227 million (2018: $377 million)
$255 million (2018: $405 million) including fair value accounting measurement and prepaid
amounts
2.89% (2018: 1.58%)
2022 and 2027
Long-term notes bear a fixed interest rate of 6.45% to 6.81% (2018: 6.30% to 6.81%),
which have been swapped to floating rate commitments.
Regulation-S bond
US dollars
$1,400 million (2018: $800 million)
$1,400 million (2018: $800 million)
$1,380 million (2018: $786 million) including prepaid amounts
4.79% (2018: 4.40%)
2027 and 2029
Both bonds bear fixed interest rates.
Borrowing costs relating to major oil and gas assets under development are capitalised as a component of the cost of development.
Where funds are borrowed specifically for qualifying projects, the actual borrowing costs incurred are capitalised. Where the projects are
funded through general borrowings, the borrowing costs are capitalised based on the weighted average cost of borrowing. Borrowing
costs incurred after commencement of commercial operations are expensed to the income statement.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
Interest income
Interest income is recognised in the income statement as it accrues using the effective interest method.
Finance income
Interest income
Total finance income
Finance costs
Interest paid to third parties
Interest on lease liabilities
Deduct borrowing costs capitalised
Unwind of the effect of discounting on contract liabilities – deferred revenue
Unwind of the effect of discounting on provisions
Total finance costs
Net finance costs
2019
US$million
2018
US$million
37
37
239
19
(15)
243
18
53
314
277
30
30
210
8
(6)
212
–
46
258
228
Santos Annual Report 2019 / 99
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.3 ISSUED CAPITAL
Ordinary share capital
Ordinary share capital is classified as equity. The issued shares do not have a par value and there is no limit on the authorised share
capital of the Company.
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 2019 was A$8.18 (2018: A$5.48).
Transaction costs
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit. During
2019 no transaction costs in respect of capital raisings completed have been deducted from equity (2018: $nil).
Movement in ordinary shares
Balance at 1 January
Issue of new shares
Shares purchased on-market (Treasury shares)
Utilisation of Treasury shares on vesting of
employee share schemes
Replacement of ordinary shares with shares purchased on-market
2019
Number of
shares
Note
2018
Number of
2019
shares US$million
2018
US$million
2,082,979,345 2,083,070,879
–
–
155,000
–
–
(37,719)
–
(91,534)
9,031
1
(31)
9
–
9,034
–
(10)
7
–
Balance at 31 December
2,083,096,626 2,082,979,345
9,010
9,031
Included within the Group’s ordinary shares at 31 December 2019 are 10,000 (2018: 10,000) ordinary shares paid to one cent with a
value of $nil (2018: $nil).
Treasury shares
Treasury shares are purchased primarily for use on vesting of employee share schemes. Shares are accounted for at weighted average
cost. During the period, $31 million (2018: $10 million) of Treasury shares were purchased on-market.
Movement in Treasury shares
Balance at 1 January
Shares purchased on-market
Treasury shares utilised:
Santos Employee Share1000 Plan
Santos Employee ShareMatch Plan
Utilised on vesting of SARs
Executive STI (deferred shares)
Executive STI (ordinary shares)
2016 Executive sign-on grants
Santos Employee Share1000 Plan (relinquished shares)
Replacement of partially paid shares with shares purchased on-market
Issue of new shares
Replacement of ordinary shares with shares purchased on-market
Balance at 31 December
Note
7.2
7.2
7.2
7.2
2019
Number of
shares
1,231,710
5,750,000
(150,192)
(572,196)
(588,100)
(696,921)
(88,221)
–
2,227
–
155,000
(37,719)
5,005,588
2018
Number of
shares
587,993
2,500,000
(176,480)
(439,664)
(615,471)
(312,731)
–
(209,496)
4,093
(15,000)
–
(91,534)
1,231,710
100 / Santos Annual Report 2019
5.4 RESERVES AND ACCUMULATED LOSSES
The balance of the Group’s reserves and accumulated losses and movements during the period, are disclosed in the statement of
changes in equity.
Foreign currency translation reserve
The Foreign currency translation reserve is used to record foreign exchange differences arising from the translation of the financial
statements of foreign entities from their functional currency to the Group's presentation currency.
Prior to 1 January 2019, the Parent entity (Santos Limited) and certain entities within the Group had a functional currency of Australian
dollars as a result of the economic environment in which they were operating. These entities were translated into the presentation currency
of the Group (US dollars), with exchange differences arising on translation taken to the foreign currency translation reserve in equity.
Effective 1 January 2019, the Parent entity and certain entities within the Group changed functional currency to US dollars, the same
currency as the presentation currency of the Group.
Foreign exchange differences resulting from translation to presentation currency are recognised in the foreign currency translation
reserve and subsequently transferred to the income statement on disposal of the operation.
Hedging reserve
The hedging reserve comprises of the cash flow hedge reserve and the own credit revaluation reserve. The cash flow hedge 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. The own credit risk revaluation reserve comprises the cumulative changes in the fair value
of the financial liabilities designated at fair value through profit or loss attributable to changes in the Group’s own credit risk. Refer to
note 5.5(g) for a reconciliation and movement of cash flow hedge reserve and own credit revaluation reserve.
Accumulated profits reserve
The accumulated profits reserve acts to quarantine profits generated in current and prior periods. The reserve was established during 2015.
Accumulated losses
Accumulated losses represents the cumulative net profits/(losses) that have been generated across the Group.
5.5 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 and sensitivity analysis in the case of foreign exchange, interest rate and commodity price risk, and ageing and credit rating
concentration 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 cover 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) Financial instruments
The Group classifies its financial instruments in the following categories: financial assets at amortised cost, financial assets at fair
value through profit or loss (“FVTPL”), financial assets at fair value through other comprehensive income (“FVOCI”), financial
liabilities at amortised cost, financial liabilities at FVTPL and derivative instruments. The classification depends on the purpose for
which the financial instruments were acquired, which is determined at initial recognition based upon the business model of the
Group.
Financial assets at amortised cost
The Group classifies its financial assets at amortised cost if the asset is held with the objective of collecting contractual cash
flows and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. These
include trade receivables and bank term deposits. Bank term deposits are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are financial assets at amortised cost and are included in current assets,
except for those with maturities greater than 12 months after the reporting date.
Santos Annual Report 2019 / 101
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Financial instruments (continued)
Financial assets at fair value through profit or loss
The Group classifies its financial assets at fair value through profit or loss if they are acquired principally for the purpose of selling
in the short term, i.e. are held for trading. The Group has not elected to designate any financial assets at fair value through profit or
loss.
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income comprise debt securities where the contractual cash flows are
solely principal and interest and the objective of the Group’s business model is achieved both by collecting contractual cash flows
and selling financial assets. Upon disposal, any balance within the OCI reserve for these debt investments is reclassified to retained
earnings.
Financial liabilities
On initial recognition, the Group measures a financial liability at its fair value minus, in the case of a financial liability not at fair value
through profit or loss, transaction costs that are directly attributable to the issue of the financial liability.
After initial recognition, trade payables and interest-bearing loans and borrowings are stated at amortised cost. Fixed-rate notes
that are hedged by an interest rate swap are recognised at fair value. For financial liabilities classified as fair value through profit or
loss, the element of gains or losses attributable to changes in the Group’s own credit risk are recognised in other comprehensive
income.
Policies for the recognition and subsequent measure of derivative liabilities are as outlined below.
Derivative instruments
Derivative financial instruments entered into by the Group for the purpose of managing its exposures to changes in foreign
exchange rates and interest rates arising in the normal course of business qualify for hedge accounting. The principal derivatives
that may be used are forward foreign exchange contracts, cross-currency swaps and interest rate swaps. Commodity derivatives
are also used to manage the Group’s exposure to changes in oil prices. The use of derivative financial instruments is subject to a set
of policies, procedures and limits approved by the Board of Directors. The Group does not trade in derivative financial instruments
for speculative purposes.
The Group holds the following financial instruments:
Financial assets
Financial assets at amortised cost
Cash and cash equivalents
Trade receivables
Amounts held in escrow – acquisitions1
Amounts related to acquisitions
Other
Financial assets at FVTPL
Equity investments
Derivative financial instruments
1
Amounts represent cash held in escrow for pending acquisitions of assets that have yet to complete as at 31 December.
2019
US$million
2018
US$million
1,067
554
150
39
7
–
28
1,845
1,316
521
–
–
1
2
53
1,893
102 / Santos Annual Report 2019
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Financial instruments (continued)
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Borrowings at amortised cost
Lease liabilities
Financial liabilities at FVTPL
Borrowings designated at FVTPL
Derivative financial instruments
Other
2019
US$million
2018
US$million
719
3,741
425
255
–
34
5,174
661
4,452
62
405
6
24
5,610
The Group’s financial instruments resulted in the following income, expenses, gains and losses recognised in the income statement:
Interest on cash investments
Interest on debt held at FVTPL
Interest on debt held at amortised cost
Interest on derivative financial instruments
Interest accretion on lease liabilities
Fair value gains on debt held at FVTPL
Fair value losses on derivative financial instruments
Net foreign exchange (losses)/gains
(b) Liquidity
2019
US$million
2018
US$million
37
(20)
(219)
15
(19)
5
(15)
(11)
(227)
30
(24)
(210)
30
(8)
15
(84)
146
(105)
The Group adopts a prudent liquidity risk management strategy and seeks to maintain sufficient liquid assets and available
committed credit facilities to meet short-term to medium-term liquidity requirements. The Group’s objective is to maintain flexibility
in funding to meet ongoing operational requirements, exploration and development expenditure, and other corporate initiatives.
The following tables analyse the contractual maturities of the Group’s financial assets and liabilities held to manage liquidity risk. The
relevant maturity groupings are based on the remaining period to the contractual maturity date, as at 31 December. The amounts
disclosed in the table are the contractual undiscounted cash flows comprising principal and interest repayments. Estimated variable
interest expense is based upon appropriate yield curves as at 31 December.
Santos Annual Report 2019 / 103
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Liquidity (continued)
Financial assets and liabilities held to manage liquidity risk
2019
Cash and cash equivalents
Derivative financial assets
Interest rate swap contracts
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Bank loans
Long-term notes
2018
Cash and cash equivalents
Derivative financial assets
Interest rate swap contracts
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Bank loans
Long-term notes
(c) Foreign currency risk
Less than
1 year
2 to 5 More than
5 years
years
US$million US$million US$million US$million
1 to 2
years
1,067
13
(719)
(117)
(289)
(79)
(124)
–
15
–
(87)
(305)
(79)
–
17
–
(154)
(1,697)
(422)
–
3
–
(217)
(391)
(1,659)
(456)
(2,256)
(2,264)
1,316
24
(675)
(9)
(933)
(207)
(484)
–
15
–
(9)
(797)
(48)
(839)
–
31
–
(28)
(1,024)
(342)
–
4
–
(106)
(1,414)
(951)
(1,363)
(2,467)
Financial assets and liabilities held to manage liquidity risk
Less than
1 year
2 to 5 More than
5 years
years
US$million US$million US$million US$million
1 to 2
years
Foreign exchange risk arises from commercial transactions and valuations of assets and liabilities that are denominated in a
currency that is not the entity’s functional currency.
The Group is exposed to foreign currency risk principally through the sale of products, borrowings and capital and operating
expenditure incurred in currencies other than the entity’s functional currency. In order to economically hedge foreign currency risk,
the Group may enter into forward foreign exchange, foreign currency swap and foreign currency option contracts.
The Group also has certain investments in domestic and foreign operations whose net assets are exposed to foreign currency
translation risk.
All external borrowings of the Group are denominated in US dollars.
On 1 January 2019, Santos Limited adopted US dollars as its functional currency. US dollar denominated borrowings, previously
held by AU dollar functional currency companies, are now held by US dollar functional currency companies (refer to note 8.4(b)
for further detail). All associated hedges of US dollar denominated investments in foreign operations ($1,407 million principal value)
were terminated on 1 January 2019. 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 2019.
The Group has AU dollar denominated lease liabilities, and other monetary items, including financial assets and liabilities,
denominated in currencies other than the functional currency of an operation. These items are restated to US dollar equivalents
at each period end, 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 that are capitalised in oil and gas assets.
104 / Santos Annual Report 2019
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Foreign currency risk (continued)
Sensitivity to foreign currency movement
Based on the Group’s net financial assets and liabilities at 31 December 2019, the estimated impact of a ±15 cent movement
in the Australian dollar exchange rate (2018: ±15 cent) against the US dollar, with all other variables held constant is $13 million
(2018: $21 million) on post-tax profit and $13 million (2018: $1,550 million) on equity.
(d) 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 have been entered into as fair value hedges of long-term notes. When transacted, these swaps
had maturities ranging from 1 to 20 years, aligned with the maturity of the related notes.
The Group’s interest rate swaps have a notional contract amount of $227 million (2018: $1,577 million) and a net fair value of
$26 million (2018: $34 million). The net fair value amounts were recognised as fair value derivatives.
Sensitivity to interest rate movement
Based on the net debt position as at 31 December 2019, taking into account interest rate swaps, it is estimated that if the US
dollar London Interbank Offered Rate (“LIBOR”) interest rates changed by ±0.50% (2018: ±0.50%) and Australian Bank Bill Swap
reference rate (“BBSW”) changed by ±0.50% (2018: ±0.50%), with all other variables held constant, the impact on post-tax profit
is $3 million (2018: $4 million).
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.
Commodity price risk exposure
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 crude oil price swap and option contracts to manage its commodity price risk. At 31 December 2019,
the Group has 6.2 million barrels of open oil price swap and option contracts (2018: 4.9 million), covering 2020 exposures, which
are designated in cash flow hedge relationships. The 3-way collar option structure utilised to hedge 2018 oil exposures did not
qualify for hedge accounting, resulting in movement in fair value being recorded in the income statement during 2018.
(e) Credit risk
Credit risk represents the potential financial loss if counterparties fail to complete their obligations under financial instrument or
customer contracts. Santos employs credit policies which include monitoring exposure to credit risk on an ongoing basis through
management of concentration risk and ageing analysis.
The majority of Santos’ gas contracts are spread across major energy retailers and industrial users. Contracts exist in every
mainland state, whilst the largest customer accounts for less than 16% of sales revenue.
The Group considers the probability of default upon initial recognition of the asset and whether there has been a significant
depreciation in credit quality on an ongoing basis throughout each reporting period. A significant decrease in credit quality is
defined as a debtor being greater than 30 days past due in making a contractual payment. The Group applies the simplified
approach to providing for expected credit losses prescribed by AASB 9, which permits the use of the lifetime expected loss
provision for all trade receivables and contract assets.
A default on a financial asset is when the counterparty fails to make contractual payments within 60 days of when they fall due.
Financial assets are written-off when there is no reasonable expectation of recovery. The Group categorises a loan or receivable
for write-off when a debtor fails to make contractual repayments greater than 120 days past due. Where loans or receivables
have been written-off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where
recoveries are made, these are recognised in the income statement.
At 31 December 2019, 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.
Santos Annual Report 2019 / 105
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(e) Credit risk (continued)
The maximum exposure to financial institution credit risk is represented by the sum of all cash deposits plus accrued interest, bank
account balances and fair value of derivative assets. The Group’s counterparty credit policy limits this exposure to commercial and
investment banks, according to approved credit limits based on the counterparty’s credit rating. The minimum credit rating is A-
from Standard & Poor’s.
Under the simplified approach, determination of the loss allowance provision and expected loss rate incorporates past experience
and forward-looking information, including the outlook for market demand and forward-looking interest rates. As the expected loss
rate at 31 December 2019 is nil (2018: nil), no loss allowance provision has been recorded at 31 December 2019 (2018: $nil).
(f) Fair values
Fair value is the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
•
•
in the principal market for the asset or liability; or
in the absence of a principal market, in the most advantageous market for the asset or liability that is accessible by
the Group.
The financial assets and liabilities of the Group are all initially recognised in the statement of financial position at their fair values.
Receivables, payables, interest-bearing liabilities and other financial assets and liabilities, which are not subsequently measured at
fair value, are carried at amortised cost. The following summarises the significant methods and assumptions used in estimating the
fair values of financial instruments:
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, using market interest rates for a similar instrument at the reporting date.
The fair value of oil derivative contracts is determined by estimating the difference between the relevant market prices and
the contract strike price, for the notional volumes of the derivative contracts.
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 US dollars at
the foreign exchange spot rate prevailing at the 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 and
credit spreads at the reporting date.
The interest rates including credit spreads used to determine fair value were as follows:
Derivatives
Loans and borrowings
2019
%
1.5 – 2.1
1.5 – 2.1
2018
%
1.5 – 2.8
1.5 – 2.8
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 a 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.
All of the Group’s financial instruments were valued using the Level 2 valuation technique.
106 / Santos Annual Report 2019
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(g) Derivatives and hedging activity
The Group’s accounting policy for fair value and cash flow hedges are as follows:
Types of hedges
Fair value hedges
Cash flow hedges
What is it?
A derivative or financial instrument designated as
hedging the change in fair value of a recognised
asset or liability.
A derivative or financial instrument designated
to hedge the exposure to variability in cash flows
attributable to a particular risk associated with an
asset, liability or forecast transaction.
Recognition date
At the date the instrument is designated as a
hedging instrument.
At the date the instrument is designated as a
hedging instrument.
Measurement
Measured at fair value (refer to note 5.5(f)).
Measured at fair value (refer to note 5.5(f)).
Changes in fair value
The gains or losses on both the derivative or
financial instrument and hedged asset or liability
attributable to the hedged risk are recognised in
the income statement immediately.
The gain or loss relating to the effective portion of
interest rate swaps hedging fixed-rate borrowings
is recognised in the income statement within
finance costs, together with the loss or gain in
the fair value of the hedged fixed-rate borrowings
attributable to interest rate risk.
The gain or loss relating to the ineffective portion
is recognised in the income statement within
other income or other expenses.
If the hedge no longer meets the criteria for
hedge accounting, the adjustment to the carrying
amount of a hedged item, for which the effective
interest method is used, is amortised to the
income statement over the period to maturity
using a recalculated effective interest rate.
Movements in fair value of liabilities designated
at FVTPL due to changes in the Group’s own
credit risk are recorded in the own credit reserve
through OCI and do not get recycled to the
income statement.
Changes in the fair value of derivatives designated
as cash flow hedges are recognised directly in
other comprehensive income and accumulated in
equity in the hedging reserve to the extent that
the hedge is effective.
Ineffectiveness is recognised on a cash flow
hedge where the cumulative change in the
designated component value of the hedging
instrument exceeds on an absolute basis the
change in value of the hedged item attributable
to the hedged risk. In hedges of foreign currency
purchases this may arise if the timing of the
transaction changes from what was originally
estimated.
To the extent that the hedge is ineffective,
changes in fair value are recognised immediately
in the income statement within other income or
other expenses.
Amounts accumulated in equity are transferred
to the income statement or the statement of
financial position, for a non-financial asset, at the
same time as the hedged item is recognised.
When a hedging instrument expires or is sold,
terminated or exercised, or when a hedge no
longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at
that time remains in equity and is recognised
when the underlying forecast transaction occurs.
When a forecast transaction is no longer expected
to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to
the income statement.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness
assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Group enters
into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and
so a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such
that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical
derivative method to assess effectiveness.
Santos Annual Report 2019 / 107
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(g) Derivatives and hedging activity (continued)
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. There was no such hedging activity during 2019.
Other financial assets and liabilities
The table below contains all other financial assets and liabilities as shown in the statement of financial position, including derivative
financial instruments used for hedging:
2019
US$million
2018
US$million
2
–
150
39
4
195
26
–
–
3
29
–
5
5
7
22
29
19
8
–
–
1
28
26
2
3
–
31
6
–
6
–
24
24
Current assets
Commodity derivatives (oil hedges)
Interest rate swap contracts
Amounts held in escrow – acquisitions
Amounts related to acquisitions
Other
Non-current assets
Interest rate swap contracts
Equity investments
Defined benefit surplus
Other
Current liabilities
Commodity derivatives (oil hedges)
Other
Non-current liabilities
Lease incentive
Other
108 / Santos Annual Report 2019
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(g) Derivatives and hedging activity (continued)
The effects of applying hedge accounting on the Group’s financial position and performance are as follows:
Fair value hedge: Derivative financial instruments –
Interest rate swap contracts
Carrying amount
Notional amount
Maturity date
Hedge ratio1
Change in value of outstanding hedging instruments since 1 January
Change in value of hedged item used to determine hedge effectiveness
Weighted average hedged rate
Cash flow hedge: Derivative financial instruments – Oil derivative contracts
Carrying amount
Notional amount (mmbbl)
Maturity date
Hedge ratio1
Change in value of outstanding hedging instruments since 1 January
Change in value of hedged item used to determine hedge effectiveness
Weighted average hedged rate
Reserves – Cash flow hedge reserve
Balance at 1 January
Add: Change in fair value of hedging instrument recognised in OCI for the year
(effective portion)
Less: Deferred tax
Balance at 31 December
Reserves – Own credit revaluation reserve
Balance at 1 January
Add: Fair value changes on financial liabilities designated at fair value
due to own credit risk
Less: Deferred tax
Less: Reclassified to retained earnings
Balance at 31 December
2019
US$million
26
227
2022–2027
1:1
(8)
8
1.75%
2019
US$million
2
6.2
2020
1:1
(17)
17
$54.19
2018
US$million
34
1,577
2019–2027
1:1
(27)
27
1.10%
2018
US$million
19
4.9
2019
1:1
19
(19)
$50.88
2019
US$million
2018
US$million
(8)
8
(2)
(2)
(5)
(4)
1
(8)
2019
US$million
2018
US$million
21
6
(1)
(14)
12
21
–
–
–
21
1
The value of the derivative contract is the same as the value of the underlying instrument that is being hedged. Therefore, the hedge ratio is 1:1.
Santos Annual Report 2019 / 109
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
This section provides information which will help users understand how the Group structure affects the financial position
and performance of the Group as a whole. Specifically, it contains information about consolidated entities, acquisitions and
disposals of subsidiaries, joint arrangements as well as parties to the Deed of Cross Guarantee under which each company
guarantees the debts of others.
6.1 CONSOLIDATED ENTITIES
Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has the rights to, variable
returns from its involvement with an entity and has the ability to affect those returns through its power over the entity. The financial
statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date
that control ceases.
Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in
the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree at the lower of either fair
value or the proportionate share of the acquiree’s identifiable net assets.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and
any resulting gain or loss is recognised in the income statement.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance
with AASB 9 either in the income statement or as a charge to other comprehensive income. If the contingent consideration is classified
as equity, it shall not be remeasured until it is finally settled within equity. In instances where the contingent consideration does not fall
within the scope of AASB 9, it is measured in accordance with the appropriate AASB standard.
A change in ownership interest of a subsidiary that does not result in the loss of control is accounted for as an equity transaction.
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.
110 / Santos Annual Report 2019
6.1 CONSOLIDATED ENTITIES (CONTINUED)
Name
Country of incorporation
Name
Country of incorporation
Santos Limited1 (Parent Company)
Controlled entities:
Alliance Petroleum Australia Pty Ltd1
Basin Oil Pty Ltd1
Bridgefield Pty Ltd
Bridge Oil Developments Pty Ltd1
Bronco Energy Pty Ltd1
Doce Pty Ltd
Fairview Pipeline Pty Ltd1
Gidgealpa Oil Pty Ltd
Moonie Pipeline Company Pty Ltd
Reef Oil Pty Ltd1
Santos Australian Hydrocarbons Pty Ltd
Santos (BOL) Pty Ltd1
Controlled entity of Santos (BOL) Pty Ltd
Bridge Oil Exploration Pty Ltd
Santos Browse Pty Ltd
Santos CSG Pty Ltd1
Santos Darwin LNG Pty Ltd
Santos Direct Pty Ltd
Santos Finance Ltd
Santos GLNG Pty Ltd
Controlled entity of Santos GLNG Pty Ltd
Santos GLNG Corp
Santos Infrastructure WA Holdings Pty Ltd1,2
Controlled entities of Santos Infrastructure WA
Holdings Pty Ltd
Santos Devil Creek Pty Ltd1,2
Santos Resources Pty Ltd
Santos International Holdings Pty Ltd
Controlled entities of Santos International Holdings
Pty Ltd
Barracuda Ltd
Lavana Ltd
Sanro Insurance Pte Ltd
Santos Americas and Europe LLC3
Controlled entities of Santos Americas and
Europe LLC
Santos TPY LLC3
Controlled entities of Santos TPY LLC
Santos Queensland LLC3
Santos TOG LLC3
Controlled entities of Santos TOG LLC
Santos TPY CSG LLC3
Santos TOGA Pty Ltd
Santos Bangladesh Ltd
Santos (BBF) Pty Ltd
Santos Hides Ltd
Santos P’nyang Ltd
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
USA
AUS
AUS
AUS
AUS
PNG
PNG
SGP
USA
USA
USA
USA
USA
AUS
GBR
AUS
PNG
PNG
Santos Sangu Field Ltd
Santos (UK) Limited
Controlled entities of Santos (UK) Limited
Santos Northwest Natuna B.V.
Santos Vietnam Pty Ltd
Santos (JPDA 91–12) Pty Ltd
Santos (NARNL Cooper) Pty Ltd1
Santos NSW Pty Ltd
Controlled entities of Santos NSW Pty Ltd
Santos NSW (Betel) Pty Ltd
Santos NSW (Hillgrove) Pty Ltd
Santos NSW (Holdings) Pty Ltd
Controlled entities of Santos NSW (Holdings)
Pty Ltd
Santos NSW (LNGN) Pty Ltd
Santos NSW (Pipeline) Pty Ltd
Santos NSW (Narrabri Energy) Pty Ltd
GBR
GBR
NLD
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
Controlled entity of Santos NSW (Narrabri Energy)
Pty Ltd
Santos NSW (Eastern) Pty Ltd
Santos NSW (Narrabri Power) Pty Ltd
Santos NSW (Operations) Pty Ltd
Santos (N.T.) Pty Ltd
Controlled entity of Santos (N.T.) Pty Ltd
Bonaparte Gas & Oil Pty Ltd
Santos Offshore Pty Ltd1
Santos Petroleum Pty Ltd1
Santos QLD Upstream Developments Pty Ltd
Santos QNT Pty Ltd1
Controlled entities of Santos QNT Pty Ltd
Outback Energy Hunter Pty Ltd
Santos QNT (No. 1) Pty Ltd1
Controlled entities of Santos QNT (No. 1) Pty Ltd
TMOC Exploration Proprietary Limited
Santos QNT (No. 2) Pty Ltd
Controlled entity of Santos QNT (No. 2) Pty Ltd
Petromin Pty Ltd
Santos TPC Pty Ltd
Santos Wilga Park Pty Ltd
Santos (TGR) Pty Ltd
Santos Timor Sea Pipeline Pty Ltd
Santos Ventures Pty Ltd
Santos WA Holdings Pty Ltd1
Controlled entities of Santos WA Holdings Pty Ltd
Santos KOTN Holdings Pty Ltd2
Controlled entities of Santos KOTN
Holdings Pty Ltd
Santos KOTN Pty Ltd2
Santos WA AEC Pty Ltd1
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
Santos Annual Report 2019 / 111
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
Name
Country of incorporation
Name
Country of incorporation
Santos WA Management Pty Ltd
AUS
Controlled entities of Santos Management
Pty Ltd
Santos WA Finance Holdings
Pty Limited
AUS
Controlled entities of Santos WA
Finance Holdings Pty Limited
Santos WA Finance General
Partnership
AUS
Santos WA PVG Holdings Pty Ltd1
AUS
Controlled entities of Santos WA PVG Holdings
Pty Ltd
Santos WA PVG Pty Ltd1
AUS
AUS
AUS
SESAP Pty Ltd
Vamgas Pty Ltd1
Notes
1 Company is party to a Deed of Cross Guarantee (refer note 6.5).
2 Companies incorporated during the 2019 financial year.
3 Companies changed from Corporations to Limited Liability Companies.
Country of incorporation
AUS
GBR
NLD
PNG
SGP
USA
–
Australia
– United Kingdom
– Netherlands
–
–
Papua New Guinea
Singapore
– United States of America
Santos WA Energy Holdings Pty Ltd1
AUS
Controlled entities of Santos WA Energy Holdings
Pty Ltd
Santos WA Asset Holdings Pty Ltd1
Controlled entities of Santos WA Asset
Holdings Pty Ltd
Santos WA Lowendal Pty Limited
Santos WA International Pty Ltd
Harriet (Onyx) Pty Ltd1
Santos WA Energy Limited1
Controlled entities of Santos WA
Energy Limited
Ningaloo Vision Holdings Pte. Ltd
Northwest Jetty Services Pty Ltd
Santos WA DC Pty Ltd2
Santos WA (Exmouth) Pty Ltd
Santos WA East Spar Pty Limited1
Santos WA Julimar Holdings Pty Ltd
Santos WA Kersail Pty Ltd1
Santos WA LNG Pty Ltd
Santos WA Northwest Pty Ltd1
Santos WA Onshore Holdings Pty Ltd
Santos WA Southwest Pty Limited1
Santos WA Varanus Island Pty Ltd
AUS
AUS
AUS
AUS
AUS
SGP
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
112 / Santos Annual Report 2019
6.2 ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES
(a) Acquisitions
On 27 November 2018 the Group acquired 100% of the shares in Quadrant Energy, an Australian oil and gas producer. Finalisation
of the purchase price accounting was completed within the 12-month measurement period, resulting in changes to the provisional
fair values presented in the 31 December 2018 Financial Report.
Details of the revised purchase consideration, net identifiable assets acquired and goodwill are as follows:
Fair value of net identifiable assets and goodwill acquired on acquisition date
Final
US$million
Provisional
US$million
Cash
Trade and other receivables
Net contract assets
Inventories
Exploration and evaluation assets
Oil and gas assets
Other land, buildings and equipment
Trade and other payables
Deferred revenue
Restoration provision
Employee provisions
Other provisions
Current tax liability
Interest-bearing liabilities
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
Net identifiable assets acquired
Goodwill arising on acquisition
Purchase consideration transferred
174
148
152
52
588
2,300
23
(76)
(209)
(903)
(32)
(86)
(24)
(533)
695
(1,176)
(481)
1,093
481
1,574
174
148
104
52
610
2,241
23
(76)
(136)
(903)
(32)
(74)
(24)
(533)
699
(1,327)
(628)
946
628
1,574
The finalisation of acquisition accounting resulted in a number of fair value adjustments completed during the measurement
period, including a $147 million reduction in the deferred tax liability (and corresponding reduction in the goodwill balance
recorded). This relates to the finalisation of tax bases associated with the acquired net assets. Other adjustments were not
significant and did not impact the total fair value of net identified assets acquired.
The prior year balances have been restated to reflect the final fair value adjustments, to the extent these were identified
during the measurement period. Due to the offsetting nature of adjustments there is no impact on reported net assets, profit
after tax, or comprehensive income as previously disclosed for the comparative period.
Santos Annual Report 2019 / 113
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.2 ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES (CONTINUED)
(a) Acquisitions (continued)
Goodwill
Goodwill arising from the acquisition has been recognised as the excess of consideration paid above the fair value of the assets
acquired and liabilities assumed as part of the business combination. The goodwill is attributable solely to the net deferred tax
liability recognised on acquisition, in accordance with accounting standards. The deferred tax liability that leads to the goodwill
being created primarily arises as a consequence of PRRT being treated as an income tax in accordance with Australian Accounting
Standards. The deferred income tax liability arises because the assets acquired are subject to the PRRT regime, and the historical
expenditure incurred has already been deducted for PRRT purposes. The PRRT deferred tax liability is deductible for income tax
purposes and a corresponding income tax deferred tax asset arises on acquisition.
Refer to note 3.3 for accounting policy with regards to impairment of goodwill.
Business combination accounting
The Company typically uses a discounted cash flow model to estimate the expected future cash flows of the oil and gas assets
acquired, based on 2P reserves at acquisition date. The expected future cash flows are based on estimates of future production
and commodity prices, operating costs, and forecast capital expenditures using the life-of-field models as at the acquisition date.
Contingent and prospective resources are separately valued using methods including expected future cash flow models and
resource multiples established by evaluating recent comparable transactions. These amounts are included in “Exploration and
evaluation assets”.
Contractual assets and liabilities are recognised in respect of gas sales agreements ("GSAs") and other contractual arrangements,
which are required to be recognised at fair value under the accounting standards. Valuations of contracts are calculated taking into
account the difference between the market prices and contract prices, adjusted for the time value of money.
Restoration provisions are recognised on acquisition at fair value, taking into account the risks associated with the specific
restoration obligations. Other provisions are measured by estimating amounts expected to be paid to settle the obligations if 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.
Contingent assets and liabilities arising in a business combination are accounted for in accordance with AASB 3 Business
Combinations. For contingent liabilities an amount is recognised at fair value at acquisition date if there is a present obligation,
arising from a past event that can be reliably measured, even if it is not probable that an outflow of resources will be required
to settle the obligation. Under AASB 3 an indemnification asset in a business combination is measured on the same basis as the
indemnified item, subject to any valuation allowance recorded.
A number of performance guarantees were in place, over subsidiaries acquired, for fulfilment of obligations on contracts. There
is a floating charge in place over certain assets of those subsidiaries, which ranks subordinate to the external debt in place. As at
the date of this report the Group expects to meet all current obligations under the contracts and as a result, no provision has been
recognised in the financial statements for these guarantees.
(b) Disposals
There were no disposals of subsidiaries during 2019.
114 / Santos Annual Report 2019
6.3 JOINT ARRANGEMENTS
The Group’s investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual
rights and obligations each investor has, rather than the legal structure of the joint arrangement. Santos’ exploration and production
activities are often conducted through joint arrangements governed by joint operating agreements, production sharing contracts or
similar contractual relationships.
The differences between joint operations and joint ventures are as follows:
Types of arrangement
Joint operation
Joint venture
Characteristics
Rights and obligations
Accounting method
A joint operation involves the joint control,
and often the joint ownership, of assets
contributed to, or acquired for the purpose
of, the joint operation. The assets are used
to obtain benefits for the parties to the joint
operation and are dedicated to that purpose.
Each party has control over its share of
future economic benefits through its share
of the joint operation, and has rights to the
assets, and obligations for the liabilities,
relating to the arrangement.
The interests of the Group in joint operations
are brought to account by recognising the
Group’s share of jointly controlled assets,
share of expenses and liabilities incurred,
and the income from its share of the
production of the joint operation.
The Group has interests in joint ventures,
whereby the venturers have contractual
arrangements that establish joint control over
the economic activities of the entities.
Parties that have joint control of the
arrangement have rights to the net assets
of the arrangement.
The Group recognises its interest in joint
ventures using the equity method of accounting.
Under the equity method, the investment
in a joint venture is initially recognised in the
Group’s statement of financial position at cost
and adjusted thereafter to recognise the post-
acquisition changes to the Group’s share of net
assets of the joint venture. 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 joint venture.
The Group’s share of the joint venture’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. Dividends receivable from the joint
venture reduce the carrying amount of the
investment in the consolidated financial
statements of the Group.
Santos Annual Report 2019 / 115
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.3 JOINT ARRANGEMENTS (CONTINUED)
(a) Joint operations
The following are the material joint operations in which the Group has an interest:
Joint operation
Area of cash-generating
unit/area of interest
2019
Principal activities % Interest
2018
% Interest
Oil and gas assets – Producing assets
Barrow Island
Bayu-Undan
Combabula
Fairview
GLNG Downstream
Halyard/Spar
Harriet
John Brookes
Macedon/Pyrenees
PNG LNG
Reindeer
Roma
SA Fixed Factor Area
SWQ Unit
Barrow
Bayu-Undan
GLNG
GLNG
GLNG
Varanus Island
Barrow-HJV
Varanus Island
North Carnarvon
PNG LNG
Reindeer
GLNG
Cooper Basin
Cooper Basin
Exploration and evaluation assets
Caldita/Barossa
EP161, EP162 and EP189
WA-435-P, WA-437-P
WA-436-P, WA-438-P
WA-58-R (WA-274-P)
WA-80-R
WA-281-P
Muruk 1
Petrel
PRL-9
Tern, Frigate1
Bonaparte Basin
McArthur Basin
Bedout
Bedout
Bonaparte Basin
Browse
Browse
PNG
Bonaparte Basin
PNG
Bonaparte Basin
Oil production
Gas and liquids production
Gas production
Gas production
LNG facilities
Gas production
Oil and gas production
Gas production
Oil and gas production
Gas and liquids production
Gas production
Gas production
Oil and gas production
Gas production
Contingent gas resource
Contingent gas resource
Contingent oil and gas
Oil and gas exploration
Gas development
Contingent gas resource
Gas and liquids exploration
Gas and liquids exploration
Contingent gas resource
Gas and liquids exploration
Contingent gas resource
28.6
11.5
7.3
22.8
30.0
100.0
100.0
100.0
28.6
13.5
100.0
30.0
66.6
60.1
25.0
75.0
80.0
70.0
30.0
47.8
70.5
20.0
40.3
40.0
100.0
1
Santos acquired an additional 54% interest in Tern and Frigate during 2019, resulting in Santos’ interest increasing to 100%.
28.6
11.5
7.3
22.8
30.0
100.0
100.0
100.0
28.6
13.5
100.0
30.0
66.6
60.1
25.0
75.0
80.0
70.0
30.0
47.8
70.5
20.0
40.3
40.0
46.0
116 / Santos Annual Report 2019
6.3 JOINT ARRANGEMENTS (CONTINUED)
(b) Share of investments in joint ventures
The Group’s only material joint venture is Darwin LNG Pty Ltd, which operates the Darwin LNG liquefaction facility that currently
processes gas from the Bayu-Undan gas fields.
Summarised financial information of the joint venture, based on the amounts presented in its financial statements, and a
reconciliation to the carrying amount of the investment in the consolidated financial statements, are set out below:
Share of investment in Darwin LNG Pty Ltd
2019
US$million
2018
US$million
Reconciliation to carrying amount:
Opening net assets 1 January
Net profit for the period
Reduction in capital
Dividends paid
Closing net assets 31 December
Group’s share (%)
Group’s share of closing net assets
Carrying amount of investments in joint ventures
Summarised statement of comprehensive income:
Net profit for the period
Other comprehensive income
Total comprehensive income
Group’s share of net profit
Dividends received from joint venture
267
70
(113)
(108)
116
11.5%
13
13
70
–
70
8
12
375
38
(120)
(26)
267
11.5%
31
31
38
–
38
4
3
The following are the joint ventures in which the Group has an interest, including those which are immaterial:
Joint venture
Darwin LNG Pty Ltd
GLNG Operations Pty Ltd
GLNG Property Pty Ltd
(c) Income from all joint ventures
A reconciliation of the Group’s total income from all joint ventures:
Share of Darwin LNG Pty Ltd net profits
Total share of net profits
2019
% Interest
2018
% Interest
11.5
30.0
30.0
11.5
30.0
30.0
2019
US$million
2018
US$million
8
8
4
4
At 31 December 2019, the Group reassessed the carrying amount of its investments in joint ventures for indicators of impairment.
As a result, no impairment was recorded (2018: $nil).
Santos Annual Report 2019 / 117
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.4 PARENT ENTITY DISCLOSURES
Selected financial information of the ultimate parent entity in the Group, Santos Limited, is as follows:
Net profit for the period
Total comprehensive income
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Accumulated profits reserve
Other reserves
Accumulated losses
Total equity
Commitments of the parent entity
The parent entity’s commitments are:
Capital expenditure commitments
Minimum exploration commitments
2019
US$million
2018
US$million
594
594
632
8,608
241
652
9,037
1,734
(1,306)
(1,509)
7,956
1,082
1,084
353
10,512
309
2,912
9,036
1,585
(1,306)
(1,715)
7,600
38
12
42
25
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
All interest-bearing loans and borrowings, as disclosed in note 5.1, with the exception of the lease liabilities and secured bank loans, are
arranged through Santos Finance Ltd, which is a wholly-owned subsidiary of Santos Limited. All interest-bearing loans and borrowings of
Santos Finance Ltd are guaranteed by Santos Limited.
Contingent liabilities of the parent entity
Contingent liabilities arise in the ordinary course of business through claims against Santos Limited, including contractual, third-party and
contractor claims. In most instances it is not possible to reasonably predict the outcome of these claims, and as at reporting date Santos
Limited believes that the aggregate of such claims will not materially impact the Company’s Financial Report.
118 / Santos Annual Report 2019
6.5 DEED OF CROSS GUARANTEE
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (“the Instrument”), the Company and each of
the wholly-owned subsidiaries identified in note 6.1 (collectively, “the Closed Group”) are relieved from the Corporations Act 2001
requirements for preparation, audit and lodgement of their financial reports.
As a condition of the Instrument, the Closed Group has entered into a Deed of Cross Guarantee (“the 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.
Set out below is a consolidated income statement, consolidated statement of comprehensive income and summary of movements in
consolidated accumulated losses for the year ended 31 December 2019 of the Closed Group.
2019
US$million
2018
US$million
Consolidated income statement
Product sales
Cost of sales
Gross profit
Other revenue
Other income
Other expenses
Reversal of impairment of non-current assets
Interest income
Finance costs
Profit before tax
Income tax expense
Royalty-related tax expense
Total tax expense
Net profit for the period
Consolidated statement of comprehensive income
Net profit for the period
Other comprehensive income, net of tax:
Net actuarial gain on defined benefit plan
Total comprehensive income
Summary of movements in the Closed Group’s accumulated losses:
Accumulated losses at 1 January
Opening balance adjustment on adoption of new accounting standard
Adjusted accumulated losses at 1 January
Transfer to accumulated profits reserve
Net profit for the period
Net actuarial gain on defined benefit plan
Share-based payment transactions
Adjustments for companies added to the Deed during the year
Accumulated losses at 31 December
2,288
(1,683)
605
101
176
(111)
342
12
(217)
908
(108)
(22)
(130)
778
778
–
778
(2,260)
(6)
(2,266)
(400)
778
–
12
(705)
(2,581)
1,585
(1,149)
436
95
465
(187)
242
43
–
1,094
(123)
(23)
(146)
948
948
2
950
(2,153)
–
(2,153)
(1,063)
948
2
6
–
(2,260)
Santos Annual Report 2019 / 119
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.5 DEED OF CROSS GUARANTEE (CONTINUED)
Set out below is a consolidated statement of financial position as at 31 December 2019 of the Closed Group.
2019
US$million
2018
US$million
119
4,159
245
4,523
6,768
986
4,440
1,422
13,616
18,139
6,072
269
6,341
2,817
1,926
281
5,024
11,365
6,774
9,037
318
(2,581)
6,774
98
2,856
147
3,101
8,221
192
2,064
650
11,127
14,228
2,500
100
2,600
3,713
842
114
4,669
7,269
6,959
9,036
183
(2,260)
6,959
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-current assets
Other financial assets
Exploration and evaluation assets
Oil and gas assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other current liabilities
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
120 / Santos Annual Report 2019
Notes to the Consolidated Financial Statements
Section 7: People
This section includes information relating to the various programs the Group uses to reward and recognise our people.
It includes details of our employee benefits, share-based payment schemes and key management personnel.
7.1 EMPLOYEE BENEFITS
Wages, salaries and sick leave
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled within 12 months of the reporting
date, are recognised in respect of employee service 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
Liabilities for long service leave and annual leave that is not expected to be taken within 12 months of the respective service being
provided, are recognised and measured at the present value of the estimated future cash outflows to be made in respect of employee
service up to the reporting date.
Defined benefit plan
Effective 31 October 2019, the defined benefit entitlements under the defined benefit fund were converted to accumulation benefits
under the existing Santos Superannuation Plan. The defined benefit plan has therefore been closed.
The Group’s net obligation in respect of the defined benefit superannuation plan is calculated by estimating the discounted amount of
future benefits that employees have earned in relation to their service in the current and prior periods and deducting the fair value of
any plan assets. Actuarial gains or losses that arise in calculating the Group’s obligation in respect of the plan are recognised directly in
retained earnings.
Defined benefit members of the Santos Superannuation Plan receive a lump sum benefit on retirement, death, disablement or
withdrawal. During the period, an expense of $nil (2018: $4 million) was recorded in relation to the defined benefit plan, up to the date of
conversion.
The remaining net defined benefit surplus of $4 million, at the date of conversion, will be utilised to fund contributions to the Santos
Superannuation Plan accumulation fund, of which $1 million has been used to 31 December 2019. There will be no further contributions
made to the defined benefit superannuation plan as this has been closed.
Defined contribution plans
The Group makes contributions to several defined contribution superannuation plans. Obligations for contributions are recognised as an
expense in the income statement as incurred. The amount incurred during the year was $10 million (2018: $8 million).
The following amounts are recognised in the Group’s statement of financial position in relation to employee benefits:
Current assets
Defined contribution surplus
Non-current assets
Defined benefit surplus
Current provisions
Employee benefits
Non-current provisions
Employee benefits
Defined benefit obligations
Total non-current provisions
Total employee benefits provisions
2019
US$million
2018
US$million
3
–
56
12
–
12
68
–
3
55
9
1
10
65
Santos Annual Report 2019 / 121
Financial Report
Notes to the Consolidated Financial Statements
Section 7: People
7.2 SHARE-BASED PAYMENT PLANS
The Group provides benefits to employees of the Group through share-based incentives. Employees are paid for their services or
incentivised for their performance in part through shares or rights over shares.
There are two main share-based payment plans: equity-settled share-based payment plans and cash-settled share-based payment
plans. The equity-settled plans consist of the general employee share-based payment plans, Executive Long-Term Incentive share-based
payment plans and Executive Short-Term Incentive share-based payment plans.
The amounts recognised in the income statement of the Group during the financial year in relation to shares issued under the share
plans are summarised as follows:
Employee expenses:
General employee share plans:
Share1000 Plan
ShareMatch Plan (matched SARs)
Executive Long-Term Incentive share-based payment plans –
equity settled
Executive Short-Term Incentive share-based payment plans –
equity settled
2019
US$000
2018
US$000
(724)
(1,857)
(11,068)
(3,194)
(16,843)
(824)
(1,947)
(5,693)
(2,244)
(10,708)
The net impact on accumulated losses from share-based payment plans, net of Treasury shares utilised in the current year, is $12 million.
The net impact on accumulated losses from share-based payment plans in 2018 was $6 million.
122 / Santos Annual Report 2019
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
(a) Equity-settled share-based payment plans
The cost of equity-settled transactions is determined by the fair value at the grant date using an appropriate valuation model.
The cost is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the
performance and/or service conditions are met. Currently, the Company has four equity-settled share-based payment plans in
operation, the details of which are as follows:
i. General employee share plans
Santos operates two general employee share plans, the Share1000 Plan and the ShareMatch Plan. Eligible employees have the
option to participate in either the Share1000 Plan or the ShareMatch Plan. Members of the Executive Committee (“Excom”),
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.
What is it?
Share1000
ShareMatch
The Share1000 Plan provides for grants of fully
paid ordinary shares up to a value determined
by the Board, which in 2019 was A$1,000 per
employee (2018: A$1,000).
The ShareMatch Plan allows for the purchase of
shares through salary sacrificing up to A$5,000
over a maximum 12-month period, and to receive
matched SARs at a 1:1 ratio or as otherwise set by
the Board.
The employee’s
ownership and right
to deal with them
Subject to restrictions until the earlier of the
expiration of the three-year restriction period
and the time when the employee ceases to be
in employment.
Upon vesting, subject to restrictions until
the earlier of the expiration of the three-year
restriction period and the time when he or she
ceases to be an employee.
How is the fair
value recognised?
The fair value of these shares is recognised
as an employee expense with a corresponding
increase in issued capital, and the fair value per
share is determined by the Volume Weighted
Average Price (“VWAP”) of ordinary Santos
shares on the ASX during the week up to and
including the date of issue of the shares.
The fair value of the shares is recognised as an
increase in issued capital and a corresponding
increase in loans receivable. The fair value per
share is determined by the VWAP of ordinary
Santos shares on the ASX during the week up to
and including the date of issue of the shares.
The fair value of services required in return for
matched SARs granted is measured by reference
to the fair value of matched SARs granted. The
estimate of the fair value of the services received
is measured by discounting the share price on the
grant date using the assumed dividend yield and
recognised as an employee expense for the term
of the matched SARs.
The following shares were issued pursuant to the employee share plans during the period:
Year
2019
2018
Share1000 Plan
ShareMatch Plan
Issue date
Issued shares
No.
Fair value
per share
A$
Issued shares
No.
Fair value
per share
A$
24 July 2019
150,192
9 July 2018
176,480
6.94
6.24
572,196
439,664
6.94
6.24
Santos Annual Report 2019 / 123
Financial Report
Notes to the Consolidated Financial Statements
Section 7: People
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
i. General employee share plans (continued)
The number of SARs outstanding, and movements throughout the financial year are:
Year
2019 Total
2018 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of the
year
No.
1,513,743
572,196
(29,967)
(588,100)
1,467,872
1,764,952
439,664
(75,402)
(615,471)
1,513,743
The inputs used in the valuation of the SARs are as follows:
Matched SARs grant
Share price on grant date (A$)
Exercise price (A$)
Right life (weighted average, years)
Expected dividends (% p.a.)
Fair value at grant date (A$)
2019
7.00
nil
2.4
1.9
6.69
The loan arrangements relating to the ShareMatch Plan are as follows:
During the year the Company utilised $3 million of Treasury shares (2018: $2 million) under the ShareMatch Plan,
with $2 million (2018: $2 million) received from employees under loan arrangements. The movements in loans
receivable from employees are:
Employee loans at 1 January
Treasury shares utilised during the year
Cash received during the year
Foreign exchange movement
Employee loans at 31 December
2019
US$000
2018
US$000
1,104
2,798
(2,188)
(43)
1,671
1,327
2,040
(2,152)
(111)
1,104
ii. Executive Long-Term Incentive share-based payment plans
The Company’s Executive Long-Term Incentive Program (“LTI Program”) provides for eligible executives selected by
the Board to receive SARs upon the satisfaction of set market and non-market performance conditions. Each SAR 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.
The fair value of SARs 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
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 SARs do not vest due to non-market-related
conditions.
The 2019 LTI Program offers consisted only of SARs. Performance Awards were granted to eligible executives in 2019
who were granted one four-year grant (1 January 2019 – 31 December 2022).
124 / Santos Annual Report 2019
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
ii. Executive Long-Term Incentive share-based payment plans (continued)
Vesting of the grants is based on the following performance targets:
•
•
•
•
25% of the SARs are subject to Santos’ Total Shareholder Return (“TSR”) relative to the performance of the ASX
100 companies (“ASX 100 comparator group”);
25% are subject to Santos’ TSR relative to the performance of the Standard & Poor’s Global 1200 Energy Index
companies (“S&P GEI comparator group”);
25% are subject to Santos’ Free Cash Flow Breakeven Point (“FCFBP”) relative to internal targets; and
25% are subject to Santos’ Return on Average Capital Employed (“ROACE”) relative to internal targets, measured
at the end of the performance period.
The numbers of SARs outstanding at the end of, and movements throughout, the financial year are:
Year
2019 Total
2018 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of
the year
No.
11,332,550
3,783,073
(68,478)
(3,828,286)
11,218,859
11,498,252
3,300,981
(3,466,683)
–
11,332,550
The SARs granted during 2019 totalling 3,783,073 were issued across the following four tranches, each with
varying valuations:
Senior Executive LTI – granted 15 March 2019
2019
Performance Awards
Q1
Q2
Q3
Q4
Performance index
Fair value at grant date (A$)
Share price on grant date (A$)
Exercise price (A$)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Expected dividends (% p.a.)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
5.26
7.05
nil
46
4
1.9
1.5
631,602
S&P GEI
5.31
7.05
nil
46
4
1.9
1.5
631,588
FCFBP
6.56
7.05
nil
46
4
1.9
1.5
631,568
ROACE
6.56
7.05
nil
46
4
1.9
1.5
631,553
Senior Executive LTI – granted 18 April 2019
2019
Performance Awards
Q1
Q2
Q3
Q4
Performance index
Fair value at grant date (A$)
Share price on grant date (A$)
Exercise price (A$)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Expected dividends (% p.a.)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
5.48
7.22
nil
46
4
1.9
1.5
95,282
S&P GEI
5.57
7.22
nil
46
4
1.9
1.5
95,277
FCFBP
6.77
7.22
nil
46
4
1.9
1.5
95,276
ROACE
6.77
7.22
nil
46
4
1.9
1.5
95,273
Santos Annual Report 2019 / 125
Financial Report
Notes to the Consolidated Financial Statements
Section 7: People
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
ii. Executive Long-Term Incentive share-based payment plans (continued)
CEO and Senior Executive LTI – granted 9 May 2019
2019
Performance Awards
Q1
Q2
Q3
Q4
Performance index
Fair value at grant date (A$)
Share price on grant date (A$)
Exercise price (A$)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Expected dividends (% p.a.)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
5.19
6.96
nil
46
4
1.9
1.3
159,409
S&P GEI
5.19
6.96
nil
46
4
1.9
1.3
159,408
FCFBP
6.49
6.96
nil
46
4
1.9
1.3
159,407
ROACE
6.49
6.96
nil
46
4
1.9
1.3
159,407
Senior Executive LTI – granted 4 October 2019
2019
Performance Awards
Q1
Q2
Q3
Q4
Performance index
Fair value at grant date (A$)
Share price on grant date (A$)
Exercise price (A$)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Expected dividends (% p.a.)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
5.59
7.28
nil
43
4
2.5
0.6
59,509
S&P GEI
5.61
7.28
nil
43
4
2.5
0.6
59,507
FCFBP
6.72
7.28
nil
43
4
2.5
0.6
59,504
ROACE
6.72
7.28
nil
43
4
2.5
0.6
59,503
The above tables include the valuation assumptions used for Performance Awards SARs granted during the current year. The expected
vesting period of the SARs is based on historical data and current expectations and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the SARs is
indicative of future trends, which may not necessarily be the actual outcome.
126 / Santos Annual Report 2019
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
ii. Executive Long-Term Incentive share-based payment plans (continued)
Vesting of Performance Awards
All Performance Awards are subject to hurdles based on the Company’s TSR relative to both the ASX 100 and S&P GEI
comparator group over the performance period, as well as the FCFBP and ROACE at the end of the vesting period. There
is no re-testing of performance conditions. Each tranche of the Performance Awards subject to TSR granted during 2019
vests in accordance with the following vesting schedule:
TSR percentile ranking % of grant vesting
< 51st percentile
= 51st percentile
52nd to 75th percentile
≥ 76th percentile
0%
50%
Further 2.0% for each percentile over 51st
100%
Restriction period
Shares allocated on vesting of SARs granted in 2014 onwards are subject to additional restrictions on dealing for four
years after the original grant date. Shares allocated on vesting of SARs granted in 2013 may be subject to additional
restrictions on dealing for three 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 2010 will be subject to further restrictions on dealing for a maximum of 10 years after the
original grant date. No amount is payable on grant or vesting of the SARs.
iii. Executive Deferred Short-Term Incentives (“STIs”)
Deferred shares
Deferred STIs represent a proportion of the total executive STI of the applicable year that has been deferred into shares.
The deferred shares are subject to a 24-month continuous service period following the year to which the STI related. The
number of deferred STIs outstanding at the end of, and movements throughout, the financial year are:
Year
2019 Total
2018 Total
Beginning of
the year
No.
312,731
261,011
Granted
No.
696,921
312,731
Lapsed
No.
Vested
No.
End of the
year
No.
–
–
(312,731)
(261,011)
696,921
312,731
On 15 March 2019 the Company issued 696,921 deferred shares to eligible executives. The share price on the grant date
was A$7.05 and the fair value was A$6.82 after applying a 1.9% dividend yield assumption to the valuation.
iv. Other equity grants
The SARs in the table below are subject to varying continuous service periods, depending on the specific grant. The other
SARs granted during the year are as follows:
Grant Date
15 Mar 2019
15 Mar 2019
12 Apr 2019
12 Apr 2019
12 Apr 2019
18 Apr 2019
7 Jun 2019
18 Jul 2019
20 Aug 2019
30 Aug 2019
30 Aug 2019
Continuous Service Period
Grant Date
2019
SARs
Granted Commencing
Expiring
Vesting
Date
Share
Price
Fair
Value
Dividend
Yield
49,772
19,340
9,117
9,117
30,000
88,879
49,772
10,734
26,364
635,741
635,808
11 Feb 2019
1 Jan 2019
1 Apr 2019
1 Apr 2019
1 Jan 2019
27 Nov 2018
1 Jun 2019
10 Jul 2019
12 Aug 2019
26 Aug 2019
26 Aug 2019
10 Feb 2021
31 Dec 2021
31 Mar 2020
31 Mar 2021
31 Dec 2021
26 Nov 2021
31 Dec 2021
9 Jul 2022
11 Aug 2022
15 Sep 2022
15 Sep 2023
11 Feb 2021
1 Jan 2022
1 Apr 2020
1 Apr 2021
1 Jan 2022
27 Nov 2021
1 Jan 2022
10 Jul 2022
12 Aug 2022
16 Sep 2022
16 Sep 2023
7.05
7.05
7.03
7.03
7.03
7.22
6.79
6.92
6.89
7.21
7.21
6.77
6.59
6.92
6.72
6.77
6.89
6.16
6.34
6.31
6.59
6.40
1.9%
1.9%
1.9%
1.9%
1.9%
1.9%
1.9%
2.5%
2.5%
2.5%
2.5%
Santos Annual Report 2019 / 127
Financial Report
Notes to the Consolidated Financial Statements
Section 7: People
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
iv. Executive and other equity grants (continued)
Continuous Service Period
Grant Date
2018
Grant Date
1 Apr 20181
1 Apr 20182
14 Nov 2018
14 Nov 2018
SARs
Granted Commencing
Expiring
Vesting
Date
Share
Price
Fair
Value
Dividend
Yield
235,878
515,181
7,650
7,649
1 Apr 2018
1 Apr 2018
5 Nov 2018
5 Nov 2018
31 Mar 2020
31 Mar 2021
4 Nov 2019
4 Nov 2020
1 Apr 2020
1 Apr 2021
5 Nov 2019
5 Nov 2020
5.89
5.89
6.37
6.37
5.76
5.68
6.28
6.20
1.3%
1.3%
1.3%
1.3%
1 During 2018, 7,981 SARs lapsed, leaving 227,897 SARs remaining at 31 December 2019.
2 During 2019, 42,626 SARs lapsed, leaving 472,555 SARs remaining at 31 December 2019.
(b) Options
The Company has not granted options over unissued shares under the Executive Long-Term Incentive share-based payment plans
since 2009. The information as set out below relates to options issued under the Executive Long-Term Incentive share-based
payment plans in 2009 and earlier that have vested in prior years:
Beginning
of the year
No.
Lapsed
No.
Exercised
No.
End of the
year
No.
Exercisable
at end of
the year
No.
2019
Vested in prior years
50,549
(50,549)
Weighted average exercise price (A$)
14.81
14.81
2018
Vested in prior years
807,988
(757,439)
Weighted average exercise price (A$)
15.55
15.60
–
–
–
–
–
–
–
–
50,549
50,549
14.81
14.81
(c) 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.
7.3 KEY MANAGEMENT PERSONNEL DISCLOSURES
(a) Key management personnel compensation
Short-term benefits
Retirement benefits
Other long-term benefits
Termination benefits
Share-based payments
2019
US$000
7,932
236
115
43
4,739
13,065
2018
US$000
7,794
205
73
31
2,757
10,860
(b) Loans to key management personnel
There have been no loans made, guaranteed or secured, directly or indirectly, by the Company or any of its subsidiaries at any time
throughout the year to any key management personnel, including their related parties.
128 / Santos Annual Report 2019
Notes to the Consolidated Financial Statements
Section 8: Other
This section provides information that is not directly related to the specific line items in the financial statements, including
information about contingent liabilities, events after the end of the reporting period, remuneration of auditors and changes to
accounting policies and disclosures.
8.1 CONTINGENT LIABILITIES
Contingent liabilities arise in the ordinary course of business through claims against the Group, including contractual, third-party and
contractor claims. In most instances it is not possible to reasonably predict the outcome of these claims, and as at reporting date the
Group believes that the aggregate of such claims will not materially impact the Group’s Financial Report.
8.2 EVENTS AFTER THE END OF THE REPORTING PERIOD
On 19 February 2020, the Directors of Santos Limited resolved to pay a final dividend of US5.0 cents in respect of the 2019 financial
year. Consequently, the financial effect of these dividends has not been brought to account in the full-year financial statements for the
year ended 31 December 2019. Refer to note 2.6 for details.
8.3 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:
Audit of statutory report of Santos Limited Group
Audit of statutory report of controlled entities
2019
US$000
1,361
274
1,635
2018
US$000
1,558
265
1,823
(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 for other assurance services required by legislation,
to be performed by the auditor
Ernst & Young (Australia) for other assurance services,
not required to be performed by the auditor
Ernst & Young (Australia) for taxation and other services
2019
US$000
2018
US$000
47
226
2,592
2,865
66
394
1,708
2,168
Santos Annual Report 2019 / 129
Financial Report
Notes to the Consolidated Financial Statements
Section 8: Other
8.4 ACCOUNTING POLICIES
(a) Changes in accounting policies and disclosures
The Group applied the following amendments to accounting standards applicable for the first time for the financial year beginning
1 January 2019:
•
•
•
AASB 16 Leases
AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business
IFRIC 23 Uncertainty Over Income Tax Treatments
The adoption of these standards and other new accounting policies are disclosed in more detail below.
In addition, several other standard amendments and interpretations were applicable for the first time in 2019, but were not
relevant to the Company and do not impact the Group’s annual consolidated financial statements or half-year condensed financial
statements.
(b) Functional currency
The Group performed a reassessment of the functional currency of the Parent entity (Santos Limited) and certain entities within
the Group, resulting in it changing functional currency to US dollars, effective 1 January 2019. Prior to 1 January 2019, Santos
Limited and these entities had a functional currency of Australian dollars.
The change in functional currency was driven by a reassessment of the primary and where necessary, secondary indicators of
economic environment that impacts the cash inflows and outflows of the companies. This included factors such as a change in mix
of income stream and in some instances where companies were acting as extensions of the Parent. The US dollar was determined
to be the currency that predominantly impacted each of the companies.
The presentation currency of the Group remains US dollars.
(c) Adoption of AASB 16
Description
AASB 16 introduced a single, on-balance sheet accounting model for lessees, which replaced AASB 117 Leases and AASB
Interpretation 4 Determining Whether an Arrangement contains a Lease. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its right to use the underlying asset, and lease liabilities, representing its obligation to make lease
payments.
The Group has applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application
is recognised in retained earnings at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been
restated – i.e. it is presented as previously reported under AASB 117 and related interpretations. The details of the change in
accounting policy are disclosed below.
Transition
The Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred
substantially all of the risks and rewards of ownership. Under AASB 16, the Group as a lessee recognises right-of-use assets
and lease liabilities for contracts that convey a right to control the use of an identified asset for a period of time in exchange for
consideration.
The Group applied the modified retrospective transition approach, resulting in the cumulative effect of adopting AASB 16 as an
adjustment to opening retained earnings at 1 January 2019, with no restatement to comparative information.
At transition, for leases classified as operating leases under AASB 117:
•
•
•
lease liabilities were measured at present value of the remaining lease payments, discounted using the determined
incremental borrowing rate, as appropriate for each identified lease arrangement, as at 1 January 2019, given the rate
implicit within each identified lease arrangement was not readily determinable;
right-of-use assets were measured at either: (i) their carrying amount as if AASB 16 had been applied since the
commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application; or (ii) an
amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments; and
in addition, the Group elected to apply the option to adjust the carrying amount of the right-of-use assets for any onerous
lease provisions that had been recognised on the Group's statement of financial position as at 31 December 2018.
130 / Santos Annual Report 2019
8.4 ACCOUNTING POLICIES (CONTINUED)
(c) Adoption of AASB 16 (continued)
The impact on transition is summarised below:
Oil and gas assets – right-of-use assets
Other land, buildings, plant and equipment – right-of-use assets
Other financial assets – net investment in sub-lease
Reduction of onerous lease provision
Lease liabilities
Net impact on accumulated losses, before tax
Deferred tax asset
Net impact on accumulated losses, after tax
1 January 2019
US$million
185
79
4
4
(280)
(8)
2
(6)
When measuring lease liabilities for leases that were previously classified as operating leases, the Group discounted lease payments
using its incremental borrowing rate at 1 January 2019. The weighted-average rate applied is 4.68%.
Transition practical expedients:
The Group elected to apply the following transition practical expedients:
i.
ii.
exemption for lease arrangements with a short-remaining-term from the date of initial application;
discount rates applied to a portfolio of leases with similar characteristics;
iii. exemption for leases where the value of the underlying leased asset is deemed to be low-value; and
iv. use of hindsight with regards to determination of the lease term.
With the application of the above transition practical expedients, the Group recognises the lease payments associated with short-
remaining-term and low-value leases as an expense on a straight-line basis over the lease term. The disclosed operating lease
commitments in note 3.5 of the Group’s annual financial statements for the year ended 31 December 2018, included amounts
related to such leases.
Leases that were classified as finance leases under AASB 117 will continue to be recognised in the statement of financial position
under AASB 16. The carrying amount of the right-of-use asset and the lease liability at 1 January 2019 were determined to be the
carrying amount of the lease asset and lease liability under AASB 117 immediately before that date.
The table below reconciles the Group’s operating lease commitments at 31 December 2018 to the transition lease liabilities
recognised at 1 January 2019:
Operating lease commitment at 31 December 2018
Adjusted for:
Short-remaining-term leases exemption
Low-value leases exemption
Leases with a commencement date post 1 January 2019
Arrangements reassessed as service-type arrangements
Gross lease liabilities at 1 January 2019
Effect of discounting
Redetermination of lease term
Lease arrangements previously disclosed within capital commitments
Lease liability recognised on adoption of AASB 16 at 1 January 2019
Present value of existing finance leases at 31 December 2018
Total lease liabilities recognised at 1 January 2019
1 January 2019
US$million
242
(4)
(3)
(11)
(26)
198
(51)
42
91
280
62
342
Santos Annual Report 2019 / 131
Financial Report
Notes to the Consolidated Financial Statements
Section 8: Other
8.4 ACCOUNTING POLICIES (CONTINUED)
(c) Adoption of AASB 16 (continued)
Current period
The Group leases a number of different types of assets, including properties and plant and production equipment, such as oil rigs.
The Group presents the following in relation to AASB 16:
•
Depending on the type of leased asset, right-of-use assets are presented in either ‘Other land, buildings, plant and equipment’ or
‘Oil and gas assets’; and
•
Lease liabilities in ‘Lease liabilities’ in the statement of financial position.
The table below provides a summary of the impact of AASB 16 on the Group’s consolidated income statement, consolidated
statement of financial position and consolidated statement of cash flows for the year ended 31 December 2019:
Consolidated income statement
Expenses
Depreciation
Depreciation, related to JOA recoveries
Production expenses
Shipping costs
Other expenses
Finance cost
Income
Other income, related to JOA recoveries
Foreign exchange gain
Net expense recognised in the income statement
31 December 2019
US$million
Ref
a.
b.
b.
b.
a.
16
42
(9)
(9)
(2)
11
42
2
5
Formerly under AASB 117, operating lease costs were either expensed as operating expenses (predominantly production costs)
or capitalised as part of non-current assets.
Consolidated statement of financial position
Assets
Oil and gas assets – right-of-use assets
Other land, buildings, plant and equipment – right-of-use assets
Other financial assets – net investment in sublease
Deferred tax asset
Reduction in value capitalised to oil and gas assets
Liabilities
Lease liabilities
Onerous lease provisions
Net impact on net assets
Equity
Income statement impact related to leases for the period
Net impact on retained earnings on transition to AASB 16
Total impact on equity
132 / Santos Annual Report 2019
31 December 2019
US$million
244
105
3
2
(4)
363
(2)
(11)
(5)
(6)
(11)
8.4 ACCOUNTING POLICIES (CONTINUED)
(c) Adoption of AASB 16 (continued)
Consolidated statement of cash flows
Operating cash flows
Pipeline tariffs and other receipts (Inflow)
Payments to suppliers and employees (Inflow)
Payment of lease liability financing costs (Outflow)
Investing cash flows
Oil and gas assets (Inflow)
Financing cash flows
Repayment of lease liabilities (Outflow)
Net impact on cash flows
Notes:
31 December 2019
US$million
Note
a.
c.
c.
42
29
(10)
26
(87)
–
a. Where the Group has recognised the gross right-of-use asset and is the only party with a legal obligation to pay the lessor, depreciation is recognised on the entire right-of-use asset
and a finance cost is recognised on the lease liability. Any recovery of the lease payments from other parties is recognised as other income – related to JOA recoveries in the income
statement. This results in an insignificant impact to the income statement and an operating cash inflow for any recovery of these lease payments.
b. The decrease in operating expenses represents the operating lease costs that were previously expensed under AASB 117, now capitalised as part of the right-of-use asset under
AASB 16, which will be depreciated.
c. The impact on operating cash flows and investing cash flows is the removal of the payments for operating lease costs incurred (previously under AASB 117), which were either
expensed through operating costs or capitalised to non-current assets. These cash flows are now presented as financing cash outflows related to lease liability payments.
(d) AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business
Description
The effect of these changes is that the new definition of a business is narrower. The new definition clarifies that to be considered
a business, the acquired set of activities and assets should at minimum include an input and substantive process, that together
significantly contribute to the ability to create outputs.
This could result in fewer business combinations being recognised, more specifically where acquisitions and disposals relate to
exploration and evaluation assets. Whilst the amendments provide additional guidance, it introduces a number of considerations and
decision points which need to be assessed to apply the new definition. The standard also provides an optional ‘asset concentration
test’, which when applied offers a simplified assessment of whether the acquisition is a business or not.
Impact
The recognition criteria and other considerations will be applied to any acquisition and disposal transactions from 1 January 2019
onwards.
Santos Annual Report 2019 / 133
Financial Report
Notes to the Consolidated Financial Statements
Section 8: Other
8.4 ACCOUNTING POLICIES (CONTINUED)
(e) IFRIC 23 – Uncertainty Over Income Tax Treatments
Description
The Group have applied IFRIC 23 from 1 January 2019 and it serves to clarify how to apply the recognition and measurement
requirements of AASB 112 Income Taxes, when there are uncertain tax positions ("UTP").
When there is a UTP, the interpretation addresses the following:
•
Recognition and measurement using either a:
(i)
‘most likely amount’ methodology – when the outcome is binary or concentrated to a specific matter; or
(ii)
‘expected value’ or probability-weighted methodology – when there is a range of possible outcomes;
•
Additional disclosure considerations, more specifically, around the judgements and estimates/assumptions used in
determining tax related balances; and
• Whether UTPs are to be assessed separately or bundled together.
Impact
The recognition, measurement and disclosure requirements of the standard have been applied to any UTPs which were under
consideration for the year ended 31 December 2019.
Where UTPs have required significant estimates and judgements to be made around determination of related tax balances, these
will be disclosed.
(f) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual reporting periods beginning on
or after 1 January 2020, 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.
i) AASB 2019-1 Amendments to References to Conceptual Framework in AASB Standards
Description
The main changes to the Framework’s principles have implications for how and when assets
and liabilities are recognised and derecognised in the financial statements.
Some of the concepts in the revised Framework are entirely new – such as the ‘practical ability’
approach to liabilities. There is some uncertainty with regards to challenges preparers
of financial statements may face as a result.
Impact on Group Financial Report There is not expected to be an immediate impact on the Group’s results as a result of the
Application of standard
amendments to the Conceptual Framework.
1 January 2020
ii) AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform
Description
The amendments provide mandatory temporary reliefs which enable hedge accounting to
continue during the period of uncertainty before the replacement of an existing interest rate
benchmark with an alternative nearly risk-free interest rate.
Impact on Group Financial Report It is not expected that there will be a material impact to the Group as a result of this
Application of standard
1 January 2020
amendment to the standard.
iii) AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
Description
The amendments clarify the accounting treatment for sales or the contribution of assets
between an investor and its associates or joint ventures. The accounting treatment depends
on whether the non-monetary assets sold or contributed to an associate or joint venture
constitutes a ‘business’ (as defined in AASB 3 Business Combinations) and if so, how the gain
or loss will be recognised by the investor.
Impact on Group Financial Report It is yet to be determined what the impact on the Group would be as a result of this
Application of standard
amendment to the standard.
1 January 2022
Several other amendments to standards and interpretations will apply on or after 1 January 2020, and have not yet been applied,
however they are not expected to impact the Group’s annual consolidated financial statements.
134 / Santos Annual Report 2019
Directors’ Declaration
for the year ended 31 December 2019
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 2019 and of its performance
for the year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations 2001 (Cth); and
(b) the financial statements and notes comply with International Financial Reporting Standards as disclosed in note 1.1 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.
3.
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 2019.
As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in
note 6.5 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 ASIC Corporations (Wholly owned
Companies) Instrument 2016/785.
Dated this 19th day of February 2020
On behalf of the Board:
Director
Santos Annual Report 2019 / 135
Financial Report
Independent Auditor’s Report
to the Members of Santos Limited
Ernst & Young
121 King William Street
Adelaide SA 5000 Australia
GPO Box 1271 Adelaide SA 5001
Tel: +61 8 8417 1600
Fax: +61 8 8417 1775
ey.com/au
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
Opinion
We have audited the Financial Report of Santos Limited (the Company) and its subsidiaries (collectively the Group), which comprises
the consolidated statement of financial position as at 31 December 2019, the consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended,
notes to the financial statements, including a summary of significant accounting policies, and the directors declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 31 December 2019 and of its consolidated
financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the
Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are
relevant to our audit of the Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the
Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report
of the current year. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our
opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the Financial Report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
136 / Santos Annual Report 2019
Estimation of oil and gas reserves and resources
Why significant
How our audit addressed the key audit matter
Estimation of oil and gas reserves and resources was conducted
for the Group, by experts, being specialist engineers, requiring
significant judgment and the use of a number of assumptions,
particularly those disclosed in Note 3.2 of the Financial Report.
These estimates can have a material impact on the financial
statements and the results of the Group, primarily in the
following areas:
•
•
•
•
capitalisation and classification of expenditure as exploration
and evaluation assets (refer Note 3.1), or oil and gas assets
(Note 3.2);
valuation of oil and gas assets and impairment testing
(Note 3.3);
calculation of depreciation, depletion and amortisation of
assets (Note 3.2); and
calculation of decommissioning and restoration provisions
(Note 3.4).
Our audit procedures focused on the work of the Group’s experts
and included the following:
•
•
•
•
•
•
•
assessed the qualifications, competence and objectivity of
both the Group’s internal and external experts involved in the
estimation process.
evaluated the adequacy of the experts’ work to determine if
the work undertaken was appropriate.
considered the Group’s reserves estimation process and
controls, including its internal certification process for technical
and commercial experts who are responsible for reserves, and
the design of Santos Reserves Guidelines and Reserves
Management Process and its alignment with the guidelines
prepared by the Society of Petroleum Engineers (SPE).
assessed the Group’s controls over the estimation process,
to assess and approve the reserves and resources volumes
in accordance with the guidelines prepared by the SPE.
assessed whether key economic assumptions used in the
estimation of reserves and resources volumes were consistent
with those utilised by the Group in the impairment testing of
exploration and evaluation and oil and gas assets, where
applicable.
analysed the reasons for reserve revisions or the absence of
reserves revisions where expected, and assessed changes in
reserves or lack of changes in reserves for consistency with
other information that we obtained throughout the audit.
agreed the reserves and resources volumes to the applicable
financial information, including the calculation of depreciation,
depletion and amortisation and valuation of assets and
impairment testing, as applicable.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Santos Annual Report 2019 / 137
Financial Report
Independent Auditor’s Report
to the Members of Santos Limited
(continued)
Recovery of carrying value of exploration and evaluation and oil and gas assets
Why significant
How our audit addressed the key audit matter
Australian Accounting Standards, require the Group to assess
throughout the reporting period whether there is any indication
that an asset may be impaired, or that reversal of a previously
recognised impairment may be required. If any such indication
exists, an entity shall estimate the recoverable amount of the
asset.
We evaluated the assessment of indicators of impairment, and
impairment testing performed by the Group. Our procedures on
the Group’s assessment of indicators of impairment focused on
whether there had been any significant changes in the external and
internal factors which would indicate an impairment or reversal of
impairment existed.
The Group identified impairment indicators in respect of certain
oil and gas cash generating units (CGUs). Impairment testing
was undertaken which resulted in an impairment charge
of $37m being recorded during the year, as set out in
Note 3.3 of the Financial Report.
The Group identified impairment indicators in respect of certain
exploration and evaluation assets. Impairment testing was
undertaken which resulted in an impairment charge of $24m
being recorded during the year, as set out in Note 3.3
of the Financial Report.
The assessment for indicators of impairment and reversal of
impairment is judgmental, and includes assessing a range of
external and internal factors which could impact the recoverable
amount of the CGUs. In determining whether there was an
indicator of impairment or impairment reversal, the Group
considered where there was any significant changes in external
and internal factors.
Where impairment indicators are identified, the impairment testing
process can be complex and highly judgmental. Assumptions
and estimates are affected by expected future performance and
market conditions. Key assumptions, judgments and estimates
used in the formulation of the Group’s impairment assessment are
set out in the Financial Report in Note 3.3
When an indicator of impairment was present and impairment
testing was performed, we assessed the discounted cash flow
models and other data supporting the Group’s assessment. We
involved our valuation specialists to assist in these procedures.
Our audit procedures included evaluating the assumptions,
methodologies and conclusions used by the Group, in particular,
those relating to the determination of CGUs, forecast cash flows,
and inputs used to formulate them. We evaluated external and
internal factors, assessed for significant changes, and gathered and
reconciled to supporting documentation as appropriate. Depending
on the CGU, these procedures included:
•
•
•
•
•
•
reconciled future production profiles compared to latest
reserves and resources estimates (as outlined in the key audit
matter above), current sanctioned development budgets,
long-term asset plans, and historical operations.
evaluated movements in commodity price assumptions with
reference to contractual arrangements, market prices (where
available), broker consensus, analyst views and historical
performance.
evaluated movements in discount rates and foreign exchange
rates with reference to risk free rates, market indices, market
risk, broker consensus, and historical performance.
understood operational performance of the CGUs relative to
plan, comparing future operating and development expenditure
to current sanctioned budgets, historical expenditure and
long-term asset plans, and ensured variations were in
accordance with our expectations based upon other information
obtained throughout the audit.
examined the reasons for changes to recoverable amounts
relative to previous assessments.
tested the mathematical accuracy of the Group’s discounted
cash flow models.
For exploration and evaluation assets, we assessed whether any
impairment indicators, as set out in AASB 6: Exploration for and
Evaluation of Mineral Resources, were present, and assessed the
conclusions reached by management.
We also focused on the adequacy of the Financial Report
disclosures regarding the assumptions, key estimates and
judgements applied by management for the Group’s assessment
of indicators of impairment and reversal of impairment for oil and
gas and exploration and evaluation assets, and the recoverable
amount of the Group’s assets.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
138 / Santos Annual Report 2019
Accounting for deferred tax, Petroleum Resource Rent Tax and uncertain tax positions
Why significant
How our audit addressed the key audit matter
The Financial Report of the Group includes deferred tax assets
arising from income taxes, including in respect of income
tax losses, and Petroleum Resource Rent Tax (PRRT). The
determination of the quantum, likelihood and timing of the
realisation of deferred tax assets arising from income taxes
and PRRT is judgmental, due to the interpretation of PRRT
and income tax legislation, as well as the estimation of future
taxable income.
There may be changes in, or uncertainties with respect of the
application of tax legislation, which requires the Group to make
assumptions, judgments and estimates in assessing the impacts
of tax legislation on the Group. The actual tax outcomes may
differ from the estimates made by management.
On 27 November 2018 the Group completed the acquisition
of Quadrant Energy Holdings Pty Ltd (Quadrant). As outlined
in Note 6.2 the acquisition accounting was finalised during
the period. The final net deferred tax liability recognised upon
the acquisition was $481 million compared to a provisional net
deferred tax liability of $628 million at 31 December 2018.
The Group recognised a deferred tax asset of $870 million
at 31 December 2019, which is disclosed in Note 2.4 of the
Financial Report.
We assessed the Group’s determination of tax payable now and
in the future. We involved our taxation specialists to assist in this
assessment.
We considered the Group’s methodologies, assumptions and
estimates in relation to the calculation of current taxes and the
generation of future taxable profits to support the recognition of
deferred tax assets. We considered forecasts of taxable profits
and the consistency of these forecasts with the Group’s budgets
approved by the Board.
We have assessed new information obtained, about facts and
circumstances that existed at acquisition date of Quadrant, which
could lead to a material change in the fair value of the deferred tax
liability. We have involved our tax specialists to assist in evaluating
the impact of any changes made since the provisional values were
calculated including on deferred tax outcomes, and the provision of
tax contingencies included in the acquisition balances.
We evaluated the assessment of uncertain tax positions, estimates
and assumptions made through enquiries with the Group’s taxation
department, reviewed correspondence with tax authorities and
advisers, and involved our tax specialists, where appropriate, to
assess the associated provisions and disclosures.
We assessed the Group’s disclosures in respect of PRRT and
Income Taxes, included in the summary of significant accounting
policies in Note 2.4 of the Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Santos Annual Report 2019 / 139
Financial Report
Independent Auditor’s Report
to the Members of Santos Limited
(continued)
Information Other than the Financial Report and Auditor’s Report Thereon
The Directors are responsible for the other information. The other information comprises the information included in the Company’s
2019 Annual Report, but does not include the Financial Report and our auditor’s report thereon.
Our opinion on the Financial Report does not cover the other information and accordingly we do not express any form of assurance
conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the Financial Report or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors 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 control as the Directors determine is
necessary to enable the preparation of the Financial Report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error.
In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the Financial Report, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the Financial Report or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the Financial Report, including the disclosures, and whether the Financial
Report represents the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group
to express an opinion on the Financial Report. We are responsible for the direction, supervision and performance of the Group audit.
We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and
to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
140 / Santos Annual Report 2019
From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the
Financial Report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
REPORT ON THE AUDIT OF THE REMUNERATION REPORT
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 32 to 57 of the Directors' Report for the year ended 31 December 2019.
In our opinion, the Remuneration Report of Santos Limited for the year ended 31 December 2019, complies with section 300A of the
Corporations Act 2001.
Responsibilities
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.
Ernst & Young
R J Curtin
Partner
Adelaide
19 February 2020
L A Carr
Partner
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Santos Annual Report 2019 / 141
Financial Report
Auditor’s Independence Declaration
to the Directors of Santos Limited
Ernst & Young
121 King William Street
Adelaide SA 5000 Australia
GPO Box 1271 Adelaide SA 5001
Tel: +61 8 8417 1600
Fax: +61 8 8417 1775
ey.com/au
As lead auditor for the audit of the Financial Report of Santos Ltd for the financial year ended 31 December 2019, I declare to the best
of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Santos Ltd and the entities it controlled during the financial year.
Ernst & Young
R J Curtin
Partner
Adelaide
19 February 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
142 / Santos Annual Report 2019
Securities Exchange
and Shareholder Information
Listed on the Australian Securities Exchange at 31 January 2020 were 2,083,066,041 fully paid ordinary shares. Unlisted were 5,000
partly paid Plan 0 shares, 5,000 partly paid Plan 2 shares, 19,273 restricted fully paid ordinary shares issued to eligible Senior Executives
pursuant to Santos Employee Equity Incentive Plan (“SEEIP”) (formerly known as the Santos Employee Share Purchase Plan
(“SESPP”)) and 11,312 fully paid ordinary shares issued with further restrictions pursuant to the ShareMatch Plan.
There were 105,653 holders of all classes of issued ordinary shares, including: 1 holder of Plan 0 shares: 1 holder of Plan 2 shares:
6 holders of restricted shares pursuant to the SESPP: 14 holders of ShareMatch shares with further restrictions. This compared with
115,810 holders of all classes of issued ordinary shares a year earlier.
As at the date of this report there were also: 252 holders of 17,348,813 Share Acquisition Rights pursuant to the SEEIP and 975 holders
of 1,482,704 Share Acquisition Rights pursuant to the ShareMatch Plan.
The listed issued ordinary shares plus the ordinary shares issued pursuant to the SEEIP, and the restricted shares issued pursuant to
the SESPP and ShareMatch Plan represent all of the voting power in Santos. The holdings of the 20 largest holders of ordinary shares
represent 77.45% of the total voting power in Santos (74.37% on 31 January 2019). The largest shareholders of fully paid ordinary shares
in Santos as shown in the Company’s Register of Members at 31 January 2020 were:
Name
HSBC Custody Nominees
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
Argo Investments Limited
HSBC Custody Nominees (Australia) Limited
AMP Life Limited
Sesap Pty Ltd
HSBC Custody Nominees
Netwealth Investments Limited
National Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Warbont Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
UBS Nomnees Pty Ltd
HSBC Custody Nominees (Australia) Limited – A/c 2
HSBC Custody Nominees (Australia) Limited
Total:
Balance as at 31-01-2020
587,902,014
467,690,085
310,304,408
105,213,925
46,755,923
23,984,732
18,815,058
10,942,014
8,251,657
5,845,339
4,983,792
4,300,271
2,849,592
2,742,500
2,498,380
2,306,674
2,197,600
2,136,650
1,862,978
1,815,205
%
28.22%
22.45%
14.90%
5.05%
2.24%
1.15%
0.90%
0.53%
0.40%
0.28%
0.24%
0.21%
0.14%
0.13%
0.12%
0.11%
0.11%
0.10%
0.09%
0.09%
1,613,398,797
77.45%
Santos Annual Report 2019 / 143
Securities Exchange
and Shareholder Information
(continued)
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
38,396
45,146
12,817
9,045
249
105,653
3,322
36.34%
42.73%
12.13%
8.56%
0.24%
100.00
0.850
5.450
4.430
9.140
80.130
100.000
Substantial Shareholders as disclosed by notices received by the Company as at 31 January 2020:
Name
Hony Partners Group, L.P. and others
ENN Ecological Holdings Co Ltd and others
Santos Limited
Number of voting
shares held
Date of Notice
309,734,518*
5 May 2017
314,734,518*
21 September 2018
318,192,274*
27 June 2017
* As at 27 June 2017, Hony held approximately 4.8% of Santos’ issued capital and ENN held approximately 10.31%. Hony and ENN have a relevant interest in each other’s shares by reason
of Acting in Concert agreement dated 27 April 2017. Santos has a relevant interest in the shareholdings of Hony and ENN by reason of the Strategic Relationship agreement announced
by Santos on 27 June 2017.
For Directors’ shareholdings see the Directors’ Report as set out on page 18 of this Annual Report.
VOTING RIGHTS
Every member present in person or by an attorney, a proxy or a representative shall on a show of hands, have one vote and upon a poll,
one vote for every fully paid ordinary share held. Pursuant to the Rules of the Santos Executive Share Plan, Plan 2 and Plan 0 shares do
not carry any voting rights except on a proposal to vary the rights attached to Plan shares.
144 / Santos Annual Report 2019
Glossary
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.
the Company
Santos Ltd and all 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 (2C)
Those quantities of hydrocarbons that are
estimated, on a given date, to be potentially
recoverable from known accumulations,
but that 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.
EBITDAX
Earnings before interest, tax, impairment,
depreciation (or depletion), amortisation
and exploration and evaluation expense.
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 frequency rate (LTIFR)
A statistical measure of health and safety
performance, calculated by the number
of hours worked. A lost-time injury is a
work-related injury or illness that results in a
person’s disability, or time lost from work of
one day shift or more.
LPG
Liquefied petroleum gas. A mixture of light
hydrocarbons derived from oilbearing strata
that is gaseous at normal temperatures but
that 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.
mmbbl
million barrels
mmboe
million barrels of oil equivalent.
proved 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 proved plus probable 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.
t
tonnes
Conversion factors
Sales gas
and ethane
Crude oil
1 PJ = 171.937 boe x 10³
1 barrel = 1 boe
Condensate
1 barrel = 0.935 boe
LPG
LNG
LNG
1 tonne = 8.458 boe
1 PJ = 18,040 tonnes
1 tonne = 52.54 mmBtu
For a comprehensive online conversion
calculator tool, please visit our homepage at
www.santos.com
exploration
Drilling, seismic or technical studies
undertaken to identify and evaluate regions
or prospects with the potential to contain
hydrocarbons.
mmBtu
million British thermal units
mtpa
million tonnes per annum
oil
A mixture of liquid hydrocarbons of
different molecular weights.
proved reserves (1P)
Reserves that, to a high degree of certainty
(90% confidence), are recoverable. There
is relatively little risk associated with these
reserves. Proved developed reserves
are reserves that can be recovered from
existing wells with existing infrastructure
and operating methods. Proved
undeveloped reserves require development.
FEED
Front end engineering design.
FID
Final investment decision.
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
Santos Annual Report 2019 / 145
Corporate Directory
Santos Limited ABN 80 007 550 923
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).
COMPANY SECRETARY
Jodie Hatherly
General Counsel and Vice President Legal, Risk and Governance
BA, LLB
Jodie joined Santos in 2019 and is the General Counsel and Company
Secretary of the Santos Group and is responsible for Legal, Company
Secretariat, Risk, Governance and, Corporate Environment, Health
and Safety across the business.
Amanda Devonish
Senior Corporate Lawyer and Assistant Company Secretary
BCom, LLB (with Hons)
Amanda joined Santos in 2012 and was appointed to the role of
Company Secretary in 2017. She has over 15 years’ experience in
commercial and corporate legal practice.
REGISTERED AND HEAD OFFICE
Ground Floor, Santos Centre
60 Flinders Street
Adelaide SA 5000
Australia
GPO Box 2455
Adelaide SA 5001
Australia
Telephone: +61 8 8116 5000
Facsimile: +61 8 8116 5050
Website: www.santos.com
SHARE REGISTER
Boardroom Pty Limited
Grosvenor Place
Level 12, 225 George Street
Sydney NSW 2000
Australia
GPO Box 3993
Sydney NSW 2001
Australia
Website: www.boardroomlimited.com.au
Shareholder Access: www.investorserve.com.au
Telephone: 1300 096 259 (within Australia)
+61 2 8016 2832 (International)
146 / Santos Annual Report 2019
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