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Annual Report 2021
Santos Limited ABN 80 007 550 923
This Annual Report 2021 is a summary of Santos’ operations,
activities and financial position as at 31 December 2021.
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/about-us/corporate-governance
CONTENTS
1
2
4
About Santos
Financial Overview
Message from the Chair and
Managing Director and Chief Executive Officer
6 Board of Directors
10 Santos Leadership Team
13 Reserves Statement
18 Directors’ Report
34 Remuneration Report
65 Financial Report
141 Directors’ Declaration
142 Independent Auditor’s Report
147 Auditor’s Independence Declaration
148 Securities Exchange and Shareholder Information
150 Glossary
151 Corporate Directory
Cover images (clockwise from left):
Darwin LNG Facility, Australia.
Moomba Processing Facility, Australia.
Hela Province, Papua New Guinea.
About us
Santos is a global low-cost producer of oil and gas committed to
ever-cleaner energy and fuels production with operations across
Australia, Papua New Guinea, Timor-Leste and North America.
Santos has been supplying reliable and affordable energy
to Australia and the Asia-Pacific for over 65 years.
At Santos, our commitment is to be a global leader in the
transition to cleaner energy and clean fuels, by helping the
world decarbonise to reach net-zero emissions in an affordable
and sustainable way.
Santos is already Australia’s biggest domestic gas supplier, a leading Asia-Pacific LNG
supplier and is committed to supplying the critical fuels such as oil and gas in a more
sustainable way through decarbonising projects such as the Moomba CCS project.
Underpinned by a diverse portfolio of high-quality, long-life, low-cost oil and gas assets,
Santos seeks to deliver long-term value to shareholders.
For more than 65 years, Santos has been working in partnership with local communities,
providing local jobs and business opportunities, safely and sustainably developing its natural
gas resources, and powering industries and households.
As customer demand evolves, Santos plans to grow its cleaner energy and clean fuels
through carbon capture and storage, nature-based offsets, energy efficiency and use
of renewables in its operations.
With a strong, low-cost base business supplying oil and gas and plans to develop cleaner
energy and clean fuels, Santos remains resilient, value accretive and at the leading edge
of the energy transition.
Santos Annual Report 2021 / 1
Financial Overview
Sales volume
mmboe
Sales revenue
US$million
Production
mmboe
83.4
78.3
94.5
107.1
104.2
3,100 3,660 4,033 3,387 4,713
59.5
58.9
75.5
89.0
92.1
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
Free cash flow
US$million
Underlying net profit
after tax
US$million
Net (loss)/profit after tax
US$million
618
1,006 1,138 740
1,504
318
727
719
287
946
(360)
630
674
(357)
658
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
Unit production costs
US$ per boe
Capital expenditure
US$million
Net debt
US$million
8.07
8.05
7.24 8.04
7.76
682
759
1,016
858
1,387
2,731 3,550 3,325 3,664 5,157
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
2 / Santos Annual Report 2021
2021 Sales volumes
mmboe
2021 Production
mmboe
Own product
Third-party product
83.3
20.9
Sales gas and ethane
40.1
LNG
Oil
Condensate
LPG
39.7
5.9
4.7
1.7
2021 Sales revenue
US$million
Average realised oil price
US$ per barrel
Sales gas and ethane
2,213
LNG
Oil
Condensate
LPG
1,251
688
428
133
57.8
75.1
72.0
47.7
76.1
2017
2018
2019
2020 2021
2021 Results
Sales volume
Production
Average realised oil price
Net (loss)/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
US cents per share
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
9.7
2,190
2019
94.5
75.5
72.0
674
719
4,033
2,046
1,138
2,457
16,509
32.4
11.0
2,178
2020
107.1
89.0
47.7
(357)
287
3,387
1,476
740
1,898
17,656
(17.1)
7.1
2,722
2021
104.2
92.1
76.1
658
946
4,713
2,272
1,504
2,805
30,009
30.8
14.0
3,786
Santos Annual Report 2021 / 3
Message from the Chair and
Managing Director and Chief Executive Officer
Consistent and successful strategy
delivers record cash flow and higher
dividends
Our clear and consistent strategy delivered
strong results in 2021, including:
where we have a competitive advantage.
Our infrastructure-led carbon capture and
storage (CCS) strategy potentially provides
more than 30 million tonnes per annum of
carbon dioxide storage capacity.
KEITH SPENCE
Chair
KEVIN GALLAGHER
Managing Director and
Chief Executive Officer
Dear Shareholder,
The past year has been a truly remarkable
one for Santos. The successful merger
with Oil Search Limited, which completed
in December 2021, has transformed Santos
into a company with the size and scale
necessary to fund sustainable growth, the
transition to a lower carbon future and
deliver returns for shareholders.
Santos now has a diversified portfolio of
long-life, low-cost assets leveraged to
strengthening global demand for energy.
Had the merger been in place for all of
2021, the combined asset portfolio would
have generated more than US$2.3 billion
in free cash flow for the year. This asset
portfolio combined with our disciplined,
low-cost operating model and unrivalled
growth opportunities, support our vision
of becoming a global leader in the energy
transition.
In 2022, we plan to further optimise the
portfolio, reduce gearing and conduct
a review of the capital management
framework including returns to
shareholders.
• Completion of the merger with
Oil Search Limited.
• Record annual production, sales
revenue, free cash flow and
underlying net profit after tax.
•
•
Final investment decisions on
the Barossa LNG and Moomba
CCS projects.
The Board resolved to pay a final
dividend of US8.5 cents per share,
franked to 70 per cent, bringing the
total dividend for 2021 to US14 cents
per share, up 97 per cent.
The dividend equates to 20 per cent
of full-year proforma free cash flow for
the merged entity less dividends paid in
the first half by both companies, in-line
with Santos’ sustainable dividend policy
which targets a range of 10 per cent to
30 per cent payout of free cash flow.
Consistent with our strategy, our next
stage of growth will be disciplined and
phased. In 2021, the Barossa LNG project
was sanctioned. Barossa will supply gas
to the Santos-operated Darwin LNG plant
and is a world-class LNG project with a
very competitive cost of supply into Asian
markets. The project remains on track for
first production in the first half of 2025.
Santos is playing a constructive role
in the energy transition
The world continues to demand reliable,
sustainable and affordable energy. Through
decarbonising today’s base business
while investing in clean fuel projects and
technologies of the future, Santos is
committed to delivering net-zero equity
Scope 1 and 2 emissions by 2040. We will
initially focus on lower-carbon technologies
The first critical step was taking the final
investment decision on Phase 1 of the
Moomba CCS development, located in the
Cooper Basin in Australia. This project will
inject 1.7 million tonnes of carbon dioxide
per year and is on track for first injection
to commence in 2024. The Moomba CCS
project is one of the world’s lowest cost
CCS projects and an important enabler in
the transition to cleaner energy and clean
fuels such as hydrogen and ammonia
as well as potential carbon removal
technologies such as direct air capture.
In summary, Santos has now developed
into a major Australian energy producer
with a portfolio of high-quality, long-life,
low-cost assets across Australia,
Timor-Leste, Papua New Guinea and
North America. The portfolio is diversified,
resilient and well positioned to benefit from
recovering commodity prices. This portfolio
provides a strong platform to deliver both
sustainable growth and shareholder returns
as we transition to a lower-carbon future.
On behalf of the Board and
Management team we acknowledge
you, our shareholders, for your continued
trust and support.
Yours sincerely,
KEITH SPENCE
Chair
KEVIN GALLAGHER
Managing Director
and Chief Executive Officer
4 / Santos Annual Report 2021
Key growth milestones
Barossa
Final investment decision
Moomba
Final investment decision
Oil Search
Successful merger
Our Moomba CCS
project is a critical step
in decarbonising
natural gas on the path
to cleaner energy.
Port Bonython Processing Facility, Australia
Drilling rig, Papua New Guinea.
Santos and Oil Search
are stronger together.
As one company, we have
increased scale and capacity
to drive a disciplined,
low-cost operating model
with unrivalled growth
opportunities over
the next decade.
Santos Annual Report 2021 / 5
Board of Directors
KEITH SPENCE
KEVIN GALLAGHER
Chair
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 Chair on 19 February 2018.
He is Chair of Santos Finance Limited 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, and engineering and construction
services and renewable energy. This included
Clough Limited, where he served as Chair from
2010 to 2013, Geodynamics Limited where
he served as a non-executive Director from
2008 to 2016 (including as Chair from 2010
to 2016), Oil Search Limited where he served
as a non-executive Director from 2012 to
2017, Murray and Roberts Holdings Limited,
where he served as a non-executive Director
from 2015 to 2020 and Base Resources,
where he served as Chair from 2015 to 2021.
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:
Non-executive Director of IGO Limited
(since 2014).
Former directorships in the last 3 years:
Chair of Base Resources Limited (2015 to
2021) and Murray and Roberts Holdings
Limited (2015 to 2020).
Managing Director and
Chief Executive Officer
BEng (Mechanical) Hons, FEIAust
Mr Gallagher joined Santos as Managing
Director and Chief Executive Officer on 1
February 2016, bringing more than 25 years’
international experience in 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 a rapid growth phase, 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 ASX listed 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
restructured the company and implemented
the Transform Build and Grow strategy focussed
on five core asset hubs, significantly reduced
costs and instituted a disciplined operating
model, strengthened the balance sheet and
improved production.
Mr Gallagher has successfully led the integration
of the Quadrant and ConocoPhillips Australia-
West businesses following acquisitions by
Santos in 2018 and 2020.
Under Mr Gallagher’s leadership Santos has
committed to net-zero emissions by 2040,
significantly strengthened its balance sheet,
improved production and financial performance,
and is now positioned on a sustainable growth
trajectory around a portfolio of long-life natural
gas, LNG and carbon capture and storage
assets in Australia, Papua New Guinea,
Timor-Leste and North America.
6 / Santos Annual Report 2021
YASMIN ALLEN
GUY COWAN
EILEEN DOYLE
BCom, FAICD
BSc (Hons), Engineering, FCA (UK) MAICD
BMath (Hons), MMath, PhD, FAICD
Ms Allen is an independent non-
executive Director. She joined the Board
on 22 October 2014 and is the Chair of
the People, Remuneration and Culture
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).
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), Acting President
of the Australian Government Takeovers
Panel (since 2017), Chair of Digital Skills
Organisation (since 2020) and Chair of
Tic:Toc (since 2021).
Former directorships in the last
3 years: Chair of Faethm.ai (2020 to 2021).
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.
Other current directorships: Chair of
Queensland Sugar Limited (since 2015), the
Stahmann Webster Group (since 2021) and
Port of Brisbane (since 2021), AFF Cotton
Pty Ltd (since 2021), Director of Winson
Group Pty Ltd (since 2014) and Ability First
Australia (since 2010).
Former directorships in the last
3 years: Health and Plant Protein Ltd
(2018 to 2021).
Dr Doyle is an independent non-executive
Director. She joined the Board on
17 December 2021.
Dr Doyle’s career spans the building
materials, research, infrastructure,
industrials and logistics sectors, including
senior operational roles at BHP Limited
and CSR Limited and culminating in
her appointment as CEO of CSR’s
Panel’s Division. Dr Doyle was previously
Deputy Chairman CSIRO and Chairman
of Port Waratah Coal Services and
The Hunter Research Foundation and
Director of Austrade, Boral Ltd, GPT
Group Ltd, Bradken Ltd, Knights Rugby
League Pty Ltd, State Super Financial
Services, Ross Human Resources Ltd
and Oil Search Ltd. She was Australia’s
first Fulbright Scholar in Business in 1993.
She is a Foundation Fellow of the Australian
Association of Angel Investors and a Fellow
of the Australian Academy of Technology
and Engineering.
Other current directorships: Dalrymple
Bay Infrastructure Limited (since 2020),
Airservices Australia (since 2021), NEXTDC
Limited (since 2020), Hunter Angels Trust
(since 2012), SWOOP Analytics (since
2020) and O’Connell Street Association
(since 2010).
Former directorships in the last
3 years: GPT Group Limited (2010
to 2019), Boral Limited (2010 to 2020)
and Oil Search Limited (2016 to 2021).
Santos Annual Report 2021 / 7
Board of Directors
continued
HOCK GOH
VANESSA GUTHRIE AO
PETER HEARL
BEng (Hons) Mech Eng
DSc, PhD, BSc (Hons), FAICD, FTSE
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.
Dr Guthrie is an independent non-executive
Director. She joined the Board on 1 July
2017 and is a member of the People,
Remuneration and Culture Committee
and the Environment, Health, Safety and
Sustainability 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) and AB SKF
(Sweden) (since 2014).
Former directorships in the last
3 years: Chair of MEC Resources (2005
to 2018), and Director of Harbour Energy
(2015 to 2018) and Director of Vesuvius
PLC (2015 to 2021).
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 a Fellow of the Australian
Institute of Company Directors and the
Australian Academy of Technological
Sciences and Engineering. In 2021 she
became an Officer of the Order of Australia
for her contribution to the mining and
resources sector and as a role model for
women in business.
Other current directorships: AdBri
Limited (since 2018), Tronox Holdings PLC
(since 2019), Lynas Rare Earths Ltd (since
2020) and Cricket Australia (since 2021),
Pro-Chancellor of Curtin University, Board
member of the Australia-India Council and
Infrastructure Australia, and member of the
Vocational Education and Training Expert
Skills Panel.
Former directorships in the last
3 years: Director of Australian
Broadcasting Corporation (2017 to 2021).
BComm (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,
Remuneration and Culture Committee and
the Nomination Committee, having earlier
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
and 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 Operating and Development Officer in
2006, based in Dallas, Texas and Louisville,
Kentucky, and from where he retired in
2008.
Other current directorships*:
Chair of Endeavour Group Ltd (since
2021) (having been Chair-Elect from 2019
to 2021), Trustee of the Stepping Stone
Foundation, a Sydney-based NFP (since
2020) and Member of its Investment
Committee (since 2018).
Former directorships in the last
3 years: Director of Telstra Ltd
(2014 to 2021).
8 / Santos Annual Report 2021
JANINE MCARDLE
MUSJE WERROR
BS (Chemical Engineering), MBA
BSc (Chem), MBA, MProfAcc
Mr Werror is an independent non-executive
Director. He joined the Board on
17 December 2021 and brings over 20 years
of leadership experience in the mining and
resources sector in Papua New Guinea. In
June 2020, he was appointed as Managing
Director and Chief Executive Officer of
Ok Tedi Mining Limited. He was formerly
Deputy CEO and General Manager External
Relations. Mr Werror commenced his
long career at Ok Tedi as a graduate in
1988 and previously held various roles and
responsibilities including leading community
relations in Western Province, PNG.
Mr Werror is currently Chairman of Ok Tedi
Development Foundation and the Western
Province Health Authority. He is also a
former Director of Oil Search Limited.
Other current directorships: Managing
Director and CEO of Ok Tedi Mining Ltd
(since 2020), Chair of Ok Tedi Development
Foundation (since 2020) and Chair of
Western Province Health Authority
(since 2019).
Former directorships in the last
3 years: Oil Search Limited (2021).
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 and
the Environment, Health, Safety and
Sustainability 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 Aquila Energy for nine years
in the United States in senior leadership
positions and in the United Kingdom, as
managing director, with P&L 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), non-executive Director of Antero
Midstream Corp (since 2020) and
committee member of TruMarx Data
Partners’ LNG Advisory Committee
(since 2020).
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).
Santos Annual Report 2021 / 9
Santos Leadership Team
KEVIN GALLAGHER
DAVID BANKS
BRETT DARLEY
BEVERLEY EAST
Managing Director and
Chief Executive Officer
BEng (Mechanical) Hons,
FEIAust
Mr Gallagher’s biography can
be read on page 6.
Chief Technical and
Marketing Officer
Chief Operating Officer,
Upstream Oil and Gas
BE (Hons), MBA, GAICD
BEng (Civil), FIEAust Eng Exec
Mr Banks joined Santos in
2018 and is Santos’ Chief
Technical and Marketing Officer.
Mr Banks previously led the
Onshore Operating Division
as Executive Vice President
Onshore Oil and Gas.
Mr Banks has 30 years of
international and domestic
experience in the oil and gas
industry. He started his career
with Schlumberger in southeast
Asia before joining BHP in
Australia in 1994. Whilst at
BHP, Mr Banks’ 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, Mr Banks led BHP’s
Petroleum Transformation and
was Integration Manager for
US shale assets.
Mr Darley joined Santos in
December 2018. Mr Darley
previously led the Offshore
Operating Division as Executive
Vice President Offshore Oil
and Gas.
He has 30 years of 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,
Mr Darley 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.
Mr Darley 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 and an elected member
of the General Council of the
Chamber of Commerce and
Industry of WA.
Vice President People,
Culture and Corporate
Affairs
BA English, GDip Employee
Relations, GAICD
Ms East joined Santos in
September 2020 as Head of
Government Affairs. She began
her career as a journalist in
print media and also went on
to work in radio. Ms East then
worked in state and federal
politics before joining Woodside
Energy Ltd where she spent
nearly 10 years. While there
she led corporate affairs and
government relations activities
including during construction
of Pluto LNG and as General
Manager of Community was
responsible for all stakeholder
engagement activities across
projects and operating assets as
well as sustainability reporting
and community development
funding.
Prior to joining Santos, Ms East
was CEO of St John of God
Health Care’s Social Outreach
Services providing community-
based mental health and
support services in WA, Victoria
and NSW.
She has served on not-for-
profit boards including as
Deputy Chair of Volunteering
WA and Chair of Barking Gecko
Theatre in WA. She is an alumni
of Leadership WA.
10 / Santos Annual Report 2021
JODIE HATHERLY
ANGUS JAFFRAY
ANTHEA MCKINNELL
ANTHONY NEILSON
Chief Financial Officer
Chief Commercial Officer
BComm Accounting and
Taxation, FCA, GAICD
Ms McKinnell joined Santos in
2019 as Deputy Chief Financial
Officer, before commencing in
the Chief Financial Officer role
in 2022.
With more than 15 years’
experience in the oil and gas
industry, Ms McKinnell held
several senior executive roles
at Woodside Energy including
SVP Finance and Treasury, VP
Global Operations Planning
and Performance, and Acting
CFO prior to commencing
with Santos.
As Santos’ Deputy Chief
Financial Officer, she led
the successful US$1 billion
US144A bond transaction
and played a key role in
the integration of the
ConocoPhillips asset purchase.
As CFO, Ms McKinnell has
oversight of finance, tax,
treasury, planning, investor
relations and IT functions
within Santos.
Ms McKinnell is a Fellow
of Chartered Accountants
Australia and New Zealand,
holds a Master of International
Tax from the University of
Melbourne and a Bachelor
of Commerce from Curtin
University.
BComm, MBA, FFin, FCA
Mr Neilson joined Santos in
2016 and was appointed Chief
Commercial Officer in January
2022. Mr Neilson previously
held the role of Chief Financial
Officer, with responsibility
for the finance, tax, treasury,
strategy, business development,
commercial, investor relations
and IT functions. He brings
over 25 years of 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,
Mr Neilson was CEO of Roc
Oil Company Ltd (ROC), which
was acquired in 2014 by Hong
Kong-listed investor Fosun
International Limited. Previously,
Mr Neilson 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).
Mr Neilson holds a Masters of
Business Administration from
AGSM and is a Fellow of the
Financial Services Institute
of Australasia and a Fellow
of Chartered Accountants
Australia and New Zealand.
Vice President ESG
and Legal
BA, LLB, GAICD
Ms Hatherly joined Santos
in 2019. She is responsible
for Environment, Social
Responsibility and Governance.
She is also the General Counsel
and Company Secretary of the
Santos Group, overseeing the
Company’s Legal, Company
Secretariat and Risk, Audit and
Compliance functions.
Ms Hatherly joined Santos
from INPEX Australia, where
she was General Counsel and
General Manager Legal for
the Ichthys LNG project and
INPEX’s Australia business.
Ms Hatherly brings to the table
a demonstrated history of
delivering some of the biggest
projects in the oil and gas
industry.
Ms Hatherly commenced
her career in the legal private
sector, working in the UK and
Australia, before taking on
senior in-house roles in the oil
and gas industry. Ms Hatherly
has served on the advisory
board of the Curtin University
Law School as well as Muscular
Dystrophy WA. Ms Hatherly
was recognised on The Legal
500 GC Powerlist Australia
in 2018.
Group Executive
Transformation, Integration
and Corporate Projects
BA (Hons) Geography, MBA
Mr Jaffray joined Santos in
2016, and was appointed Group
Executive Transformation,
Integration and Corporate
Projects in May 2021.
He previously held the roles
of Executive Vice President
Strategy, Business Development
and Technology, Executive
Vice President Organisational
Integration and Executive
Vice President People and
Sustainability.
Mr Jaffray has over 25 years
of leadership and consulting
experience as a Director of
Azure Consulting, a Partner
at The Boston Consulting
Group (BCG) and a Supply
Chain Manager with the global
packaging group Crown Cork
and Seal.
At Azure Consulting,
Mr Jaffray supported
companies in developing
strategy and driving
organisational change.
At BCG, he 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, Mr Jaffray was
accountable for procurement,
planning, logistics and product
delivery.
Santos Annual Report 2021 / 11
Santos Leadership Team
continued
JANE NORMAN
TRACEY WINTERS
BRETT WOODS
Vice President Strategy and
Business Development
Strategic Adviser External
Affairs
BSc, BEng (Chemical) Hons,
GAICD
BSc (Australian Environmental
Studies)
Ms Norman joined Santos in
2005 and has responsibility for
developing Santos’ corporate
strategy and leading business
development. Ms Norman has
previously led roles in Santos’
Strategy and Planning and Gas
Commercialisation functions,
where she had responsibility
for the Company’s economics
analysis and market analysis for
oil, LNG and domestic gas.
Ms Norman has over 25 years’
experience in the international
oil and gas industry, starting
her career as Process Engineer
in the North Sea with Shell
International Exploration
and Production. Ms Norman
held various technical and
commercial roles with Shell
UK, based in both Aberdeen
and London. She subsequently
worked in various corporate
finance and equity capital
market roles in the City of
London with Cazenove & Co
(now JP Morgan Cazenove)
and Goldman Sachs, where she
specialised in the oil and gas
sector.
Ms Winters joined Santos in
2017 and is responsible for
government engagement and
strategic communications.
Ms Winters 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. Ms Winters
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, Ms Winters drove the
environmental approvals and
land access processes to deliver
the QCLNG project.
Prior to joining Santos,
Ms Winters was an adviser
to Caltex on public affairs and
strategic issues management, in
particular wage underpayment
by franchisees.
Chief Operating Officer,
Midstream Infrastructure
and Clean Fuels
BSc (Hons) Geology and
Geophysics
Mr Woods joined Santos in
2013 and is accountable for the
Midstream Infrastructure and
Clean Fuels Division. His remit
includes overseeing Santos’
midstream gas processing
facilities at Moomba, Port
Bonython, Varanus Island, Devil
Creek, GLNG and Darwin LNG,
our Energy Solutions capabilities
and Carbon Capture and
Storage project.
At Santos, Mr Woods has
previously held senior
leadership roles as Executive
Vice President Developments,
Executive Vice President
Onshore Upstream, and Vice
President, Eastern Australia.
Other roles Mr Woods has held
within Santos have included
responsibilities for exploration
in Western Australia and
the Northern Territory, and
leading the Western Australian
offshore operations including
development of Fletcher
Finucane and the domestic gas
business.
Mr Woods has over 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. Mr Woods
is a graduate of the Harvard
Business School Advanced
Management Program.
12 / Santos Annual Report 2021
Reserves Statement
for the year ended 31 December 2021
RESERVES AND RESOURCES
Proved plus probable (2P) reserves increased by 835 million barrels of oil equivalent (mmboe) before production in 2021. The annual 2P
reserves replacement ratio (RRR) was 907 per cent and the three-year RRR 355 per cent.
The merger with Oil Search added 416 mmboe of 2P reserves while the final investment decision on Barossa added a further
373 mmboe. Santos has booked Barossa reserves at a 50 per cent working interest following the execution of a binding Sale and
Purchase Agreement to sell a 12.5 per cent interest in Barossa to JERA, completion of which is expected in the first half of 2022.
Consistent application of Santos’ disciplined operating model also delivered reserves increases in the onshore assets in 2021. GLNG
achieved greater than 100 per cent 2P reserves replacement for the second year in a row, while reserves were also added in the
Cooper Basin before production.
2C contingent resources increased by 41 per cent to 3,219 mmboe at the end of 2021, primarily due to the Oil Search merger partially
offset by the commercialisation of Barossa 2C resources to reserves at FID.
The Oil Search merger added 819 mmboe 2C in Papua New Guinea and 401 mmboe in Alaska. The gross 2C contingent resource in
Alaska is unchanged from that previously reported by Oil Search, but in accordance with the 2018 Petroleum Resources Management
System (PRMS), Santos has adjusted its net share Alaska 2C resource to remove royalties.
An initial booking of 100 million tonnes of 2P plus 2C CO2 storage capacity was made in the Cooper Basin in accordance with the CO2
Storage Resource Management System (SRMS) sponsored by the Society of Petroleum Engineers.
This booking represents a subset of the total prospective storage resource in the Cooper Basin and follows FID on the Moomba carbon
capture and storage project in 2021.
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
2021
1,009
1,676
3,219
2020
% change
496
933
2,282
103%
80%
41%
RESERVES AND 2C CONTINGENT RESOURCES BY PRODUCT (SANTOS SHARE AS AT 31 DECEMBER 2021)
Santos share
Proved reserves
Proved plus probable reserves
2C contingent resources
KEY METRICS
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
000 tonnes
5,436
8,967
14,469
32
59
560
41
71
152
442
1,046
3,440
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 proportion of total reserves
Reserves life1
Reserves life2
1
2
2P reserves life as at 31 December 2021 using Santos’ 2021 production.
2P reserves life as at 31 December 2021 using pro-forma Santos and Oil Search 2021 production.
Total
mmboe
1,009
1,676
3,219
656%
907%
355%
464%
187%
45%
18 years
14 years
Santos Annual Report 2021 / 13
Reserves Statement
for the year ended 31 December 2021
continued
PROVED RESERVES
Santos share as at 31 December 2021
Asset
Cooper Basin
Queensland & NSW1
PNG
Northern Australia
& Timor-Leste
Western Australia
Total 1P
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
000 tonnes
All products
mmboe
Developed Undeveloped
237
988
2,371
1,278
562
5,436
8
-
11
-
13
32
3
-
19
13
5
41
419
-
-
23
-
442
44
115
272
2
98
531
12
55
164
230
18
478
Proportion of total proved reserves that are unconventional
1 Queensland proved sales gas reserves include 807 PJ GLNG and 175 PJ other Santos non-operated Eastern Queensland assets.
Proved reserves reconciliation
Product
Sales gas
Crude oil
Condensate
LPG
Total 1P
Unit
PJ
mmbbl
mmbbl
000 tonnes
mmboe
2020
Production
2,650
22
16
466
496
(464)
(6)
(5)
(203)
(92)
Revisions
and
extensions
Net
acquisitions
and
divestments
1,643
6
17
178
305
1,607
11
13
-
299
Total
56
170
436
232
115
1,009
17%
2021
5,436
32
41
442
1,009
14 / Santos Annual Report 2021
PROVED PLUS PROBABLE RESERVES
Santos share as at 31 December 2021
Asset
Cooper Basin
Queensland & NSW1
PNG
Northern Australia
& Timor-Leste
Western Australia
Total 2P
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
000 tonnes
All products
mmboe
Developed Undeveloped
627
1,937
3,231
2,074
1,098
8,967
16
-
20
-
24
59
7
-
28
26
10
71
982
-
-
64
-
1,046
87
122
370
4
174
757
52
211
231
377
48
919
Proportion of total proved plus probable reserves that are unconventional
1 Queensland proved plus probable sales gas reserves include 1,522 PJ GLNG and 405 PJ other Santos non-operated Eastern Queensland assets.
Proved plus probable reserves reconciliation
Product
Sales gas
Crude oil
Condensate
LPG
Total 2P
Revisions
and
extensions
Net
acquisitions
and
divestments
2020
Production
4,960
39
33
1,269
933
(464)
(6)
(5)
(203)
(92)
2,310
6
26
36
427
2,161
20
18
(56)
408
Unit
PJ
mmbbl
mmbbl
000 tonnes
mmboe
Total
139
333
601
381
222
1,676
20%
2021
8,967
59
71
1,046
1,676
Santos Annual Report 2021 / 15
Reserves Statement
for the year ended 31 December 2021
continued
2C CONTINGENT RESOURCES
Santos share as at 31 December 2021
Asset
Cooper Basin
Queensland & NSW
PNG
Northern Australia & Timor-Leste
Western Australia
USA (Alaska)
Total 2C
Sales gas
PJ
Crude oil
mmbbl
Condensate
mmbbl
LPG
000 tonnes
All products
mmboe
1,273
2,886
4,764
4,206
1,341
-
14,469
26
-
1
-
131
401
560
18
-
54
63
18
-
152
1,784
-
-
3
1,653
-
3,440
277
496
871
782
393
401
3,219
2021
3,219
2C Contingent resources reconciliation
Product
2020
Production
extensions Discoveries
Revisions and
Net acquisitions
and divestments
Total 2C (mmboe)
2,282
-
(402)
60
1,280
CO2 STORAGE
Capacity and 2C contingent resources as at 31 December
Santos share
Proved capacity
Proved plus probable capacity
2C contingent resources
Unit
MtCO2
MtCO2
MtCO2
2021
2020
% change
6
9
91
-
-
-
N/A
N/A
N/A
16 / Santos Annual Report 2021
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 Paul Lyford, 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 Paul
Lyford 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 2021.
3. Santos prepares its petroleum reserves and contingent
resources estimates in accordance with the 2018
Petroleum Resources Management System (PRMS) and
CO2 Storage capacity and contingent resource estimates
in accordance with the 2017 CO2 Storage Resources
Management System (SRMS) 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 which 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, contingent resources
and CO2 Storage 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,
contingent resources and CO2 storage. 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 2021 petroleum reserves, contingent
resources and CO2 storage 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, contingent resources and CO2
storage position as at 31 December 2021.
7. Unless otherwise stated, all references to petroleum
reserves, contingent resources and CO2 storage
quantities in this reserves statement are Santos’ net
share. Barossa is carried at 50 per cent share reflecting
the binding SPA to selldown 12.5 per cent equity to JERA
announced 8 December 2021 with completion expected
in the first half of 2022.
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, contingent resources and CO2
storage 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.
10. Petroleum reserves, contingent resources and CO2
storage are typically prepared by deterministic methods
with support from probabilistic methods.
Abbreviations
1P
2P
GJ
LNG
LPG
mmbbl
mmboe
MtCO2
NGLs
PJ
tcf
TJ
11. Any material concentrations of undeveloped petroleum
Conversion factors
proved reserves
proved plus probable reserves
gigajoules
liquefied natural gas
liquefied petroleum gas
million barrels
million barrels of oil equivalent
million tonnes of carbon dioxide
natural gas liquids
petajoules
trillion cubic feet
terajoules
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
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. 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, contingent resources
and CO2 storage 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
Employer
Professional
organisation
Santos Ltd
SPE
Santos Ltd
SPE, SPEE
Name
P Lyford
N Pink
A White
Santos Ltd
D Nicolson
Santos Ltd
S Lawton
Santos Ltd
C Winterfield
Santos Ltd
A Judzewitsch
Santos Ltd
SPE
SPE
SPE
SPE
SPE
M Ireland
J Hattner
Santos Ltd
SPE, SPEE
NSAI
SPE, AAPG
SPE: Society of Petroleum Engineers
SPEE: Society of Petroleum Evaluation Engineers
AAPG: American Association of Petroleum Geologists
Santos Annual Report 2021 / 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 2021, 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 during the year ended 31 December 2021 and up to the date of this report and details of the
relevant interest of each of those Directors in shares in the Company at the date of this report are as set out below:
Surname
Other names
Allen
Cowan
Doyle
Yasmin Anita
Guy Michael
Eileen Joy
Gallagher
Kevin Thomas (Managing Director and CEO)
Goh
Guthrie
Hearl
McArdle
Spence
Shi
Werror
Hock
Vanessa Ann
Peter Roland
Janine Marie
Keith William (Chair)
Yujiang (Eugene)
Musje Moses
1
Includes shares received as a result of the 2018 LTI vesting.
Shareholdings in Santos Limited
48,883
45,487
33,567
2,195,9681
67,215
39,188
48,808
18,000
105,688
–
–
The above-named Directors held office during the financial year. Mr Eugene Shi resigned as a Director on 10 March 2021. Dr Eileen Doyle
and Mr Musje Werror were appointed as Directors on 17 December 2021.
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 2,404,027 share acquisition rights (SARs) and 199,819 restricted 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
6 to 9 of this Annual Report. This information includes details of other listed company directorships held during the last three years.
18 / Santos Annual Report 2021
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
Director
Allen
Cowan
Doyle2
Yasmin Anita
Guy Michael
Eileen Joy
Gallagher
Kevin Thomas
Goh
Hock
Guthrie
Vanessa Ann
Hearl
McArdle
Spence
Shi3
Peter Roland
Janine Marie
Keith William
Yujiang (Eugene)
Werror4
Musje Moses
Directors’
meeting
Audit & Risk
Committee
Environment
Health, Safety
& Sustainability
Committee
People,
Remuneration
& Culture
Committee
Nomination
Committee
Attended/Held1 Attended/Held1 Attended/Held1
Attended/Held1 Attended/Held1
19 of 19
17 of 19
n/a
19 of 19
19 of 19
18 of 19
19 of 19
18 of 19
19 of 19
0 of 2
n/a
3 of 4
4 of 4
n/a
n/a
4 of 4
n/a
n/a
4 of 4
n/a
n/a
n/a
n/a
n/a
n/a
5 of 5
5 of 5
5 of 5
5 of 5
5 of 5
n/a
n/a
n/a
5 of 5
3 of 3
n/a
n/a
n/a
n/a
5 of 5
5 of 5
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3 of 3
n/a
3 of 3
n/a
3 of 3
n/a
n/a
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 Dr Eileen Doyle was appointed as a Director on 17 December 2021.
3 Mr Eugene Shi was appointed to the People, Remuneration and Culture Committee effective 16 February 2021 and retired as a Director on 10 March 2021.
4 Mr Musje Werror was appointed as a Director on 17 December 2021.
Santos Annual Report 2021 / 19
Directors’ Report
Directors’ Report
continued
OPERATING AND FINANCIAL REVIEW
Santos’ principal activities during 2021 were the exploration for, and development, production, transportation and marketing of,
hydrocarbons, and the development of technologies such as carbon capture and storage. Revenue is derived primarily from the
sale of gas and liquid hydrocarbons.
In December 2021, Santos completed a merger with Oil Search Limited (“Oil Search”) following approvals by Oil Search shareholders and
the National Court of Papua New Guinea. The merger combined two industry leaders to create a company with a diversified portfolio of
assets and cash flows to successfully navigate the transition to a lower carbon future. The Oil Search assets are included in the results
of the consolidated group from 11 December 2021.
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
Net profit/(loss) for the period and attributable to equity holders of Santos
Underlying profit for the period1
Underlying earnings per share (cents)1
2021
mmboe
2020
mmboe
Variance
%
92.1
104.2
89.0
107.1
US$million
US$million
4,713
2,805
(126)
(1,243)
(8)
(6)
1,422
(217)
(547)
658
946
44.3
3,387
1,898
(59)
(1,015)
(895)
(1)
(72)
(234)
(51)
(357)
287
13.8
3
(3)
39
48
(114)
(22)
nm
(500)
2,075
7
(973)
284
230
221
1
EBITDAX (earnings before interest, tax, depreciation and depletion, exploration and evaluation expensed, net impairment loss and change in future restoration assumptions), 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. Please refer to page 24 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 financial
statements which have been subject to audit by the Company’s auditor.
20 / Santos Annual Report 2021
Sales volume
mmboe
Product sales revenue
$million
Production volume
mmboe
83.4
78.3
94.5
107.1
104.2
3,100 3,660 4,033 3,387 4,713
59.5
58.9
75.5
89.0
92.1
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
2017
2018
2019
2020 2021
Sales volumes of 104.2 million barrels of
oil equivalent (mmboe) were 3 per cent
lower than the previous year, primarily
due to lower Cooper Basin production and
third-party volumes, partially offset by
higher sales volumes in Western Australia
and completion of the Oil Search merger in
December 2021.
Sales revenue was up 39 per cent
compared to the previous year to a record
$4.7 billion, primarily due to higher realised
prices for all products and inclusion of the
Oil Search assets from 11 December 2021.
The average realised oil price increased
60 per cent to US$76/bbl and the average
realised LNG price increased 45 per cent
to US$9.25/mmBtu.
Production was up 3 per cent to a
record 92.1 mmboe primarily due to
inclusion of the Oil Search assets from
11 December 2021 and higher gas
production in Western Australia, partially
offset by lower Cooper Basin volumes.
Review of operations
Santos’ operations are focused on five core, long-life asset hubs: Cooper Basin, Queensland and NSW, Papua New Guinea, Northern
Australia and Timor-Leste, and Western Australia. The merger with Oil Search added assets in Papua New Guinea (additional equity in
PNG LNG and operated oil fields) and North America (Alaska) to Santos’ portfolio.
Cooper Basin
The Cooper Basin produces natural gas, gas liquids and crude oil. Gas is sold primarily to domestic retailers, industry and for the
production of liquefied natural gas, while gas liquids and crude oil are sold in domestic and export markets.
Santos’ strategy in the Cooper Basin is to deliver value by being a low-cost business, increasing reserves, investing in new technology
to lower development and exploration costs, reducing emissions and increasing utilisation of infrastructure including the Moomba and
Port Bonython plants (Santos 66.7 per cent interest).
Santos is also focused on reducing emissions by investing in carbon capture and storage (CCS). The 1.7 million tonne per annum
Moomba CCS project took a final investment decision in November 2021 with first injection expected in 2024.
Cooper Basin
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2021
15.3
20.2
1,000
9.35
423
329
2020
16.8
24.2
919
7.80
390
313
Cooper Basin EBITDAX was $423 million, 8 per cent higher than 2020 primarily due to higher realised prices, partially offset by higher
costs, and lower volumes.
Santos’ share of Cooper Basin sales gas and ethane production of 63.8 petajoules (PJ) was 7 per cent lower than the previous year
(68.5 PJ) due to lower drilling activity as a result of the impact of COVID-19 on joint venture budgets. Santos’ share of oil production
was also lower due to lower drilling activity and natural field decline. A fourth drilling rig was added to the program in the middle of 2021.
Santos Annual Report 2021 / 21
Directors’ Report
Directors’ Report
continued
Queensland and NSW
The GLNG project in Queensland produces liquefied natural gas (LNG) for export to global markets from the LNG plant at Gladstone.
Gas is also sold into the domestic market. Santos has a 30 per cent interest in GLNG.
The LNG plant has two LNG trains with a combined capacity of 8.6 mtpa. Production from Train 1 commenced in September 2015 and
Train 2 in May 2016. Feed gas is sourced from GLNG’s upstream fields, Santos portfolio gas and third-party suppliers.
The LNG plant produced a record 6.3 million tonnes of LNG in 2021 and shipped 109 cargoes. Annual LNG production was higher than
the previous year (6.0 million tonnes) due to the ramp-up in GLNG upstream equity gas supply.
Santos aims to build GLNG gas supply through upstream development, seek opportunities to extract value from existing infrastructure
and drive efficiencies to operate at lowest cost.
Santos is also progressing the proposed Narrabri domestic gas project in NSW. The project received environmental approvals from the
state and federal governments in 2020, and Santos plans to commence an appraisal program in 2022.
Queensland and NSW
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2021
13.7
22.1
973
5.79
525
195
2020
13.4
22.0
793
5.70
428
193
Queensland and NSW EBITDAX of $525 million increased by 23 per cent compared to 2020. This was a result of higher realised prices
and higher volumes, partially offset by higher costs.
Papua New Guinea
The merger with Oil Search, which completed in December 2021, substantially increased Santos’ asset position in PNG. Santos’ interest
in the PNG LNG project increased to 42.5 per cent, and the merger also added interests in the proposed Papua LNG project and PRL3
(P’nyang) to the portfolio. Santos also became operator of all of PNG’s oil fields.
PNG LNG produces LNG for export to global markets, as well as sales gas and gas liquids. The LNG plant near Port Moresby has two
LNG trains with the combined capacity to produce more than eight million tonnes per annum. Production from both trains commenced
in 2014.
The PNG LNG plant produced 8.4 million tonnes of LNG in 2021 and shipped 110 cargoes. Annual LNG production was lower than the
previous year (8.8 million tonnes) due to the COVID-19 impact of deferral of planned maintenance activities from 2020 into 2021.
The Papua LNG project (Santos 22.8 per cent interest before PNG government back-in) is a proposed two-train LNG expansion with a
planned capacity of 5.6 million tonnes of LNG per annum. In 2021, the project continued to progress technical, commercial, regulatory,
social and environmental planning activities. A decision to enter front end engineering and design (FEED) is planned for 2022.
Following the merger with Oil Search, Santos operates the Kutubu, Agogo, Moran and Gobe fields, which produce all of PNG’s oil and
supply raw gas to PNG LNG. Net production from the operated fields was inline with the previous year.
PNG
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2021
14.2
13.4
736
4.69
615
34
2020
13.2
12.5
451
4.21
354
39
PNG EBITDAX of $615 million increased 74 per cent compared to 2020, mainly due to higher realised prices and increased volumes
following the merger with Oil Search.
22 / Santos Annual Report 2021
Northern Australia and Timor-Leste
Santos’ business in northern Australia and Timor-Leste is focused on the Bayu-Undan/Darwin LNG (DLNG) project
(Santos 43.4 per cent interest). In operation since 2006, DLNG produces LNG and gas liquids for export to global markets.
The LNG plant near Darwin has a single LNG train with a capacity of 3.7 mtpa. The plant produced 3.2 million tonnes of LNG in 2021,
5 per cent higher than 2020, and shipped 45 cargoes.
The Bayu-Undan field in Timor-Leste, which supplies all the gas to DLNG, is currently expected to reach end of field life in 2022 or 2023.
Santos is assessing the potential of repurposing Bayu-Undan into a carbon capture and storage hub after production ceases.
In March 2021, Santos announced the final investment decision to proceed with the Barossa gas and condensate project to
backfill DLNG. The project was 20 per cent complete at the end of 2021 with first gas production expected in the first half of 2025.
Santos currently has a 62.5 per cent interest in Barossa, which will reduce to 50 per cent following the sale of a 12.5 per cent interest
to JERA, which is expected to complete in the first half of 2022, subject to customary consents and regulatory approvals.
Northern Australia and Timor-Leste
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2021
15.2
15.3
903
15.37
728
377
2020
14.5
14.6
466
19.59
205
93
Northern Australia and Timor-Leste EBITDAX of $728 million was $523 million higher than 2020 primarily due to significantly higher
realised pricing for LNG cargoes sold into the spot market, partially offset by the 25 per cent sell-down to SK E&S in April 2021.
Western Australia
Santos is the largest producer of domestic natural gas in Western Australia and is also a significant producer of oil and natural gas liquids.
Santos’ assets include 100 per cent ownership and operatorship of the Varanus Island and Devil Creek domestic gas hubs,
a 28.6 per cent interest in the Macedon gas hub and a leading position in the highly prospective Bedout Basin.
Santos’ share of Western Australia domestic gas production of 168 PJ was 6 per cent higher than the previous year, primarily due
to the commencement of a new 12-year contract with Alcoa in June 2020. Santos’ share of crude oil production was 3.5 mmbbl,
higher than the previous year due to the Ningaloo Vision FPSO (Van Gogh, Coniston and Novara fields) returning from planned
shipyard maintenance combined with initial production from two infill wells drilled on the Van Gogh field.
A FEED-entry decision for the initial phase of the proposed Dorado integrated oil and gas project (Santos 80 per cent interest) was
taken in June 2021. Dorado opens a new basin with high prospectivity in permits where Santos has high equity positions. Further drilling
is planned on the Apus and Pavo prospects in 2022.
Western Australia
Production (mmboe)
Sales volume (mmboe)
Revenue (US$m)
Production cost (US$/boe)
EBITDAX (US$m)
Capex (US$m)
2021
33.7
33.2
1,105
6.38
851
316
2020
31.1
31.1
742
6.34
546
171
Western Australia EBITDAX of $851 million was 56 per cent higher than 2020, predominantly driven by higher realised prices and volumes.
Santos Annual Report 2021 / 23
Directors’ Report
Directors’ Report
continued
North America
The merger with Oil Search brought assets in Alaska to Santos’ portfolio, including the Pikka Unit located on the North Slope,
a world-class oil province with more than 50 years of oil and gas development and extensive existing infrastructure.
Located within the Pikka Unit, the Pikka Phase 1 project (Santos 51 per cent interest) is targeting a gross production rate of
approximately 80,000 barrels of oil per day with top quartile performance for emissions intensity. FEED and assurance activities were
nearing completion at the end of 2021, and all major regulatory and environment approvals have been received.
Net profit
The 2021 net profit attributable to equity holders of Santos Limited of $658 million is $1,015 million higher than the net loss of
$357 million in 2020. This increase is primarily due to higher realised pricing and lower impairment losses of $6 million after tax
($653 million in 2020), partly offset by higher depreciation and depletion.
Net profit includes items before tax of $343 million ($288 million after tax), as referred to in the reconciliation of net profit to underlying
profit below. Underlying profit was $946 million, $659 million higher than 2020.
Reconciliation of net profit/(loss) to underlying profit1
Net profit/(loss) after tax attributable to equity holders
of Santos Limited
Add/(deduct) the following:
Net gains on sales of non-current assets
Impairment losses
Fair value adjustments on embedded derivatives and hedges
Fair value adjustments on commodity hedges
Costs associated with acquisitions and disposals
One-off tax adjustments
Underlying profit1
2021 US$million
2020 US$million
Gross
Tax
Net
Gross
Tax
Net
(12)
8
(2)
249
100
–
343
(32)
(2)
–
(74)
(20)
73
(55)
658
(44)
6
(2)
175
80
73
288
946
–
895
2
(45)
7
–
–
(242)
(1)
14
14
–
859
(215)
(357)
–
653
1
(31)
21
–
644
287
1 Underlying profit is a non-IFRS measure that is presented to provide an understanding of the underlying performance of Santos’ operations. The measure excludes the impacts of asset
acquisitions, disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments. The non-IFRS
financial information is unaudited, however the numbers have been extracted from the financial statements which have been subject to audit by the Company’s auditor.
Financial position
Summary of financial position
Exploration and evaluation assets
Oil and gas assets and other land, buildings, plant and equipment
Restoration provision
Other net assets1
Total funds employed
Net debt2
Net tax (liabilities)/assets3
Net assets/equity
2021
US$million
2020
US$million
Variance
US$million
3,182
18,465
(3,817)
2,199
20,029
(5,157)
(1,262)
13,610
1,818
11,173
(3,021)
815
10,785
(3,664)
106
7,227
1,364
7,292
(796)
1,384
9,244
(1,493)
(1,368)
6,383
1 Other net assets comprises trade and other receivables, prepayments, inventories, contract assets, other financial assets, share of investments in equity accounted associates and joint
ventures, and goodwill, offset by trade and other payables, contract liabilities, provisions and other financial liabilities.
2 Net debt reflects the net borrowings position and includes interest-bearing loans, net of cash, commodity hedges and interest rate and cross-currency swap contracts.
3 Net tax (liabilities)/assets comprises deferred tax assets and tax receivable, offset by deferred tax liabilities and current tax payable.
24 / Santos Annual Report 2021
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
2021 full-year accounts.
At 31 December 2021, non-cash after tax impairment losses of $6 million were recognised. The total after-tax impairment losses relate
to the impairment of exploration and evaluation assets.
Exploration and evaluation assets
Exploration and evaluation assets were $3,182 million compared to $1,818 million at the end of 2020, an increase of $1,364 million, due
to the merger with Oil Search, 2021 capital expenditure, including Dorado and Barossa Caldita FEED; offset by transfer of the Barossa
project to oil and gas assets in development following FID in March 2021, impairment losses before tax of $8 million and exploration and
evaluation expenses of $126 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 $18,465 million were $7,292 million higher than in 2020, mainly
due to the merger with Oil Search, 2021 capital expenditure across Cooper Basin, GLNG, WA Offshore and PNG; partially offset by
depreciation and depletion charges of $1,243 million and the 12.5% interest in Barossa to be sold to JERA classified as held for sale.
Restoration provision
Restoration provision balances have increased by $796 million to $3,817 million mainly due to the merger with Oil Search, and revised
restoration cost estimates; partially offset by change in discount rates, and favourable exchange differences.
Net debt
Net debt of $5,157 million was $1,493 million higher than at the end of 2020, driven by the merger with Oil Search and major growth
capital expenditure; offset by over $1.5 billion in free cash flow generated.
Net tax (liabilities)/assets
Net tax liabilities of $1,262 million have increased by $1,368 million in comparison to 2020 following the merger with Oil Search.
Net assets/equity
Total equity increased by $6,383 million to $13,610 million at year end. The increase primarily reflects the additional shares issued as part
of the merger with Oil Search of $6,038 million, combined with net profit after tax attributable to owners of Santos of $658 million;
offset by payments of dividends to shareholders of $221 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.
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 2021, the Company has hedged 4.0 million barrels of 2022 production, using zero premium collars with an average
floor price of $50.00/bbl and an average ceiling price of $66.14/bbl, and 2.0 million barrels, using reparticipating 3-way swaps, with an
average floor price of $50.00/bbl, an average ceiling price of $60.00/bbl, and a reparticipating price of $65.05/bbl.
Santos Annual Report 2021 / 25
Directors’ Report
Directors’ Report
continued
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.
The successful execution of the strategy since 2016 has transformed Santos 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 less than
US$25 per barrel before hedging in 2021, and delivered operated interests in long-life, low-cost assets and strategic LNG infrastructure.
The merger with Oil Search strengthens the Company’s asset portfolio and cash flows, and positions Santos to navigate the transition
to a lower carbon future.
With a disciplined growth portfolio including the Barossa, Moomba CCS, Dorado Phase 1, Pikka Phase 1 and Papua LNG projects, Santos
is well positioned to leverage existing infrastructure.
The Company is also focused on generating new revenue through maximising utilisation of its infrastructure and implementing
emissions reduction projects such as carbon capture and storage.
Santos aspires to be a global leader in the transition to cleaner energy and clean fuels, by helping the world decarbonise to reach net-
zero emissions in an affordable and sustainable way and has set ambitious emission reduction targets. Further information is available in
the Company’s 2021 Climate Change Report.
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. 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 around a quarter of the world’s total energy needs until at least 2050, 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. Santos is also investing in projects to lower emissions such as Moomba carbon capture and storage in the Cooper Basin.
2022 production is expected to increase to a range of 100 to 110 million barrels of oil equivalent (mmboe) primarily due to higher
production from PNG following the Oil Search merger. This is expected to be offset by a lower share of Bayu-Undan production, which
is expected to be approximately 10 mmboe less than 2021, due to a lower average working interest following the 25 per cent sell-down
to SK E&S in 2021, lower gross production as the field approaches end of field life and lower net entitlement under the Production
Sharing Contract due to higher forecast LNG prices. Sales volumes in 2022 are expected to be in the range of 110 to 120 mmboe.
Capital expenditure in 2022 is expected to be approximately US$900 million for sustaining capital, approximately US$200 million for
restoration and approximately US$1.15 billion to US$1.3 billion for major growth projects. A contingent amount of up to approximately
US$400 million may be added should the Dorado and Pikka projects take final investment decisions. Guidance assumes current Santos
interest in all projects.
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.
COVID-19 Pandemic Risk
The COVID-19 pandemic has created new challenges in managing the health and safety of our workforce, with potential impact to both
their physical and mental wellbeing, in the field and office locations. Our operations may also be disrupted by government, regulatory or
health authority actions, which could result in the shutdown of operating sites and offices, lockdowns in certain regions, border closures,
travel restrictions and quarantine requirements. Supply chain disruption by COVID-19 of suppliers, logistics partners, products, services
and third-party providers has the potential to impact Santos’ production and operations. Roster adjustment and travel management
for the field-based workforce has implications for the rotational workforce, including workforce fatigue, family separation for extended
periods and mental health issues. To mitigate the risk, Santos continues to employ its Operational Continuity Plans with particular
emphasis on pre mobilisation testing, the safe movement of employees, contractors and supply chain materials to operate the business.
Strict hygiene, social distancing in the workplace, personal protection, testing protocols and case management have further been
enhanced and embedded in all locations. Santos has increased mental health support programs and strongly encouraged employee take-
up of available vaccines to protects themselves and their families.
26 / Santos Annual Report 2021
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 Barossa LNG project offtake volumes have been marketed on a price based on the Platts
Japan Korea Marker (JKM) with favourable seller flexibilities, which improves portfolio balance to our existing oil-linked LNG offtake
agreements from GLNG and PNG LNG. 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 also has conventional domestic natural gas assets backed by medium- to long-term CPI-linked offtake contracts to complement
and balance Santos’ 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.
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
global events such as the COVID-19 pandemic, 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 Santos’ portfolio of midstream infrastructure assets. 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.
Santos Annual Report 2021 / 27
Directors’ Report
Directors’ Report
continued
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.
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 personnel, facilities, operations and surrounding communities.
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 Indigenous stakeholders,
landholders and communities to ensure that issues are understood and addressed appropriately. Maintaining ongoing dialogue and
conducting open, transparent engagement have allowed us to benefit from the ongoing support of all stakeholders.
Human rights
Human rights risks include the use of force by public and private security forces, interference with Indigenous community land access or
cultural heritage and the labour practices of suppliers and contractors. These are particularly relevant where operations, or the operations
of business partners, occur in high-risk jurisdictions, including PNG. The occurrence of any of these risks may result in the loss of social
licence to operate, litigation or reputational damage. Oil Search’s practice prior to integration has been to incorporate human rights risks
into a company-wide risk management framework and for risks to be regularly assessed and updated. Training and awareness covering
key human rights topics such as responsible security and modern slavery was conducted for employees in key functions including
Security and Contracts and Procurement. Site-level and company-level grievance mechanisms have been in place and overseen by Board
Committee level. Santos is committed to respecting human rights and is currently reviewing the human rights-related controls described
above as part of the integration process in order to establish a consolidated approach to managing its human rights risks.
28 / Santos Annual Report 2021
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 personnel.
An inability to attract or retain such personnel, caused by a range of factors, including global events such as the COVID-19 pandemic,
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, succession and business continuity 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.
Climate change
Santos anticipates its activities will be subject to increasing regulation and costs associated with climate change and the management
of carbon emissions. Risks are identified and managed in two broad categories: Physical, relating to acute and chronic effects of climate
change and Transitional, arising from the move into a lower carbon economy.
Operational, legal, technological, reputational, funding, workforce and community 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. Santos’
net-zero Scope 1 and Scope 2 emissions 2040 target remains a strong focus in the delivery of its strategic commitments. Along with
specific projects focused on reducing emissions, an emissions reduction and minimisation focus 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.
Santos Annual Report 2021 / 29
Directors’ Report
Directors’ Report
continued
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 $5.6 billion in liquidity (cash and undrawn committed bank facilities) available as at 31 December 2021.
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
operations and the Company’s financial performance. For example, a change in government regime, 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 disputes
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.
30 / Santos Annual Report 2021
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 26 to 30) refers to risks which, if materialised, may have a significant effect on the state of
affairs of the Company.
Dividends
On 15 February 2022, the Directors resolved to pay a partially franked final dividend of US8.5 cents per fully paid ordinary share on
24 March 2022 to shareholders registered in the books of the Company at the close of business on 22 February 2022 (“Record Date”).
This final dividend amounts to approximately US$288 million. The Board also resolved that the Dividend Reinvestment Plan (DRP) will
not be in operation for the 2021 final dividend.
In addition, a fully franked interim dividend of US5.5 cents per fully paid ordinary share was paid to members on 21 September 2021.
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 21 April 2021, Santos received a penalty infringement notice and $13,345 fine from the Queensland Department of Environment and
Science due to an administrative error where monitoring data was not appended in an annual return as required by approval conditions.
On 26 July 2021, Santos received a penalty infringement notice and $13,345 fine from the Queensland Department of Environment and
Science relating to a risk assessment report and associated Environmental Authority conditions.
The consolidated entity undertook corrective measures in respect of the infringements to prevent re-occurrences.
POST BALANCE DATE EVENTS
On 15 February 2022, the Directors of Santos Limited resolved to pay a final dividend on ordinary shares in respect of the 2021 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 2021.
Santos Annual Report 2021 / 31
Directors’ Report
Directors’ Report
continued
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 2021 are as follows:
Date SARs granted
21 March 2018
12 April 2018
7 May 2018
15 March 2019
21 March 2019
18 April 2019
9 May 2019
7 June 2019
16 July 2019
18 July 2019
20 August 2019
30 August 2019
4 October 2019
20 December 2019
19 March 2020
26 March 2020
9 April 2020
11 June 2020
31 August 2020
3 December 2020
26 March 2021
30 March 2021
11 April 2021
15 April 2021
12 May 2021
27 August 2021
17 December 2021
Number of shares
under unvested SARs
2,625,735
30,000
520,183
2,191,312
24,886
285,776
637,631
49,772
516,684
10,734
26,364
1,179,608
238,023
11,592
2,066,826
7,328
442,298
377,507
1,589,051
9,658
514,917
14,086
847,458
577,033
2,524,449
285,657
129,558
17,734,126
Since 31 December 2021, no 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 34 of this report and in note 7.2 to the Financial Report.
32 / Santos Annual Report 2021
SHARES ALLOCATED ON THE EXERCISE OF OPTIONS AND ON THE VESTING OF SARS
Options
No options were exercised during the year ended 31 December 2021 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 2021 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
17 March 2017
19 May 2017
12 April 2018
29 June 2018
15 March 2019
12 April 2019
18 April 2019
16 July 2019
20 December 2019
10 January 2020
31 August 2020
27 August 2021
Number of shares
allocated
2,995,607
609,345
442,757
395,576
19,340
9,117
88,879
14,400
720
14,461
30,435
412
4,621,049
Since 31 December 2021, 2,956,404 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 34
of this report and in notes 7.2 and 7.3 to the Financial Report.
Santos Annual Report 2021 / 33
Directors’ Report
Remuneration Report
MESSAGE FROM YASMIN ALLEN, PEOPLE, REMUNERATION AND CULTURE COMMITTEE CHAIR
Dear fellow Shareholders,
On behalf of the Board, I am pleased to introduce Santos’ Remuneration Report for 2021 and to summarise key elements of Santos’
performance and the impact on remuneration outcomes.
Record production and generation of free cash flow
The 2021 year was a remarkable year for your Company. The ongoing and consistent delivery of the Transform, Build and Grow strategy
and the Company’s disciplined low-cost operating model continues to deliver value for shareholders.
Highlights from 2021 include:
•
Strong base business performance delivering record annual production of 92.1 mmboe
• Record free cash flow generation of US$1.5 billion in 2021, more than double the level in 2020
• Record annual sales revenue of US$4.7 billion, up 39 per cent on 2020
•
•
•
Final Investment Decision for the Barossa project, which is on track for first production in the first half of 2025
Final Investment Decision for Phase 1 of the Moomba carbon capture and storage development, which is on track for first injection
of carbon dioxide in 2024
Successful merger with Oil Search in December, creating a true regional champion with the size and scale to deliver strong
performance and fund the transition to a lower carbon future
These strong achievements contributed to a Company Scorecard outcome of 135.6 per cent of target (out of a possible 167 per cent).
Outcomes against individual measures are detailed later in the report in Table 3 on pages 42–45.
Outstanding performance on Long-Term Incentive measures leads to high vesting outcomes
Long-Term Incentive (LTI) awards granted in 2018 were tested following the end of their four-year performance period at 31 December 2021.
The Santos share price increased from A$5.45 at the start of the performance period to A$6.31 at 31 December 2021. Total Shareholder
Return including the reinvestment of dividends during the performance period was 30.3 per cent.
Santos’ TSR growth ranked 11th in the S&P Global 1200 Energy Index, placing it at the 84th percentile against this group. Santos’
performance was at the 55th percentile against the ASX100 comparator group. The Company’s average Free Cash Flow Breakeven Point
over 2018 to 2021 was US$20.98, 34 per cent lower than at the start of the performance period (US$31.90). Return on Average Capital
Employed over 2019 to 2021 was 129.8 per cent of Weighted Average Cost of Capital.
These outstanding long-term performance outcomes contributed to an overall 89.5 per cent vesting outcome for the 2018 LTI awards.
Performance-related long-term equity makes up a significant component of Realised Remuneration
Realised Remuneration outcomes for 2021 are shown in Table 11 on page 52. 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.
Over half of the CEO’s Realised Remuneration for 2021 resulted from performance-related equity awards. The value at vesting includes
share price movements between the awards being granted and vesting, providing alignment with shareholders.
Long-Term Equity compensation comprises a significant share of remuneration for the Company’s CEO and other Executive Key
Management Personnel (KMP).
The Company’s Minimum Shareholding Requirement requires the CEO and members of the Company’s Executive Committee to build,
over a five-year period and then maintain, a minimum shareholding of Santos shares. For the CEO this is approximately three times
annual Total Fixed Remuneration (TFR) and for other members of the Executive Committee it is approximately one and a half times
the average TFR. These levels of minimum shareholdings are significant compared to typical market practice. They ensure ongoing
alignment with shareholders by requiring the CEO and members of the Company’s Executive Committee to hold shares beyond vesting
until the minimum holding is achieved.
The Minimum Shareholding Policy does allow the CEO and Senior Executives to sell shares to manage arising tax liabilities which occur
on the vesting of awards. Disposals to manage tax liabilities are encouraged to occur as closely as possible to the end of the deferred
taxing point for the relevant award.
34 / Santos Annual Report 2021
CEO Growth Projects Incentive
Santos is now in a growth phase with significant major growth projects including Barossa, Dorado and Moomba carbon capture and
storage underway. Santos is leading the energy transition to cleaner fuels and has a clear plan targeting net-zero Scope 1 and Scope 2
emissions by 2040. Mr Gallagher is uniquely placed to lead Santos through this transition.
In April 2021, the Board agreed to provide the CEO with a once-off Growth Projects Incentive. The Growth Projects Incentive will
reward the successful delivery of the projects and energy transition strategy. The incentive has been provided in the form of a
special once-off grant of Share Acquisition Rights. The Share Acquisition Rights are at-risk and vesting will be determined following
an assessment of delivery against strict performance conditions related to the growth projects and subject to continued employment
at 31 December 2025. Further information on the Growth Projects Incentive is set out on pages 50-51.
Mr Gallagher is well-recognised as one of Australia’s leading chief executives with a proven track record of delivering for shareholders.
Mr Gallagher has led a significant turnaround and the Transform, Build and Grow strategy and disciplined low-cost operating model has
delivered a sustainable and resilient business which generates significant free cash flow. Santos’ share price has more than doubled
during Mr Gallagher’s tenure, significantly outperforming the ASX200 and ASX Energy Index.
Whilst it is clear from engagement to date that the award is strongly supported by investors, Santos will seek shareholder approval for
the issue of shares to satisfy vested awards at the 2022 Annual General Meeting.
Other changes
During 2021, the Board reviewed Directors’ fees including consideration of market data provided by PwC which included comparisons of
non-executive Directors’ fees and the fee pools for similar companies.
The Directors will seek approval from shareholders to increase the maximum aggregate amount available for non-executive Directors’
fees (Fee Pool) in any financial year commencing on or after 1 January 2022 from A$2,600,000 to A$3,500,000 per year, an increase
of A$900,000 per year. The Fee Pool has not been increased since it was last approved by shareholders at the 2013 Annual General
Meeting.
The proposed Fee Pool will accommodate the appointment of additional Board members following the merger with Oil Search Limited.
Fees paid to Directors out of the Fee Pool are reviewed periodically to ensure that they are appropriate. The proposed increase in the
Fee Pool will ensure that fees can continue to be set at sufficiently competitive rates to attract and retain non-executive Directors of the
necessary qualifications and calibre, having regard to fees paid by comparable companies listed on the ASX.
The Board believes that total remuneration outcomes are aligned with the Company’s performance in 2021 and the significant value
which has been generated for shareholders.
Thank you for taking the time to review our Remuneration Report.
Yasmin Allen
Chair, People, Remuneration and Culture Committee
The Directors of Santos present this Remuneration Report for the consolidated entity for the year ended 31 December 2021. The
information provided in this report has been audited as required by section 308(3C) of the Corporations Act 2001 (Cth) (Corporations
Act) and forms part of the Directors’ Report.
The Remuneration Report outlines the Company’s key remuneration activities in 2021 and remuneration information for KMP of the
consolidated entity for the purposes of the Corporations Act and Accounting Standards, as set out below.
Remuneration is disclosed in US$ (unless otherwise indicated) with all remuneration components having been converted from A$ to
US$ using an average rate of $0.7514 for 2021 and $0.6904 for 2020. This means year-on-year changes in remuneration amounts when
stated in US$ are partly attributable to exchange rate variations and not necessarily a change in the amount paid in A$.
Santos Annual Report 2021 / 35
Directors’ Report
Remuneration Report
continued
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 2021 outcomes
6. Long-Term Incentive and vesting outcomes
7. CEO Growth Projects Incentive
8. Realised Remuneration (non-IFRS and non-audited)
9. Statutory remuneration for Executive KMP
10. KMP equity
11. Key terms of employment contracts for Executive KMP
12. Non-executive Director (NED) remuneration
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 2021. The KMP during 2021 are set out in Table 1. Unless otherwise indicated in
Table 1, all individuals were KMP for the full term in 2021.
Table 1: 2021 Key Management Personnel
Executive KMP
Non-executive Directors
Kevin Thomas Gallagher,
Managing Director and Chief Executive Officer
David Maxwell Banks, Chief Technical and Marketing Officer
Brett Anthony Darley, Chief Operating Officer,
Upstream Oil and Gas
Anthony Myles Neilson, Chief Financial Officer
Keith William Spence, Independent non-executive Chair
Yasmin Anita Allen, Independent non-executive Director
Guy Michael Cowan, Independent non-executive Director
Eileen Joy Doyle, Independent non-executive Director3
Hock Goh, Independent non-executive Director
Brett Kenneth Woods,
Chief Operating Officer, Midstream Infrastructure and Clean Fuels
Vanessa Ann Guthrie, Independent non-executive Director
Peter Roland Hearl, Independent non-executive Director
Robert Francis Simpson, EVP Onshore Oil and Gas1
Janine Marie McArdle, Independent non-executive Director
Petter Undem, EVP Commercial2
Musje Moses Werror, Independent non-executive Director4
Eugene Shi, Non-executive Director5
1 Robert Simpson ceased as KMP on 16 May 2021
2 Petter Undem ceased as KMP on 16 May 2021
3 Eileen Doyle commenced as KMP on 17 December 2021
4 Musje Werror commenced as KMP on 17 December 2021
5 Eugene Shi ceased as KMP on 10 March 2021
Anthea McKinnell was appointed Chief Financial Officer and Mr Neilson was appointed Chief Commercial Officer effective
1 January 2022.
36 / Santos Annual Report 2021
Table 2 sets out the Company’s performance over the past five years in respect of key financial and non-financial indicators and the
Short-Term Incentive (STI) and Long-Term Incentive (LTI) award metrics during this period.
Table 2: Key metrics of Company performance 2017–2021
Injury frequency:
Total recordable case frequency
Lost time injury rate1
Moderate harm rate2
Production (mmboe)
Reserve replacement rate – 2P organic (one-year average %)
Net (loss)/profit after tax (US$m)
Dividends per ordinary share (US cents)
Share price – closing price on last trading day of year3 (A$)
2017
2018
2019
2020
2021
3.5
0.4
–
59.5
62
(360)
–
5.45
4.5
0.6
0.4
58.9
69
630
9.7
5.48
4.3
0.6
0.3
75.5
56
674
11.0
8.18
3.5
0.24
0.08
89.0
11
(357)
7.1
6.27
4.18
0.81
0.34
92.1
464
658
14.0
6.31
Company Scorecard result expressed as % of target of 100%
118.0% 138.8% 120.0%
111.3% 135.6%
LTI performance (% vesting) – shown against final year of performance period
0%
0%
100%
90.7%
89.5%
1
The outcome for 2018 and prior years is presented as a three-year average. Annual performance reporting applied in 2019 and used for following years.
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 The closing share price on the last trading day of 2016 was A$4.02.
2. REMUNERATION GOVERNANCE
The People, Remuneration and Culture 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 from time to time.
In 2021, no remuneration recommendations were provided by remuneration consultants.
Santos Annual Report 2021 / 37
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 and Grow business strategy and the delivery of
Vision 2025.
Remuneration policy objectives
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)
•
•
•
A significant component of
remuneration is at-risk. The value
to the Executive is dependent on
the Company and the individual
meeting challenging targets.
STI levels are set to ensure that
total compensation appropriately
rewards the delivery of Santos’
operating model and the
increasingly demanding STI
scorecard metrics.
STI 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 two-year
restriction period. A service
condition applies during the
restriction period.
•
•
Long-term incentives are delivered
as Share Acquisition Rights (SARs)
following a 4-year vesting period.
Vesting of long-term incentives is
contingent on achieving
performance hurdles that are
aligned with creation of long-term
shareholder value.
•
These are
• Relative Total Shareholder
Return against the ASX100
• Relative Total Shareholder
Return against the S&P
Global 1200 Energy Index
• Return On Average Capital
Employed versus Weighted
Average Cost of Capital
•
Free Cash Flow Breakeven
Point
The share plan rules give the Company
the discretion to lapse or forfeit
unvested equity awards and claw
back any vested shares or cash paid in
certain circumstances.
38 / Santos Annual Report 2021
4. REMUNERATION MIX
The remuneration mix indicates the extent to which Executive remuneration is:
•
•
fixed and not at-risk; and
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, subject to satisfaction of a service condition) and target LTI. LTI awards are allocated on a face
value basis. Vesting of LTI 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 per cent discount to the face value of the award.
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. Vesting of awards is subject to the achievement
of performance and/or service conditions.
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.
CEO remuneration quantum and mix
The remuneration quantum and mix for the CEO at minimum, target and maximum performance is shown in Chart 1.
Chart 1: 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
• Minimum: TFR of A$2,010,000.
A$000
•
Target: 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: 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.
In addition, the CEO participates in a once-off Growth Projects Incentive. This is described in more detail in section 7. The Growth
Projects Incentive was provided as a once-off award and is not reflected in the above chart.
Santos Annual Report 2021 / 39
Directors’ Report
Remuneration Report
continued
Senior Executive remuneration mix and quantum
The remuneration quantum and mix for Senior Executives at minimum, target and maximum performance is shown in Chart 2.
Chart 2: Senior Executive remuneration quantum and mix
Minimum
Target
Maximum
100%
1.00
43%
15%
15%
27%
2.30
32%
18%
18%
2.00
32%
3.17
2.50
3.00
3.50
0.00
0.50
1.00
1.50
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: TFR only.
•
Target: TFR, STI at the target level (a cash award of 35% of TFR and a deferred equity award of 35% of TFR) and target LTI of 60%
of TFR.
• Maximum: TFR, STI at the maximum level (a cash award of 58.5% of TFR and a deferred equity award of 58.5% of TFR) and the
maximum LTI award of 100% of TFR.
40 / Santos Annual Report 2021
5. SHORT-TERM INCENTIVE FRAMEWORK AND 2021 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
achievement of the business outcomes which contribute to the delivery of long-term growth in shareholder value.
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 2021,
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.
Gate-opener and cap linked to the Company’s free cash flow generation
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.
To provide greater alignment with the shareholder experience and to ensure awards under the STI Plan are reasonable relative to free
cash flow generated, the Board introduced a cap on the STI pool of five per cent of the Company’s free cash flow (excluding growth
capex) in any year.
This cap was applied in determining the outcome for 2020 and led to an overall 28.5 per cent reduction in the size of the cash STI pool
in that year. The STI pool for 2021 was well within the cap.
Company Scorecard
The actual STI pool for the year is set by reference to the Company Scorecard result (2021 results are outlined in Table 3 on pages 42-45).
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
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 Scorecard has a maximum result of 167 per cent 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, Remuneration and Culture 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 Board assesses the CEO’s performance and determines his STI award. The CEO assesses Senior Executive performance and
determines STI award proposals which are then formally endorsed by the People, Remuneration and Culture Committee.
Half of STI outcomes are delivered in equity, vesting a further two years after the end of the performance year
Half (50 per cent) of STIs provided to Senior Executives are delivered in cash in March following the end of the performance year.
The remaining half (50 per cent) is provided as deferred equity (in the form of Restricted Shares), restricted for two years and subject
to a service condition during this time. 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 (see section 6 for further information).
Santos Annual Report 2021 / 41
Directors’ Report
Remuneration Report
continued
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Directors’ Report
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Santos Annual Report 2021 / 45
Directors’ Report
Remuneration Report
continued
2021 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 2021,
the Board also consider outcomes outside of the Scorecard and the impact of the CEO’s personal performance and leadership on
five dimensions: corporate activity, growing shareholder value, futureproofing the business, leadership and culture and stakeholder
engagement.
The STI amount for 2021 represents an outcome which is 135.6 per cent of the target amount (81 per cent of maximum STI opportunity),
which is in line with the Company Scorecard outcome.
This delivers an aggregate STI amount to the CEO for 2021 of A$2,725,560, of which A$1,362,780 (50 per cent) will be awarded as
cash, and A$1,362,780 (50 per cent) will be awarded as deferred shares, restricted until 31 December 2023.
2021 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 2021 STI outcomes for ongoing Senior Executives ranged from 65 per cent to 89 per cent of their maximum opportunity, depending
on their individual performance contribution.
Further detail of each individual Senior Executive’s outcome is provided in Table 5 on page 47.
All Senior Executives had individual KPIs relating to environment, health, safety, culture and leadership. Role-specific KPIs by Senior
Executive are set out in Table 4 below.
Table 4: Senior Executive role specific KPIs
Note, some KPIs contain commercially sensitive information that cannot be detailed here.
Senior Executive
Role-specific KPIs
Key achievements in 2021
D Banks
•
•
Technical and operations
governance across the business
Provide capability to deliver
Santos’ growth program
• Reserves replacement
• Demonstrated strong safety and environmental leadership
•
Established strong functional leadership team with new high-talent
recruits
• Has driven the testing of horizontal drilling in the Cooper basin
• Delivered Northern Territory drilling program
• Delivered ConocoPhillips integration targets following the
finalisation of the ConocoPhillips transaction and in building
technical function capability
•
Established consistent operations staffing model across organisation
• Drove strong customer relationship development focus
B Darley
•
Production volume and cost
• Delivered strong production outcomes across portfolio
• Health, Safety and Environment
outcomes
•
Emissions reductions
•
•
Successfully hooked up Ningaloo Vision & delivered successful infill
drilling program
Successfully delivered deferred Barossa project; took FID with new
FPSO contract in place
A Neilson
• Corporate cost reduction
• Delivered US$1 billion bond issue in US 144A market
•
•
•
Balance sheet improvement and
capital management
•
Established capital reduction plans
• Continued to build investor confidence in Santos’ financial
Investor relations outcomes
management
Finance and IT integration activities
• Delivered reduced gearing
B Woods
• Operational cost efficiency
•
Progression of low carbon
operations including carbon
capture and storage
• Health, Safety and Environment
outcomes
•
•
•
•
Established Midstream Division successfully grouping key assets
Achieved strong safety and environment performance outcomes
Advanced Moomba CCS project and successfully took FID
Achieved DLNG tolling and processing agreements in support of
Barossa and took FID on the DLNG Life Extension project
• Continued to support PNG re-determination negotiations and drove
positive outcome for Santos
46 / Santos Annual Report 2021
Table 5 sets out the individual STI outcomes for Senior Executives in 2021, as a percentage of their STI target and maximum
STI opportunity.
Table 5: Senior Executive 2021 STI outcomes
Target 2021 STI
(% of TFR)
Actual 2021 STI
(% of TFR)
2021 STI as a
% of Maximum
% of Maximum
STI forfeited
Executive Director
K Gallagher
Senior Executives
D Banks
B Darley
A Neilson
B Woods
Former Senior Executives
R Simpson
P Undem
100%
70%
70%
70%
70%
70%
70%
136%
90%
85%
100%
104%
76%
76%
81%
77%
73%
85%
89%
65%
65%
19%
23%
27%
15%
11%
35%
35%
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 free cash flow breakeven point (FCFBP) and return on average capital employed (ROACE) measures are achieved 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.
SARs 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 2021 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
Relative TSR measured against
constituent members of the ASX100 at the
commencement of the performance period
The calculation of TSR takes into consideration share price growth
and dividend yield and is therefore a robust and objective measure of
shareholder returns.
25%
25%
Relative TSR measured against constituent
members of the S&P Global 1200 Energy
Index (GEI) at the commencement of the
performance period
25%
Free Cash Flow Breakeven Point (FCFBP)
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.
25%
Return on Average Capital Employed
(ROACE) compared with weighted average
cost of capital (WACC)
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 interest by focusing on the efficient and disciplined use
of capital to generate shareholder returns.
Santos Annual Report 2021 / 47
Directors’ Report
Remuneration Report
continued
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$25/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, Santos has delivered a trend of increasing investment in drilling across Queensland and Cooper Basin
onshore operations since 2016, with a 150 per cent increase in wells drilled in 2021 compared to 2016. Production has also increased
by 20 per cent across Santos’ Queensland and Cooper Basin assets during this period, with a reserves replacement ratio of well over
100 per cent across the last two years achieved in Queensland.
FCFBP being a non-market measure is tested and audited internally and all results are 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 percentile ranking
Santos ROACE <= 110% of WACC
Santos ROACE > 110% of WACC then:
Santos ROACE >= 140% 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 2022 awards
For 2022 LTI awards, the level to achieve threshold vesting of the FCFBP component will be set at US$35/bbl to reflect portfolio
operating model expectations. This is US$5/bbl below the threshold vesting level for the 2021 LTI award. The outcome to achieve full
vesting remains US$25/bbl.
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.
48 / Santos Annual Report 2021
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 2018 LTI award
The 2018 LTI award was tested over the four-year performance period 1 January 2018 to 31 December 2021.
The 2018 LTI grant was allocated at a base share price of A$5.45.
Santos achieved a total shareholder return of 30.3 per cent over the performance period, placing it at the 55th percentile against the
S&P ASX100 comparator group and at the 84th percentile against the S&P Global 1200 Energy Index comparator group.
Chart 3: TSR performance against S&P ASX100 Index and S&P Global 1200 Energy Index
200
150
100
50
0
S&P ASX100 Index
Santos $6.31
TSR 30.3%
S&P Global Energy Index
Dec 17
Jun 18
Dec 18
Jun 19
Dec 19
Jun 20
Dec 20
Jun 21
Dec 21
Santos’ FCFBP for the FCFBP component (averaged over 2018-2021) was US$20.98. ROACE was 129.8 per cent of WACC. This means
100 per cent of the FCFBP component vested and 100 per cent of the ROACE component vested.
As a result, 89.5 per cent of the 2018 LTI awards vested.
Santos Annual Report 2021 / 49
Directors’ Report
Remuneration Report
continued
7. CEO GROWTH PROJECTS INCENTIVE
In April 2021, the Board agreed to provide the CEO a once-off Growth Projects Incentive to reward Mr Gallagher for the successful
delivery of Santos’ major growth projects and energy transition strategy to 31 December 2025. Mr Gallagher is well-recognised as one of
Australia’s leading chief executives with a proven track record of delivering for shareholders.
Santos is moving into a growth phase with significant major growth projects including Barossa, Dorado and Moomba carbon capture and
storage underway. Santos is leading the energy transition to cleaner fuels and has a clear plan targeting net-zero Scope 1 and 2 equity
emissions by 2040. Mr Gallagher is uniquely placed to lead Santos through this transition.
This offer recognises the unique value that Mr Gallagher brings to Santos and the significant role he will play in leading and driving the
delivery of the major growth projects through until the end of 2025. The projects are a critical part of the Transform, Build and Grow
strategy, and Vision 2025 which Mr Gallagher has designed and led since joining Santos.
The Growth Projects Incentive was provided wholly in the form of 847,458 SARs granted under the Santos Employee Equity Incentive
Plan. This was calculated by dividing the maximum award quantum of A$6 million by the volume weighed average price of Santos shares
for the five trading days up to and including 9 April 2021 of A$7.08. The SARs are at-risk and vesting will be determined following an
assessment of delivery against strict performance conditions related to growth projects and emissions reduction and energy transition
deliverables and continued employment at 31 December 2025.
Following this assessment, if the SARs vest, shares are automatically allocated to Mr Gallagher. Nothing is payable by Mr Gallagher
if SARs vest.
While any vesting awards will not be subject to a further restriction period post vesting, Mr Gallagher is required to retain a minimum
shareholding equivalent to three times his annual Total Fixed Remuneration. Trading in shares is subject to compliance with the
Company’s Securities Dealing Policy. Mr Gallagher also participates in deferred STI and LTI which are provided in equity and which
provide ongoing alignment with shareholders.
The award comprises milestones and initiatives to be achieved over the five years to 31 December 2025. The Board will review
performance annually as part of the CEO’s performance assessment. Achievement of initiatives over the five calendar year performance
period (2021-2025) allows success to be ‘locked in’ along the way, however all awards remain subject to forfeiture if the CEO resigns
from his employment prior to 31 December 2025 unless agreed by the Board.
Table 10: Performance conditions relating to the Growth Projects Incentive
Deliverables
Major Growth
Projects
Allocation
(% of total award)
Targets
60%
Initiatives related to the delivery of:
•
•
•
the Barossa Project
the Dorado Project
developing backfill resources to maximise ongoing utilisation and future expansion
of existing facilities
Emissions reduction,
net-zero plan and
energy transition
40%
Initiatives related to the delivery of:
• CCS Operational targets
•
•
•
progress towards net-zero Scope 1 and 2 operations emissions
new energy business development which supports Energy Transition
achieve significant progress on a commercial scale hydrogen or downstream clean
fuels project
50 / Santos Annual Report 2021
The underlying performance conditions of the Growth Projects Incentive are commercially sensitive and therefore only a high-level
overview of the deliverables and milestones has been given in Table 10. A more detailed description of achievements will be provided
each year in the Remuneration Report.
The Board considers that the 40 per cent weighting to emissions, net-zero and energy transition significantly increases the exposure of
the CEO’s remuneration to climate change measures.
Approval will be sought for the issue of shares for the Growth Projects Incentive at the 2022 Annual General Meeting, as the timeframe
did not enable the resolution to be included in the 2021 Annual General Meeting. In the event approval for the issue of shares to satisfy
vested SARs is not received, the Growth Projects Incentive will be settled with shares acquired on market or will be cash-settled.
Performance in 2021
Following Board review, the following milestone initiatives were noted as having been achieved during 2021:
Major Growth Projects
•
•
The Board approved the Final Investment Decision for the Barossa Project on 30 March 2021.
Santos completed the sell-down of 25 per cent interests in both Bayu-Undan and Darwin LNG to SK E&S on 30 April 2021.
This sell-down further aligned partner interests in the Barossa Project with those in Bayu-Undan and Darwin LNG.
• On 29 June 2021, Santos announced the launch of front end engineering and design (FEED) for the Dorado Project in the Bedout
Sub-basin, offshore Western Australia. Entering FEED for the Dorado project is a significant milestone and has the project on
schedule for a final investment decision around mid-2022. Dorado has high-quality reservoirs making it a very cost-competitive
project globally. Dorado is also a very low CO2 reservoir with approximately 1.5 per cent CO2.
Emissions reduction, net-zero plan and energy transition
• On 1 November 2021, Santos and joint venture partner Beach Energy announced the final investment decision to proceed with
Santos’ A$210 million Moomba CCS project. Moomba CCS will be one of the biggest CCS projects in the world and will safely and
permanently store 1.7 million tonnes of carbon dioxide per year in the same reservoirs that held oil and gas in place for tens of millions
of years. The decision followed Santos’ successful registration of the Moomba CCS project with the Clean Energy Regulator. The
Clean Energy Regulator’s CCS method provides a crediting period of 25 years, over which period the project will qualify for Australian
Carbon Credit Units for emissions reduction from Moomba CCS.
Achievement of these milestones are key enablers on the critical path to delivery of the overall performance goals in the Growth
Projects Incentive.
All awards remain subject to forfeiture if the CEO resigns from his employment prior to 31 December 2025 unless otherwise agreed by
the Board.
Santos Annual Report 2021 / 51
Directors’ Report
Remuneration Report
continued
8. REALISED REMUNERATION
Table 11 shows Realised Remuneration for the CEO and Senior Executives in 2020 and 2021.
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)
Executive Director
K Gallagher
Senior Executives
D Banks
B Darley
A Neilson
B Woods
Year
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Former Senior Executives
R Simpson
P Undem
2021
2020
2021
2020
1
TFR
A$
2
Cash STI
A$
Deferred STI
that vested
3
in the year
A$
Other
vested
grants
A$
4
LTI
A$
5
Other
A$
Total
A$
2,010,000
1,362,780
896,323
2,937,703
2,010,000
887,749
1,380,334
3,820,593
–
–
6,313
7,213,119
6,326
8,105,002
800,000
760,724
840,000
840,000
922,500
916,875
768,750
768,750
247,778
256,605
282,877
750,000
360,700
221,507
358,800
250,679
459,700
316,602
401,300
229,444
94,865
44,187
106,117
201,416
224,087
284,376
257,101
36,510
314,882
408,252
224,087
385,003
–
–
131,210
–
580,287
5,696
6,313
1,977,083
–
–
–
1,266,607
538,577
576,825
14,889
2,586,192
–
688,049
1,132,017
621,731
758,451
–
–
–
–
11,985
1,139,174
–
–
2,385,131
2,773,746
6,313
2,022,181
6,326
2,147,974
300,444
378,784
3,142
1,025,013
390,746
6,198
1,970
699,706
–
–
–
–
–
–
520,204
951,416
1
TFR comprises base salary and superannuation. The amounts shown here are actually received TFR, ie they are pro-rated amounts for the period that Executives were in KMP roles.
2 The ‘Cash STI’ column reflects the 50 per cent of the STI award for 2021 performance for continuing Executives that will be paid in cash. The remaining 50 per cent will be awarded as
equity restricted for two years.
3 The deferred restricted equity from the 2019 STI award that vested on 31 December 2021, at a closing share price of A$6.31.
4 The 2018 LTI was tested at the end of its performance period on 31 December 2021 and 89.5 per cent of awards vested. The value shown in the table is based on the closing share price on
31 December 2021 of A$6.31. For the value of share-based payments calculated in accordance with the Accounting Standards, see Table 12 Statutory Executive KMP remuneration details
on page 54.
5
‘Other’ comprises ad hoc payments treated as remuneration, such as assignment and mobilisation allowances and other non-monetary benefits.
52 / Santos Annual Report 2021
Notes on Mr Gallagher’s Realised Remuneration for 2021
Mr Gallagher’s Realised Remuneration for 2021 included the following at-risk performance related elements:
•
•
•
the cash component of Mr Gallagher’s STI award based on 2021 performance;
the value of Mr Gallagher’s deferred STI award from 2019 which vested on 31 December 2021; and
the value of Mr Gallagher’s Long-Term Incentive award from 2018 which was tested at 31 December 2021.
As noted above, the CEO was awarded a cash STI for 2021 of A$1,362,780. The basis for this award is described in section 5 above.
Mr Gallagher’s 2019 STI was awarded half in cash and half in Restricted Shares, with the Restricted Shares vesting on
31 December 2021. The share price depreciated 23 per cent between the start of the performance period (A$8.18) and
vesting (A$6.31) reducing the value of the award received by Mr Gallagher to A$0.9m from A$1.16m.
Chart 4: Realised value of Mr Gallagher’s Deferred 2019 STI Chart 5: Realised value of Mr Gallagher’s 2018 LTI
m
$
A
1.5
1.0
0.5
0.0
1.16
(0.27)
0.9
2.83
0.45
(0.34)
2.94
m
$
A
4.0
3.0
2.0
1.0
0.0
Value at start of
performance period
Share price
growth
Value at vesting
Value at start of
performance period
Share price
growth
Forteited
Value at
vesting
Mr Gallagher’s 2018 LTI allocation had a face value of A$2.83m at the start of the performance period. The Santos share price
appreciated 16 per cent between the start of the performance period and vesting. The value based on the closing share price on
31 December 2021 of A$6.31 was A$3.28m. The vesting outcome of the 2018 LTI was 89.5 per cent, meaning the value of the final
vesting award was A$2.94m.
Santos Annual Report 2021 / 53
Directors’ Report
Remuneration Report
continued
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Tables 13 and 14 contain details of the number and value of SARs and shares granted, vested and lapsed for the CEO in 2021.
Table 13: Movements in SARs for the CEO
Granted
Vested
Lapsed
LTI SARs
577,0331
2,600,4112
465,5633
2,207,390
Growth Projects Incentive SARs
847,4584
4,502,0345
–
–
Maximum
value
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Number
Number
Value
US$
Number
54,620
–
Total
1,424,491
7,102,445
465,563
2,207,390
54,620
1
The SARs granted to the CEO relate to his 2021 LTI performance grant as approved at the 2021 Annual General Meeting (AGM), under Listing Rule 10.14. This grant relates to the LTI award
for the four-year performance period ending on 31 December 2024.
2 The maximum value represents the fair value of LTI grants received in 2021, determined in accordance with AASB 2 Share-based Payment. The weighted average fair value of each SAR as
at the grant date of 15 April 2021 is A$6.00. Details of the assumptions underlying the valuations are set out in Note 7.2 to the financial statements. The minimum total value of the grant to
the CEO, if the applicable vesting conditions are not met, is nil in all cases. All values have been converted to US$.
3 The number of SARs vested for the CEO relates to the CEO’s 2018 LTI performance grants as approved at the 2018 Annual General Meeting. This was tested based on performance to 31
December 2021 with 89.5 per cent of the award vested as described in section 6. There are no retesting provisions under the LTI and the lapsed amount reflects the 10.5 per cent which did
not satisfy the vesting conditions.
4 This relates to the special one-off grant of SARs under the Growth Projects Incentive. The award will vest on 31 December 2025 contingent on the achievement of the relevant
performance and employment conditions outlined in more detail in section 7.
5 The maximum value represents the fair value of Growth Projects Incentive SARs allocated in 2021, determined in accordance with AASB 2 Share-based Payment. The fair value of the
Growth Projects Incentive grant as at the grant date of 11 April 2021 is $A7.07. The minimum total value of the grant to the CEO, if the applicable vesting conditions are not met, is nil.
Table 14: Movements in Restricted Shares for the CEO
Granted
Vested
Lapsed
Deferred STI
198,0231
1,074,296
142,0482
673,497
Maximum
value
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Number
Number
Value
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Number
–
1
The Restricted Shares granted to the CEO relate to his 2020 STI award. The maximum value is the fair value of the 2020 STI grant of Restricted Shares received in 2021 determined in
accordance with AASB 2 Share-based Payment. The fair value of the deferred 2020 STI grant as at the grant date of 15 March 2021 was A$7.35. The minimum total value of the Restricted
Shares granted to the CEO is nil. All values have been converted to US$.
2 This relates to the 2019 STI grant that was deferred for two years from 1 January 2020 to 31 December 2021 and vested in full on 31 December 2021.
Santos Annual Report 2021 / 55
Directors’ Report
Remuneration Report
continued
Tables 15 and 16 contain details of the number and value of SARs and shares granted, vested and lapsed for Senior Executives in 2021.
No Senior Executive had any options granted, vesting or lapsing in 2021.
Table 15: Movements in SARs for Senior Executives
Granted1
Vested3
Lapsed
LTI SARs
Senior Executives
D Banks
B Darley
A Neilson
B Woods
Former Senior Executives
R Simpson
P Undem
Total
Senior Executives
D Banks
B Darley
Former Senior Executives
R Simpson
Total
1
This relates to the 2021 LTI award.
Value
US$
Number
Maximum
2
value
US$
534,005
560,708
615,778
513,146
447,626
500,632
Number
127,591
133,971
147,129
122,607
106,952
119,617
Number
91,963
85,3534
109,041
98,531
436,027
404,687
517,000
467,168
47,614
225,754
–
–
10,789
10,014
12,793
11,560
5,586
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757,867
3,171,895
432,502
2,050,636
Other SARs
Granted
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Maximum
value
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Number
Number
Value
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Number
–
–
–
–
–
–
–
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8005
4,280
88,8796
433,426
53,2007
142,879
284,618
722,324
–
–
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2 Maximum value represents the fair value of LTI grants received in 2021 determined in accordance with AASB 2 Share-Based Payment. The weighted average fair value of each SAR as at
the grant date of 12 May 2021 is A$5.57. Details of the assumptions underlying the valuations are set out in Note 7.2 to the financial statements. The minimum total value of the grant to the
Senior Executives, if the applicable vesting conditions are not met, is nil in all cases. All values have been converted to US$.
3 Vesting of LTI SARs that relates to the 2018 LTI award. The value is determined by the share price of A$6.31 on the date of vesting at 31 December 2021.
4 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.
5 Vesting of ShareMatch SARs that relates to the 2018 share purchase. The value is determined by the share price of A$7.12 on the date of vesting at 9 July 2021.
6 Mr Darley commenced employment with Santos following the acquisition of Quadrant Energy. Mr Darley received a sign-on award to compensate him for interests forgone upon
commencement with Santos which fully vested three years after his commencement having satisfied the service condition. The value of the SARs is determined by the share price of
A$6.49 on the date of vesting at 27 November 2021.
7 Mr Simpson received a retention award in 2018 which fully vested in 2021 having satisfied both service and individual performance conditions. The value is determined by the share price of
A$7.12 on the date of vesting at 1 April 2021.
56 / Santos Annual Report 2021
Table 16: Movements in Restricted Shares for Senior Executives
Senior Executives
D Banks
B Darley
A Neilson
B Woods
Former Senior Executives
R Simpson
P Undem
Total
Senior Executive
D Banks
Deferred STI
Granted1
Vested
Lapsed
Maximum
2
value
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268,049
303,269
383,045
277,570
142,854
243,739
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49,409
55,901
70,606
51,164
26,332
44,928
298,340
1,618,526
Number
35,513
40,745
49,902
35,513
–
20,794
182,467
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Value
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Number
168,379
193,186
236,602
168,379
–
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865,137
–
–
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Maximum
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Number
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–
–
800
4,280
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1
2
This relates to the 2020 STI award delivered as Restricted Shares.
For the Restricted Shares, maximum value represents the fair value of 2019 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 12 March 2021 was A$7.22. The minimum total value of the grant, if the applicable vesting conditions are not met, is nil. All values have been converted to US$.
3 Vested ShareMatch restricted shares that relate to the 2018 share purchase. The value is determined by the share price of A$7.12 on the date of vesting at 9 July 2021.
Santos Annual Report 2021 / 57
Directors’ Report
Remuneration Report
continued
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58 / Santos Annual Report 2021
Executive KMP SARs and Restricted Shares
Tables 18 and 19 set out the movement during the reporting period in the number of SARs and Restricted 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: Movements in Executive KMP SARs
Balance at
1 Jan 2021
SARs
granted
SARs
vested1
SARs
lapsed
Balance at
31 Dec 2021
% vested in
the year
% forfeited
in the year
Financial
year of
vesting
Grant
date
Executive Director
7/5/18
K Gallagher
9/5/19
9/4/20
31/8/20
31/8/20
11/4/21
15/4/21
Total
Senior Executives
D Banks
21/3/18
9/7/18
15/3/19
19/3/20
31/8/20
12/5/21
Total
18/4/19
18/4/19
18/4/19
19/3/20
31/8/20
31/8/20
12/5/21
Total
21/3/18
15/3/19
19/3/20
31/8/20
12/5/21
Total
21/3/18
15/3/19
19/3/20
31/8/20
31/8/20
12/5/21
Total
1/4/18
8/5/18
18/3/19
19/3/20
12/5/21
Total
4/10/19
19/3/20
31/8/20
31/8/20
12/5/21
Total
B Darley
A Neilson
B Woods
P Undem
Former Senior Executives
R Simpson
520,183
535,442
442,298
898
898
–
–
–
–
–
–
–
847,4582
577,033
1,499,719 1,424,491
(465,563)
–
–
–
–
–
–
(465,563)
(54,620)
–
–
–
–
–
–
(54,620)
–
535,442
442,298
898
898
847,458
577,033
2,404,027
102,752
8003
104,744
91,687
898
–
300,881
88,8794
95,3675
122,6276
102,689
898
898
–
411,358
121,834
124,197
112,775
898
–
359,704
110,091
112,226
93,979
898
898
–
318,092
53,2007
53,200
54,089
36,815
–
197,304
109,489
91,687
898
898
–
202,972
–
–
–
–
–
127,591
127,591
–
–
–
–
–
–
133,971
133,971
–
–
–
–
147,129
147,129
–
–
–
–
–
122,607
122,607
–
–
–
–
106,952
106,952
–
–
–
–
119,617
119,617
(91,963)
(800)
–
–
–
–
(92,763)
(88,879)
(85,353)
–
–
–
–
–
(174,232)
(109,041)
–
–
–
–
(109,041)
(98,531)
–
–
–
–
–
(98,531)
(53,200)
(47,614)
–
–
–
(100,814)
–
–
–
–
–
–
(10,789)
–
–
–
–
–
(10,789)
–
(10,014)
–
–
–
–
–
(10,014)
(12,793)
–
–
–
–
(12,793)
(11,560)
–
–
–
–
–
(11,560)
–
(5,586)
–
–
–
(5,586)
–
–
–
–
–
–
–
–
104,744
91,687
898
127,591
324,920
–
–
122,627
102,689
898
898
133,971
361,083
–
124,197
112,775
898
147,129
384,999
–
112,226
93,979
898
898
122,607
330,608
–
–
54,089
36,815
106,952
197,856
109,489
91,687
898
898
119,617
322,589
89.5%
10.5%
89.5%
100%
10.5%
0%
100%
89.5%
0%
10.5%
89.5%
10.5%
89.5%
10.5%
100%
89.5%
0%
10.5%
2021
2022
2023
2023
2024
2025
2024
2021
2021
2022
2023
2023
2024
2021
2021
2022
2023
2023
2024
2024
2021
2022
2023
2023
2024
2021
2022
2023
2023
2024
2024
2021
2021
2022
2023
2024
2022
2023
2023
2024
2024
1 Rights vested represents SARs that had satisfied their vesting performance conditions in 2021. Vested LTI SARs do not convert to ordinary shares until 2022.
2 This relates to the special once-off Growth Projects Incentive SARs granted in 2021. The award will vest on 31 December 2025 contingent on the achievement of the relevant performance
and employment conditions outlined in more detail in section 7.
3 Vesting of ShareMatch SARs that relates to the 2018 share purchase.
4 Mr Darley commenced employment with Santos following the acquisition of Quadrant Energy. Mr Darley received a sign-on award to compensate him for interests forgone upon
commencement with Santos which vested three years after his commencement.
5 Mr Darley also 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.
6 Mr Darley’s LTI award for 2019.
7 Mr Simpson received a retention award in 2018 which fully vested in 2021 having satisfied both service and individual performance conditions
Santos Annual Report 2021 / 59
Directors’ Report
Remuneration Report
continued
Table 19: Movements in Executive KMP Restricted Shares
Grant
date
Balance at
1 Jan 2021
Restricted
Shares
granted
Restricted
Shares
vested
Restricted
Shares
forfeited
Balance at
31 Dec 2021
% vested
in the year
% forfeited
in the year
Financial
year of
vesting
Executive Director
K Gallagher
12/3/20
142,048
31/8/20
31/8/20
12/3/21
Total
Senior Executives
D Banks
9/7/18
B Darley
12/3/20
31/8/20
12/3/21
Total
12/3/20
31/8/20
31/8/20
12/3/21
Total
A Neilson
12/3/20
31/8/20
12/3/21
Total
–
–
–
198,023
(142,048)
–
–
–
898
898
–
143,844
198,023
(142,048)
8001
35,513
898
–
37,211
40,745
898
898
–
42,541
49,902
898
–
–
–
–
–
49,409
(800)
(35,513)
–
–
49,409
(36,313)
–
–
–
55,901
(40,745)
–
–
–
55,901
(40,745)
–
–
70,606
(49,902)
–
–
50,800
70,606
(49,902)
B Woods
12/3/20
35,513
31/8/20
31/8/20
12/3/21
Total
Former Senior Executives
R Simpson
31/8/20
12/3/21
Total
898
898
–
37,309
179
–
179
P Undem
12/3/20
20,7942
31/8/20
31/8/20
12/3/21
Total
898
898
–
–
–
–
51,164
51,164
–
26,332
26,332
–
–
–
44,928
(35,513)
–
–
–
(35,513)
–
–
–
(20,794)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
898
898
198,023
199,819
–
–
–
898
49,909
50,807
–
898
898
55,901
57,697
–
898
70,606
71,504
–
898
898
51,164
52,960
179
26,332
26,511
–
898
898
44,928
46,724
100%
0%
100%
100%
0%
0%
100%
0%
100%
0%
100%
0%
100%
0%
2021
2023
2024
2022
2021
2021
2023
2022
2021
2023
2024
2022
2021
2023
2022
2021
2023
2024
2022
2023
2022
2021
2023
2024
2022
22,590
44,928
(20,794)
1 Mr Banks’ vesting of 800 ShareMatch Restricted Shares into ordinary shares that relate to the 2018 share purchase.
2 Mr Undem’s 2019 Deferred STI grant vested on 31 December 2021 after cessation of his term as KMP on 16 May 2021.
60 / Santos Annual Report 2021
ShareMatch offer
In 2020, Executive KMP were able to participate in the Santos ShareMatch employee share plan. The 2020 ShareMatch offer provided
the opportunity for participants to acquire up to A$10,000 in Santos shares funded through pre-tax and post-tax deductions from salary
which concluded in June 2021. No amounts were outstanding at 31 December 2021. ShareMatch was not offered to Executive KMP
in 2021.
The general terms of ShareMatch and full details of all outstanding equity awards can be found in Note 7.2 to the financial statements
in this and prior Remuneration Reports.
Loans to Key Management Personnel
No other loans have been 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 their related parties.
11. 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
Contract
duration
Notice period –
Company
Notice period –
Individual
Termination provision
K Gallagher
Ongoing
12 months
12 months
Other KMP
Ongoing
6 months
6 months
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 A$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 of other termination payments
are payable under the agreement.
Santos Annual Report 2021 / 61
Directors’ Report
Remuneration Report
continued
12. 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 objectives
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$2,600,000, being the
amount approved by shareholders at the 2013 AGM.
Remuneration
Fees paid to non-executive Directors are reviewed periodically and are fixed by the Board. Table 21 summarises the fee structure for
main Board and committees for 2021.
Table 21: Non-executive Directors’ annual fee structure1
Board
Audit and Risk Committee
Environment, Health, Safety and Sustainability Committee
Nomination Committee3
People, Remuneration and Culture Committee
1
Fees are shown inclusive of superannuation.
2
Chair
A$
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, so does not receive any additional fees for this role (see footnote 2 above).
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 2020 and 2021 is shown in Table 22.
Santos engaged PwC in 2019 to undertake an independent review of non-executive Director fees and the Fee Pool cap. Fees had last
been reviewed in 2018 and the cap had not been increased since 2013. Consistent with the outcomes of the review, a proposal was
put forward to the Board to align fees at around market median and to abolish the separate fee for the Nomination Committee. These
changes were approved by the Board in February 2020 but were ultimately not implemented in the face of extreme uncertainties arising
from the rapidly emerging COVID-19 pandemic.
62 / Santos Annual Report 2021
During 2021, the Board reviewed Directors’ fees including consideration of updated market data provided by PwC. The Board approved
to increase the Chair fee to A$561,325, member fees to A$200,000, all sub-committee Chair fees to A$50,000, all sub-committee
member fees to A$25,000 and to eliminate the Nominations Committee fee, effective from 1 January 2022.
The Directors will seek approval from shareholders to increase the maximum aggregate amount available for non-executive Directors’
fees (Fee Pool) in any financial year commencing on or after 1 January 2022 from A$2,600,000 to A$3,500,000 per year, an increase
of A$900,000 per year. The Fee Pool has not been increased since it was last approved by shareholders at the 2013 Annual General
Meeting.
The proposed Fee Pool will accommodate the appointment of additional Board members following the merger with Oil Search Limited.
Superannuation and retirement benefits
Superannuation contributions are made on behalf of non-executive Directors in accordance with the requirements of the Company’s
statutory superannuation obligations. Non-executive Directors are not entitled to retirement benefits (other than mandatory statutory
entitlements).
Statutory remuneration for non-executive Directors
Details of the fees and other benefits paid to non-executive Directors in 2021 are set out in Table 22. Differences in fees received
between 2020 and 2021 reflect changes in roles and responsibilities (ie Chair or committee appointments) and currency movements as
fees are paid in Australian dollars but disclosed in US dollars.
No share-based payments were made to any non-executive Director.
Table 22: 2021 and 2020 non-executive Director remuneration
Director
Y Allen
G Cowan
E Doyle2
H Goh
V Guthrie
P Hearl
J McArdle
K Spence
M Werror2
Former Director
E Shi3
Year
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Short-term benefits
Retirement benefits
Directors’ fees
(incl. committee fees)
US$
Fees for special
duties or exertions
US$
Other long-
term benefits
US$
1
Superannuation
US$
Share-based
payments
US$
Total
US$
175,789
161,776
158,442
144,711
4,764
–
164,453
154,941
156,939
143,331
168,275
154,872
169,309
145,187
374,978
345,423
5,241
–
28,361
344
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,926
14,739
15,447
13,748
476
–
16,033
9,714
15,301
13,616
16,550
14,739
–
–
17,005
14,739
–
–
–
33
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
192,715
176,515
173,889
158,459
5,240
–
180,486
164,655
172,240
156,947
184,825
169,611
169,309
145,187
391,983
360,162
5,241
–
28,361
377
1
Includes superannuation guarantee payments. Superannuation guarantee payments are made to Mr Goh only in relation to days worked in Australia.
2 Dr Doyle and Mr Werror joined the Santos Board effective from Oil Search merger implementation on 17 December 2021.
3 Mr Shi, an ENN Group nominee director, joined the Board on 31 December 2020 and resigned on 10 March 2021, following completion of the sale of ENN Group’s 5.14 per cent interest
in the Company.
Santos Annual Report 2021 / 63
Directors’ Report
Directors’ Report
continued
INDEMNIFICATION
Rule 61 of the Company’s Constitution provides that the Company indemnifies, on a full indemnity basis and to the full extent permitted
by law, officers of the Company for all losses or liabilities incurred by the person as an officer of the Company, a related body corporate
or trustee of a company-sponsored superannuation fund. Rule 61 does not 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 2021 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 2021, 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 2022. 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
$1,832,000
Assurance services, not required to be
performed by the Company’s auditor
$851,000
Other assurance services required by legislation
to be performed by the Company’s auditor
$290,000
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 147.
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 15 February 2022 in accordance with a resolution of the Directors.
Director
64 / Santos Annual Report 2021
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
SECTION 1
BASIS OF PREPARATION
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
SECTION 3
CAPITAL EXPENDITURE, OPERATING ASSETS
AND RESTORATION OBLIGATIONS
66
67
68
69
70
71
SECTION 5
FUNDING AND RISK MANAGEMENT
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
71
71
72
73
SECTION 6
GROUP STRUCTURE
6.1 Consolidated entities
6.2 Acquisitions and disposals
6.3 Assets held for sale
6.4 Joint arrangements
PAGE
6.5 Parent entity disclosures
6.6 Deed of Cross Guarantee
74
77
80
81
84
85
85
SECTION 7
PEOPLE
7.1 Employee benefits
7.2 Share-based payment plans
7.3 Key management personnel disclosures
SECTION 8
OTHER
8.1 Contingent liabilities
PAGE
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
3.1 Exploration and evaluation assets
3.2 Oil and gas assets
3.3 Goodwill
3.4 Impairment of non-current assets
3.5 Restoration obligations and other provisions
3.6 Leases
3.7 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
86
87
90
90
94
96
99
PAGE
100
102
102
102
PAGE
103
107
108
109
109
PAGE
118
121
124
125
128
129
PAGE
131
132
138
PAGE
139
139
139
140
141
142
147
Santos Annual Report 2021 / 65
Financial Report
Consolidated Income Statement
for the year ended 31 December 2021
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 associates
Profit/(loss) before tax
Income tax (expense)/benefit
Royalty-related tax expense
Total tax expense
Net profit/(loss) for the period attributable to owners of Santos Limited
Earnings per share attributable to the equity holders of Santos Limited (¢)
Basic profit/(loss) per share
Diluted profit/(loss) per share
Dividends per share (¢)
Paid during the period
Declared in respect of the period
Note
2.2
2.3
2.2
2.7
3.4
2.3
5.2
5.2
6.4(b)
2.4(a)
2.4(b)
2.5
2.5
2.6
2.6
2021
US$million
2020
US$million
4,713
(2,982)
3,387
(2,642)
1,731
124
112
(8)
(562)
5
(222)
25
1,205
(363)
(184)
(547)
658
30.8
30.6
10.5
14.0
745
125
65
(895)
(145)
15
(249)
33
(306)
63
(114)
(51)
(357)
(17.1)
(17.1)
7.1
7.1
The Consolidated Income Statement is to be read in conjunction with the Notes to the Consolidated Financial Statements.
66 / Santos Annual Report 2021
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
Net profit/(loss) for the period
Other comprehensive income, net of tax
Items to be reclassified to the income statement in subsequent periods
Exchange (loss)/gain on translation of foreign operations
Foreign currency translation reserve recycled to the income statement
Loss on derivatives designated as cash flow hedges
Tax effect
Net other comprehensive (loss)/income to be reclassified
to the income statement in subsequent periods
Items not to be reclassified to the income statement in subsequent periods
Fair value changes on financial liabilities designated at fair value
due to own credit risk
Tax effect
Net other comprehensive (loss)/income not to be reclassified
to the income statement in subsequent periods
Other comprehensive (loss)/income, net of tax
Total comprehensive income/(loss) attributable to owners of Santos Limited
2021
US$million
2020
US$million
658
(357)
(30)
–
(30)
(70)
21
(49)
(79)
(1)
–
(1)
(1)
(80)
578
55
–
55
(3)
1
(2)
53
2
(1)
1
1
54
(303)
The Consolidated Statement of Comprehensive Income is to be read in conjunction with the Notes to the Consolidated Financial
Statements.
Santos Annual Report 2021 / 67
Financial Report
Consolidated Statement of Financial Position
as at 31 December 2021
Current assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Contract assets
Inventories
Other financial assets
Assets held for sale
Total current assets
Non-current assets
Contract assets
Investments in associate and joint ventures
Other financial assets
Prepayments
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Deferred tax assets
Goodwill
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Interest-bearing loans and borrowings
Current tax liabilities
Provisions
Other financial liabilities
Liabilities directly associated with assets held for sale
Total current liabilities
Non-current liabilities
Contract liabilities
Lease liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Provisions
Other liabilities
Other financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Equity attributable to owners of Santos Limited
Total equity
Note
4.1
4.2
2.2(b)
4.3
5.5(g)
6.3
2.2(b)
6.4(b)
5.5(g)
3.1
3.2
2.4(d)
3.3
4.4
2.2(b)
3.6
5.1
3.5
5.5(g)
6.3
2.2(b)
3.6
5.1
2.4(d)
3.5
5.5(g)
5.3
5.4
5.4
2021
US$million
2020
US$million
2,976
873
82
122
406
7
285
4,751
297
399
53
100
3,182
18,077
388
1,299
1,463
25,258
30,009
1,215
106
196
889
211
288
98
8
3,011
237
677
6,287
2,350
3,817
–
20
13,388
16,399
13,610
15,030
806
(2,226)
13,610
13,610
1,319
560
39
23
288
29
438
2,696
106
413
24
2
1,818
10,925
248
1,041
383
14,960
17,656
558
64
121
233
31
177
39
312
1,535
281
336
4,309
904
3,039
1
24
8,894
10,429
7,227
9,013
1,107
(2,893)
7,227
7,227
The Consolidated Statement of Financial Position is to be read in conjunction with the Notes to the Consolidated Financial Statements.
68 / Santos Annual Report 2021
Consolidated Statement of Cash Flows
for the year ended 31 December 2021
Note
2021
US$million
2020
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
(Payments for)/proceeds from commodity hedging
Borrowing costs paid
Income taxes paid
Royalty-related taxes paid
Insurance proceeds
Overriding royalty
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
Acquisitions of a controlled entity, net of cash acquired
Costs associated with acquisition of subsidiaries
Net proceeds/(payments) associated with disposal
Borrowing costs paid
Return of capital – Investments in associate
Net cash used in investing activities
Cash flows from financing activities
Dividends paid
Drawdown of borrowings
Repayment of borrowings
Repayment of principal portion of lease liabilities
Purchase of shares on-market (Treasury shares)
6.2(a)
6.4(b)
2.6
5.3
4.1
4,700
5
38
185
(1,667)
(55)
(101)
(81)
(230)
(183)
(115)
(247)
40
(17)
2,272
(207)
(853)
(27)
(16)
946
(108)
186
(58)
–
(137)
(221)
996
(1,066)
(147)
(43)
(481)
1,654
1,319
3
2,976
3,503
15
41
218
(1,899)
(37)
(48)
(59)
54
(176)
(5)
(154)
13
10
1,476
(130)
(584)
(47)
(9)
(695)
(19)
(11)
(29)
63
(1,461)
(136)
1,492
(960)
(119)
(31)
246
261
1,067
(9)
1,319
Net cash (used in)/provided by financing activities
Net 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
The Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Consolidated Financial Statements.
Santos Annual Report 2021 / 69
Financial Report
Consolidated Statement of Changes in Equity
for the year ended 31 December 2021
Equity attributable to owners of Santos Limited
Foreign
currency
trans-
lation Hedging
reserve
reserve
Issued
capital
Accum-
ulated
profits
reserve
Accum-
ulated
losses
Total
equity
9,010
(965)
(10)
1,734
(2,093)
7,676
–
–
–
–
–
(31)
34
9,013
9,013
–
–
–
–
–
55
55
–
–
–
(910)
(910)
–
(30)
–
–
(1)
(1)
–
–
–
(11)
(11)
–
(50)
(30)
(50)
430
(430)
–
–
–
–
(357)
(357)
–
54
(357)
(303)
(136)
–
–
–
–
(13)
(136)
(31)
21
2,028
(2,893)
7,227
2,028
(2,893)
7,227
–
–
–
658
–
658
(80)
658
578
US$million
Note
Balance at 1 January 2020
Transfer retained profits to accumulated
profits reserve
Items of comprehensive income
Net loss for the period
Other comprehensive income/(loss)
for the period
Total comprehensive income/(loss)
for the period
Transactions with owners in their capacity
as owners
Dividends paid
On-market share purchase (Treasury shares)
Share-based payment transactions
2.6
5.3
5.3
Balance at 31 December 2020
Balance at 1 January 2021
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
5.3
6,038
–
(43)
22
–
–
–
–
–
–
–
–
–
(221)
–
–
–
–
–
9
6,038
(221)
(43)
31
Balance at 31 December 2021
15,030
(940)
(61)
1,807
(2,226)
13,610
The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Consolidated Financial Statements.
70 / Santos Annual Report 2021
Notes to the Consolidated Financial Statements
for the year ended 31 December 2021
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 (“Financial Report”) of Santos Limited (“the Company”) for the year ended 31 December 2021 was
authorised for issue in accordance with a resolution of the Directors on 15 February 2022.
The consolidated Financial Report of the Company for the year ended 31 December 2021 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 on Papua New Guinea’s National Stock Exchange (“PNGX”), 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 2021;
presented in United States dollars (“US$”);
prepared on the historical cost basis except for derivative financial instruments, contingent consideration 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 92.1 mmboe (2020: 89.0 mmboe), and sales of 104.2 mmboe (2020: 107.1 mmboe);
average realised oil price of $76.11 per barrel compared to $47.70 per barrel in 2020;
net profit after tax of $658 million for 2021 (2020: net loss after tax $357 million);
free cash flow generated of $1,504 million for 2021 (2020: $740 million);
net debt increased to $5,157 million at 31 December 2021, from $3,664 million at 31 December 2020; and
acquisition of 100% of the shares in Oil Search Limited (“Oil Search”), which became effective 10 December 2021 for purchase
consideration $6.0 billion effected through the issuance of new shares.
Santos Annual Report 2021 / 71
Financial Report
Notes to the Consolidated Financial Statements
Section 1: Basis of Preparation
1.3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The carrying amount 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 significant risk of causing material adjustment
to the carrying amount of certain assets and liabilities within the next annual reporting period are highlighted throughout the Financial
Report.
In addition, significant judgements, estimates and assumptions include consideration of the COVID-19 pandemic. The carrying value
of certain assets and liabilities have been measured with revised corporate assumptions resulting from the effects of the COVID-19
pandemic on energy market demand fundamentals. The impacts of COVID-19 will continue to be monitored.
Other than disclosures specified in note 3.4 Impairment of non-current assets, the Group has attempted, wherever possible, to reflect
the changed operating conditions apparent with COVID-19, with specific consideration given to estimates and judgements applied in the
following key areas:
•
Exploration and evaluation assets
• Oil and gas assets
•
•
•
Acquisitions and disposals
Leases
Taxation
The Group has implemented financial measures appropriate to the business environment to ensure that the Group continues to remain
reliable and sustainable under COVID-19 economic conditions. This includes ensuring the Group is well-positioned to leverage growth
opportunities as business conditions improve.
The full-year Financial Report has been prepared using a going concern basis of preparation and the Group continues to be able to pay
its debts as they fall due.
Climate change
In preparing the Financial Report, management has considered the impact of climate change and current climate-related legislation.
Santos is committed to managing climate risk and delivering a sustainable business model in a low-carbon world. Santos reports on
its climate strategy, climate transition action plans, annual emissions and emissions targets in the Santos Climate Change Report.
Since 2018 Santos has published a Climate Change Report annually in accordance with the Financial Stability Board’s Task Force on
Climate-Related Disclosures (“TCFD”) recommendations on climate-related financial disclosures.
The impacts of climate change include estimates of a range of economic and climate-related scenarios. This includes market supply and
demand profiles, carbon emissions reduction profiles, legal impacts and technological impacts. These are factored into discount rates,
commodity price forecasts, and demand and supply profiles, all of which are impacted by the global demand profile of the economy as
a whole. A carbon price is included in Santos’ economic modelling of projects and the portfolio as a whole. The estimates and forecasts
used by the Group are in accordance with current climate-related legislation and policy.
The impact of climate change is considered in the significant judgements and key estimates in a number of areas in the Financial Report
including:
•
•
•
•
asset carrying values (exploration and evaluation assets, oil and gas assets) through determination of valuations considered for
impairment – refer note 3.4;
restoration obligations, including the timing of such activities – refer note 3.5;
deferred taxes, primarily related to asset carrying values and restoration obligations – refer note 2.4; and
asset acquisitions and business combinations and the determination of the fair values, liabilities and contingent liabilities acquired
– refer note 6.2.
The Group continues to monitor climate-related policy and its impact on the Financial Report.
72 / Santos Annual Report 2021
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 and the majority of subsidiaries is US$. The assets, liabilities, income and expenses of non-US
dollar denominated functional currency companies are translated into US$ using the following applicable exchange rates:
Foreign currency amount
Applicable exchange rate
Income and expenses
Assets and liabilities
Equity
Reserves
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$/US$ 1:0.7247 (2020: 1:0.7683).
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 with the exception of monetary items that form part of the net investment in a
foreign operation.
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 until the net investment is disposed of, at which time,
the cumulative amount is reclassified to the income statement.
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(g) for further details on any net investment hedge in place.
Santos Annual Report 2021 / 73
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 and NSW,
Papua New Guinea (“PNG”), Northern Australia and 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.
The assets acquired as part of the Oil Search merger have been incorporated into the PNG segment, where domiciled in PNG, and
into the Corporate, exploration, eliminations & other segment, for exploration and other corporate assets, since the merger date of
10 December 2021.
In the prior period, the assets acquired as part of the ConocoPhillips northern Australia asset acquisition have been incorporated into
the Northern Australia and Timor-Leste segment, since the acquisition date of 28 May 2020.
Segment performance is measured based on earnings before interest, tax, depreciation and depletion, exploration and evaluation
expensed, net impairment loss and change in future restoration assumptions (“EBITDAX”). Corporate and exploration expenditure
and inter-segment eliminations are included in the segment disclosure for reconciliation purposes.
74 / Santos Annual Report 2021
2.1 SEGMENT INFORMATION (CONTINUED)
US$million
Revenue
Product sales to external customers
Inter-segment sales1
Revenue – other from external customers
Total segment revenue
Costs
Production costs
Other operating costs
Third-party product purchases
Inter-segment purchases1
Other
EBITDAX
Depreciation and depletion
Exploration and evaluation expensed
Net impairment loss
Change in future restoration assumptions
EBIT
Net finance costs
Profit before tax
Income tax expense
Royalty-related tax expense
Net profit
Asset additions and acquisitions:
Exploration and evaluation assets
Oil and gas assets2
Northern
Australia &
Timor- Western
Leste Australia
2021
2021
Corporate,
exploration,
elimin-
ations
& other
2021
Queens-
land
& NSW
2021
Cooper
Basin
2021
820
105
75
1,000
(143)
(101)
(340)
(1)
8
423
(272)
(21)
–
–
130
893
63
17
973
(79)
(98)
(191)
(64)
(16)
525
(252)
(6)
(8)
–
259
PNG
2021
730
–
6
736
(67)
(61)
–
–
7
615
(170)
(1)
–
–
444
903
–
–
903
(234)
–
–
–
59
728
(151)
(11)
–
–
566
1,099
–
6
1,105
(215)
(4)
–
–
(35)
851
(382)
(40)
–
(10)
419
Total
2021
4,713
–
124
268
(168)
20
120
4,837
23
(83)
(123)
65
(339)
(337)
(16)
(47)
–
4
(396)
(217)
(363)
–
(715)
(347)
(654)
–
(316)
2,805
(1,243)
(126)
(8)
(6)
1,422
(217)
1,205
(363)
(184)
658
–
–
–
(85)
(99)
48
241
289
31
163
194
1,241
6,728
7,969
64
509
573
64
234
298
870
8
878
2,318
7,883
10,201
1
2
Inter-segment pricing is determined on an arm’s length basis. Inter-segment sales and purchases are eliminated on consolidation.
Includes impact on restoration assets following changes in restoration provision assumptions (refer note 3.5).
2021 Revenue from external customers
by geographical location
US$million
2021 Non-current assets by geographical location
(excluding financial and deferred tax assets)
US$million
Australia
Papua New Guinea
Total
4,101
736
4,837
Australia
11,272
Papua New Guinea
11,721
Other
Total
913
23,906
Santos Annual Report 2021 / 75
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.1 SEGMENT INFORMATION (CONTINUED)
US$million
Revenue
Product sales to external customers
Inter-segment sales1
Revenue – other from external customers
Total segment revenue
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
Loss before tax
Income tax benefit
Royalty-related tax (expense)/benefit
Net loss
Asset additions and acquisitions:
Exploration and evaluation assets
Oil and gas assets2
Northern
Australia &
Timor- Western
Leste Australia
2020
2020
Corporate,
exploration,
elimin-
ations
& other
2020
Queens-
land
& NSW
2020
Cooper
Basin
2020
643
204
72
919
(131)
(60)
(303)
–
(35)
390
(234)
–
(42)
–
114
704
81
8
793
(76)
(78)
(173)
(69)
31
428
(237)
–
(669)
–
(478)
PNG
2020
444
–
7
451
(56)
(41)
(1)
–
1
354
(141)
–
(17)
4
200
466
–
–
466
(284)
–
–
–
23
205
(113)
–
(13)
–
79
723
–
19
742
(198)
(4)
(1)
–
7
546
(276)
–
(125)
(4)
141
–
–
–
(8)
(290)
21
450
471
25
254
279
2
71
73
656
262
918
25
234
259
Total
2020
3,387
–
125
407
(285)
19
141
3,512
29
(91)
(134)
69
(39)
(25)
(14)
(59)
(29)
(1)
(128)
(234)
63
184
24
–
24
(716)
(274)
(612)
–
(12)
1,898
(1,015)
(59)
(895)
(1)
(72)
(234)
(306)
63
(114)
(357)
753
1,271
2,024
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 capitalised restoration costs following changes in restoration provision assumptions (refer note 3.5).
2020 Revenue from external customers
by geographical location
US$million
2020 Non-current assets by geographical location
(excluding financial and deferred tax assets)
US$million
Australia
3,061
Papua New Guinea
451
Total
3,512
Australia
11,211
Papua New Guinea
2,606
Other
Total
78
13,895
76 / Santos Annual Report 2021
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 the
transaction price, which is 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 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
generally 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 $507 million (2020: $397 million), arising from sales from one segment of
the Group.
Contract assets
In a business combination, pre-existing revenue contracts are fair valued and may result in contract assets that 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.
Contract liabilities
In a business combination, pre-existing revenue contracts are fair valued and may result 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 pricing 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 satisfaction of the performance obligation, and if
a significant financing component associated with deferred revenue exists, this will be recognised as finance costs over the life of the
contract.
Santos Annual Report 2021 / 77
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
2021
US$million
2020
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 and tariffs
Unwind of acquired contract liabilities
Other
Total revenue – other
Total revenue from contracts with customers
1
Total product sales include third-party product sales of $936 million (2020: $753 million).
(b) Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers:
Acquired contract assets
Current
Acquired contract assets
Non-current
Acquired contract assets
Total acquired contract assets
Contract liabilities
Current
Acquired contract liabilities
Deferred revenue
Non-current
Acquired contract liabilities
Deferred revenue
Total contract liabilities
78 / Santos Annual Report 2021
3,464
688
428
133
4,713
–
88
6
30
124
4,837
2,505
531
256
95
3,387
13
91
6
15
125
3,512
2021
US$million
2020
US$million
122
122
297
297
419
6
100
106
8
229
237
343
23
23
106
106
129
6
58
64
14
267
281
345
2.2 REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)
(b) Assets and liabilities related to contracts with customers (continued)
The following table illustrates the movement in contract asset and contract liability balances for the current reporting period:
Acquired contract assets
Opening balance
Contract assets arising from acquisition
Other expenses
Total acquired contract assets
Acquired contract liabilities
Opening balance
Revenue – other
Contract liabilities – Deferred income
Opening balance
Additional receipts in advance
Revenue from contracts with customers – product sales
Interest accretion for financing component
Other
Total contract liabilities
Note
6.2(a)
2.3
2.2(a)
5.2
2021
US$million
2020
US$million
129
318
(28)
419
20
(6)
14
325
52
(64)
17
(1)
329
343
153
–
(24)
129
26
(6)
20
332
48
(67)
17
(5)
325
345
Santos Annual Report 2021 / 79
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.3 EXPENSES
Cost of sales:
Production costs
Other operating costs
LNG plant costs
Pipeline tariffs, processing tolls and other
Movements in onerous pipeline contracts
Royalty and excise
Shipping costs
Total other operating costs
Total cash cost of production
Depreciation and depletion:
Depreciation of plant, equipment and buildings
Depletion of subsurface assets
Total depreciation and depletion
Third-party product purchases
Decrease in product stock
Total cost of sales
Other expenses
Selling
General and administration
Costs associated with acquisition and disposals
Depreciation
Foreign exchange losses
Fair value hedges, losses on the hedging instrument
Fair value losses/(gains) on commodity derivatives (oil hedges)
Exploration and evaluation expensed
Unwind of acquired contract assets
Other
Total other expenses
2021
US$million
2020
US$million
715
61
164
(2)
109
15
347
1,062
808
435
1,243
654
23
2,982
10
72
70
–
3
(2)
249
126
28
6
562
716
63
145
(1)
58
9
274
990
587
427
1,014
612
26
2,642
10
83
(5)
1
13
2
(45)
59
24
3
145
80 / Santos Annual Report 2021
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 eligible 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 or royalty tax.
Santos Annual Report 2021 / 81
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/(benefit)
Current tax expense/(benefit)
Current year
Adjustments for prior years
Deferred tax expense/(benefit)
Origination and reversal of temporary differences
Adjustments for prior years
Total income tax expense/(benefit)
(b) Royalty-related tax expense
Current tax expense
Current year
Deferred tax benefit
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/(loss) before tax
Prima facie income tax expense/(benefit) at 30% (2020: 30%)
Increase/(decrease) in income tax expense/(benefit) due to:
Foreign losses not recognised
(Non-assessable income)/non-deductible expenses
Tax adjustments relating to prior years
Other
Income tax expense/(benefit)
Royalty-related tax expense, net of income tax benefit
Total tax expense
2021
US$million
2020
US$million
171
(9)
162
176
25
201
363
254
254
(70)
(70)
184
1,205
361
1
(12)
16
(3)
363
184
547
(23)
2
(21)
(59)
17
(42)
(63)
145
145
(31)
(31)
114
(306)
(91)
–
8
19
1
(63)
114
51
82 / Santos Annual Report 2021
2.4 TAXATION (CONTINUED)
(d) Deferred tax assets and liabilities
Deferred tax is determined using the statement of financial position approach, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the appropriate tax bases.
The following temporary differences are not provided for:
•
•
the initial recognition of assets or liabilities that affect neither accounting or taxable profit; nor
differences relating to investments in subsidiaries to the extent it is probable that they will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the reporting date.
Significant judgement – Uncertain tax positions
The calculation of the Group’s tax charge involves a degree of estimation and judgement in respect of certain items for which the
ultimate tax determination is uncertain.
The Group recognises deferred tax assets only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Future taxable profits are estimated by internal budgets and forecasts. Deferred tax assets are
reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Assets
Liabilities
Net
Recognised deferred tax
assets and liabilities
2021
US$million
2020
2021
US$million US$million
2020
2021
US$million US$million
2020
US$million
Exploration and evaluation assets
Oil and gas assets
Other assets
Derivative financial instruments
Interest-bearing loans
and borrowings
Provisions
Royalty-related tax
Other items
Tax value of carry-forward
losses recognised
135
806
17
53
305
172
–
58
860
Tax assets/(liabilities)
Set-off of tax
2,406
(1,107)
58
771
–
42
186
86
–
–
626
1,769
(728)
(227)
(2,442)
(50)
(135)
–
–
(489)
(114)
(272)
(842)
(54)
(5)
–
–
(448)
(11)
(92)
(1,636)
(33)
(82)
305
172
(489)
(56)
–
–
860
(3,457)
1,107
(1,632)
728
(1,051)
–
Net deferred tax (liabilities)/assets
1,299
1,041
(2,350)
(904)
(1,051)
(214)
(71)
(54)
37
186
86
(448)
(11)
626
137
–
137
Accounting judgement and estimate – Deferred taxes unrecognised
Deferred tax assets have not been recognised in respect of the following items set out below, because it is not probable that the
temporary differences will reverse in the future and that there will be sufficient future taxable profits against which the benefits can
be utilised. There are no tax losses which are expected to expire. The remaining deductible temporary differences and tax losses do
not expire under current tax legislation.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Temporary differences in relation to investments in subsidiaries
Deductible temporary differences in respect of provisions
Deductible temporary differences relating to royalty-related tax (net of income tax)
Tax losses
2021
US$million
2020
US$million
1,667
182
7,631
501
9,981
3,829
–
1,647
132
5,608
Santos Annual Report 2021 / 83
Financial Report
Notes to the Consolidated Financial Statements
Section 2: Financial Performance
2.5 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit or loss for the year attributable to ordinary equity holders of
Santos Limited by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by adjusting basic earnings per share by the weighted average number of ordinary
shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Earnings used in the calculation of basic and diluted earnings per share reconciles to the net profit or loss after tax in the income
statement as follows:
2021
US$million
2020
US$million
Earnings used in the calculation of basic and diluted earnings per share
658
(357)
The weighted average number of shares used for the purpose of calculating diluted earnings per share reconciles to the number used to
calculate basic earnings per share as follows:
Basic earnings per share
Dilutive potential ordinary shares
Diluted earnings per share
Earnings per share attributable to the equity holders of Santos Limited
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
2021
Number of shares
2020
Number of shares
2,133,214,333
17,280,859
2,083,074,902
–
2,150,495,192
2,083,074,902
2021
¢
30.8
30.6
2020
¢
(17.1)
(17.1)
84 / Santos Annual Report 2021
2.6 DIVIDENDS
Dividends are recognised as a liability at the time the Directors resolve to pay or declare the dividend.
Dividends recognised during the year
2021
2020 Final ordinary dividend – paid on 25 March 2021
2021 Interim ordinary dividend – paid on 21 September 2021
2020
2019 Final ordinary dividend – paid on 26 March 2020
2020 Interim ordinary dividend – paid on 24 September 2020
Dividends declared in respect of the year
2021
Final ordinary dividend
Interim ordinary dividend
2020
Final ordinary dividend
Interim ordinary dividend
Dividend franking account
30% franking credits available to the shareholders of Santos Limited
for future distribution
2.7 OTHER INCOME
Other income
Change in future restoration assumptions for non-producing assets
Gain on sale of non-current assets
Other income associated with lease arrangements
Insurance recoveries
Overriding royalties
Dividend income
Other
Total other income
Franked/
unfranked
Dividend
per share
US¢
Total
US$million
Franked
Franked
Franked
Franked
5.0
5.5
10.5
5.0
2.1
7.1
104
117
221
92
44
136
Franked/
unfranked
Dividend
per share
US¢
Total
US$million
Partially Franked
Franked
Franked
Franked
8.5
5.5
14.0
5.0
2.1
7.1
288
114
402
104
44
148
2021
US$million
2020
US$million
94
194
Note
2021
US$million
2020
US$million
3.6
(6)
10
56
40
10
1
1
112
(1)
–
43
13
4
2
4
65
Santos Annual Report 2021 / 85
Financial Report
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.
86 / Santos Annual Report 2021
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.
2021
US$million
2020
US$million
Cost
Less: Accumulated impairment
Balance at 31 December
Reconciliation of movements
Balance at 1 January
Acquisitions
Additions
Unsuccessful wells expensed
Impairment losses
Transfer to oil and gas assets in production
Transfer to oil and gas assets in development
Exchange differences
Balance at 31 December
Comprising:
Acquisition costs
Successful exploration wells
Pending determination of success
3.2 OIL AND GAS ASSETS
4,652
(1,470)
3,182
1,818
2,062
256
(25)
(8)
(86)
(841)
6
3,182
2,726
332
124
3,182
3,280
(1,462)
1,818
1,187
604
149
(11)
(72)
(53)
–
14
1,818
1,299
490
29
1,818
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.
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.
Santos Annual Report 2021 / 87
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets and
Restoration Obligations
3.2 OIL AND GAS ASSETS (CONTINUED)
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 2P hydrocarbon reserves reported by the Group are integral to the calculation of depletion and depreciation
expense. The 2P hydrocarbon reserves are incorporated into the assessment of impairment of assets, along with contingent resources
(“2C”) as appropriate. 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.
88 / Santos Annual Report 2021
3.2 OIL AND GAS ASSETS (CONTINUED)
2021
2020
Subsurface
assets
Plant and
Total
equipment
US$million US$million US$million
Subsurface
assets
US$million
Plant and
equipment
US$million
Total
US$million
13,062
22,754
35,816
10,325
17,090
27,415
(7,631)
(10,108)
(17,739)
(7,156)
(9,334)
(16,490)
Cost
Less: Accumulated depreciation,
depletion and impairment
Balance at 31 December
5,431
12,646
18,077
3,169
7,756
10,925
Reconciliation of movements
Assets in development
Balance at 1 January
Additions1
Acquisitions
Transfer from exploration and evaluation assets
Assets classified as held for sale
Balance at 31 December
Producing assets
Balance at 1 January
Additions1
Acquisitions
Transfer from exploration and evaluation assets
Disposals
Remeasurement of lease arrangements
Depreciation and depletion
Transfer to assets held for sale
Net impairment losses
Exchange differences
Balance at 31 December
Total oil and gas assets
Comprising:
Exploration and evaluation
expenditure pending
commercialisation
Other capitalised expenditure
73
244
186
841
(279)
1,065
3,096
622
1,042
86
–
–
(450)
–
–
(30)
4,366
5,431
67
139
177
–
(20)
363
7,689
329
5,144
–
(7)
(31)
(810)
–
–
(31)
140
383
363
841
(299)
1,428
10,785
951
6,186
86
(7)
(31)
(1,260)
–
–
(61)
12,283
16,649
12,646
18,077
15
5,416
5,431
–
12,646
12,646
15
18,062
18,077
1
Includes impact on capitalised restoration costs following changes in future restoration provision assumptions (refer note 3.5).
54
19
–
–
–
73
3,086
512
207
32
–
(17)
(466)
(74)
(213)
29
3,096
3,169
11
3,158
3,169
54
13
–
–
–
67
8,202
520
–
21
–
(8)
(544)
–
(512)
10
7,689
7,756
108
32
–
–
–
140
11,288
1,032
207
53
–
(25)
(1,010)
(74)
(725)
39
10,785
10,925
–
7,756
7,756
11
10,914
10,925
Santos Annual Report 2021 / 89
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets and
Restoration Obligations
3.3 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.
Where goodwill has been allocated to a cash-generating unit (“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.
Cost
Less: Accumulated impairment
Balance at 31 December
Allocated as follows:
CGU
WA Gas
PNG
Reconciliation of movements:
Balance at 1 January
Impairment
Acquisitions
Balance at 31 December
Segment
Western Australia
PNG
Note
3.4
6.2(a)
2021
US$million
2020
US$million
1,561
(98)
1,463
383
1,080
383
–
1,080
1,463
481
(98)
383
383
–
481
(98)
–
383
The goodwill arising as a result of the Oil Search merger of $1,080 million is a provisional amount. Refer to note 6.2(a) for details.
3.4 IMPAIRMENT OF NON-CURRENT ASSETS
Impairment of goodwill
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.
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.
90 / Santos Annual Report 2021
3.4 IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED)
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 largely independent cash inflows, and generally represents oil or 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.
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 asset carrying amount does not exceed the carrying amount
that would have been determined, if no impairment loss had been recognised.
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 and resources, future production profiles, commodity prices, costs and foreign exchange
rates. Additionally, risks associated with climate change are factored into the recoverable amount calculation and will 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 and resources,
future production profiles, commodity prices, operating costs including third-party gas purchases and any future development costs
necessary to produce the reserves and resources. 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.
The nominal future Brent prices (US$/bbl) used were:
31 December 2021
2022
65.00
2023
65.00
2024
66.721
2025
68.181
2026
69.681
1
Based on US$62.50/bbl (2021 real) from 2024 escalated at 2.2% p.a.
Forecasts of the exchange rate for foreign currencies, where relevant, are estimated with reference to observable external market data
and forward values, including analysis of broker and consensus estimates.
Santos Annual Report 2021 / 91
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets and
Restoration Obligations
3.4 IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED)
The future estimated long-term exchange rates applied were (A$/US$)
31 December 2021
2022
0.76
2023
0.751
1
From 2023, the long-term exchange rate assumption remains at A$1:US$0.75.
The discount rates applied to the future forecast cash flows are based on the weighted average cost of capital, adjusted for risks where
appropriate, including functional currency of the asset, and risk profile of the countries in which the asset operates. The range of pre-tax
discount rates that have been applied to non-current assets is between 10% and 29%.
In the event that future circumstances vary from these assumptions, the recoverable amount of the Group’s oil and gas assets could
change materially and result in impairment losses or the reversal of previous impairment losses.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact on others and individual
variables rarely change in isolation. Additionally, management can be expected to respond to some movements, to mitigate downsides
and take advantage of upsides, as circumstances allow. Consequently, it is impracticable to estimate the indirect impact that a change
in one assumption has on other variables and hence, on the likelihood, or extent, of impairments, or reversals of impairments, under
different sets of assumptions in subsequent reporting periods.
Impairment expense
Exploration and evaluation assets
Oil and gas assets
Goodwill – WA Gas
Total impairment
2021
US$million
2020
US$million
8
–
–
8
114
683
98
895
Recoverable amounts and resulting impairment write-downs recognised in the year ended 31 December 2021:
2021
Segment
Exploration and evaluation assets:
Gunnedah Basin
Queensland and NSW
Total impairment of exploration and evaluation
Total impairment
Subsurface
assets
US$million
Plant and
equipment
US$million
Total
US$million
Recoverable
amount
1
US$million
8
8
8
–
–
–
8
8
8
16
1 Recoverable amounts represent the carrying values of assets before deducting the carrying value of restoration liabilities. Producing oil and gas asset amounts are calculated using either the
value-in-use (“VIU”) or fair value less costs of disposal (“FVLCD”) method, whilst all exploration and evaluation asset amounts use the FVLCD method.
The impairment of exploration and evaluation assets has arisen primarily from delays to a project that diminishes the path to
commercialisation.
92 / Santos Annual Report 2021
3.4 IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED)
Recoverable amounts and resulting impairment write-downs recognised in the year ended 31 December 2020:
2020
Goodwill:
Segment
Goodwill – WA Gas
Western Australia
Total impairment of goodwill
Oil and gas assets – producing:
GLNG
Barrow
Other
Queensland and NSW
Western Australia
Western Australia
Total impairment of oil and gas assets
Exploration and evaluation assets:
Amadeus
Cooper Basin
Unconventional
Resource
PEL 100
Burnside
Exploration
Cooper Basin
Cooper Basin
Northern Australia
and Timor-Leste
Gunnedah Basin
Queensland and NSW
Barikewa-3 PRL-9
PNG
Total impairment of exploration and evaluation
Total impairment
Subsurface
assets
US$million
Plant and
equipment
US$million
Goodwill
US$million
Total
US$million
Recoverable
amount
1
US$million
–
–
161
–
10
171
28
30
12
14
13
17
114
285
–
–
494
16
2
512
–
–
–
–
–
–
–
98
98
–
–
–
–
–
–
–
–
–
–
–
512
98
383
3,640
nil
nil
nil2
nil2
nil2
nil2
nil2
nil2
98
98
655
16
12
683
28
30
12
14
13
17
114
895
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.
Santos Annual Report 2021 / 93
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets and
Restoration Obligations
3.5 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
2021
US$million
2020
US$million
176
112
288
3,641
176
3,817
69
108
177
2,952
87
3,039
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. Risks
associated with climate change are factored into forecast timing of restoration activites and will continue to be monitored. 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. This may include partial removal of some
offshore infrastructure where the Company believes it will result in better environmental, safety and asset integrity outcomes that will be
within regulatory requirements.
The Group has recorded provisions for restoration obligations as follows:
2021
US$million
2020
US$million
176
3,641
3,817
69
2,952
3,021
Current provision
Non-current provision
94 / Santos Annual Report 2021
3.5 RESTORATION OBLIGATIONS AND OTHER PROVISIONS (CONTINUED)
Movements in the provision during the financial year are set out below:
Balance at 1 January 2021
Provisions acquired
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 2021
Total restoration
US$million
3,021
800
269
(55)
38
(182)
(74)
3,817
Other provisions
In addition to the provision for restoration shown above, other items for which a provision has been recorded are:
Current
Employee benefits
Onerous contracts
Remediation provision
Other provisions
Non-current
Employee benefits
Onerous contracts
Remediation provision
Other provisions
Note
7.1
7.1
2021
US$million
2020
US$million
99
4
2
7
112
20
2
9
145
176
92
3
2
11
108
7
5
13
62
87
Santos Annual Report 2021 / 95
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets and
Restoration Obligations
3.6 LEASES
The Group as a lessee
Recognition of lease liabilities and right-of-use assets
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.
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)
2)
3)
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
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 and 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.
96 / Santos Annual Report 2021
3.6 LEASES (CONTINUED)
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 assets are shown below:
• Oil rigs
1 – 5 years
• Marine vessels, including LNG tankers
3 – 30 years
• Helicopters
•
Building office space
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; and
•
“Lease liabilities” – Lease liabilities.
Set out below are the carrying amounts of right-of-use assets recognised and their movements during the period:
US$million
Balance at 1 January
Acquisitions
Additions
Remeasurements of lease arrangements
Depreciation
Balance at 31 December
2021
Other land,
buildings,
plant and
equipment
Oil and gas
assets
288
377
112
(31)
(125)
621
115
120
2
(6)
(13)
218
2020
Other land,
buildings,
plant and
equipment
105
13
8
(2)
(9)
115
Total
403
497
114
(37)
(138)
839
Oil and gas
assets
295
23
90
(24)
(96)
288
Total
400
36
98
(26)
(105)
403
During the period, $53 million of depreciation on right-of-use assets has been capitalised and forms a component of additions to “Oil and
gas assets”. This capitalisation results in a difference between the amount of depreciation expense recorded during the period and the
movement in accumulated depreciation.
Santos Annual Report 2021 / 97
Financial Report
Notes to the Consolidated Financial Statements
Section 3: Capital Expenditure, Operating Assets and
Restoration Obligations
3.6 LEASES (CONTINUED)
Set out below are the carrying amounts of lease liabilities and the movements during the period:
Lease liabilities
Balance at 1 January
Acquired lease liabilities
Additions
Remeasurements of lease arrangements
Accretion of interest
Payments
Foreign exchange (gain)/loss on lease liabilities
Balance at 31 December
Current lease liabilities
Non-current lease liabilities
2021
US$million
2020
US$million
457
497
114
(35)
18
(165)
(13)
873
425
35
98
(25)
17
(119)
26
457
2021
US$million
2020
US$million
196
677
873
121
336
457
Short-term and low-value lease asset exemptions
The Group had total cash outflows for leases of $417 million in 2021 (2020: $297 million), including outflows for short-term leases, leases
of low-value assets, and variable lease payments.
For the 12-month period ended 31 December, the following payments have been made for lease arrangements that have been classified
as short-term or for low-value assets:
Short-term leases
Leases for low-value assets
Total payments made
Variable lease payments
2021
US$million
2020
US$million
70
29
99
14
43
57
The Group holds lease contracts which contain variable payments based on the usage profile of the leased asset. The type and
quantum of activities undertaken utilising these assets (primarily oil rigs) is entirely at the Group’s discretion in response to operational
requirements.
The lease liability and corresponding right-of-use asset for these lease contracts is calculated based on the fixed rental payment
components of the contracts. The table below indicates the relative magnitude of variable payments to fixed payments made during
the year ended 31 December, for those lease contracts which contain a variable payment component.
Fixed payments (included in calculation of lease liability)
Variable payments
Total payments made for leases with a variable payment component
Other income associated with lease arrangements
2021
US$million
2020
US$million
161
153
314
94
123
217
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 2021, the amount
recognised was $56 million (2020: $43 million).
98 / Santos Annual Report 2021
3.7 COMMITMENTS FOR EXPENDITURE
The Group has certain obligations to perform minimum exploration work and expend minimum amounts of money pursuant to the terms
of the granting of petroleum exploration permits in order to maintain rights of tenure.
These commitments may be varied as a result of renegotiations of the terms of the exploration permits, licences or contracts or
alternatively upon their relinquishment. The minimum exploration commitments are less than the normal level of exploration expenditures
expected to be undertaken by the Group.
The Group has the following commitments for expenditure for which no liabilities have been recorded in the financial statements as the
goods or services have not been received, including commitments for non-cancellable lease arrangements where the lease term has not
commenced:
Capital
Minimum exploration
Leases
Commitments
2021
US$million
2020
2021
US$million US$million
2020
2021
US$million US$million
2020
US$million
Not later than one year
Later than one year but not later
than five years
Later than five years
487
520
–
1,007
148
85
–
233
114
265
162
541
57
233
7
297
312
332
2,048
2,692
43
101
1
145
Santos Annual Report 2021 / 99
Financial Report
Notes to the Consolidated Financial Statements
Section 4: Working Capital Management
This section provides information about the Group’s working capital balances and management, including cash flow
information. Cash flow management is a significant consideration in running our business in an efficient and resourceful
manner. We also consider inventories which contribute to the business platform for generating profits and revenues.
4.1 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances and short-term deposits that are readily convertible to cash, are subject to an
insignificant risk of changes in value, and generally have an original maturity of three months or less.
The carrying amounts of cash and cash equivalents represent fair value. Bank balances and short-term deposits earn interest at floating
rates based upon market rates.
Cash at bank and in hand
Short-term deposits
(a) Restricted cash balances
2021
US$million
2020
US$million
1,384
1,592
2,976
678
641
1,319
As at 31 December 2021, total Group restricted cash was $500 million (2020: $135 million). 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 2021, $471 million (2020: $135 million) was held in these accounts.
(b) Reconciliation of cash flows from operating activities
2021
US$million
2020
US$million
Net profit/(loss) after income tax
Add/(deduct) non-cash items:
Depreciation and depletion
Exploration and evaluation expensed – unsuccessful wells
Net impairment loss
Net loss on fair value derivatives
Share-based payment expense
Unwind of the effect of discounting on provisions
Foreign exchange losses
Gain on sale of non-current assets and subsidiaries
Share of net profit of associates
Net cash provided by operating activities before changes in assets or liabilities
Add/(deduct) change in operating assets or liabilities, net of acquisitions or disposals of businesses:
Decrease/(increase) in trade and other receivables
Decrease in inventories
Decrease in other assets
Decrease/(increase) in net deferred tax assets
Increase/(decrease) in net current tax liabilities
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
Net cash provided by operating activities
658
1,243
25
8
1
31
38
3
(10)
(25)
1,972
98
28
22
108
63
2
(21)
2,272
(357)
1,015
11
895
–
21
36
13
–
(33)
1,601
(30)
8
38
(72)
(30)
(102)
63
1,476
100 / Santos Annual Report 2021
4.1 CASH AND CASH EQUIVALENTS (CONTINUED)
(c) Reconciliation of liabilities arising from financing activities to financing cash flows
Short-term
borrowings
Long-term
borrowings
Lease
liabilities
Assets held
to hedge
borrowings
US$million
Balance at 1 January 2020
Financing cash flows1
Non-cash changes:
Changes in fair values
Reclassification to current liability
Additions to lease liabilities
Other
Balance at 31 December 2020
Balance at 1 January 2021
Financing cash flows1
Operating cash flows
Non-cash changes:
Changes in fair values
Additions from acquisitions
Reclassification to current liability
Additions to lease liabilities
Other
Balance at 31 December 2021
196
(210)
–
247
–
–
233
233
(445)
–
–
920
179
–
2
889
3,800
742
3
(247)
–
11
4,309
4,309
375
–
(14)
1,782
(179)
–
14
6,287
425
(102)
–
–
113
21
457
457
(147)
(18)
–
497
–
114
(30)
873
Total
4,395
430
5
–
113
32
4,975
4,975
(217)
(18)
(1)
3,199
–
114
(14)
(26)
–
2
–
–
–
(24)
(24)
–
–
13
–
–
–
–
(11)
8,038
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.
Santos Annual Report 2021 / 101
Financial Report
Notes to the Consolidated Financial Statements
Section 4: Working Capital Management
4.2 TRADE AND OTHER RECEIVABLES
Trade receivables are initially recognised at the transaction price, as described in note 2.2, and other receivables are initially recognised
at fair value, which in practice is the equivalent of transaction price, and subsequently measured at 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
2021
US$million
2020
US$million
623
250
873
393
167
560
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).
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 natural gas, 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
2021
US$million
2020
US$million
180
226
406
30
156
132
288
23
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
2021
US$million
2020
US$million
867
348
1,215
365
193
558
The carrying amounts of trade and other payables are considered to approximate their fair values, due to their short-term nature.
102 / Santos Annual Report 2021
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 2021, Santos Limited’s corporate credit rating was BBB- (stable outlook) from Standard & Poor’s, BBB (stable outlook)
from Fitch and Baa3 (stable outlook) from Moody’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 3.6 for disclosures related to leases.
Current
Bank loans – secured
Long-term notes
Non-current
Bank loans – secured
Bank loans – unsecured
Long-term notes
Ref
(a)
(c)
(a)
(b)
(c)
2021
US$million
2020
US$million
669
220
889
2,846
1,043
2,398
6,287
171
62
233
1,013
1,662
1,634
4,309
Santos Annual Report 2021 / 103
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 4.15% for the year ended 31 December 2021 (2020: 4.70%).
(a) Bank loans – secured
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
104 / Santos Annual Report 2021
PNG LNG
US dollars
$3,269 million (2020: $1,221 million)
$3,269 million (2020: $1,221 million)
$3,260 million (2020: $1,184 million) including prepaid amounts
4.56% (2020: 5.38%)
2024 and 2026
Loan facilities for the PNG LNG project, in which Santos entities hold an equity interest
of 42.5% (2020: 13.5%), were entered into by the joint venture participants, through the
entity Papua New Guinea Liquified Natural Gas Global Company LDC (the “Borrower”),
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.
As part of the merger of Oil Search, refer note 6.2(a), Santos acquired an additional 29.0%
equity interest in the PNG LNG project together with an additional liability associated with
the PNG LNG secured bank and export credit agency loans.
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
$9,682 million at 31 December 2021 (2020: $2,695 million).
As referred to in note 4.1(a), 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 restricted bank
accounts.
The liquids and LNG sales proceeds from the PNG LNG project are received into a
sales escrow account from which agreed expenditure obligations and debt servicing are
first made and, subject to meeting certain debt service cover ratio tests, surpluses are
distributed to the project participants.
The Borrower granted to the security trustee for the PNG LNG facilities:
–
–
a first-ranking security interest in all of its assets, with a few limited exceptions;
a fixed and floating charge over existing and future funds in the offshore accounts;
a deed of charge (and assignment) over the sales contracts, LNG charter party
agreements, rights under insurance policies, LNG supply and sales commitment
agreements, on-loan agreements and the sales, shipping and finance administration
agreements, collectively known as “Borrower Material Agreements”; and
–
a mortgage of contractual rights over Borrower Material Agreements.
The Santos Participants have granted the security trustee for the Project Finance Debt
Facility a security interest in all their rights, titles, interests in and to all of their assets,
excluding any non-PNG LNG project assets. The Company, as the shareholder in the
Santos Participants, has provided the security trustee for the PNG LNG facilities a share
mortgage over its shares in the Santos Participants.
The PNG LNG facilities are subject to various covenants and a negative pledge restricting
further secured borrowings, subject to a number of permitted lien exceptions. Neither the
covenants or negative pledge have been breached at any time during the reporting period.
5.1 INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
(a) Bank loans – secured (continued)
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
Syndicated and bilateral bank loans
US dollars
$825 million (2020: $nil)
$255 million (2020: $nil)
$255 million (2020: $nil)
3.47% (2020: nil)
2023 and 2026
Syndicated and bilateral bank loans bear a floating interest rate. As part of the Oil Search
merger, refer note 6.2(a), Santos acquired four additional facilities. As part of the terms
and conditions of these facilities, Santos has provided a charge over the Debt Service
Reserve Account and Offshore Receivable Account which are included as restricted cash
in note 4.1(a).
(b) Bank loans – unsecured
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
Syndicated and bilateral bank loans
US dollars
$1,250 million (2020: $1,450 million)
$1,050 million (2020: $1,450 million)
$1,043 million (2020: $1,441 million) including prepaid amounts
2.05% (2020: 2.20%)
2024 and 2026
Syndicated and bilateral bank loans bear a floating interest rate.
Santos Annual Report 2021 / 105
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.1 INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
(c) Long-term notes
Facility
Currency
Limit
Drawn principal
Accounting balance
US private placement notes
US dollars
$227 million (2020: $227 million)
$227 million (2020: $227 million)
$238 million (2020: $252 million) including fair value accounting measurement
and prepaid amounts
Effective interest rate
1.05% (2020: 1.84%)
Maturity
Other
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
Facility
Currency
Limit
Drawn principal
Accounting balance
Effective interest rate
Maturity
Other
2022 and 2027
Long-term notes bear a fixed interest rate of 6.45% to 6.81% (2020: 6.45% to 6.81%),
which have been swapped to floating rate commitments.
Regulation-S bond
US dollars
$1,400 million (2020: $1,400 million)
$1,400 million (2020: $1,400 million)
$1,384 million (2020: $1,382 million) including prepaid amounts
4.82% (2020: 4.84%)
2027 and 2029
Both bonds bear fixed interest rates.
Rule 144A/Regulation-S bond
US dollars
$1,000 million (2020: $nil)
$1,000 million (2020: $nil)
$996 million (2020: $nil)
3.65% (2020: nil)
2031
During 2021, Santos completed a US$1,000 million Rule 144A/Regulation-S issuance
maturing 2031 and bearing a fixed interest rate.
106 / Santos Annual Report 2021
5.2 NET FINANCE COSTS
Borrowing costs
Borrowing costs relating to major oil and gas assets under development are capitalised as a component of the cost of development.
Where funds are borrowed specifically for qualifying projects, the actual borrowing costs incurred are capitalised. Where the projects are
funded through general borrowings, the borrowing costs are capitalised based on the weighted average cost of borrowing. Borrowing
costs incurred after commencement of commercial operations are expensed to the income statement.
All other borrowing costs are recognised in the income statement using the effective interest method.
Interest income
Interest income is recognised in the income statement as it accrues using the effective interest method.
Finance income
Interest income
Total finance income
Finance costs
Interest expense
Interest on lease liabilities
Deduct borrowing costs capitalised
Unwind of the effect of discounting on contract liabilities – deferred revenue
Unwind of the effect of discounting on provisions
Total finance costs
Net finance costs
2021
US$million
2020
US$million
5
5
207
18
(58)
167
17
38
222
217
15
15
208
17
(29)
196
17
36
249
234
Santos Annual Report 2021 / 107
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 2021 was A$6.31 (2020: A$6.27).
Transaction costs
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit.
During 2021, $0.3 million transaction costs in respect of capital raisings completed have been deducted from equity (2020: $nil).
Movement in ordinary shares
Balance at 1 January
Issue of new shares
Shares purchased on-market (Treasury shares)
Utilisation of Treasury shares on vesting of
employee share schemes
Replacement of ordinary shares with shares
purchased on-market
Balance at 31 December
Note
6.2(a)
2021
Number of
shares
2020
Number of
2021
shares US$million
2020
US$million
2,083,066,041 2,083,096,626
–
1,303,855,594
–
–
–
–
–
(30,585)
9,013
6,038
(43)
22
–
9,010
–
(31)
34
–
3,386,921,635 2,083,066,041
15,030
9,013
New shares were issued as consideration for the merger with Oil Search through an exchange of shares at a ratio of 0.6275 Santos
shares for 1 Oil Search share. The shares were recorded at the closing Santos share price and AUD/USD foreign exchange rate on the
acquisition date of 10 December 2021. Refer to note 6.2(a) for further details.
Included within the Group’s ordinary shares at 31 December 2021 are 10,000 (2020: 10,000) ordinary shares paid to one cent with a
value of $nil (2020: $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, $43 million (2020: $31 million) of Treasury shares were purchased on-market.
Movement in Treasury shares
Balance at 1 January
Shares purchased on-market
Treasury shares utilised:
Santos Employee Share1000 Plan
Santos Employee ShareMatch Plan
Utilised on vesting of SARs
Executive STI (deferred shares)
Executive LTI (ordinary shares)
Santos Employee Share1000 Plan (relinquished shares)
Replacement of ordinary shares with shares purchased on-market
Note
7.2
7.2
7.2
2021
Number of
shares
6,464,902
8,250,000
(259,448)
(579,817)
(39,806)
(576,552)
(3,633,409)
11,363
–
2020
Number of
shares
5,005,588
8,500,000
(202,598)
(1,755,453)
(768,463)
(471,090)
(3,828,286)
15,789
(30,585)
Balance at 31 December
9,637,233
6,464,902
108 / Santos Annual Report 2021
5.4 RESERVES AND ACCUMULATED LOSSES
The balance of the Group’s reserves and accumulated losses, and movements during the period, are disclosed in the Statement of
Changes in Equity.
Foreign currency translation reserve
The foreign currency translation reserve is used to record foreign exchange differences arising from the translation of the financial
statements of foreign entities from their functional currency to the Group’s presentation currency.
Santos Limited and the majority of its wholly owned subsidiaries within the Group have a functional currency of US$, the same
currency as the presentation currency of the Group. For non-US$ functional currency entities (“foreign operations”), 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. The difference in foreign exchange rates at 31
December 2020 to 31 December 2021, resulted in the Group recognising a foreign currency loss in the translation reserve of $30 million
for non-US$ functional currency companies.
Hedging reserve
The hedging reserve comprises of the cash flow hedge reserve and the own credit risk 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 risk 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 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. 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 2021 / 109
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
accumulated losses.
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 commodity 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 and other receivables
Other
Financial assets at FVTPL
Derivative financial instruments
2021
US$million
2020
US$million
2,976
873
49
11
3,909
1,319
560
2
51
1,932
110 / Santos Annual Report 2021
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
Commodity derivatives
Other derivatives
Other
2021
US$million
2020
US$million
1,215
6,938
873
238
79
16
23
9,382
558
4,290
457
252
35
–
28
5,620
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)/gains on derivative financial instruments
Net foreign exchange losses
2021
US$million
2020
US$million
5
(15)
(146)
12
(18)
15
(262)
(3)
(412)
15
(15)
(175)
11
(17)
3
40
(13)
(151)
(b) Liquidity
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 2021 / 111
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
2021
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
Financial assets and liabilities held to manage liquidity risk
2020
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
2,976
14
(1,215)
(207)
(811)
(328)
–
1
–
3
–
1
–
(127)
(1,085)
(102)
–
(252)
(3,068)
(306)
–
(580)
–
(2,692)
429
(1,313)
(3,623)
(3,271)
Less than
1 year
2 to 5 More than
5 years
years
US$million US$million US$million US$million
1 to 2
years
1,319
14
(558)
(123)
(306)
(79)
267
–
15
–
(101)
(327)
(291)
(704)
–
3
–
(171)
(1,634)
(196)
–
2
–
(198)
(876)
(1,593)
(1,998)
(2,665)
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$.
The Group has lease liabilities, and other monetary items, including financial assets and liabilities, denominated in currencies other
than the functional currency of an operation. These items are restated to US$ 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.
Sensitivity to foreign currency movement
Based on the Group’s net financial assets and liabilities at 31 December 2021, the estimated impact of a ±15 cent movement in the
Australian dollar exchange rate (2020: ±15 cent) against the US dollar, with all other variables held constant is $13 million (2020: $9
million) on post-tax profit and $76 million (2020: $41 million) on equity.
112 / Santos Annual Report 2021
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(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 has in place a policy which requires 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 (2020: $227 million) and a net fair value of
$11 million (2020: $23 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 2021, 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% (2020: ±0.50%) and Australian Bank Bill Swap
reference rate (“BBSW”) changed by ±0.50% (2020: ±0.50%), with all other variables held constant, the impact on post-tax profit
is $4 million (2020: $5 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 2021, the
Group has 6.0 million barrels of open oil price swap and option contracts (2020: 11.0 million), covering 2022 exposures, which are
designated in cash flow hedge relationships.
(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 11% 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 Financial Instruments, 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 2021, there were no significant concentrations of credit risk within the Group and financial instruments are spread
amongst a number of financial institutions to minimise the risk of counterparty default.
The maximum exposure to 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 subject to approved exceptions.
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 2021 is nil (2020: nil), no loss allowance provision has been recorded at 31 December 2021 (2020: nil).
Santos Annual Report 2021 / 113
Financial Report
Notes to the Consolidated Financial Statements
Section 5: Funding and Risk Management
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(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
2021
%
0.1 – 1.8
0.1 – 1.8
2020
%
0.1 – 1.4
0.1 – 1.4
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.
114 / Santos Annual Report 2021
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 risk revaluation
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 2021 / 115
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 2021.
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:
2021
US$million
2020
US$million
Current assets
Foreign exchange contracts
Interest rate swap contracts
Other
Non-current assets
Interest rate swap contracts
Other
Current liabilities
Commodity derivatives (oil hedges)
Foreign exchange contracts
Other
Non-current liabilities
Other
–
7
–
7
4
49
53
79
16
3
98
20
20
28
–
1
29
24
–
24
35
–
4
39
24
24
The effects of applying hedge accounting on the Group’s financial position and performance are as follows:
Fair value hedge: Derivative financial instruments –
Interest rate swap contracts
Carrying amount
Notional amount
Maturity date
Hedge ratio1
Change in value of outstanding hedging instruments since 1 January
Change in value of hedged item used to determine hedge effectiveness
Weighted average hedged rate
2021
US$million
11
227
2022-2027
1:1
(13)
13
1.05%
2020
US$million
24
227
2022-2027
1:1
(2)
2
1.84%
1
The Group has established a hedge ratio of 1:1 for the hedging relationships with the underlying risk of the hedging instrument being identical to the hedged risk component of the hedged item.
116 / Santos Annual Report 2021
5.5 FINANCIAL RISK MANAGEMENT (CONTINUED)
(g) Derivatives and hedging activity (continued)
Cash flow hedge: Derivative financial instruments –
Oil derivative contracts
Carrying amount
Notional amount (mmbbl)
Maturity date
Hedge ratio1
Change in value of outstanding hedging instruments since 1 January
Change in value of hedged item used to determine hedge effectiveness
Weighted average hedged rate
Cash flow hedge: Derivative financial instruments –
Foreign exchange contracts
Carrying amount
Notional amount ($ millions)
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 risk 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
Balance at 31 December
2021
US$million
2020
US$million
(79)
6
2022
1:1
(44)
44
$50.00
(35)
11
2021
1:1
(37)
37
$41.09
2021
US$million
2020
US$million
(16)
600
2022
1:1
(44)
44
$0.7519
28
450
2021
1:1
28
(28)
$0.7056
2021
US$million
2020
US$million
–
70
(21)
49
(2)
3
(1)
–
2021
US$million
2020
US$million
11
1
–
12
12
(2)
1
11
1
The Group has established a hedge ratio of 1:1 for the hedging relationships with the underlying risk of the hedging instrument being identical to the hedged risk component of the hedged item.
Santos Annual Report 2021 / 117
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.
All subsidiaries within the Group are wholly-owned.
118 / Santos Annual Report 2021
6.1 CONSOLIDATED ENTITIES (CONTINUED)
Name
Country of incorporation
Name
Country of incorporation
Santos Limited1 (Parent Company) Controlled entities: AUS
Alliance Petroleum Australia Pty Ltd1
AUS
Basin Oil Pty Ltd1
AUS
AUS
Bridgefield Pty Ltd
Bridge Oil Developments Pty Ltd1
AUS
Bronco Energy Pty Ltd1
AUS
AUS
Doce Pty Ltd
Fairview Pipeline Pty Ltd1
AUS
AUS
Moonie Pipeline Company Pty Ltd
Oil Search Ltd3
PNG
Controlled entities of Oil Search Ltd
Oil Search (Middle Eastern) Ltd3
BVI
Controlled entities of Oil Search (Middle Eastern) Ltd
Oil Search (Iraq) Ltd3
Oil Search (Libya) Ltd3
Oil Search (Tunisa) Ltd3
Oil Search (Newco) Ltd3
Oil Search (Gas Holdings) Ltd3
Controlled entity of Oil Search (Gas Holdings) Ltd
Oil Search (Tumbudu) Ltd3
Oil Search Highlands Power Ltd3
Oil Search (PNG) Ltd3
Controlled entities of Oil Search (PNG) Ltd
Oil Search (Drilling) Ltd3
Oil Search (Exploration) Inc3
Oil Search (LNG) Ltd3
Oil Search Finance Ltd3
Oil Search Power Holdings Ltd3
Controlled entity of Oil Search Power Holdings Ltd
PNG Biomass Ltd3
Controlled entity of PNG Biomass Ltd
Markham Valley Renewables Ltd3
Oil Search Foundation Ltd3,5
Papuan Oil Search Ltd3
Controlled entities of Papuan Oil Search Ltd
Oil Search (Uramu) Pty Ltd3
Oil Search (USA) Inc3
Controlled entity of Oil Search (USA) Inc
Oil Search (Alaska) LLC3
Pac LNG Investments Ltd3
Pac LNG Assets Ltd3
Pac LNG International Ltd3
Pac LNG Overseas Ltd3
Pac LNG Holdings Ltd3
Reef Oil Pty Ltd1
Santos Australian Hydrocarbons Pty Ltd
Santos (BOL) Pty Ltd1
Santos Browse Pty Ltd
Santos CSG Pty Ltd1
Santos Darwin LNG Pty Ltd
Santos Direct Pty Ltd
Santos Finance Ltd
Santos GLNG Pty Ltd
Santos International Holdings Pty Ltd
BVI
BVI
BVI
BVI
PNG
PNG
PNG
PNG
PNG
CI
PNG
BVI
PNG
PNG
PNG
PNG
AUS
AUS
USA
USA
PNG
PNG
PNG
PNG
PNG
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
Controlled entities of Santos International Holdings
Pty Ltd
Santos Americas and Europe LLC
Controlled entity of Santos Americas and Europe LLC
Santos TPY LLC
Controlled entities of Santos TPY LLC
Santos Queensland LLC
Santos TOG LLC
Controlled entity of Santos TOG LLC
Santos TPY CSG LLC
Barracuda Ltd
Lavana Ltd
Sanro Insurance Pte Ltd
Santos Bangladesh Ltd
Santos (UK) Ltd
Controlled entities of Santos (UK) Ltd
Santos Northwest Natuna B.V.
Santos NA (19-12) Pty Ltd
Santos NA (19-13) Pty Ltd
Santos NA Bayu Undan Pty Ltd
Santos NA Emet Pty Ltd
Santos NA Timor Sea Pty Ltd
Santos NA Timor Leste Pty Ltd
Santos Hides Ltd
Santos P’nyang Ltd
Santos Sangu Field Ltd
Santos Vietnam Pty Ltd
Santos TOGA Pty Ltd
Santos (JPDA 91–12) Pty Ltd
Santos Midstream Holdings Pty Ltd1
Controlled entities of Santos Midstream Holdings Pty Ltd
Santos Devil Creek Pty Ltd1
Santos Resources Pty Ltd1
Santos Infrastructure Holdings Pty Ltd2
Santos Midstream Asset Holdings Pty Ltd2
Santos Infrastructure WAQ Holdings Pty Ltd2
Santos Infrastructure WAQVIDC Pty Ltd2
Santos Infrastructure WAQ Assets Pty Ltd2
Santos Infrastructure West Holdings Pty Ltd2
Santos Infrastructure WASDCA Pty Ltd2
Santos Infrastructure WASVIA Pty Ltd2
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 (Eastern) Pty Ltd
Santos NSW (LNGN) Pty Ltd
Santos NSW (Pipeline) Pty Ltd
Santos NSW (Narrabri Energy) Pty Ltd
Santos NSW (Narrabri Gas) Pty Ltd4
Santos NSW (Narrabri Power) Pty Ltd
Santos NSW (Operations) Pty Ltd
USA
USA
USA
USA
USA
PNG
PNG
SGP
GBR
GBR
NDL
AUS
AUS
AUS
AUS
AUS
AUS
PNG
PNG
GBR
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
Santos Annual Report 2021 / 119
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
Name
Country of incorporation
Name
Country of incorporation
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 Ltd
Santos QNT (No. 2) Pty Ltd
Controlled entity of Santos QNT (No. 2) Pty Ltd
Petromin 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 Ltd1
Controlled entity of Santos KOTN Holdings Pty Ltd
Santos KOTN Pty Ltd1
Controlled entities of Santos KOTN Pty Ltd
Santos Agency Pty Ltd
Santos NA Barossa Pty Ltd
Santos NA Browse Basin Pty Ltd
Santos Singapore Management Pte Ltd
Santos NA Energy Holdings Pty Ltd1
Controlled entities of Santos NA Energy
Holdings Pty Ltd
Santos NA Energy Pty Ltd1
Controlled entity of Santos NA Energy Pty Ltd
Santos NA Asset Holdings Pty Ltd1
Controlled entity of Santos NA Asset
Holdings Pty Ltd
Santos NA Assets Pty Ltd1
Controlled entity of Santos NA Assets
Pty Ltd
Notes
1 Company is party to a Deed of Cross Guarantee (refer note 6.6)
2 Companies incorporated during the 2021 financial year
3 Companies acquired through the acquisition of Oil Search Ltd (refer note 6.2)
4 Company acquired during the 2021 financial year
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
SGP
AUS
AUS
AUS
AUS
Santos NA Darwin Pipeline Pty Ltd
Santos WA AEC Pty Ltd1
Santos WA Energy Holdings Pty Ltd1
Controlled entity 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 Ltd
Santos WA International Pty Ltd
Harriet (Onyx) Pty Ltd1
Santos WA Energy Ltd1
Controlled entities of Santos WA Energy Ltd
Ningaloo Vision Holdings Pte Ltd
Northwest Jetty Services Pty Ltd
Santos WA DC Pty Ltd
Santos WA (Exmouth) Pty Ltd
Santos WA East Spar Pty Ltd1
Santos WA Julimar Holdings Pty Ltd
Santos WA Kersail Pty Ltd1
Santos WA LNG Pty Ltd
Santos WA Management Pty Ltd
Controlled entity of Santos WA Management
Pty Ltd
Santos WA Finance Holdings Pty Ltd
Controlled entity of Santos WA Finance
Holdings Pty Ltd
Santos WA Finance General Partnership
Santos WA Northwest Pty Ltd1
Santos WA Onshore Holdings Pty Ltd
Santos WA PVG Holdings Pty Ltd1
Controlled entity of Santos WA PVG Holdings
Pty Ltd
Santos WA PVG Pty Ltd1
Santos WA Southwest Pty Ltd1
Santos WA Varanus Island Pty Ltd1
SESAP Pty Ltd
Vamgas Pty Ltd1
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
SGP
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
5 Oil Search Foundation Ltd is a Trustee of the Oil Search Foundation Trust, a not-for-profit organisation established for charitable purposes in Papua New Guinea. This Trust is not controlled
and is not consolidated within the Group.
Country of incorporation
AUS
– Australia
BVI
– British Virgin Islands
CI
GBR
NDL
– Cayman Islands
– United Kingdom
– Netherlands
PNG
– Papua New Guinea
SGP
USA
–
Singapore
– United States of America
120 / Santos Annual Report 2021
6.2 ACQUISITIONS AND DISPOSALS
(a) Acquisitions
On 10 December 2021, the Group acquired 100% of the shares in Oil Search Limited, a PNG oil and gas producer. This acquisition
strengthens the diversified portfolio of high-quality, long-life, low-cost assets across Papua New Guinea and North America with
significant growth optionality. In addition, on 22 December 2021 Santos acquired the remaining 20% interest in the Narrabri assets.
Details of the purchase consideration and the provisional fair value of identifiable assets and liabilities of Oil Search Limited acquired
are as follows:
Fair value of net identifiable assets and goodwill acquired, on acquisition date
US$million
Cash and cash equivalents
Trade and other receivables
Inventories
Exploration and evaluation assets
Oil and gas assets
Other land, buildings, plant and equipment
Contract assets
Other assets acquired
Trade and other payables
Current tax liabilities
Lease liabilities
Interest-bearing liabilities
Restoration liabilities
Other liabilities acquired
Deferred tax liabilities (net)
Net identifiable assets acquired
Goodwill arising on acquisition (provisional)
Purchase consideration transferred
Purchase consideration
Share issue
Total non-cash consideration
Cash flows on acquisition
Cash acquired on acquisition
Less: transaction costs paid
Net cash flow on acquisition
Accrued transaction costs
Total transaction costs incurred
946
240
146
2,050
6,549
135
318
173
(345)
(117)
(497)
(2,702)
(800)
(58)
(1,080)
4,958
1,080
6,038
Note
5.3
US$million
6,038
6,038
946
(6)
940
28
34
Transaction costs are recognised as an expense in Other Expenses in the Consolidated Income Statement.
Santos Annual Report 2021 / 121
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.2 ACQUISITIONS AND DISPOSALS (CONTINUED)
(a) Acquisitions (continued)
Revenue and contribution to the Group
The acquired business contributed revenues of $101 million and EBITDAX of $62 million to the Group for the period from the
acquisition date to 31 December 2021.
If the acquisition had occurred on 1 January 2021, consolidated pro-forma revenue and EBITDAX for the year ended 31 December
2021 would have been higher by $1,551 million and $1,092 million respectively. It is impractical to estimate the impact the acquisition
would have had if applied from 1 January 2021, at a net profit after tax level, due to the impact of deferred taxes and depreciation.
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 solely arises from the net deferred tax liability
recognised on acquisition, in accordance with accounting standards. Accounting for taxation at the acquisition date is within the
scope of AASB 112 Income Taxes. The general principle of AASB 112 is that deferred tax is recognised for all taxable temporary
differences. In a business combination, there is no initial recognition exemption for deferred tax and the corresponding accounting
entry for a deferred tax asset or liability forms part of the goodwill balance. A net deferred tax liability has been reflected of $1,080
million created primarily as a consequence of historical tax bases assumed in the merger being lower than the fair value of the
assets acquired. The balance is offset by an amount booked as goodwill for $1,080 million.
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 that are expected to benefit from the combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units.
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.
Furthermore, goodwill is not amortised for accounting but will be annually assessed for impairment in accordance with the
accounting policy set out in note 3.4.
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 both reserves and resources 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 sales agreements, 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 fair value, taking into account the risks associated with the specific restoration
obligations.
Contingent 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.
Due to the size, complexity and timing of the acquisition, the acquisition accounting is not yet finalised and accordingly the assets
acquired and liabilities assumed are measured on a provisional basis. If new information obtained within the twelve months from
acquisition date about facts and circumstances that existed at the acquisition date identifies adjustments to fair values; or any
additional provisions that existed at the acquisition date; then the accounting for the acquisition, including the value of goodwill, will
be revised.
122 / Santos Annual Report 2021
6.2 ACQUISITIONS AND DISPOSALS (CONTINUED)
(a) Acquisitions (continued)
Prior period acquisitions
On 28 May 2020, the Group successfully completed the acquisition of ConocoPhillips' northern Australian assets, for a purchase
price of $1,265 million plus contingent consideration of $200 million payable on the Barossa project achieving final investment
decision. The net cash settlement on completion of the transaction was $879 million, inclusive of transaction costs of $39 million,
which have been capitalised.
Under the terms of the Sale and Purchase Agreement, Santos has acquired interests in the following:
•
•
•
•
56.9% equity accounted investment in Darwin LNG Pty Ltd
56.9% undivided interest in the Bayu-Undan project and associated pipeline
37.5% joint operation interest in the Barossa project
40% joint operation interest in the Poseidon project
(b) Disposals
In connection with the acquisition of ConocoPhillips’ northern Australian assets (which completed on 28 May 2020), the Group
disposed of a 25% interest in Bayu-Undan and Darwin LNG to SK E&S, which completed on 30 April 2021.
Assets and liabilities disposed
Other working capital
Investments in equity accounted associates
Oil and gas assets
Assets
Restoration provision
Liabilities
Net assets disposed
There were no disposals of subsidiaries or interests in joint arrangements during 2020.
2021
US$million
22
323
70
415
(298)
(298)
117
Santos Annual Report 2021 / 123
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.3 ASSETS HELD FOR SALE
Non-current assets are classified as held for sale and measured at the lower of their carrying amount and fair value less costs of disposal
if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset to
be classified as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable.
An impairment loss is recognised for any initial or subsequent writedown of the asset (or disposal group) to fair value less cost of
disposal. A gain is recognised for any subsequent increases in fair value less cost of disposal of an asset (or disposal group) but not in
excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the
non-current asset (or disposal group) is recognised at the date of derecognition.
In connection with the acquisition of ConocoPhillips’ northern Australian assets (which completed on 28 May 2020), the Group entered
into a letter of intent to sell a 12.5% interest in Barossa to an Australian subsidiary of JERA Co., Inc (JERA), upon achieving FID in March
2021. A binding Sale and Purchase Agreement was subsequently signed in December 2021 with completion of the sale expected in the
first half of 2022. As completion of the disposal is expected in the short term, the associated assets and liabilities have been classified as
held for sale as at 31 December 2021.
The following amounts are included within the financial statements in relation to assets and liabilities classified as held for sale:
Assets and liabilities classified as held for sale
Trade and other receivables
Prepayments
Oil and gas assets
Assets classified as held for sale
Trade and other payables
Liabilities classified as held for sale
Net assets
2021
US$million
1
26
258
285
(8)
(8)
277
In the prior period the Group had entered into an agreement to sell a 25% interest in Darwin LNG and Bayu-Undan to SK E&S.
At 31 December 2020, the assets attributable to the sale had been classified as held for sale. The sale completed on 30 April 2021
and is disclosed as a disposal in note 6.2(b).
124 / Santos Annual Report 2021
6.4 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
Characteristics
Joint operation
Joint venture
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.
The Group has interests in joint ventures,
whereby the venturers have contractual
arrangements that establish joint control over the
economic activities of the entities.
Rights and obligations Each party has control over its share of future
Accounting method
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.
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 2021 / 125
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.4 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
Principal activities
2021
% Interest
2020
% Interest
Oil and gas assets – Producing assets
Barrow Island
Bayu-Undan1
Combabula
Fairview
GLNG Downstream
Macedon/Pyrenees
PNG LNG4
Roma
SA Fixed Factor Area
SWQ Unit
Caldita/Barossa2,3
Barrow
Bayu-Undan
GLNG
GLNG
GLNG
North Carnarvon
PNG LNG
GLNG
Cooper Basin
Cooper Basin
Bonaparte Basin
Exploration and evaluation assets
EP161
WA-435-P, WA-437-P
WA-436-P, WA-438-P
WA-58-R (WA-274-P)
WA-80-R
WA-281-P
WA-90-R, WA-91-R, WA-92-R
Muruk 1
Petrel
PRL-9
Horseshoe4
Pikka Unit4
PRL-15 (Papua LNG Project)4
PRL-34
McArthur Basin
Bedout
Bedout
Bonaparte Basin
Browse
Browse
Browse
PNG
Bonaparte Basin
PNG
Alaska
Alaska
PNG
PNG
Oil production
Gas and liquids production
Gas production
Gas production
LNG facilities
Oil and gas production
Gas and liquids production
Gas production
Oil and gas production
Gas production
Gas production
Contingent gas resource
Contingent oil and gas
Oil and gas exploration
Gas development
Contingent gas resource
Gas and liquids exploration
Gas and liquids exploration
Gas and liquids exploration
Contingent gas resource
Gas and liquids exploration
Oil and gas exploration
Oil and gas exploration
Gas exploration
Gas exploration
28.6
43.4
7.3
22.8
30.0
28.6
42.5
30.0
66.6
60.1
62.5
75.0
80.0
70.0
30.0
47.8
70.5
40.0
57.5
40.3
40.0
51.0
51.0
22.8
38.5
28.6
68.4
7.3
22.8
30.0
28.6
13.5
30.0
66.6
60.1
62.5
75.0
80.0
70.0
30.0
47.8
70.5
40.0
20.0
40.3
40.0
–
–
–
–
1
Santos’ interest in the Bayu-Undan area of interest during 2021 decreased to 43.4% as part of the sell down to SK E&S.
2 Santos has signed a binding Sale and Purchase Agreement to sell a 12.5% interest in the Barossa project to an Australian subsidiary of JERA Co, Inc with the transaction expected to be
completed in the first quarter of 2022.
3 The Caldita/Barossa joint venture announced a Final Investment Decision has been taken to proceed with the gas and condensate project in March 2021.
4
Interest, or increase in interest, as part of the Oil Search merger. Refer note 6.2(a).
126 / Santos Annual Report 2021
6.4 JOINT ARRANGEMENTS (CONTINUED)
(b) Investments in equity accounted associates and 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. As described in note 6.2(b), a 25% interest in Darwin LNG Pty Ltd was sold to SK E&S
during the year, bringing the Group’s total interest to 43.4%. The investment will continue to be accounted for as an equity accounted
investment in an associate, given the Group is deemed to have only significant influence over the separately incorporated company,
based on the structure of voting and decision making rights.
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:
Note
2021
US$million
2020
US$million
43.4%
68.4%
Share of investment in Darwin LNG Pty Ltd
Group’s equity interest
Summarised net asset position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Closing net assets
Group’s share of net assets
Equity accounted investment held for sale
Equity accounted investment not subject to sale
6.3
Summarised income statement
Gross profit
Other income and expenses
Depreciation and amortisation
Profit before tax
Income tax expense
Net profit after tax for the period
Group’s share of net profit of associates
Reconciliation to carrying amount
Opening balance
Add: Group’s share of net profit
Add: Additional equity investment in Darwin LNG Pty Ltd
Less: Disposal of equity investment in Darwin LNG Pty Ltd
6.2(a)
6.2(b)
Dividends received
Return of capital
Carrying amount of investments in associate
497
1,199
(416)
(360)
920
399
–
399
141
36
(103)
74
(21)
53
25
734
25
–
(323)
436
(37)
–
399
150
1,484
(109)
(452)
1,073
734
321
413
270
3
(191)
82
(16)
66
33
13
33
790
–
836
(39)
(63)
734
Santos Annual Report 2021 / 127
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.4 JOINT ARRANGEMENTS (CONTINUED)
(c) Investments in equity accounted associates and joint ventures (continued)
The following are the equity accounted associates and joint ventures in which the Group has an interest, including those which are
immaterial:
Equity accounted associate or Joint venture
Darwin LNG Pty Ltd
GLNG Operations Pty Ltd
GLNG Property Pty Ltd
NiuPower Limited
NiuEnergy Limited
2021
% Interest
2020
% Interest
43.4
30.0
–
50.0
50.0
68.4
30.0
30.0
–
–
At 31 December 2021, the Group reassessed the carrying amount of its investments in equity accounted associates and joint
ventures for indicators of impairment. As a result, no impairment was recorded (2020: $nil).
6.5 PARENT ENTITY DISCLOSURES
Selected financial information of the ultimate parent entity in the Group, Santos Limited, is as follows:
Net (loss)/profit for the period
Total comprehensive income
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Accumulated profits reserve
Other reserves
Accumulated losses
Total equity
Commitments of the parent entity
The parent entity’s commitments are:
Capital expenditure commitments
Minimum exploration commitments
2021
US$million
2020
US$million
(220)
(220)
720
14,527
397
711
15,075
1,808
(1,306)
(1,761)
13,816
3
19
416
416
640
9,038
333
820
9,037
2,028
(1,306)
(1,541)
8,218
9
22
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.
128 / Santos Annual Report 2021
6.6 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 of the Closed Group.
Consolidated income statement
Product sales
Cost of sales
Gross profit
Other revenue
Other income
Other expenses
Impairment of non-current assets
Interest income
Finance costs
Loss before tax
Income tax expense
Royalty-related tax expense
Total tax expense
Net loss for the period
Total comprehensive loss
Summary of movements in the Closed Group’s accumulated losses:
Accumulated losses at 1 January
Transfer to accumulated profits reserve
Net loss for the period
Share based payment transactions
Adjustments for companies removed from the Deed during the year
Adjustments for companies added to the Deed during the year
Accumulated losses at 31 December
2021
US$million
2020
US$million
2,244
(1,615)
1,845
(1,506)
629
80
14
(274)
(213)
8
(346)
(102)
(131)
(82)
(213)
(315)
(315)
(3,273)
–
(315)
(9)
79
(8)
(3,526)
339
116
109
(138)
(343)
22
(280)
(175)
(6)
(68)
(74)
(249)
(249)
(2,581)
(430)
(249)
(13)
–
–
(3,273)
Santos Annual Report 2021 / 129
Financial Report
Notes to the Consolidated Financial Statements
Section 6: Group Structure
6.6 DEED OF CROSS GUARANTEE (CONTINUED)
Set out below is a consolidated statement of financial position as at 31 December of the Closed Group.
2021
US$million
2020
US$million
654
6,345
262
7,261
11,032
870
5,308
1,030
18,240
25,501
9,369
430
9,799
–
2,165
106
2,271
12,070
13,431
15,030
1,927
(3,526)
13,431
302
5,858
246
6,406
5,078
1,030
4,650
1,321
12,079
18,485
8,955
342
9,297
144
2,204
494
2,842
12,139
6,346
9,037
582
(3,273)
6,346
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
130 / Santos Annual Report 2021
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 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 $22 million (2020: $13 million).
The following amounts are recognised in the Group’s statement of financial position in relation to employee benefits:
Current provisions
Employee benefits
Non-current provisions
Employee benefits
Total employee benefits provisions
2021
US$million
2020
US$million
99
20
119
92
7
99
Santos Annual Report 2021 / 131
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
Other equity grants
2021
US$000
2020
US$000
(1,138)
(3,435)
(9,552)
(3,740)
(2,902)
(20,767)
(785)
(2,585)
(9,499)
(2,430)
(2,722)
(18,021)
The net impact from share-based payment plans, net of Treasury shares utilised in the current year, is a decrease in accumulated losses
of $9 million. The net impact on accumulated losses from share-based payment plans in 2020 was an increase of $13 million.
132 / Santos Annual Report 2021
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. Directors of the Company, key management
personnel, senior executives, casual employees, employees on fixed term contracts and employees on international assignment
are excluded from participating in the Share1000 Plan and the ShareMatch Plan.
Share1000
ShareMatch
What is it?
The Share1000 Plan provides for grants of fully
paid ordinary shares up to a value determined
by the Board, which in 2021 was A$1,000 per
employee (2020: A$1,000).
The ShareMatch Plan allows for the purchase of
shares up to $5,000 on a pre-tax basis. Shares
are provided via an employee loan, repaid over
a maximum 12-month period, and to receive
matched SARs at a ratio of 1 to 2 or as otherwise
set by the Board.
The employee’s
ownership and right
to deal with them
Subject to restrictions until the earlier of the
expiration of the three-year restriction period
and the time when the employee ceases to be in
employment.
Upon vesting, subject to restrictions until
the earlier of the expiration of the three-year
restriction period and the time when he or she
ceases to be an employee.
How is the fair value
recognised?
The fair value of these shares is recognised as an
employee expense with a corresponding increase
in issued capital, and the fair value per share is
determined by the Volume Weighted Average
Price (“VWAP”) of ordinary Santos shares on the
ASX during the week up to and including the date
of issue of the shares.
The fair value of the shares is recognised as an
increase in issued capital and a corresponding
increase in loans receivable. The fair value per
share is determined by the VWAP of ordinary
Santos shares on the ASX during the week up to
and including the date of issue of the shares.
The fair value of services required in return for
matched SARs granted is measured by reference
to the fair value of matched SARs granted. The
estimate of the fair value of the services received
is measured by discounting the share price on the
grant date using the assumed dividend yield and
recognised as an employee expense for the term
of the matched SARs.
The following shares were issued pursuant to the employee share plans during the period:
Year
2021
2021
2020
2020
Share1000 Plan
ShareMatch Plan
Issue date
Issued shares
No.
Fair value
per share
A$
Issued shares
No.
Fair value
per share
A$
31 August
259,448
6.06
579,246
23 July
–
4 September
195,110
6 January
7,488
–
5.56
6.94
571
1,740,621
14,832
6.06
5.56
5.56
6.94
Santos Annual Report 2021 / 133
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
2021 Total
2020 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of the
year
No.
2,677,233
290,183
(122,889)
(441,543)
2,402,984
1,467,872
1,755,453
(37,474)
(508,618)
2,677,233
The inputs used in the valuation of the SARs are as follows:
Matched SARs grant
23 Jul 2021
31 Aug 2021
Share price on grant date (A$)
Exercise price (A$)
Right life (weighted average, years)
Expected dividends (% p.a.)
Fair value at grant date (A$)
5.67
nil
2.1
–
5.67
5.97
nil
3.0
–
5.97
The loan arrangements relating to the ShareMatch Plan are as follows:
During the year the Company utilised $1 million of Treasury shares (2020: $7 million) under the ShareMatch Plan, with
$5 million (2020: $4 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
2021
US$000
4,897
1,263
(4,519)
(126)
1,515
2020
US$000
1,671
7,095
(4,006)
137
4,897
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 2021 LTI Program offers consisted only of SARs. Performance Awards were granted to eligible executives in 2021 who
were granted one four-year grant (1 January 2021 – 31 December 2024).
134 / Santos Annual Report 2021
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
2021 Total
2020 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of the
year
No.
9,323,465
3,338,263
(778,148)
(2,815,560)
9,068,020
11,218,859
2,667,841
(940,796)
(3,662,439)
9,323,465
The SARs granted during 2021 totalling 3,338,263 were issued across the following three tranches, each with varying valuations:
Senior Executive LTI – granted 15 April 2021
2021
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)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
$4.96
$7.18
nil
42%
4
0.3%
144,259
S&P GEI
$4.67
$7.18
nil
42%
4
0.3%
144,258
FCFBP
$7.18
$7.18
nil
42%
4
0.3%
144,258
ROACE
$7.18
$7.18
nil
42%
4
0.3%
144,258
Senior Executive LTI – granted 12 May 2021
2021
Performance Awards
Q1
Q2
Q3
Q4
Performance index
Fair value at grant date (A$)
Share price on grant date (A$)
Exercise price (A$)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
$4.58
$6.82
nil
42%
4
0.3%
657,945
S&P GEI
$4.06
$6.82
nil
42%
4
0.3%
657,925
FCFBP
$6.82
$6.82
nil
42%
4
0.3%
657,910
ROACE
$6.82
$6.82
nil
42%
4
0.3%
657,892
Santos Annual Report 2021 / 135
Financial Report
Notes to the Consolidated Financial Statements
Section 7: People
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
ii. Executive Long-Term Incentive share-based payment plans (continued)
Senior Executive LTI – granted 17 December 2021
2021
Performance Awards
Q1
Q2
Q3
Q4
Performance index
Fair value at grant date (A$)
Share price on grant date (A$)
Exercise price (A$)
Expected volatility (weighted average, % p.a.)
Right life (weighted average, years)
Risk-free interest rate (% p.a.)
Total granted (No.)
ASX 100
$3.66
$6.42
nil
42%
4
1.0%
32,392
S&P GEI
$3.18
$6.42
nil
42%
4
1.0%
32,390
FCFBP
$6.42
$6.42
nil
42%
4
1.0%
32,388
ROACE
$6.42
$6.42
nil
42%
4
1.0%
32,388
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.
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 2021 vests
in accordance with the following vesting schedule:
TSR percentile ranking
% of grant vesting
< 51st percentile
= 51st percentile
0%
50%
52nd to 75th percentile
Further 2.0% for each percentile over 51st
≥ 76th percentile
100%
136 / Santos Annual Report 2021
7.2 SHARE-BASED PAYMENT PLANS (CONTINUED)
iii. Executive Deferred Short-Term Incentives (“STIs”)
Short-term incentive outcomes for Senior Executives and Executives are delivered in a mix of cash and equity, which are
subject to a two-year restriction period. For the Managing Director and Chief Executive Officer and his direct reports, the
equity is provided in the form of deferred shares. For other Executive, the equity is provided in the form of Share Acquisition
Rights.
Deferred 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 STI deferred shares outstanding at the end of, and movements throughout, the financial year are:
Year
2021 Total
2020 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of the
year
No.
471,090
576,552
696,921
471,090
–
–
(471,090)
576,552
(696,921)
471,090
On 15 March 2021, the Company issued 576,552 deferred shares to eligible executives. The share price and fair value on the
grant date was A$7.22, with no discounting applied for a dividend yield assumption, given the deferred shares being eligible to
receive divide nds from the date of grant.
Share acquisition rights
The share acquisition rights are subject to a 24-month continuous service period following the year to which the STI related.
The number of deferred STI share acquisition rights outstanding at the end of, and movements throughout, the financial year
are:
Year
2021 Total
2020 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of the
year
No.
–
–
550,052
(35,135)
–
–
–
–
514,917
–
On 29 March 2021, the Company issued 550,052 acquisition rights to eligible executives. The share price and fair value on
the grant date was A$7.16. No discounting was applied for a dividend yield assumption, as for SARs which vest, participants
receive additional Santos shares equivalent in value to notional dividends accrued and reinvested during the period between
allocation and vesting, or the cash equivalent value. No entitlement to additional shares or cash payment is provided in respect
of SARs which do not vest.
Santos Annual Report 2021 / 137
Financial Report
Notes to the Consolidated Financial Statements
Section 7: People
iv. Other equity grants
The SARs in the table below are subject to varying continuous service periods, depending on the specific grant. The number of
other equity grants outstanding at the end of, and movements throughout, the financial year are:
Year
2021 Total
2020 Total
Beginning of
the year
No.
Granted
No.
Lapsed
No.
Vested
No.
End of the
year
No.
2,448,488
861,544
(133,191)
(674,098)
2,502,743
2,272,745
450,667
(15,799)
(259,125)
2,448,488
The other SARs granted during the year are as follows:
2021
Continuous Service Period
Grant Date
Grant Date
Granted Commencing
Expiring
SARs
Vesting
Date
Share
Price
Fair
Value
Dividend
Yield
30 Mar 2021
30 Mar 2021
6,112
7,974
30 Mar 2021
31 Mar 2022
1 Apr 2022
30 Mar 2021
31 Mar 2023
3 Apr 2023
11 Apr 2021
847,458
11 Apr 2021
31 Dec 2025
2 Jan 2026
7.13
7.13
7.07
7.13
7.13
7.07
–
–
–
(b) 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
2021
US$000
2020
US$000
8,096
211
197
–
6,643
15,147
7,765
215
202
100
5,148
13,430
(b) Loans to key management personnel
In 2020, Key Management Personnel were able to participate in the Santos ShareMatch employee share plan. The 2020
ShareMatch offer provided the opportunity for participants to acquire up to A$10,000 in Santos shares funded through pre-tax and
post-tax deductions from salary which concluded in June 2021. No amounts were outstanding at 31 December 2021. ShareMatch
was not offered to Key Management Personnel in 2021.
No other loans have been 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.
138 / Santos Annual Report 2021
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. 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 15 February 2022, the Directors of Santos Limited resolved to pay a final dividend of US8.5 cents in respect of the 2021 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 2021. 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
2021
US$000
2,313
346
2,659
2020
US$000
1,945
155
2,100
(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
2021
US$000
2020
US$000
290
851
1,832
2,973
247
636
1,300
2,183
Santos Annual Report 2021 / 139
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 amendment to accounting standards applicable for the first time for the financial year beginning
1 January 2021:
•
AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform (Phase 2)
The amendments to AASB 4, AASB 7, AASB 9, AASB 16 and AASB 139 provide temporary reliefs which address the financial
reporting effects when an interbank offered rate (“IBOR”) is replaced with an alternative nearly risk-free interest rate (“RFR”). The
amendments include the following practical expedients:
•
•
•
To require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes
to a floating interest rate, equivalent to a movement in a market rate of interest
To permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the
hedging relationship being discontinued
To provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument
is designated as a hedge of a risk component
These amendments have not had a significant or immediate impact on the Group’s annual consolidated financial statements or
half-year condensed financial statements.
(b) 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 2022, 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) Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before intended use
Description
The amendment prohibits entities from deducting from the cost of an item of property, plant and
equipment (“PP&E”), any proceeds of the sale of items produced while bringing that asset to
the location and condition necessary for it to be capable of operating in the manner intended by
management. Instead, an entity recognises the proceeds from selling such items, and the costs of
producing those items, in profit or loss.
Impact on Group
financial report
It is yet to be determined what the impact on the Group would be as a result of this amendment to
the standard.
Application of standard
1 January 2022
(Applied retrospectively to items of property, plant and equipment made available for use on or after
the beginning of the earliest period presented when the entity first applies the amendment).
ii) Amendments to IAS 37 – Onerous Contracts – Costs of Fulfilling a contract
Description
The amendments provide clarification on which costs an entity needs to include when assessing
whether a contract is onerous or loss-making. The amendments apply a ‘directly related cost
approach’.
Impact on Group
financial report
It is yet to be determined what the impact on the Group would be as a result of this amendment to
the standard.
Application of standard
1 January 2022
iii) Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction
Description
The amendments narrow the scope of the initial recognition exception under IAS 12, so that it no
longer applies to transactions that give rise to equal taxable and deductible temporary differences
Impact on Group
financial report
It is yet to be determined what the impact on the Group would be as a result of this amendment to
the standard.
Application of standard
1 January 2023
Several other amendments to standards and interpretations will apply on or after 1 January 2022, and have not yet been applied,
however they are not expected to impact the Group’s annual consolidated financial statements.
140 / Santos Annual Report 2021
Directors’ Declaration
for the year ended 31 December 2021
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 2021 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 2021.
As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in
note 6.6 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 15th day of February 2022
On behalf of the Board:
Director
Santos Annual Report 2021 / 141
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 2021, the consolidated income statement, the 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 2021 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 (including Independence Standards)
(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
142 / Santos Annual Report 2021
Carrying values of exploration and evaluation, oil and gas assets and goodwill
Why significant
How our audit addressed the key audit matter
Australian Accounting Standards require
the Group to assess in respect of the
reporting period, whether there is any
indication that an asset may be impaired,
or conversely whether reversal of a
previously recognised impairment may
be required. If any such indication exists,
an entity shall estimate the recoverable
amount of the asset or Cash Generating
Unit (CGU).
At year end, the Group identified
impairment indicators in respect of certain
oil and gas asset CGUs. Where required,
impairment testing was undertaken which
resulted in no impairment charges or
reversals of previous impairment charges
being required for any of its oil and gas
CGUs as set out in Note 3.4 of the
financial report.
The Group also identified impairment
indicators in respect of certain exploration
and evaluation assets. The impairment
testing of those assets resulted in
an impairment charge of $8 m being
recorded during the year, as set out in
Note 3.4 of the financial report.
The assessments for indicators of
impairment and reversals of impairment
are judgmental and include assessing a
range of external and internal factors.
Where impairment indicators are
identified, forecasting cash flows for the
purpose of determining the recoverable
amount of a CGU involves critical
accounting estimates and judgements
and is affected by expected future
performance and market conditions.
The key forecast assumptions such as,
discount rates, foreign exchange rates,
commodity prices and recoverable
hydrocarbon reserves used in the Group’s
impairment assessment are set out in the
financial report in Note 3.4.
As a result, we considered the impairment
testing of the Group’s CGUs and its
exploration and evaluation assets, and the
related disclosures in the financial report,
to be a key audit matter.
A member firm of Ernst & Young Global Limited
We evaluated whether there had been significant changes to the external or internal
factors considered by the Group in assessing whether indicators of impairment or
reversal of impairment existed.
Where impairment indicators existed for oil and gas CGUs, we focussed on the
composition of the forecast cash flows and the inputs used to formulate recoverable
amounts. Depending on the CGU, these procedures included:
• Reconciling future production profiles to the latest hydrocarbon reserves and
resources estimates (discussed further below), current sanctioned development
budgets, long-term asset plans and historical operations
•
Independently developing a reasonable range of forecast oil and gas prices, based
upon external data. We compared this range to the Group’s forecast oil and gas
price assumptions to challenge whether the Group’s assumptions were reasonable.
In developing our ranges, we obtained a variety of reputable third-party forecasts,
peer information and market data.
•
Independently evaluating discount rates used by the Group for impairment tests
• Understanding the operational performance of the CGUs relative to plan, comparing
future operating and development expenditure within the impairment assessments
to current sanctioned budgets, historical expenditures and long-term asset plans and
ensuring variations were in accordance with our expectations based upon other
information obtained throughout the audit.
•
•
•
Examining the key drivers of changes to calculated recoverable amounts, relative to
previous assessments.
Testing the mathematical accuracy of the Group’s discounted cash flow models.
Assessing the Group’s consideration of climate change risk in its estimates of the
recoverable amounts of CGUs, including sensitivity testing on changes to discount
rates, forecast commodity prices and forecast carbon pricing.
• Considering the audit results of procedures carried out over restoration and
rehabilitation obligations and their impact on impairment risk.
A key input to impairment assessments is the Group’s production forecast, which
is closely related to the Group’s hydrocarbon reserves and resource estimates and
development plans. Our audit procedures focused on the work of the Group’s internal
and external experts and included:
•
Assessing the processes and controls associated with estimating reserves and
resources.
• Reading reports provided by internal and external experts and assessed their scopes
of work and findings.
•
Assessing the qualifications, competence and objectivity of the Group’s internal and
external experts involved in the estimation process.
• Considering whether key economic assumptions used in the estimation of reserves
and resources volumes were consistent with those used by the Group in the
impairment testing of exploration and evaluation, oil and gas assets and goodwill,
where applicable.
• Understanding the reasons for reserve changes or the absence of reserves changes,
for consistency with other information that we obtained throughout the audit.
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 judgments applied by the Group in relation to the
carrying values of exploration and evaluation, oil and gas assets and goodwill.
Liability limited by a scheme approved under Professional Standards Legislation
Santos Annual Report 2021 / 143
Financial Report
Independent Auditor’s Report
to the Members of Santos Limited
(continued)
Provisional accounting for the merger of Santos and Oil Search
Why significant
How our audit addressed the key audit matter
Our audit procedures included:
•
•
•
•
•
•
•
•
Assessing the Group’s determination of the acquisition date of the business
combination.
Evaluating the Group’s determination of the purchase consideration with
reference to Australian Accounting Standards and the Santos share price at
the date of acquisition.
Evaluating the qualifications, competence and objectivity of the Group’s
external and internal experts used to determine its hydrocarbon reserves
and resources and the provisional fair value estimates of oil and gas assets,
exploration and evaluation assets, and restoration liabilities.
Independently assessing the provisional fair value estimates of oil and gas
assets, exploration and evaluation assets and restoration liabilities. In
conjunction with support from EY valuation specialists, we:
•
•
•
•
•
•
Considered the discount rates, forecast foreign exchange rates and
forecast commodity prices with reference to variety of reputable
third-party forecasts, peer information and market data.
Agreed cash flow forecasts to sanctioned development budgets, long
term asset plans and contractual arrangements.
Tested the mathematical accuracy of the cash flow models.
Considered whether the financial modelling methodology, used to
measure fair value, was in accordance with the requirements of
Australian Accounting Standards.
Performed valuation cross checks on the acquired exploration and
evaluation assets with reference to reserve and resource transaction
and trading multiples.
Assessed decommissioning and restoration liability amounts with
reference to internal and third party restoration cost estimates. We
considered the composition of the cost estimates and methodologies
used as well as the appropriateness of contingency rates and the
other market inputs applied, such as inflation and discount rates.
Engaged a non-EY component audit firm to execute specific audit
procedures over certain working capital balances at year-end. We obtained
their conclusions and reviewed their audit workpapers, as necessary.
Tested the working capital balances, including cash, inventory, trade
receivable and payables at the acquisition date.
Performed roll-back procedures to test working capital movements
between year-end and the acquisition date
Involved our taxation specialists in considering the current and deferred tax
balances across the various jurisdictions associated with the provisional
accounting for the acquisition.
We also focused on the adequacy of the financial report disclosures setting out
the nature and basis of the provisional business combination accounting and
the assumptions applied by management in accounting for the acquisition.
On 7 December 2021, the shareholders of Oil
Search Limited (“Oil Search”) voted in favour of
the proposed merger between Santos Limited
(“Santos”) and Oil Search Limited, with the courts
and regulators ratifying and administering the vote
and implementation of the merger scheme in the
weeks following.
The scheme allowed for each Oil Search
shareholder to receive 0.6275 new Santos shares
for each Oil Search share held. The transaction
constitutes a business combination under AASB
3 Business Combinations and Santos was
determined to be the acquirer for accounting
purposes.
In undertaking the provisional acquisition
accounting, Santos is required to measure the
consideration transferred and the fair value
of identifiable assets, liabilities and contingent
liabilities acquired at the acquisition date and
assess the existence of goodwill.
The fair value measurement of identifiable
assets, liabilities, and contingent liabilities requires
significant judgement and complex estimation,
including:
•
•
•
The identification and measurement of all
assets, liabilities and contingencies.
The fair valuation of exploration and evaluation
assets and oil and gas properties, which are
dependent upon, amongst other factors, the
existence and extent of underlying
hydrocarbon reserves and resources and key
forecast assumptions such as discount rates,
foreign exchange rates, commodity prices and
operating and capital costs.
The valuations of restoration and rehabilitation
liabilities, which in turn are dependent upon
the extent of environmental disturbances at
the acquisition date, the timing of proposed
rehabilitation and decommissioning activities
and applicable regulatory and compliance
requirements, which influence closure cost
estimates.
•
The measurement of deferred tax assets and
liabilities under the various jurisdictions in
which Oil Search operated.
The details of the provisional business combination
accounting for the acquisition are set out in Note
6.2 of the financial report.
As a result, we considered the Group’s provisional
business combination accounting and the related
disclosures in the financial report to be a key audit
matter.
144 / Santos Annual Report 2021
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 2021
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, actions taken to eliminate threats or safeguards applied.
Santos Annual Report 2021 / 145
Financial Report
Independent Auditor’s Report
to the Members of Santos Limited
(continued)
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 34 to 63 of the directors’ report for the year ended 31 December 2021.
In our opinion, the Remuneration Report of Santos Limited for the year ended 31 December 2021, 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
D Lewsen
Partner
Adelaide
15 February 2022
D Hall
Partner
146 / Santos Annual Report 2021
Auditor’s Independence Declaration
to the Directors of Santos Limited
As lead auditor for the audit of the financial report of Santos Limited for the financial year ended 31 December 2021, 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;
b. No contraventions of any applicable code of professional conduct in relation to the audit; and
c. No non-audit services provided that contravene any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Santos Limited and the entities it controlled during the financial year.
Ernst & Young
D S Lewsen
Partner
15 February 2022
Santos Annual Report 2021 / 147
Financial Report
Securities Exchange
and Shareholder Information
Listed on the Australian Securities Exchange at 31 January 2022 were 3,386,921,635 fully paid ordinary shares. Unlisted were
5,000 partly paid Plan 0 shares and 5,000 partly paid Plan 2 shares.
There were 169,197 holders of all classes of issued ordinary shares, including: 1 holder of Plan 0 shares: 1 holder of Plan 2 shares.
This compared with 127,809 holders of all classes of issued ordinary shares a year earlier.
As at 31 January 2022 there were also: 1,405 holders of 15,201,598 Share Acquisition Rights pursuant to the SEEIP and 3,357 holders of
2,402, 984 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 78.33% of the total voting power in Santos (75.29% on 31 January 2021). The largest shareholders of fully paid
ordinary shares in Santos as shown in the Company’s Register of Members at 31 January 2022 were:
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited – A/C 2
BNP Paribas Nominees Pty Ltd
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