Santos Limited · ASX:STO
Santos — H1 2004 Earnings Presentation
50 slides from Santos's earnings presentation, August 2004
Slide 1: Meeting the challenge – Interim results
Slide 1 Meeting the challenge – Interim results Graeme Bethune: Good morning everyone and welcome to the 2004 Santos interim results presentation. For those I haven’t met my name is Graeme Bethune and I am Santos Group Executive, Investor Relations. The speakers we have today are John Ellice-Flint,
Slide 2: Disclaimer
Slide 2 Here we have the customary disclaimer slide. 2
Slide 3: Program for today
Slide 3 This is the program for today. John Ellice-Flint will provide an overview. Jon Young will talk about harvesting value from our existing assets. Peter Wasow will address financial performance and John Ellice-Flint will conclude by addressing how we are creating value from new assets through d
Slide 4: Meeting the challenge – Overview
Slide 4 Meeting the challenge – Overview John Ellice-Flint • Ladies and gentlemen....good morning. • Well, what a challenging opening half - in this our 51st year of operations! • New Year's Day...Moomba...the fire... we’ll update you on that shortly. • But, beyond that incident, Santos in August 20
Slide 5: Safety – recordable injuries reducing
Slide 5 Safety – recordable injuries reducing • Good companies are safe companies. • As always, our people are the major focus for Santos. • We are building a better safety culture. This requires a comprehensive range of programs to improve safety performance. • We measure many indicators of our saf
Slide 6: Positioned for higher oil prices
Slide 6 Positioned for higher oil prices • Of course, the big news for the sector as a whole this year has been continuing high oil prices and from next year we will be in an even better position to capitalise on higher prices. • You know the story and all the factors contributing to higher prices.
Slide 7: Results Reflect Moomba
Slide 7 Results Reflect Moomba • The first half results, however, were dominated by the Moomba incident. • Production overall was down by 21% compared with the first half 2003. Seventy percent of this was due to Moomba and the remaining decrease was spread across fields in the Otway, Timor, Carnarvo
Slide 8: Reshaping the Organisation
Slide 8 Reshaping the Organisation • We also haven’t let the short-term Moomba issues distract us from the bigger picture of growing the company. • One of the major achievements during 2004 has been reshaping the organisation as part of our continuous improvement process. • Senior management has bee
Slide 9: Value from new assets
Slide 9 Value from new assets • We have also made tangible progress in creating value from new assets: o Bayu-Undan, the first of our major new development projects, commenced production ahead of schedule, the Minerva gas field will shortly begin producing and Mutineer-Exeter is now 60% complete. o
Slide 10: Harvesting value from existing assets
Slide 10 Harvesting value from existing assets • Jon Young, Executive Vice-President Operations, will now provide an update on what we’re doing to maximise value from our existing assets. Jon Young • Thanks John. Good morning. • As John indicated, the operations team that I lead is responsible for h
Slide 11: 1H 2004 Production
Slide 11 1H 2004 Production • As indicated in this slide, first half production was down by 5.6 million barrels of oil equivalent (boe) over prior corresponding period (pcp). This was made up of : o 1.6 million boe of natural decline primarily in our Cooper, Otway, US and Carnarvon assets including
Slide 12: Moomba Incident
Slide 12 Moomba Incident • The Moomba recovery is nearing completion with the final recommissioning of the Liquids Recovery Plant B train planned to occur this coming weekend. • This will complete the 6 stage recovery process which saw gas deliveries resumed within days of the incident and the resto
Slide 13: East Spar
Slide 13 East Spar • The East Spar field, where Santos has a 45% non operated interest, is experiencing earlier water breakthrough than was expected. This is resulting in a significant production impact which is unlikely to be turned around as the field is approaching the end of its productive life.
Slide 14: Stag
Slide 14 Stag • The Stag oil field, where Santos has a 67% non-operated interest, has experienced unanticipated decreases in well performance. As a result, production declined by nearly 25% between the first and second quarters of this year. (652,000 bbls in 1Q 2004 to 502,000 bbls in 2Q 2004) • San
Slide 15: Cost management
Slide 15 Cost management • Effective cost management is a critical component of margin enhancement and value creation. • We have been aggressively pursuing cost reductions in recent years with the Business Improvement Programme delivering over $180 million in like for like cost savings in the 2001-0
Slide 16: Technology
Slide 16 Technology • Applying new technology to our assets remains a key improvement opportunity to drive recovery volumes up and costs down. To this end we have numerous initiatives underway: • Pin point fraccing is a relatively new technology which allows much more targeted stimulation of reservo
Slide 17: Moomba Hub
Slide 17 Moomba Hub • The Moomba Hub’s commercial and infrastructure position in the east coast energy market is unique. Leveraging this position to create value is an emerging opportunity as the structure of the south east Australia market continues to mature. Opportunities that are currently being
Slide 18: Meeting the challenge – Financial Performance
Slide 18 Meeting the challenge – Financial Performance Peter Wasow Thanks Jon. The financial result for the first half reflects our key messages very well. • First, we are effectively harvesting value from our producing assets. Obviously any account of the first half will be dominated by the Moomba
Slide 19: Sales Revenue
Slide 19 - Sales Revenue Here we see the overall message borne out. • Sales revenue, before the effect of the Moomba incident, was almost flat when compared with the previous corresponding period. • Overall sales volumes were down by 4.5 million barrels equivalent, or almost 1 million barrels less t
Slide 20: Production Costs
Slide 20 – Production Costs Costs are also better before the Moomba effect. • Production costs are down by $8 million or more than 5% period on period. Before the effects of the Moomba fire, production costs were almost flat at $4.88 per barrel from $4.78 in the previous period. • This reflects the
Slide 21: Net Back
Slide 21 – Net Back • Bringing these elements together, we see net back climb to $19.13 per barrel which is 47 cents per barrel higher than the previous period, before the Moomba effect. • We can see the minor effect from commodity price movements, and the effect of our predicted decline, being offs
Slide 22: DD&A
Slide 22 – DD&A • DD&A is about flat year on year, somewhat lower after Moomba, although this result reflects a higher rate per barrel. • Let me explain the two effects which are causing the DD&A rate to climb in the period. • The first is an issue of production mix, where normally we would have pro
Slide 23: NPAT
Slide 23 – NPAT Rebuilding Moomba has obviously been a major challenge for us. • Apart from that, our ongoing and everyday challenge is to manage the effects of decline in our producing profit centres. • We can see on this chart, the cost of that decline: a $28 million reduction in net profit after
Slide 24: Capital Expenditure
Slide 24 – Capital Expenditure We are in a record year as far as our investment for the future is concerned. • The overall spend in the first half of 2004 of $390 million is not all that much higher than that which we spent in the first half of 2003, if you take out the effect of the Moomba LRP rebu
Slide 25: Cash flow and Net Debt
Slide 25 – Cash flow and Net Debt • And while we spend, we can still afford to, even including the effects of the Moomba incident. • Cash flows are down year on year for the reasons shown on the chart. The major variance that we haven’t discussed up to now is the working capital variance which inclu
Slide 26: Capital management
Slide 26 – Capital management • As a result of increasing development opportunities, and the current attractive pricing in the hybrid market, we have decided to increase our funding from this source. • Today we announced the redemption of our existing preference shares, and the offer of $500 million
Slide 27: International accounting standards
Slide 27 – International accounting standards • Speaking of which, the new International Accounting Standards will be adopted in a “Big Bang” approach next year, as depicted on this slide. • But wait, what’s wrong with this picture? Even though we will adopt 47 new standards there is, as yet, no new
Slide 28: Value for New Projects
Slide 28 Value for New Projects John Ellice-Flint • Thanks, Peter. I’d now like to look at the future of the Company and how we are creating value from new assets. 28
Slide 29: Development Timeline 2004 to 2006
Slide 29 Development Timeline 2004 to 2006 • This chart summarises the status of projects that are due to come on line over the next couple of years. • There has been good progress, with Bayu-Undan liquids having come on line ahead of schedule and a further seven new projects sanctioned or close to
Slide 30: Development Timeline 2007 to 2010+
Slide 30 Development Timeline 2007 to 2010+ • This slide shows a series of potential development projects for existing fields or possible fields that could be available in the event of exploration success. • The aim of our exploration and gas commercialisation programs is to provide new growth proje
Slide 31: Bayu-Undan
Slide 31 Bayu-Undan • The Bayu-Undan liquids phase was completed ahead of schedule and on budget. In this slide you can see the Ensco 104 jack up rig positioned over the Bayu-Undan production platform as it drills the development wells. The wells drilled so far have better than expected productivity
Slide 32: Mutineer-Exeter
Slide 32 Mutineer-Exeter • The Mutineer-Exeter oil field development is over 60% complete. • Recent progress includes commencement of the topsides construction and installation onto the Floating Production Storage and Offtake vessel. • In this photo you can see the heavy lift barge installing the 40
Slide 33: John Brookes – Varanus hub
Slide 33 John Brookes – Varanus hub • Two weeks ago we announced the signing of a Gas Sales Agreement for the sale of John Brookes gas to Newcrest Mining. • The development of John Brookes has been accelerated and this, together with third party gas, allows the Joint Venture to meet East Spar shortf
Slide 34: Casino
Slide 34 Casino • The development of the Casino field in the Otway Basin offshore Victoria is close to sanction with a target for first gas production of first quarter 2006. • The development will have minimal environmental impact in this sensitive area through the use of subsea wellheads and a dire
Slide 35: Indonesia Gas
Slide 35 Indonesia Gas Indonesia is a focus area for Santos. The risk profiles for oil and domestic gas differ, reflecting the fact that oil is sold on world markets but gas is sold to local companies. With domestic gas it is prudent to ensure that the buyers are providing appropriate credit indemni
Slide 36: Novus Acquisition
Slide 36 Novus Acquisition • I will now turn to the Novus acquisition, which is a good fit with our existing interests as can be seen from this map. • The final sale and purchase agreement is currently being negotiated with Medco, the ultimate successful bidder. • Following the Medco bid late last y
Slide 37: Meeting the challenge – Creating value from new assets
Slide 37 Meeting the challenge – Creating value from new assets • I’d now like to summarise the production outlook before proceeding to exploration. • The Company continues to expect 2004 production to be 45-46 million boe. • We expect production to rebound in 2005. The magnitude of the 2005 increas
Slide 38: Exploration - The Journey So Far
Slide 38 Exploration - The Journey So Far • We are probably the most leveraged to exploration of any of the major Australian E&P companies and the program has the potential to provide a substantial boost to oil and gas reserves in the event of success. • While our journey since 2001 has had its ups
Slide 39: Basin Excellence
Slide 39 Basin Excellence • Our exploration strategy is focused on basin excellence. We begin by identifying basins where we can build competitive advantages. • The key to this is understanding the basin from its basic building blocks, the rocks. o Once focus areas have been identified, we set about
Slide 40: First Half Exploration
Slide 40 First Half Exploration • The exploration story for 2004 is in two parts. During the first half the focus was on building and optimising our portfolio as preparation for the high-impact drilling stage, which has now begun. • The most important drilling result was the Jeruk 1 well, seen here
Slide 41: Exploration focus – Indonesia: East Java
Slide 41 Exploration focus – Indonesia: East Java • In Indonesia, we have built a substantial acreage position in East Java, close to recent large discoveries and on trend with major existing fields. • Significant wells to be drilled in 2004 are Jeruk 2 and Agung 1. 41
Slide 42: Jeruk 2
Slide 42 Jeruk 2 • The Jeruk 2 well now drilling in the Sampang licence follows the encouraging Jeruk 1 result 1.6 km to the west. The map shown here is a contour map at the level of the top of the Kujung limestone reservoir and indicates a trap area of about 30km2. • The reef build-up is clearly ev
Slide 43: Agung 1
Slide 43 Agung 1 • The Agung prospect in the Nth Bali 1 licence will be drilled immediately after Jeruk 2 using the same rig. • This slide clearly shows the seismic expression of a reef build-up of the same Kujung limestone reservoir typical of several nearby discoveries. Many of the giant fields in
Slide 44: Exploration Focus – Indonesia: Kutei
Slide 44 Exploration Focus – Indonesia: Kutei • In the Kutei Basin we have taken interests in a deep water trend outboard of several recent discoveries that are under development planning. With our upcoming wells, one in each licence area as shown on the map, we are seeking to confirm that this prov
Slide 45: Exploration Focus - Australia
Slide 45 Exploration Focus - Australia • Another area of exploration focus is the southern margin of Australia where we have a strong position in the offshore Otway and the Sorell Basin. • The focus of this area is the deep water frontier play to be evaluated by the Amrit well. 45
Slide 46: Amrit 1
Slide 46 Amrit 1 • Amrit is the first test of a high risk frontier exploration play which could significantly change the landscape for the company if successful. The Amrit prospect will be drilled in the fourth quarter. • This will be Santos’ first deep water operated well and will test a new play c
Slide 47: Exploration Focus - Egypt
Slide 47 Exploration Focus - Egypt • The Gulf of Suez. is one of the world’s major hydrocarbon provinces with existing discoveries totalling over 9 billion barrels of oil. A number of giant oil fields surround the blocks in which Santos has taken an interest. 47
Slide 48: Khefren 1
Slide 48 Khefren 1 • The Khefren 1 well is the first of 8 planned wells to be drilled under the Devon farmin completed last month. The seismic section shows the prospect as a large tilted fault block below a thick section of salt and evaporite sediments. • The 80 million barrel Saqqara field discove
Slide 49: Meeting the Challenge
Slide 49 Meeting the Challenge Thank you ladies and gentlemen... In closing, let me leave you with this thought: Success for any oil and gas company is embedded in where and how it explores. The new production cornerstones we've outlined today have only resulted from the fact we have jumped out of o
Slide 50: Q&A
Slide 50 Meeting the Challenge Q&A 50