HOLMES INSTITUTE FACULTY OF HIGHER EDUCATION HI6025 Accounting Theory and Current Issues Group Assignment T2 2020 Assessment Details and Submission Guidelines Trimester T2 2020 Unit Code HI6025 Unit...

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TURNING OPPORTUNITIES
INTO GROWTH…
Annual Report 2003
INSIDE
2
Chairman’s review
Stephen Gerlach
comments on Santos’
performance in 2003.
3
Measuring
performance
Analysis of key results
for 2003 and three-
year performance.
4
Managing Director’s
review
John Ellice-Flint
reviews Santos’
achievement of targets
in 2003 and outlines
new measures to drive
future growth.
9
Base business
Business performance
and production results
for 2003 plus a review
of activities that are
creating value in
Santos’ base business.
10
The world of
Santos
Location of Santos’
global exploration,
development and
production activities.
15
Creating options
Exploration strategy,
results and acreage
acquisitions, 2004
program and new
ventures
opportunities.
18
Capturing growth
Gas commercialisation
highlights, progress on
Santos’ flagship
developments and
future projects that
are well placed for
delivery.
23
Managing options
Portfolio management
activities and reserves
movement in 2003.
26
Sustainability
Sustainability
initiatives undertaken
in 2003, including
safety and
environmental
performance,
employees and
communities.
28
Corporate
governance
Details of the main
corporate governance
practices Santos has in
place and Directors’
biographical details.
34
Group interests
Santos licence areas
and percentage
interests.
36
10 year summary
Statistical summary of
financial performance.
38
Directors’ statutory
report
Directors’
shareholdings,
meetings, activities
and emoluments.
42
Financial report
Statements of
financial performance,
financial position and
cash flows and notes
to the financial
statements.
74
Stock exchange and
shareholder
information
Listing of top 20
shareholders, analysis
of shares and voting
rights.
76
Information for
shareholders
Annual General
Meeting, final
dividend, shareholder
enquiries and
information resources
for shareholders.
77
Glossary
Most frequently used
terms explained
Back cover
Corporate
directory
Santos Ltd ABN 80 007 550 923
Cover photograph:
Drilling crew monitoring Casino 3 production test,
offshore Otway Basin, Victoria.
Page 1 photographs (left to right):
Sarah Carter, who has worked on a range of Cooper Basin gas and
oil optimisation programs as a Reservoir Engineer; Guy Howard,
Company Representative for Santos, aboard drilling rig, offshore
Otway Basin; Ocean Epoch Mobile Offshore Drilling Unit departing
Fremantle, Western Australia, en route to Mutineer-Exeter oil fields
for development drilling; inspection of bridge link, Bayu-Undan
liquids project, Timor Gap.
1
Annual Report 2003
…AND GROWTH INTO VALUE
When Santos launched its growth strategy in 2001,
there were two development projects in the pipeline.
Today, we have six exciting new projects located
in South East Asia, the Timor Gap, offshore Western
Australia and Victoria.These projects, worth $700
million, are scheduled to commence production
by 2006.
Santos’ growth will be delivered through:
CAPTURING
GROWTH
Developing an
exciting suite of
growth projects and
contracting more gas
for future growth.
MANAGING
OPTIONS
Delivering superior
returns, strong cash
flow growth and
reserve replacement
through disciplined
portfolio management.
CREATING
OPTIONS
Maximising the value
of the exploration
program, building
a better and more
balanced portfolio
and pursuing new
opportunities.
BASE BUSINESS
Creating value from the
base business through
optimisation programs,
operational excellence
and cost leadership.
2
Annual Report 2003
Chairman’s Review
BUILDING VALUE
FOR STAKEHOLDERS
Dear Shareholder,
I am pleased to report that during the past
year Santos has continued to build long-
term value for shareholders.
While production was, as expected, down by
5.4% from the previous year’s record, Santos
commercialised 510 PJ (net) of gas during
the year and made substantial progress on
six new projects delivering growth over the
long term.
Our net profit for the year was $327.0
million, marginally higher than in the
previous 12 months, including a once-off
positive $55.0 million adjustment following
the Company’s decision to adopt the new
tax consolidation laws from 1 January 2003.
The higher profit was achieved on steady
sales revenue of $1,465.0 million and
earnings before interest, tax, depreciation
and amortisation (EBITDA) of $1,061.2
million.
Cash flow from operating activities, after
interest and tax, increased by 9.3% to
$897.3 million. This result comes on top
of a 14.5% increase in operating cash flow
in 2002. Over the past decade Santos’
operating cash flow has grown at an
average annual compound rate of 12%.
During the year we divested a number of
non-core assets, raising $130.4 million. In
addition, Santos increased its interests in
the Stag and John Brookes fields offshore
Western Australia. At the end of the year
gearing was 22.5%, our lowest gearing since
the 1960s. Net debt was reduced by $265.3
million to $897.6 million.
Our strong cash flow and low gearing have
enabled Directors to maintain a total
dividend of 30 cents per share for the full
year, including a final dividend of 15 cents
per share. This represents a fully franked
yield of almost 5%.
Directors decide the level of dividends twice
yearly, based on Santos’ performance and
prospects. These decisions are not based on
a single metric, such as annual pay-out
ratio, and take into account all relevant
factors including future capital investment
requirements.
Current indications are that Santos will
be able to fund its capital program and, at
a minimum, maintain its current level of
dividend payments over the foreseeable
future. This is subject to matters outside
the Company’s control such as oil prices and
exchange rates.
The total shareholder return for the year
was 20% – a significant increase from 2002
and above our target of 14%.
2003 was a year in which we further
improved our exploration portfolio and
options through expansion of our
exploration acreage, despite making no
significant discoveries. Exploration is a
long-term activity with variable returns year
on year, but remains a core component of
our business activities.
Santos continues to be recognised for its
high standard of corporate governance. For
the second year in a row we were awarded
five out of five for corporate governance in
an independent report prepared by leading
accounting and management firm, Horwath,
and the University of Newcastle.
Having a safe workplace is the highest
priority for the Board. Our overall focus on
workplace safety saw an improved safety
performance with a reduction in the 2003
total recordable case frequency rate – how
we measure safety performance – to 7.2
from 9.0 in 2002.
It has been a disappointing start to 2004
with the Moomba gas leak and fire on 1
January 2004. Importantly, there were no
casualties and our emergency response was
well executed.
Mr Ian Webber AO retired from the Board of
Directors in October 2003. Mr Webber had
been on the Board for nearly 11 years,
during which time he served on a number of
Board committees. Mr Webber made an
outstanding contribution to Santos, being
able to draw on his wide corporate
experience in some of Australia’s leading
companies.
I would also like to welcome Mr Mike
Harding to the Board following his
appointment as a Director effective 1 March
2004.
Mr Harding’s extensive international
experience in managing and enhancing the
strategic development of major upstream
investments will bring additional oil and gas
industry experience to the Santos Board.
Finally, I wish to acknowledge the efforts
and commitment of Santos’ management
and employees. They have met the
challenges before the Company and I know
they continue to build our platform for
future growth. We look forward to further
progress in 2004 as we celebrate Santos’
50th year. I also thank my fellow
Board members.
Stephen Gerlach Chairman
16 March 2004
3
Annual Report 2003
MEASURING PERFORMANCE
BASE BUSINESS
�Sales revenue of $1,465.0 million.
�EBITDA of $1,061.2 million.
�Net profit after tax up 1.5% to $327.0 million, but includes once-off $55.0 million
benefit from tax consolidation.
�Total dividends of 30 cents per share, fully franked.
�12.3% return on average ordinary shareholders’ equity.
�Production of 54.2 million boe; sales volumes of 55.4 million boe.
�Sales gas and ethane production volumes of 222.8 PJ.
�Safety performance improved, with injury rates reduced to a total recordable case
frequency rate of 7.2.
CREATING OPTIONS
�New potentially high impact exploration acreage acquired.
�No commercial discoveries from 2003 exploration program.
CAPTURING GROWTH
�510 PJ net to Santos of new gas contracts, the best performance since the 1970s.
�$690 million of growth projects approved or under consideration during 2003.
�Project sanction for Mutineer-Exeter oil fields and Bayu-Undan LNG developments.
MANAGING OPTIONS
�Proven (1P) reserves replacement of 148% or 80 million boe at a world-class
average cost of US$5.62 per boe.
�Reduction in Proven plus Probable (2P) reserves to 636 million boe (-10%).
Increases in Contingent Resources to 1,450 million boe (+18%).
�Portfolio management net proceeds of $100 million.
�Leverage of 22.5%, the lowest gearing since the 1960s.
�Cash flow from operating activities increased by 9.3% to $897.3 million.
2003 2002
Sales ($million) 1,465.0 1,478.4
Operating profit before tax ($million) 430.9 493.3
Operating profit after tax ($million) 327.0 322.1
Cash flow from operations ($million) 897.3 820.8
Earnings per share 52.1 cents 51.9 cents
Ordinary dividends per share 30 cents 30 cents
Cash flow per share 153.8 cents 141.3 cents
Total shareholders’ funds ($million) 3,087.9 2,863.9
Return on average ordinary equity 12.3% 13.1%
Return on average capital employed 8.8% 9.0%
Net debt/(Net debt plus equity) 22.5% 28.9%
Net interest cover 8.5 times 8.1 times
4
Annual Report 2003
Managing Director’s Review
TURNING OPPORTUNITIES INTO GROWTH…
AND GROWTH INTO VALUE
After joining Santos in late 2000,
I instigated the development of a strategy
to transform Santos into a truly international
exploration and production company with
world-class operations. This was achieved
using the knowledge and skills of our
employees.
Over the past three years we have all been
focused on achieving this goal.
We have entered 2004 – the year marking
Santos’ 50th anniversary – with six
company-building projects located in South
East Asia, the Timor Gap and offshore
Western Australia and Victoria.
That is a dramatic change from two
projects in the development pipeline in
2001 and, significantly, the new projects
we now have underway will make strong
contributions to our annual production
profile by 2006.
THREE STAGES OF TRANSFORMATION
The first stage of Santos’ transformation
concentrated on meeting the short-term
challenge of maximising value from the
existing asset base while building a portfolio
of options for growth. This was particularly
focused on our Australian operations.
The second stage will occur from 2004 to
2006 and will come from a suite of projects
that will drive medium-term production and
earnings growth. During 2003 two critical
projects were approved for development: the
Bayu-Undan LNG development in the Timor
Gap and the Mutineer-Exeter oil development
off the Western Australian coast.
This stage will also see Santos focusing on
building its position in South East Asia and
North America through a combination of
acreage expansion and, where appropriate,
value-adding acquisitions. Both are regions
with substantial energy demand and are core
to our growth strategy.
The third stage of Santos’ transformation,
looking five to 10 years ahead, will see the
Company expand into a number of regions
beyond Australia, including new ventures in
regions such as the Middle East and North
Africa.
MEETING PRODUCTION AND SALES
OBJECTIVES
Through production optimisation efforts,
Santos achieved its production target of
54–55 million boe in 2003. Production fell
by 5% on the previous year to 54.2 million
boe. This decline was due to the maturing of
Santos’ base business, ahead of the start of
production from new projects.
Production of oil and natural gas liquids
declined by 10% to 15.9 million boe. Gas
production was 4% lower at 38.3 million
boe. Santos continued to diversify gas
production with 69 PJ, or 31%, of
production being outside the Cooper Basin,
up from 66 PJ in 2002.
Increasing or maintaining our production
in 2003 was always going to be a challenge
after the record result achieved in 2002,
with the only significant project brought
into production in 2003 being the Patricia
Baleen gas field in the Gippsland Basin,
Victoria, and due to the mature nature of
our base business.
Following the Moomba gas leak and fire
the outlook for production in 2004 is for
a further decline.
The good news is that the outlook for
production beyond 2005 is strong due
to a number of new developments coming
into production that will significantly
increase Santos’ total output, particularly
of oil and liquids.
Sales volumes declined by 2% in 2003 to
55.4 million boe, down from 56.8 million
boe. Total sales revenue was virtually steady
at $1,465.0 million, reflecting higher
average prices across most products.
Average realised gas prices rose by 9% to
$3.16 per gigajoule. Sales revenue remained
steady despite the 32% appreciation in the
Australian dollar against the US dollar and
the 3% drop to A$43.59 per barrel in the
average realised crude oil price for the
full year.
Further details of Santos’ 2003 production
results and optimisation success commence
on page 12 of the Annual Report.
STABLE PROFIT
Overall profit after tax was $327.0 million,
up slightly from the 2002 profit of $322.1
million, although this includes a once-off
$55.0 million benefit from tax consolidation.
Generally there were positive developments
with increased gas margins and control of
production costs. While US dollar commodity
prices were strong, much of this benefit was
offset by the higher Australian dollar.
Production costs fell by $6.2 million to
$263.6 million. This reflected $21.1 million
of savings, particularly in the Cooper Basin,
partly offset by the costs of new fields
coming into production and the costs of the
Moonie–Brisbane pipeline leak.
Total operating costs, including field
production costs, increased from $410
million to $429 million due to increased
royalty payments and Petroleum Rent
Resources Tax payments.
Netback or margin per barrel improved
from $18.64 to $19.11 due to improved
gas margins.
5
Annual Report 2003
Earnings before interest, tax, depreciation
and amortisation were $1,061.2 million, a
reduction of $25.5 million. This reflected a
$13.4 million fall in sales revenue, an $18.9
million increase in operating costs and other
movements which were more than offset by
the profit of $45.8 million on the sale of
Santos’ interest in Oil Company of Australia.
Exploration write-offs totalled $59.7 million
($75.3 million in 2002). This constituted the
write-off of practically all of Santos’ Papua
New Guinea exploration as well as our
unsuccessful drilling in the Bawean PSC
in Sumatra.
Depreciation expense was $40.6 million
higher at $172.0 million. The largest
contributing factor was the accelerated
depreciation of Santos’ Heytesbury facility
in western Victoria, due to the expected
cessation of production in 2004.
Further increases in depletion costs were
disappointing. Depletion expense was $22.9
million higher at $333.8 million due to
revisions in Proven plus Probable reserves
(2P) in the Cooper Basin, East Spar and the
United States.
Income tax expense was $67.3 million lower
than in 2002, reflecting lower tax on
operating profit and a $55.0 million
adjustment for tax consolidation.
RESERVE REPLACEMENT EXCEEDS
PRODUCTION
One of the most critical drivers of growth for
any exploration and production company is
value-adding reserve replacement, replacing
each barrel produced with a more
valuable barrel.
In 2003, through a mix of gas
commercialisation and drilling activities,
Santos replaced more Proven reserves than it
produced for the second year running. Santos
replaced Proven reserves (1P) by 148% or 80
million boe. This result places Santos in a
strong position to achieve the long-term
targets of production and earnings growth.
Proven plus Probable reserves (2P) fell by 74
million boe. This was a disappointing result
and largely reflected negative revisions of
29 million boe and net acquisitions and
divestments of 16 million boe. Increasing
2P as well as 1P reserves in 2004 through
commercialisation of our Contingent
Resources and Possible (3P) reserves
is one of our priorities.
Santos’ reserves position is discussed in
more detail on page 24 of the Annual
Report.
COST LEADERSHIP
Cost leadership remains a critical part of our
strategy, which led to the introduction of
the Business Improvement Program. We set
ourselves the goal in May 2001 to achieve
$50 million of cost savings. In the two-and-
a-half years since the program was
introduced, we have saved $188.3 million.
This excellent result comprises $164.7
million in capital cost savings and $23.6
million in operating cost savings.
The program has enabled Santos to reduce
capital costs, primarily through production
optimisation, savings in drilling and
completions, optimisation of gas
development and contracting efficiencies.
Most of the savings have been directed
towards accelerated development of our
suite of new growth projects.
CONTINUOUS IMPROVEMENT PROGRAM
We are now moving to make step rather than
incremental changes to many areas of our
business through the adoption of the Santos
Continuous Improvement Program. This
program focuses on:
• improving key business processes to world-
class standards
• simplifying the organisation and adopting
a more streamlined functional-based
structure
• further attacking the cost base over and
above ongoing efforts
• continuing cultural change and
development to support the improvements
we seek.
Process improvements will be implemented
over the course of 2004, with a new
management and organisational structure
taking effect from May 2004.
STRONG GLOBAL ENERGY DEMAND
In last year’s Annual Report I
commented on emerging global energy
trends: historically high oil prices and
the growing use of gas.
These trends continued during 2003.
Oil prices averaged US$31.00 per
barrel, above the 2002 average of
US$26.60 per barrel. US gas prices
also remained high.
While the demand for oil and gas
remains strong, there are impediments
to increasing supply quickly.
China continues to have an immense
and rapidly growing demand for oil
and gas. The country is increasingly
dependent on oil imports and it is
making major investments in gas
pipelines and LNG.
Demand for oil and gas also remains
strong in North America, in an
environment of shrinking local
supplies and increasing finding and
development costs.
This is increasing the United States’
interest in importing LNG. During his
recent visit to Australia US Energy
Secretary, Spencer Abraham, said,
‘Australia could be a major source of
gas for the United States’ and he
described Australia as an ‘excellent
prospective supplier’.
The task at hand is to turn this
opportunity into shareholder value.
Santos is well positioned with its
growing oil and liquids production and
large inventory of gas resources.
6
Annual Report 2003
OUTSTANDING YEAR FOR GAS
COMMERCIALISATION
Santos enjoyed its most successful year in
gas commercialisation since the early 1970s
when significant Cooper Basin gas contracts
were signed. New gas contracts and Heads of
Agreements for up to 510 PJ (net) were
signed in 2003. These included:
• approval of the Bayu-Undan LNG project
(275 PJ)
• East Spar Gas Sales Agreement with Alinta
(40 PJ)
• Casino Gas Sales Agreement with TXU
(108 PJ)
• Cooper Basin gas contracts with Pasminco,
TXU, Origin and BHP Billiton (up to 27 PJ)
• Cooper Basin ethane contract extension
with Qenos (up to 39 PJ)
• Otway Basin gas contract with TXU
(up to 21 PJ).
In addition, Santos started 2004 strongly,
signing a Letter of Intent which underpins
the development of the John Brookes gas
field offshore Western Australia and a Heads
of Agreement with PT Perusahaan Gas Negara
for the sale of the entire reserves of the
Maleo field in East Java.
Further information about gas commercialisation
commences on page 18 of the Annual Report.
MORE BALANCED EXPLORATION PORTFOLIO
Exploration is a long-term activity and
performance should be generally measured
over a three-to-five-year period. Therefore
disappointing results in any one year do not
necessarily reflect a failure of the program.
After a good performance in 2001 and 2002,
Santos did not make any material wildcat
exploration discoveries in 2003. Significant
volumes of gas were discovered in Titan and
Calypso in the Bawean PSC, but contained
high levels of carbon dioxide.
While the result was disappointing, we
further enhanced our portfolio by acquiring
more potentially high impact exploration
acreage in Australia, Indonesia and the
United States during the year. This has
established a more balanced exploration
portfolio with higher quality material
prospects that provide a basis for securing
future growth projects.
We also had good results in delineating
previous exploration successes through the
drilling of successful appraisal wells in the
John Brookes and Casino gas fields.
Further discussion of Santos’ exploration
performance, forward program, acreage
acquisitions and new ventures activities
commences on page 15 of the
Annual Report.
MOOMBA LIQUIDS RECOVERY
PLANT INCIDENT
In the early hours of New Year’s Day 2004,
a gas leak and fire occurred in the Liquids
Recovery Plant (LRP) section of the Moomba
Gas Plant. This was caused by an unforseen
failure of a heat exchanger (cold box) inlet
nozzle due to Liquid Metal Embrittlement by
elemental mercury. There were no casualties
resulting from the incident.
The plant was shut down immediately.
Limited gas supply, about 30% of normal
daily demand, was delivered within 48 hours
of the incident and full normal daily demand
was able to be met within seven weeks. The
LRP is currently being rebuilt and is due to
be fully recommissioned by July.
The 2004 financial impact of the incident
is estimated to be a reduction of $25–30
million in net profit after tax and $35–40
million in operating cash flow, net of
insurance recoveries. Lost production net
to Santos from the incident is estimated
to be 3.8 million boe.
I would like to recognise the efforts of our
employees who worked tirelessly to manage
the many impacts of this incident. They have
done an outstanding job under difficult
circumstances and have displayed the
qualities of commitment, teamwork and
excellence which we value so highly.
We also thank those in government, our
customers and other producers who have
worked cooperatively with us to ensure the
market was met during this period.
INTEGRATING SUSTAINABILITY
Capturing meaningful data from which we
can measure our progress and integrating
the principles of sustainability into our
business have been the focus of our
sustainability efforts in 2003.
Conceptually, the principles of sustainability
are quite straightforward. We aim to make
economic progress, protect the environment
and be socially responsible, all on the
foundation of sound corporate governance.
The real challenge is to put these concepts
into practice. We recognise that it is
important to have clearly measurable
sustainability indicators that are reflected in
management systems and drive performance.
Our approach in this regard has been to
initiate nine priority projects that directly
address our objective of gathering
meaningful data and setting improvement
targets in a number of areas including
greenhouse gas emissions, energy
consumption, produced formation water
and waste management.
We have also made progress on developing
policies on issues that were identified by the
sustainability baseline study undertaken in
2002 as being opportunities for Santos to
move forward: namely, human rights,
business ethics and greenhouse and
climate change.
Later this year we will publish our first
Sustainability Review which will report on
the progress we have made on a number of
sustainability issues. A summary overview of
our performance in this area can be found
on page 26 of the Annual Report.
PERMANENT PROTECTION SECURED
FOR COONGIE LAKES
A particular highlight for me in 2003 was to
travel to the Coongie Lakes wetlands with
the South Australian Premier and the Minister
for Environment to announce a National Park
for the greater Coongie Lakes area.
These spectacular wetlands, located 110
kilometres north of Moomba on the Cooper
Creek floodplain in South Australia's far
north-east, are listed as wetlands of
international importance under the Ramsar
Convention.
The catalyst for the Government’s
announcement was an historic agreement
between Santos, which previously held the
exploration rights to the Coongie Lakes
area, and the South Australian conservation
movement, representing 50 environmental
groups.
Managing Director’s Review (continued)
7
It was a proud moment for me because
Santos took a leadership role to protect
this important environmental icon. I believe
this agreement shows that the oil and gas
industry can work in harmony with the
environment. This may at times mean that
there must be some no-go areas for
our activities.
The community expects us to be good
stewards and to work responsibly to protect
important wildlife habitat and refuge.
LYTTON OIL SPILL
A leak occurred in the Moonie–Brisbane
pipeline at Lytton, 15 kilometres east of
Brisbane, in March 2003. About 1.9 million
litres of oil leaked from the pipeline.
Santos has an extensive emergency response
plan which was activated as soon as the leak
was detected. We worked collaboratively
with Fire and Emergency Services to ensure
the safety of people working in the area of
the spill and to restrict access to the site.
Santos allocated every possible resource
towards finding the site of the leak,
stopping the flow as quickly as possible
and then working with the government
authorities to clean up and rehabilitate
the affected area.
Santos subsequently pleaded guilty to
charges under the Environmental Protection
Act (Qld) 1994 and was fined $300,000,
although no conviction was recorded. In
making this decision, the Magistrate took
into account Santos’ good environmental
record and the outstanding efforts of our
employees to clean up the site.
In addition to the fine, Santos covered the
total costs for the emergency response,
initial clean-up and long-term remediation,
which has now been completed. This is
estimated to be in excess of $2 million.
Since the incident, we have instigated a
number of measures to reduce the chances
of a spill of this nature occurring again.
KEEPING SAFETY THE PRIORITY
Santos’ safety performance improved in 2003
with a reduction of the total recordable case
frequency rate to 7.2 injuries per million
hours worked, compared with 9.0 in 2002.
Our vision that ‘We all go home from work
without injury or illness’ is achievable and
the challenge is for all of us to think safety
at all times as part of our day-to-day
activities.
MEASURING VALUE AND SUCCESS
In the exploration and production industry,
growth in shareholder value is created by
replacing each barrel produced with a more
valuable one. The industry is also
characterised by long lead times between
discovery and value extraction, and success
cannot always be measured until the cycle is
complete. In our industry it is not how much
cash is generated per barrel alone that is a
measure of value, but rather, how well the
cash is reinvested to replace the production.
There are two major elements to measuring
success. The first is the quality element
which is mostly how much margin each
barrel generates. Factors here include: what
is the value of the product; how challenging
is the fiscal regime in which we operate;
what is the cash cost of extraction; and how
much cash generated needs to be reinvested
to replace production?
The second element of success is about
trajectory and speed. Reserves must at least
be replaced or the business is being
liquidated. Production growth is a measure
of speed as well as growth in reserve
replacement performance.
The 2001 strategy review established long-
term operational and financial benchmarks
for Santos. While it is unlikely that all
targets will be achieved in any one year,
the table below shows that Santos has
made good progress over the past year.
NEW TARGETS FOR 2004 TO 2006
As Santos completes the first stage of its
strategy that commenced in 2001, we have
made some amendments to the performance
measures to more closely reflect the value
creation cycle of our business. We have also
refreshed some of the target levels, based on
our portfolio position at the end of 2003,
together with trends in the sector generally.
The main changes are:
• Measure netback or margin per barrel
directly with a target of greater than A$22
per boe by the end of 2006, based on an
oil price (Tapis) of A$39 price per boe.
This measures product mix, cost and price
effects and will be important as we replace
Australian domestic gas production with
higher value crude and liquids.
• The second change is to replace the
finding and development cost target of
less than US$5.50 per boe with a reserve
replacement cost target of US$5.50 per
boe which is more in line with our
strategy of growth from a number of
sources. This measures the full cost of
reserve movements from all sources,
including acquisition costs and revisions.
• The third change is that we have dropped
total shareholder return as a direct
measure as it is an outcome which is
influenced by broader market movements,
PERFORMANCE AGAINST TARGETS
Long-term target 2003 performance Comments
Production growth 5–8% -5% Not achieved.
1P reserve growth 150% 148% On target.
1P finding cost US$1.25 boe US$1.77 Improving trend.
1P finding
and development cost US$5.50 boe US$5.62 Close to target.
Total shareholder returns >14% 20% Achieved.
Return on capital employed >10% 8.8% Below target due to
projects under
development.
Cash flow growth >10% 9.3% Close to target.
Earnings per share growth >10% 0.4% Not achieved.
Annual Report 2003
like exchange rates and oil prices, which
are not controlled by Santos. As an
alternative financial measure, we will use
cash flow as measured by earnings before
interest, taxation, depreciation and
amortisation (EBITDA) per share growth
and return on capital employed (ROCE)
of greater than 10% per annum.
Santos’ targets for the strategic period 2004
to 2006 will see Santos achieving these
levels by 2006:
• Production – 6–8% growth per annum.
• Netback – targeting greater than A$22
per barrel.
• Reserve replacement cost – less than
US$5.50 per boe.
• Reserve replacement ratio – greater than
140% of annual production.
• EBITDA growth per share – equal to or
greater than 10% per annum.
• ROCE growth per share – equal to or
greater than 10% per annum.
All of these performance targets are linked
directly into the performance scorecards for
Santos management and employees. While
it is unlikely that we will achieve all of the
targets in any one year, if measured over the
long run, Santos has the necessary building
blocks in place to deliver its long-term
goals.
LOOKING AHEAD, TRANSFORMING SANTOS
Santos has successfully developed a suite of
projects to deliver growth beyond 2004.
We are planning one of our most active
wildcat exploration programs in 2004. We
plan to drill approximately 23 wells and
acquire at least 9,700 kilometres of two-
dimensional seismic and 1,000 square
kilometres of three-dimensional seismic for
a total cost of approximately $134 million.
Maintaining a high impact exploration
program is critical as it is where the biggest
shareholder value addition will occur. Our
2004 exploration program exposes investors
to a mean resource potential of 106 million
boe, with an upside of more than 250
million boe.
Our outlook for production in 2004 will be
affected by the fire at the Moomba plant on
New Year’s Day. Prior to the incident, the
outlook for 2004 production was around 53
million boe, largely influenced by the timing
of the first production from the Bayu-Undan
liquids development.
The revised production outlook for 2004 will
be in the area of 49 million boe. The impact
of the incident on 2004 after-tax profits
is estimated to be limited to a reduction
of $25–30 million due to the Business
Interruption and Property Damage
insurance cover.
Santos’ financial performance is closely
tied to movements in global oil prices and
exchange rates. A US$1 movement in the
international oil price will affect profit by
$15 million and a one cent movement in
the Australian–US dollar exchange rate will
affect profit after tax by $5 million.
To limit any downside to 2004 profits and
shareholder value from adverse oil price
movements, Santos will astutely use hedging
and remain focused on improving efficiency
and cost management in conjunction with
our hedging policy.
Santos is embarking on the next stage of its
program to address costs, after successfully
implementing the Business Improvement
Program, under the umbrella of the Santos
Continuous Improvement Program.
In terms of costs, Santos aims to further
reduce operating costs (gross) by $50
million and capital expenditure (gross)
by $70 million during 2004 and 2005,
improving 2005 after-tax earnings in
the order of $20 million.
To deliver growth in the future Santos plans
to invest $784 million on all activities in
2004. An exciting exploration program and
an expanded suite of new development
projects will result in Santos investing $134
million on wildcat exploration, $82 million
on delineation and appraisal, $490 million
on development activities and $78 million
on construction and fixed assets.
While Santos’ total production is expected
to decline in 2004, this will be arrested from
2005 as new projects, many of which are
already sanctioned, come on line.
The outlook for Santos’ production growth
during 2004–2008 is strong. Santos has set
a production growth target of 6–8% for
2004 to 2006, measured from the 2003
production base.
In addition to achieving production growth,
the contribution from high margin oil and
natural gas liquids is expected to grow to
more than 40% of total production, peaking
in excess of 25 million barrels in 2006.
WHAT DOES SANTOS OFFER THE INVESTOR?
We are clearly on the way to developing
Santos into a growth company.
Since 2001 we have:
• maximised returns from the base business
• delivered a growing production profile
over the medium term through exploration
success in 2001 and 2002 and gas
commercialisation success in 2003,
adding six new projects
• achieved progress in improving cost
efficiency, achieving $188 million in
capital and operating savings.
We are also accelerating the pace of change
internally, as we drive Santos to capture
more opportunities that deliver growth –
and value for all our stakeholders.
It has been a challenging year at Santos
as we set new benchmarks and asked our
people to make the extra effort required
to continuously improve our business.
From these challenges will come many
opportunities for Santos. I thank our
employees for their continued commitment
in the face of considerable change.
I also thank the Board of Directors for
their efforts during a very busy year.
In 2004 Santos celebrates its 50th
anniversary. While we will reflect upon
past achievements, and are inspired by the
founders of the Company, we look forward
with renewed enthusiasm and a resolve to
realise a successful future.
John C Ellice-Flint Managing Director
16 March 2004
8
Annual Report 2003
Managing Director’s Review (continued)
9
Annual Report 2003
Base Business
2003 BUSINESS PERFORMANCE
Activities
CENTRAL AUSTRALIA
NORTHERN AUSTRALIA
WESTERN AUSTRALIA
SOUTHERN AUSTRALIA
SOUTH EAST ASIA
USA
2003 performance 2003 highlights
Santos’ interests in the
Cooper/Eromanga Basins in central
Australia and the Port Bonython liquids
processing facility near Whyalla, South
Australia.
Production (mmboe) 33.3
Sales volumes (mmboe) 33.5
Sales revenue ($m) 830.5
2P reserves (mmboe) 263.8
• New gas contracts and extended
ethane contract.
• JALBU drilling efficiencies.
• Bottom water drive oil drilling
success.
Santos’ interests in Queensland (other
than the Cooper/ Eromanga Basins),
Northern Territory and Timor Gap,
including the Bayu-Undan liquids, LNG
and pipeline projects.
Production (mmboe) 5.3
Sales volumes (mmboe) 5.4
Sales revenue ($m) 114.6
2P reserves (mmboe) 156.2
• Installation of Bayu-Undan offshore
liquids facilities completed.
• Bayu-Undan LNG and Darwin pipeline
projects commenced after final
approvals.
• Record Amadeus Basin production.
• First full year of coal seam methane
gas production from Scotia.
Santos’ interests in the Carnarvon,
Browse and Houtman Basins and the
Timor Sea offshore Western Australia,
including the Mutineer-Exeter oil fields
development.
Production (mmboe) 10.6
Sales volumes (mmboe) 11.4
Sales revenue ($m) 392.6
2P reserves (mmboe) 150.1
• Mutineer-Exeter project sanctioned
and Perth office established.
• Successful John Brookes appraisal
and Letter of Intent with Newcrest
Mining.
• East Spar gas contract with Alinta.
• Record daily production from
Legendre.
Santos’ interests in the Otway, Sorell,
Gippsland and Duntroon Basins in the
south-east of Australia.
Production (mmboe) 2.4
Sales volumes (mmboe) 2.6
Sales revenue ($m) 40.4
2P reserves (mmboe) 42.6
• Positioned for Otway deep water play:
seismic surveyed, Hill 1 drilled and
T36/P awarded.
• Casino delineated with gas contract
awarded.
• First Gippsland production with
Patricia Baleen.
Santos’ interests in offshore East Java
and Kalimantan and onshore West
Papua, Indonesia; and onshore Papua
New Guinea.
Production (mmboe) 0.4
Sales volumes (mmboe) 0.4
Sales revenue ($m) 17.3
2P reserves (mmboe) 12.6
• Oyong Gas Sales Agreement and
Maleo Heads of Agreement signed.
• Nth Bali 1 PSC awarded.
• Deep water Kutei exploration entry.
• Monetised and exited non-core areas.
Santos’ interests in south Texas and
Texas/Louisiana Gulf Coast.
Production (mmboe) 2.2
Sales volumes (mmboe) 2.1
Sales revenue ($m) 91.8
2P reserves (mmboe) 10.9
• Grew net production by 10% to 2.2
mmboe.
• Benefited from average gas sales
realisations of US$5.59/mcf.
• Divested two non-core shallow gas
fields.
• Focused drilling operations on deep
geopressured Frio and Wilcox trends
along Texas Gulf Coast.
10
Annual Report 2003
THE WORLD OF SANTOS
Detailed exploration acreage maps are available on www.santos.com.
ONSHORE NORTHERN
AUSTRALIA AND
EASTERN QUEENSLAND
Exploration acreage
�Amadeus Basin
�Surat/Bowen Basins
Production
�Amadeus Basin: Mereenie,
Palm Valley and Brewer
Estate facilities
�Surat/Bowen Basins:
Scotia, Roma, Moonie
and Lytton facilities
KUTEI BASIN,INDONESIA
Exploration acreage
�Papalang PSC
�Popodi PSC
CENTRAL AUSTRALIA
Exploration acreage
�Cooper/Eromanga Basins
Production
�Cooper/Eromanga Basins:
Moomba, Jackson, Ballera
and Port Bonython
facilities
WESTERN AUSTRALIA
Exploration acreage
�Carnarvon Basin
�Houtman Basin
Development projects
�Carnarvon Basin:
Mutineer-Exeter, John
Brookes
Production
�Stag, Legendre, Barrow
Island, Thevenard Island,
East Spar facilities
SOUTHERN AUSTRALIA
Exploration acreage
�Onshore/offshore Otway
Basin
�Sorell Basin
�Gippsland Basin
�Duntroon Basin
Development projects
�Offshore Otway Basin:
Casino and Minerva
Production
�Onshore Otway Basin
�Gippsland Basin
EAST JAVA, INDONESIA
Exploration acreage
�Madura Offshore PSC
�Nth Bali 1 PSC
�Sampang PSC
Development projects
�Oyong/Maleo
OFFSHORE NORTHERN
AUSTRALIA
Exploration acreage
�Bonaparte Basin
�Browse Basin
�Timor Gap
�Timor Sea
Development projects
�Timor Gap: Bayu-Undan
liquids, Bayu-Undan LNG
Production
�Timor Gap: Bayu-Undan,
Elang, Kakatua facilities
�Timor Sea: Jabiru, Challis
facilities
Annual Report 2003
11
WEST PAPUA AND
PAPUA NEW GUINEA
Exploration acreage
�Onshore Papuan Basin
�Warim PSC
Production
�SE Gobe
UNITED STATES
Exploration acreage
�South Texas
�Texas/Louisiana Gulf Coast
Production
�South Texas
�Texas/Louisiana Gulf Coast
12
Annual Report 2003
CREATING VALUE FROM THE BASE BUSINESS
The Santos base business comprises
production from assets in all of the
Company’s existing producing fields.
2003 PRODUCTION RESULTS
Santos’ total production in 2003 fell from
57.3 million boe to 54.2 million boe.
Sales gas and ethane production fell 4%
during the year from 231.0 PJ to 222.8 PJ.
While production declined in the Cooper
Basin, gas production in five of the other
six areas of operation increased. This
illustrates the success of Santos’ continued
efforts to diversify its base business.
Crude oil production was lower at 10.9
million barrels, down from 12.1 million
barrels in the previous year. Condensate and
LPG production also declined to 3.1 million
barrels and 240.7 tonnes respectively from
3.5 million barrels and 256.1 tonnes
respectively.
Santos has a solid, mature base business
and as its fields mature, production will
inevitably decline. To counter this, Santos
has an ongoing exploration program which
aims to add new projects and production.
Santos also has a number of strategies in
place to maximise the output from the base
business.
OPTIMISATION SUCCESS
In the Cooper Basin the vision in 2003 was
to derive optimal value from the existing
assets through a production optimisation
program. The application of new
technologies in drilling, completions and
oil optimisation is improving product
delivery and recovery.
One of the particular successes in the
Cooper Basin was the Jena/Alwyn/
Limestone Creek/Biala/Ulandi (JALBU)
project which involved drilling 17 wells,
a pilot waterflood and 22 recompletions.
By the end of 2003 JALBU had delivered
the potential of an extra 2,000 barrels of
oil per day in 2004.
Santos used a shallow rig to drill the
JALBU project wells, resulting in savings of
$500,000 per well. The average time to drill
a well decreased from 9.2 days in 2002 to
7.4 days in 2003 because of innovative well
design and the more mobile rig. The rig’s
smaller drill pad size also reduces the
environmental impact of drilling.
Santos aims to continue the oil
optimisation program in 2004, actively
exploring and developing fields in acreage
that has previously been considered mature
or depleted.
The program will be expanded to evaluate
water-flood technology aimed at extracting
additional reserves from existing pools and
will be further underpinned by an aggressive
drilling campaign that targets higher rate
bottom water drive opportunities.
In addition to oil optimisation, Santos
has continued its program of optimising gas
production from existing gas assets such as
wells, fields, gathering and processing
infrastructure.
Through numerous projects brought on
line during 2003, Santos increased gas well
deliverability in the Cooper Basin by a total
of 60 TJ per day, with an average total on
line time of four months for gas wells
completed. A total of 9 PJ of incremental
gas production resulted from the
optimisation program in 2003.
These results were achieved at a
significantly lower cost than conventional
development drilling and exceeded targets
set at the beginning of the year.
CONTRACT EXTENSIONS
New and extended Cooper Basin contracts
have also helped to reduce the decline in
production during 2003. New contracts were
signed with Pasminco Century mine to
supply 15 PJ from mid 2003; with BHP
Billiton’s Cannington mine to supply up to
14 PJ over eight years commencing in late
2003; and with TXU Electricity and Origin
Energy to supply a combined total of 17 PJ
in 2004.
Santos also signed an extension to its
contract with Qenos to continue delivering
ethane. The extended contract means that
Cooper Basin ethane supply to Qenos will
continue to the beginning of 2010, with
potential to further extend the contract.
Qenos has agreed to purchase up to 65 PJ
of ethane over the extended period.
The Cooper Basin provides the majority
of production from Santos’ base business.
While the Cooper Basin is a mature
hydrocarbon area, wells are being drilled
which can be commercialised quickly and
cost-effectively – delivering strong cash
flow which can be applied to other growth
opportunities.
PRODUCTION GROWTH THROUGH WESTERN
AUSTRALIA
If the Cooper Basin is the the heart of
Moomba plant and facilities, South Australia.
13
Annual Report 2003
Santos’ gas business, then Santos’ Western
Australian operations are the heart of its
oil business.
Interests in Western Australia contribute
60% of Santos’ total oil production and this
figure will increase substantially once the
Mutineer-Exeter oil fields are commissioned
in 2005. Other oil fields in Western
Australia are Stag, Barrow Island, Thevenard
Island and Legendre.
Santos and its joint venturers are working to
maximise production rates by drilling infill
wells which could potentially extend field
life and produce existing reserves faster.
An example in 2003 was the Legendre N4H
horizontal infill well. The success of this
well lifted production from the Legendre
field in the Carnarvon Basin by an average
of 9,640 (gross) or 2,175 (net) barrels
per day or 35% of daily production. As a
result, the Legendre field achieved record
production of 48,481 boe on 21 June 2003,
surpassing the previous high of 45,313 boe.
Santos, which has held 54.166% equity
in the Stag field since 1993, took the
opportunity during the year to increase that
interest to 66.667% through the acquisition
of the interest held by Globex. The
acquisition increased Santos’ share of oil
production from Stag by 0.3 million barrels
in 2003 and is estimated to be 0.5 million
barrels in 2004.
Drilling continues in East Spar to maximise
recovery and deliverability from the field.
The alignment of the ownership of the John
Brookes gas field (see page 21) with the
East Spar field and processing facilities on
Varanus Island will allow John Brookes to
be developed as a progression from East
Spar, as East Spar field deliverability
declines over time.
MAXIMISING POTENTIAL FROM OTHER
AREAS
Other key operational areas in Australia are
the Denison and Surat Basins in eastern
Queensland and the Amadeus Basin in
central Australia.
Santos continues to build its market
position in coal seam methane (CSM),
supplying nearly 20% of the CSM production
in Queensland. Santos’ Scotia field is one of
the largest CSM fields in Australia.
Santos is continuing its development
program of this field with a further five
wells drilled and connected in 2003.
In addition, total gas production for
Eastern Queensland increased by more than
15% to 14.3 PJ. This was largely due to
contributions from the Churchie field and 12
months of production from the Scotia field.
The Amadeus Basin, which has supplied
Darwin’s total gas needs for nearly 18 years,
achieved record gas sales in 2003.
Santos’ non-Australian production comes
from the United States and Papua New
Guinea – although this is expected to
change in the near future as the Oyong
and Maleo fields come on line in Indonesia.
In the United States Santos is concentrating
its efforts along the Texas Gulf Coast in the
Frio, Vicksburg and Wilcox core trends.
United States production increased by 10%
in 2003 to 2.2 million boe largely due to
the Esenjay acquisition and revenue
increased by more than 50% to A$91.8
million due to a favourable product price
environment.
Since Santos acquired Esenjay and an
increased interest in the Runnells gas field
in 2002, 47 wells have been drilled with
60% completed as producers.
Poor drilling results and a reduction in the
size of the Runnells gas field resulted in
lower than expected production growth and
a reduction in reserves.
The Esenjay acquisition has firmly
established Santos in the Texas/Louisiana
Gulf Coast, increasing the Company’s
knowledge of the region, allowing Santos to
assemble a high quality team and opening
up access to new exploration areas with
material prospects.
The United States is the world’s largest
gas market. It offers high operating margins
and short cycle times to connect new well
production with mature infrastructure.
Santos is using its core competencies in
drilling and completion technology from
the Cooper Basin to take full advantage
of opportunities in the United States.
Santos’ priorities in the United States in
2004 are to commence a wildcat exploration
program in new exploration acreage
targeting deep gas plays (deeper than
15,000 feet); expand exploration options
by acquiring new leases; and continue to
increase efficiencies and production from
the deep gas pressured drilling and
development program.
14
PRODUCTION STATISTICS
Annual Report 2003
Total 2003 Total 2002
Field units mmboe Field units mmboe
Sales gas and ethane (PJ)
Cooper 154.0 26.5 165.0 28.4
Surat/Denison 14.3 2.5 12.4 2.1
Amadeus 11.7 2.0 11.3 1.9
Otway 11.9 2.0 11.5 2.0
Gippsland 1.9 0.3 – –
Carnarvon 17.7 3.1 20.8 3.6
USA 11.3 1.9 10.0 1.7
Total production 222.8 38.3 231.0 39.7
Total sales volume 228.4 39.3 228.0 39.2
Total sales revenue ($million) 720.8 659.6
Crude oil (‘000 bbls)
Cooper 2,808.2 2.8 2,974.4 3.0
Surat/Denison 83.1 0.1 91.8 0.1
Amadeus 270.0 0.3 273.7 0.3
Elang/Kakatua 425.5 0.4 568.4 0.6
Legendre 2,269.0 2.3 2,558.5 2.5
Thevenard 708.0 0.7 913.3 0.9
Barrow 945.2 0.9 1,023.2 1.0
Jabiru/Challis 257.1 0.3 270.6 0.3
Stag 2,617.2 2.6 2,860.2 2.9
SE Gobe 376.5 0.4 413.7 0.4
USA 212.2 0.2 196.8 0.2
Other – – 0.5 –
Total production 10,972.0 11.0 12,145.1 12.2
Total sales volume 10,958.6 10.9 12,294.6 12.3
Total sales revenue ($million) 477.7 550.1
Condensate (‘000 bbls)
Cooper 2,111.8 2.0 2,239,5 2.1
Surat/Denison 10.9 – 13.4 –
Otway 73.5 0.1 108.6 0.1
East Spar 858.3 0.8 1,053.4 1.0
USA 25.6 – 37.6 –
Total production 3,080.1 2.9 3,452.5 3.2
Total sales volume 3,246.6 3.0 3,505.7 3.3
Total sales revenue ($million) 150.0 156.0
LPG (‘000 tonnes)
Cooper 240.7 2.0 253.3 2.2
Surat/Denison – – 2.8 –
Total production 240.7 2.0 256.1 2.2
Total sales volume 256.7 2.2 237.2 2.0
Total sales revenue ($million) 116.5 112.7
TOTAL
Production (mmboe) 54.2 57.3
Sales volume (mmboe) 55.4 56.8
Sales revenue ($million) 1,465.0 1,478.4
15
Creating Options
MAXIMISING THE VALUE OF THE
EXPLORATION PORTFOLIO
Successful exploration is fundamental to
Santos’ growth strategy as it contributes
value-adding reserve additions and creates
options for future growth.
Santos’ exploration strategy has three aims:
�maximise the value of existing
exploration assets
�build a better, more balanced exploration
portfolio, accessing good quality rocks
and controlling discretionary spend
�build a strong international business.
RESULTS FROM WILDCAT WELLS DRILLED
IN 2003
In 2003 Santos drilled 19 wildcat
exploration wells, investing $136.4 million
against a total exploration budget of $147.6
million. While there were no significant
commercial discoveries, the program tested
a number of higher risk prospects and plays
in new areas.
Santos drilled 11 wells in Australia. Scallop
1 in the Gippsland Basin did not encounter
commercial hydrocarbons, although minor
oil and gas columns were present. In
Eastern Queensland the Sunnybank 6
prospect was a small oil discovery.
The Hill 1 well in the offshore Otway Basin
was plugged and abandoned after failing to
intersect moveable hydrocarbons. However,
as the first well in Santos’ deep water trend
acreage, Hill 1 has improved geological
understanding of this region.
Four high risk non-conventional traps
were drilled in the Cooper Basin, one of
the wells was cased and suspended and
three wells failed to encounter commercial
hydrocarbons. While this was disappointing,
there is still some potential in trap concepts
yet to be tested.
Four wells were drilled and plugged and
abandoned in the Carnarvon Basin. Of these,
Chiru 1 and Nikol 1 have significantly
downgraded the exploration potential of
similar play concepts in the Carnarvon
Basin. The Montgomery 1 and Ajax 1
exploration wells provided some
encouragement for further exploration in
the Basin focusing on similar concepts.
Santos drilled four exploration wells in
Indonesia. The Titan 1 and Calypso 1 wells
encountered large columns which were high
in carbon dioxide. The Mangga 1 well failed
to intersect commercial quantities of
hydrocarbons and Jeruk 1 was still drilling
at March 2004.
The Bosavi 1 well in Papua New Guinea
was a test in the foreland of the Papuan
Basin. The well failed to encounter any
hydrocarbons, indicating a lack of oil charge
into this part of the basin.
In the United States three exploration wells
were drilled in 2003. The Hunt 1 and Dawdy
1 wells were plugged and abandoned and
Torres 1 was still drilling at March 2004.
Although the 2003 wildcat program was
disappointing, the results followed a highly
successful program in 2002. Importantly,
last year Santos made progress in adding
material opportunities to the inventory and
increased the Company’s understanding
of new frontier exploration areas. These
include the deep water Otway Basin and
Indonesia.
The exploration portfolio is now more
balanced and more diversified with the
introduction of new areas.
Annual Report 2003
Sean Douglass and Guy Howard,
Company Representatives for Santos,
supervising offshore drilling operations.
16
Annual Report 2003
BUILDING A BETTER AND MORE
BALANCED PORTFOLIO
Santos is building a solid platform for
growth through exploration.
During 2003 Santos increased its
exploration acreage in Australia, Indonesia
and the United States, spreading the risk
and increasing flexibility.
Santos acquired a considerable amount of
potentially high impact exploration acreage
in 2003, including new exploration blocks
in the:
�Otway, Sorell and Gippsland Basins,
offshore Victoria and Tasmania
�Kutei Basin (Papalang and Popodi PSCs)
and East Java Basin (Nth Bali 1),
Indonesia
�Texas/Louisiana Gulf Coast.
HIGH IMPACT 2004 PROGRAM
In keeping with Santos’ strategy to expose
investors to significant resource upside,
the 2004 exploration program will target
a balanced range of low risk and high
risk targets.
Santos’ 2004 exploration program has a
risked resource potential upside of more
than 250 million boe with a mean potential
of 106 million boe. Most of the expected
resources from the program will come from
higher risk opportunities as indicated in the
diagram below which details a majority of
the material prospects.
The 2004 exploration program consists
of 23 exploration wells, more than 9,700
kilometres of two-dimensional seismic
and 1,000 square kilometres of three-
dimensional seismic for a total expenditure
of approximately $134 million.
Offshore drilling will be the core focus
in Australia.
Santos will drill five offshore wells with
two wells in the Otway Basin to address the
Amrit and Callister opportunities. Amrit will
be drilled in deep water and is primarily
regarded as an oil opportunity, although
there is also gas potential. Callister has the
potential for either oil or gas.
Two wells are planned for the Carnarvon
Basin, with the Charlemagne well testing
a prospect in the same permit as the
Mutineer-Exeter development, and Little Joe
evaluating an oil prospect.
In the Bonaparte Basin, Melville 1 will be
drilled to address a large gas prospect.
Nine wells are planned for the Cooper Basin.
The wells will primarily address stratigraphic
gas traps.
This reflects Santos’ strategy to seek high
impact targets, such as stratigraphic traps,
which are located near existing
infrastructure.
Additional activity will occur in the Bowen
and Surat Basins of Eastern Queensland.
Contingent expenditure includes six wells
and seismic activity which will be
considered in case planned activities are
delayed.
Exploration in South East Asia presents
Santos with the biggest opportunity to add
resources which support the commercial
efforts to access Indonesian domestic gas
markets.
Santos plans to participate in the drilling of
five wells in Indonesia targeting a mix of oil
and gas plays.
Raksasa, Kutei
Papalang, Kutei
Nuri, East Java
Melville, Bonaparte
Agung, East Java
Pohon, Kutei
Callister, Otway
Prowler, US
Woodbine (I & 2), US
Homer, Cooper
Charlemagne, Carnarvon
Little Joe, Carnarvon
2004 EXPLORATION PROGRAM
M
EA
N
R
ES
O
U
R
CE
(
M
M
B
O
E)
CHANCE OF SUCCESS
Amrit, Otway
Cougar, US
LOW HIGH
This diagram is a representative plot of
the risk/reward profile of Santos’ 2004
23-well exploration program with the
more material prospects named. It takes
into account the probability of success
and the gross unrisked mean (average)
resource potential. Moving left to right
along the horizontal axis the probability
of success increases and moving from the
bottom upwards along the vertical axis
the gross mean resource increases.
17
Annual Report 2003
The Nuri gas and oil prospect will be drilled
in the Madura Offshore PSC in the East Java
Basin, while the Agung prospect will target
a gas and oil opportunity in the Nth Bali
PSC. Three oil prospects will be drilled
in the deep water Kutei Basin – a first
for Santos.
In the United States, four gas exploration
wells are scheduled to be drilled in the core
Frio, Wilcox and Vicksburg trends, with an
emphasis on two new-venture play areas in
the Upper Texas Gulf Coast.
Geological and geoscience activity will be
focused on the current prospects and leads
inventory to identify opportunities for
drilling in 2005.
Out of the $134 million 2004 total
exploration budget, $55 million will be
spent in non-producing areas.
BUILDING AN INTERNATIONAL BUSINESS
Santos is working to build a portfolio of
assets that can provide long-term growth
over the next five to 10 years. With that
objective in mind, Santos has focused on
the Middle East and North Africa. These
areas have large proven and prospective
hydrocarbon potential.
The selected areas have a natural fit with
Santos’ existing skills, including operating
in desert environments and the management
of complex reservoir systems.
Many of these areas are in a state of
significant regulatory change with respect
to their foreign investment laws, fiscal
regimes and access to previously protected
hydrocarbon assets. Consequently, there are
many opportunities for Santos, ranging from
wildcat exploration to field rejuvenation
through a variety of contractual and deal
structures.
Santos is currently awaiting the outcome of
two bid submissions: an oil development
opportunity in the Middle East and a
multiple exploration and development
project onshore North Africa.
Another illustration of Santos’ activities is
the work on a new study area in Iran, which
commenced in late 2003 jointly with the
National Iranian Oil Company. The area,
located in the world-class Zagros petroleum
system, is highly prospective. The joint
study approach provided a low-cost means
to build knowledge, reputation and trust.
In 2004, new ventures expenditure totals
$10 million.
SANTOS 2004 WILDCAT EXPLORATION
Capturing Growth
EXPANDING SANTOS’ BUSINESS
Santos has four growth levers: exploration,
production optimisation, acquisitions and
gas commercialisation.
While all four levers will not deliver every
year, top quartile companies aim to
maximise opportunities so that every lever
has the best possible chance of success.
For Santos, exploration delivered in 2001
and 2002 and production optimisation
delivered in 2001, 2002 and 2003.
In 2003 Santos achieved the best results in
gas commercialisation since the 1970s by
adding up to 510 PJ (net) of new gas
contracts. Gas commercialisation and
successful field appraisal delivered new
projects and significant reserve additions.
PROJECTS FOR GROWTH
At the beginning of 2001, Santos only
had two new projects on its growth plan:
Bayu-Undan liquids and Scotia.
Santos is now targeting commencement of
six new projects by 2006:
�Bayu-Undan LNG
�Mutineer-Exeter
�John Brookes
�Oyong
�Maleo
�Casino.
18
Annual Report 2003
Bayu-Undan drilling and production platforms.
ACHIEVING MILESTONES
IN FLAGSHIP PROJECTS
Santos invested $519.0 million in the 2003
delineation and development program to
meet its production target and to advance
the development of new projects.
Investment capital was directed towards the
key flagship projects that will deliver future
growth. Mutineer-Exeter and Bayu-Undan
LNG achieved final investment approval
during the year – both significant
milestones in Santos’ growth platform.
BAYU-UNDAN DELIVERS FIRST PRODUCTS
Santos and its partners made considerable
progress on the Bayu-Undan development
during the year. All facilities are now
installed offshore for the Stage 1 gas recycle
project and work formally commenced in
June 2003 for the Darwin LNG and pipeline
projects, after all agreements in relation
to the projects were completed.
These projects will see liquids production
only nine years after the discovery of
Bayu-Undan in 1995 and gas production
only 11 years from discovery.
Considering the complexity of the facilities
for the gas recycle project, the unitisation
of two production sharing contracts, the
emergence of Timor-Leste (formerly known
as East Timor) as a nation and a greenfields
LNG development, this is, by any standard,
a top-class performance.
A majority of the development wells have
now been drilled, with most achieving
results better than planned. The production
platforms and the Floating Storage Offtake
vessel were commissioned and sailed into
place ready for the commencement of gas
reinjection and the final commissioning of
all facilities which will allow a ramp-up in
liquids production from April 2004.
Santos joined the world LNG market after
the Timor Sea Designated Authority signed
final approvals for the giant Bayu-Undan
LNG gas development in June 2003. This
project, involving Timor-Leste and Australia,
will be the first cross-border LNG project in
the region and the second LNG project in
which Australia is involved.
The LNG development is the second stage
of Bayu-Undan and is estimated to cost
around US$1.5 billion. The LNG stage
is underpinned by a binding Heads of
Agreement with the Tokyo Electric Power
Company and Tokyo Gas Company for
three million tonnes per annum of LNG for
17 years, commencing in early 2006.
In connection with this gas
commercialisation, a portion of each joint
venture partners’ interest in Bayu-Undan
was divested to allow the LNG customers to
participate in the project. This resulted in a
10.64% Santos working interest.
The LNG project will add more than three
million boe to Santos’ annual production
and, combined with the liquids project, will
increase total revenue from Bayu-Undan to
more than $30 billion over the life of the
project.
As at the end of February 2004, the pipeline
project was 28% complete, while the
construction of the LNG facility in Darwin
was 25% complete.
Three other milestones achieved recently
were:
�first pre-commissioning gas from the
Bayu-Undan field in December 2003
�1,000 metric tonnes each of propane and
butane were loaded onto the Liberdade
FSO vessel to pre-cool the LPG storage
tanks in advance of LPG production from
the field
Annual Report 2003Annual Report 2003
19
20
Annual Report 2003
�first liquids production in February 2004
representing the first saleable product
from the project.
MUTINEER-EXETER APPROVED
The Mutineer-Exeter joint venture gave the
final go-ahead for the development of the
oil fields in the Carnarvon Basin, offshore
Western Australia, in October 2003. There
has been a great deal of activity on this
project throughout the year which was
25% complete at the end of February 2004.
Government approval has also been given
with the formal offer of a production
licence.
Mutineer-Exeter will be developed using a
Floating Production and Storage Offloading
(FPSO) facility with subsea production
manifolds at each of the fields. The FPSO
facility is designed to accommodate
production of 100,000–120,000 barrels
of oil per day, with provision for a gross
liquids throughput of up to 140,000 barrels
of liquid per day.
Key milestones during 2003 included the
awarding of a service contract with MODEC
for the FPSO vessel. Contracts were also let
for the supply of the seabed and downhole
booster pumps and their associated power
and control umbilicals.
The subsea flowline and riser scope was let
under an Engineer, Procure, Install and
Commission contract. After project sanction,
the definition engineering design was
stepped up to full detail design.
Purchase orders have been placed for long-
lead equipment and MODEC has purchased
the tanker, MT Fairway, which is being
converted. Drilling activities are ongoing
with all support and service contracts
established and operational.
The 10-month development drilling
campaign commenced in February 2004.
Initial development drilling will include up
to five wells at Mutineer and up to two
wells at Exeter. Provision will be made for
up to nine wells at Mutineer and five wells
at Exeter in total. These wells will be drilled
horizontally through the reservoirs for up to
500 metres, to aid recoverability.
Additional near-field drilling opportunities
have been identified and evaluated for
future exploitation. If successful, these
wells could be tied in to the planned
facilities and extend field life.
Production from the fields is on schedule to
commence in mid 2005, with initial
production forecast to be at a daily rate of
70,000 to 80,000 barrels of oil per day,
building up to 100,000 barrels per day.
Total production is forecast to be around
13.8 million barrels in 2005 and
approximately 35 million barrels in 2006,
based on currently estimated Proven plus
Probable reserves (2P) of 101 million barrels
of oil. The fields are estimated to have a
production life of around seven years.
Oil production from Mutineer-Exeter will
give Santos a significant boost in oil
production and revenue. Santos’ share of
peak oil production from Mutineer-Exeter in
2006 will be comparable with its total oil
production from all fields in 2003 of 11
million barrels.
Total capital expenditure for the Mutineer-
Exeter development is $480 million; Santos’
share of this development is 33.4%.
MUTINEER-EXETER SCHEMATIC
21
Annual Report 2003
REPLENISHING THE CONVEYOR BELT
In addition to the Bayu-Undan and
Mutineer-Exeter commissioned projects,
Santos has several growth projects close to
commission.
PROMISING OUTLOOK FOR
CASINO FIELD
In September 2003 Santos announced a
groundbreaking long-term gas contract with
TXU Australia to sell gas from the Casino
field. This contract secures the go-ahead of
the Casino development giving Santos its
first offshore operated project in southern
Australia.
The contract was conditional on the results
of the Casino 3 appraisal well, the
confirmation of economic reserves for the
Casino field and regulatory approvals.
The Casino gas field, discovered in
September 2002, is located about 29
kilometres south-west of Port Campbell and
250 kilometres south-west of Melbourne.
The contract is for the supply of gas from
2006 extending through to 2017. TXU has
agreed to purchase up to 293 PJ of gas with
an option to purchase, or an obligation to
process, up to an additional 200 PJ,
resulting in a possible gross contract
quantity of up to 493 PJ.
The successful production test of the Casino
3 well means that Santos and its joint
venturers can now finalise reservoir
modelling and commence detailed project
engineering with a view to first production
in 2006.
OYONG AND MALEO AGREEMENTS SIGNED
Another key focus area for future growth is
Santos’ Indonesian operations. Santos made
two sizeable gas discoveries in East Java in
the past two years, both of which are well
advanced towards being commercialised.
A key driver in the development of these
fields has been the growing demand for gas
for electricity generation in Indonesia.
Santos signed a Gas Sales Agreement with
PT Indonesia Power in July 2003 for the
entire gas reserves of the Oyong field.
A key condition was the implementation of
satisfactory payment security arrangements
for the gas.
The Oyong development concept involves an
offshore wellhead platform supporting three
oil wells and two gas wells and a dedicated
55-kilometre multiphase pipeline to an
onshore gas processing and liquids
separation facility adjacent to the Grati
power station.
Gas production will be 40–60 mmscfg/d at
the seller’s option and will be designed to
optimise oil production and recovery. Total
field Proven plus Probable reserves (2P) are
estimated to be 128 billion cubic feet of
gas and 8.3 million barrels of oil.
First gas production is expected to occur
before the end of 2005.
The other Indonesian project is the Maleo
gas field. In January 2004, Santos signed
a Heads of Agreement with PT Perusahaan
Gas Negara for the sale of the entire
reserves of the Maleo field. Maleo is a dry
gas accumulation in the Madura Offshore
PSC which is located seven kilometres from
the underutilised East Java Gas Pipeline
that supplies customers in Surabaya,
East Java.
The resource range for the field is estimated
to be 160–337 billion cubic feet. Based on
Proven plus Probable reserves (2P), the field
can support a plateau production rate of
100 mmscfg/d from three wells for at least
six years.
An innovative field development concept
is envisaged, using a converted jack-up
rig or barge as a Mobile Offshore Production
Unit. This means that the first gas could
be delivered in the second half of 2005.
The Maleo field is expected to be developed
in record time, taking approximately three
years from discovery to first gas. This is due
to the strong support from the Indonesian
Government regulator, BPMIGAS, the
Ministry of Energy and Mineral Resources
and the commitment of Santos, its joint
venturers and PT Perusahaan Gas Negara.
Final development of the field depends on
regulatory and joint venture approvals and
satisfactory payment security arrangements
for the gas.
JOHN BROOKES EXPANDS WESTERN
AUSTRALIAN OPTIONS
Significant progress was made towards the
development of the John Brookes gas field
in Western Australia, following the drilling
of two successful appraisal wells, Thomas
Bright 1 and Thomas Bright 2, which
provided greater confidence in the reserve
estimate for the field.
The gross Proven plus Probable reserves (2P)
for the field are now estimated to be 785 PJ,
while the Proven, Probable plus Possible
DEMAND FOR INDONESIAN GAS
Despite the impact of the Asian
economic crisis in the 1990s and
political instability, year-on-year
electricity demand has not fallen in
Indonesia over the past 20 years.
Gas demand is rising rapidly,
particularly for peaking power
generation where it displaces more
expensive imported fuels.
In 2005, the gas supply shortfall in
East Java will be approximately 300
million cubic feet per day based on
total demand of approximately 650
million cubic feet of gas per day. This
indicates there is a clear window of
opportunity for Santos’ Oyong and
Maleo gas discoveries, especially as
the two fields will be competitive in
terms of development cost and time to
first gas.
reserves (3P) estimate is in excess of
1,000 PJ.
Santos also increased its equity in John
Brookes from 28.75% to 45% by acquiring
part of ExxonMobil’s share and part
of Encana’s interests in the field. The
ownership of the field is now Santos 45%
and Apache Energy 55% (operator).
Importantly, these transactions aligned
the equities held by Santos and Apache in
the East Spar and John Brookes fields and
positions these parties for the long-term
dovetailing of production from these fields,
along with continuation and expansion of
gas sales from Varanus Island.
The signing in late 2003 of a Letter of
Intent with Newcrest Mining to provide
gas to the Telfer gold mine underpins the
proposed development of the field.
Work on the development plan for John
Brookes will now be completed, with project
sanction achieved in the first quarter of
2004 and first production in mid 2005.
The development concept is for an
unmanned wellhead platform in 45 metres
of water with a single, three-phase export
pipeline to the Varanus Island gas plant.
The design will allow for maximum
production of 240 TJ per day. The gross
total initial cost to develop the field is
estimated to be $189 million.
NORTHERN ASSETS WELL PLACED
The commercialisation of Bayu-Undan and
the construction of an LNG plant in Darwin
could lead to further opportunities for gas
developments in the Timor/Bonaparte area.
Santos is well placed to take advantage of
this with its assets off the north coast
of Australia.
Key projects that can deliver growth for
Santos beyond 2007 are the Petrel-Tern and
Evans Shoal gas fields.
Santos continued to increase its
understanding of the Petrel-Tern resources
during 2003. A field development plan was
put in place and marketing of the gas has
intensified.
The Petrel and Tern fields are located in
the Bonaparte Basin. Santos is the operator
and holds a 95% interest in Petrel and
100% interest in Tern. The two fields have
a combined recoverable resource estimate
of 1.4 trillion cubic feet of gas
(270 million boe).
A number of domestic gas customers have
been identified and Santos’ target is to
develop the fields by 2008.
Potential capital required for a 65-PJ-per-
annum development of the field is in the
order of $1 billion. The combined fields
have an expected field production life of
25 years.
Santos is also operator with a 40% interest
in the significant Evans Shoal gas field.
The field is in 100 metres of water and
is located 320 kilometres from Darwin.
22
Annual Report 2003
Casino 3 production test, offshore Otway Basin.
23
Annual Report 2003
Managing Options
MAKING THE RIGHT DECISIONS
Santos had an active year in portfolio
management, divesting a number of non-
core assets, relinquishing old and acquiring
new acreage and acquiring new or increased
interests in existing operations.
DIVESTMENTS
During the year Santos sold its remaining
interest in Oil Company of Australia to
Origin Energy in an off-market takeover bid.
Santos had held over 14.7 million shares in
OCA since 1987. The proceeds from the sale
were $62.4 million.
Under an equity realignment agreement,
the Bayu-Undan joint venture partners
agreed to sell a 10% stake in the project
to LNG customers, Tokyo Electric Power
Company and the Tokyo Gas Company.
Santos subsequently sold a 1.19% interest
resulting in an ongoing holding of 10.64%.
Santos also sold the subsidiaries holding
its 61.1% operated interests in the Bentu
and Korinci-Baru PSCs in central Sumatra,
Indonesia. Santos decided to divest these
subsidiaries as the interests were not
considered to be in line with the company
strategy of focusing its Indonesian activities
in East Java.
In the United States two small shallow gas
fields, Cuatro de Julio and Papalote, outside
of the core trends were divested.
INCREASED INTERESTS
During the year, Santos increased its
interest in WA-214-P, containing the John
Brookes discovery, to 45% and relinquished
exploration permits WA-298-P and EP 325-P.
Santos also awarded interests in three
exploration licence areas in the offshore
waters of Western Australia including WA-
338-P in the Browse Basin and WA-339-P
in the Houtman Basin. This is Santos’ first
Houtman Basin acreage.
Santos continued to expand its interests
in South East Asia by securing a 20%
non-operated interest in two deep water
exploration permits in offshore Indonesia.
The Popodi and Papalang PSCs are located
in the deep water part of the Kutei Basin.
Santos was also awarded a 100% interest in
the Nth Bali 1 PSC located east of Java and
north of the island of Bali. This block is
located close to Santos’ existing exploration
permits that contain the Oyong and Maleo
discoveries.
Santos acquired a 100% interest in
WA-274-P in the Browse Basin, offshore
Western Australia, from a subsidiary of
Genting Berhad. The permit is in moderate
water depths and is adjacent to other
Santos acreage in the Browse Basin.
ACQUISITIONS
Santos’ acquisition of Globex Far East Pty
Ltd for US$15.8 million increased its
interest in the Stag oil field from 54.166%
to 66.667% and provided new exploration
acreage in the Carnarvon Basin. The new
blocks are WA-15-L containing the
producing Stag oil field (+12.5%); WA-246-P
containing the Corvus gas discovery
(+15%); and WA-209-P containing the
Reindeer gas discovery (+19%).
Santos has been a participant in the Stag
field since its discovery by the Stag 1
exploration well in June 1993. Initial field
production started in May 1998 with a peak
rate of 30,000 barrels of oil per day reached
in August 2000.
The acquisition increases Santos’ share
of estimated oil production from Stag in
2003 by 0.3 million barrels and in 2004 by
0.5 million barrels. It also increases Santos’
participation in Carnarvon gas opportunities
through the acquisition of Corvus and
increased Reindeer gas interests.
The sale of non-core assets and controlled
entities yielded cash proceeds of $130.4
million, with a total gain on sale of
$59.6 million.
24
Annual Report 2003
REPLACING EVERY BARREL WITH
A MORE VALUABLE ONE
Santos added a record 80 million boe of
Proven reserves (1P) or 148% of 2003
production.
This was the second year of increases
in Proven reserves since Santos started
reporting them at the end of 2001. Proven
reserves at the end of the year, after 54.2
million boe of production and after
divestments, were 338 million boe,
compared with 312 million boe at the
end of 2002.
Proven reserves are used internationally,
especially in the United States, to measure
the resource base of an exploration and
production company, but in Australia gas
contracts and depletion changes are based
on Proven plus Probable reserves. To bring
Santos in line with international best
practices, the Company will also measure
its performance against Proven (1P) and
Proven plus Probable (2P) reserve additions.
The increase in Proven reserves was largely
driven by:
�69 million boe from gas
commercialisation with the go-ahead for
the Bayu-Undan LNG project in the Timor
Gap, the commercialisation of the Casino
gas field offshore southern Victoria and
the John Brookes gas field offshore
Western Australia
�6.5 million boe revision adds, reflecting
positive reservoir performance,
appraisal/development activity in onshore
Australia and appraisal of the Casino and
John Brookes fields
�14 million boe from the acquisition of an
additional interest in the Stag oil field
and the John Brookes gas field, offshore
Western Australia.
This was offset by the reduction of 10
million boe from Santos’ sell-down of its
Bayu-Undan interests to the Bayu-Undan
customers, the Tokyo Electric Power
Company and Tokyo Gas Company.
A forward-looking measure of the health
of Santos’ reserves portfolio is finding and
development costs (FDC). Santos achieved
a good result in 2003 with FDC for Proven
reserves reducing to US$5.62 per boe and
US 97 cents per million cubic feet
equivalent, placing Santos in the top
quartile of exploration and production
companies. This is important as the lower
the FDC measure, the less operating cash
flow is required to replace production.
Santos had mixed results in Proven plus
Probable reserves during the year, declining
from 710 million boe at the end of 2002
to 636 million boe at the end of 2003
(on a net entitlement basis). Additions
were contributed by gas commercialisation
(25 million boe) and acquisitions
(24 million boe).
Reductions resulted from production,
divestments of the Bentu and Korinci Baru
PSCs in Indonesia and a portion of the
Santos’ interest in Bayu-Undan (40 million
boe), the reclassification of 2P reserves in
the Reindeer field (booked prior to 2001)
and field revisions in the Cooper Basin,
East Spar and in the United States
(29 million boe).
In the Cooper Basin, reserve revisions
largely related to future production from
low permeability gas reservoirs that were
not expected to be produced for 10 to 15
years. This has not affected value but has
adversely impacted the annual depletion
charge as the 2P depletion pool has
been reduced.
In the East Spar gas field, worse-than-
expected field performance and
disappointing development drilling
led to the reserves decrease.
In the United States the decline in reserves
largely relates to drilling results in the
Runnells field where more complex faulting
and a higher gas-water contact was
encountered, leading to a decline in the
field’s reserves.
Santos has an active and comprehensive
delineation and development program in
the Cooper Basin and East Spar gas field
to address the decline in 2P field reserves.
Contingent Resources (best estimate)
increased from 1,233 million boe to 1,450
million boe, largely as a result of including
coal seam methane resources in Eastern
Queensland.
NET ENTITLEMENT ADJUSTMENTS
Reflecting the increasing share of
the reserves in Production Sharing
Contracts (PSCs) in Timor-Leste and
Indonesia, Santos is reporting and
has adjusted its reserves in PSCs on
a net entitlement basis for the first
time for both year end 2002 and 2003.
This is consistent with international
industry practice.
Governments are entitled to a share
of PSC production, taken either in
kind or as a payment. Accordingly,
a company’s net entitlement to
production is lower than its working
interest in a permit. For comparison
purposes, 2002 reserve estimates
also have been adjusted to a net
entitlement basis.
PROVEN PLUS PROBABLE RESERVES (SANTOS SHARE) BY ACTIVITY
Sales gas Crude oil Condensate LPG Total
(incl. ethane) mmbbl mmbbl ’000 mmboe
PJ tonnes
Estimated reserves year end 20021 2,954 113 57 4,185 710
Production -222 -11 -3 -241 -54
Exploration 3 0 0 0 0
Commercialisation 148 0 0 3 25
Acquisitions/divestments -84 3 -3 -179 -16
Revisions -129 -3 -3 -163 -29
Estimated reserves year end 2003 2,670 102 48 3,605 636
PROVEN PLUS PROBABLE RESERVES (SANTOS SHARE) YEAR END 2003 BY AREA
(mmboe)
Area Sales gas Crude oil Condensate LPG Total
(incl. ethane) mmbbl mmbbl ’000 mmboe
PJ tonnes
Cooper Basin 1,218 22 16 2,044 264
Onshore Northern Territory 155 3 1 0 31
Offshore Northern Territory 263 1 23 1,387 79
Eastern Queensland 269 0 0 22 47
Southern Australia 230 0 2 152 43
Carnarvon Australia 432 72 5 0 149
PNG 0 1 0 0 1
Indonesia 48 3 0 0 11
USA 55 0 1 0 11
Total 2,670 102 48 3,605 636
RESERVES (SANTOS SHARE)
(mmboe)
Year End Production Revisions Expl/Appr Year End
20021 Acq Adds 2003
Proven (1P) 312 -54 7 73 338
Proven plus Probable (2P) 710 -54 -29 9 636
Contingent Resources (Best Estimate) 1,233 – 239 -22 1,450
1 Adjusted to a ’net entitlement’ basis.
Annual Report 2003
25
DEFINING RESERVES
Santos has in place an evaluation and
reporting process that is in line with
international industry practice and is in
general conformity with reserves definitions
and resource classification systems
published by the Society of Petroleum
Engineers (SPE), World Petroleum Congresses
(WPC) and the American Association of
Petroleum Geologists (AAPG). The
definitions used are consistent with the
requirements of the Australian Stock
Exchange Ltd (ASX).
Reserves are defined as those quantities of
petroleum which are anticipated to be
commercially recovered from known
accumulations from a given date forward.
Santos reports reserves net of the gas
required for processing and transportation to
the customer. Reserves reported are based
on, and accurately reflect, information
compiled by full-time employees of the
Company who have the requisite
qualifications and experience prescribed by
the ASX Listing Rules.
EXTERNALLY REVIEWED BOOKING PROCESS
Santos’ reserves processes and procedures
were reviewed by independent expert,
Gaffney, Cline & Associates, and found to be
‘appropriate to providing robust estimates of
Santos’ reserve position in accordance with
international industry practice’.
26
Annual Report 2003
Sustainability
INTEGRATING THE PRINCIPLES OF
SUSTAINABILITY
In late 2002 Santos established a
Sustainability Stewardship Group following
the completion of a study which detailed
Santos’ position in relation to a wide range
of sustainability criteria.
This group has the responsibility of guiding
Santos’ sustainability agenda and, using the
findings of the study, has set out a number
of priorities relating to management
systems, policies and measurement that
became the focus for activities in 2003.
MANAGEMENT SYSTEMS
In 2003 Santos completed the framework for
a company-wide Environment, Health and
Safety Management System based on the
ISO 14001 standard and AS 4801. It has
been designed to ensure consistent
standards for employees and contractors
across all Santos operations and activities.
The system incorporates industry best
practice and details 17 management
standards and more than 30 hazard
standards.
External audited assessments to determine
the level of compliance with these standards
at...