2013 in review

In 2013, Santos delivered record sales revenue of $3.6 billion, 12% higher than 2012.
This strong result was driven by the Companys highest oil production in six years,
strong oil prices and higher third-party sales volumes. Reported net profit after tax of
$516 million was in line with 2012. Higher exploration and net finance expenses were
partially offset by higher sales revenue and lower impairment losses. Operating cash
flow remained strong at $1,628 million. Production of 51 mmboe was 2% lower than
2012. New production from the start-up of the Fletcher Finucane oil project offshore
Western Australia and higher production from Darwin LNG was offset by lower Cooper
production and the cessation of production from the Sangu asset in Bangladesh. In
2013, Santos continued to successfully deliver the corporate strategy to grow our strong
domestic base business, deliver our transformational LNG portfolio, and build focused,
exploration-led portfolio in Asia. Importantly, in this our Asian century, construction
progress at both our LNG projects made significant headway during the year. PNG LNG
is now more than95% complete and on track for a mid 2014 start-up. GLNG is more
than 75% complete and remains on schedule for first LNG in2015. Capital cost estimates
for both projects remain unchanged. Both projects are underpinned by long-term, oil-
linked, binding off take agreements with high quality Asian buyers. Good progress was
also made during the year on our Cooper Basin field and infrastructure upgrades. We
remain on track to grow production capacity to not only meet our new LNG contracts
but also our commitment to remain a leading supplier of natural gas to Australian
customers.
Also in the Cooper, initial flow rates from the Moomba-194 vertical shale gas well were
encouraging and critically, the well is located adjacent to Santos operated infrastructure
for ready connection to market. We were the first company in Australia to connect shale
gas to market and work has now commenced to leverage this expertise across Santos
unconventional acreage. Santos remains focused on driving efficiencies across the
Company. Margin improvement, unlocking production from better technologies and the
efficient use
of capital remain a key focus for the Board and Management. Peak capex is now behind
us and our liquidity position remains robust with $3.4billion1 in balance sheet capacity
to fund execution of our business strategy and minimise financing risk. Santos remains
well positioned to deliver between 80-90 mmboe of production by2020. Delivery of this
strong and growing production profile underpins our unwavering commitment to
remain one of the leading suppliers of natural gas within Australia as well as to supply
growing Asian markets.
Safety
Santos strives for the highest standard of occupational health and safety and is
committed to a workplace that is free from injuries. Tragically, a rig floor incident on
Saxon Rig 185 resulted in a contractor fatality on 23 June 2013. All drilling operations
by Saxon were suspended while internal and external investigations were conducted.
Santos also held a stand down of its entire fleet of rigs for personnel to discuss fatal risks
and the mitigations and controls to eliminate or reduce those risks. Other rig
contractors with rigs with similar equipment involved in the Saxon fatality also went
through a thorough risk assessment prior to restarting.The Board and Management are
committedto preventing injuries in the workplaceand continue to work hard to instil a
safeoperating environment for all employeesand contractors.Construction on major
projects peakedin 2013 resulting in work hours, includingcontractors, rising from 19
million in 2012 to 50 million work hours by the end of 2013.Through this significant
increase, Santoscommitment to safety resulted in a LostTime Injury Frequency Rate
(LTIFR) of 0.6,20% below that in 2012.
Asia Pacific
Santos is building a high margin business in Asia with a focus on three core countries:
Papua New Guinea, Indonesia and Vietnam. In 2013,
the PNG LNG project made strong progress and is on track for first LNG in the third
quarter of 2014, whilst Santos grew its business in
Indonesia through the acquisition of a 50% operated-interest in the Northwest Natuna
Production Sharing Contract, which contains the
undeveloped Ande Ande Lumut oil field.
Asia Pacific Business Unit EBITDAX in 2013 was $318 million, 14% lower than 2012
primarily due to lower oil and gas production, and
higher production costs, partially offset by higher prices.
Santos net entitlement to oil production from the Chim Sao asset (Santos 31.875%
interest) offshore Vietnam was 2.7 mmbbl for the
year, 7% lower than 2012. Gross production from the asset was lower than the prior year
primarily due to power system constraints on
the FPSO combined with an unplanned shutdown of the gas export pipeline for repairs
in the second half of the year. Construction
continued on the Dua oil project (Santos 31.875% interest) during 2013. Dua is a three-
well subsea tie-back to Chim Sao, and is expected
to produce at a gross rate of approximately 8,000 bopd for the first 12 months of
production. First oil is expected in mid-2014.
The PNG LNG project (Santos 13.5% interest) was more than 90% complete at the end
of December with the first LNG delivery now
expected in the third quarter of 2014. Operated by ExxonMobil, the project involves gas
production and processing facilities in the
Southern Highlands, Hela and Western provinces of Papua New Guinea and pipeline
infrastructure to an LNG plant located near Port
Moresby with capacity of 6.9 million tonnes of LNG per year. The project has an
estimated gross capital cost of US$19 billion.
Construction of the project is now nearing completion, with the focus shifting to
commissioning key facilities and equipment. Drilling of
four of the eight production wells is complete and commissioning of the upstream gas
conditioning plant is underway. Construction of the
onshore pipeline is well progressed and the offshore pipeline is complete.
Commissioning is ramping-up at the LNG plant with gas
circulating in train 1 and the refrigeration compressors being test run. All gas turbine
generators are operable, and the LNG loading jetty
and both LNG tanks are complete.
Santos net entitlement to gas production in Indonesia of 26.9 PJ was 4% lower than
2012, primarily due to natural field decline and lower
customer nominations from the Maleo field. Santos and its partners sanctioned the
Peluang development (Santos 67.5% interest) during
2013. Peluang is a tie-back to the existing Santos-operated Maleo field and first
production is expected in mid-2014.
GLNG
The GLNG project (Santos 30% interest) was approaching 75% complete at the end of
December and remains on track for first LNG in
2015. GLNG involves the development of CSG resources in the Bowen and Surat basins
in south-east Queensland, construction of a
420-kilometre underground gas transmission pipeline to Gladstone, and two LNG trains
with a combined nameplate capacity of 7.8 mtpa
on Curtis Island. The project has an estimated gross capital cost of US$18.5 billion from
final investment decision (FID) to the end of
2015 when the second train is expected to be ready for start-up, based on foreign
exchange rates consistent with the assumptions used
at FID (A$/US$ 0.87 average over 20112015).
Strong construction progress was recorded across the project in 2013. Upstream drilling
is ahead of schedule with over 230 wells drilled
during 2013. Construction of the three upstream gas hubs continued to progress and the
first of the new development wells at Fairview
and Roma were commissioned. Construction of the pipeline is progressing well and
remains on track for completion in the second quarter
of 2014. On the Curtis Island LNG plant site, construction of LNG trains, tanks and
supporting infrastructure is progressing well.
GLNG Business Unit results include domestic gas production and sales from the GLNG
coal seam gas fields in south-western Queensland.
GLNG Business Unit EBITDAX in 2013 was $12 million, 9% higher than 2012 primarily
due to lower cost of sales partially offsetting lower
customer nominations.
Santos share of GLNG gas production into the domestic market and underground
storage in 2013 was 9.6 PJ, 11% lower than 2012.
Business strategy
Santos vision is to be a leading oil and gas exploration and production company in
Australia and Asia. The Company has a three-pronged strategy to achieve this:
Australia: Growing our strong domestic base businesses
LNG: Delivering our transformational LNG portfolio
Asia: Building a focused exploration-led portfolio
Strong progress was made in 2013 in the delivery of all elements of the strategy,
including:


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