The energy to deliver

Review by David Knox, Chief Executive Officer and Managing Director

Santos’ vision is to be a leading energy company in Australia and Asia. We have a simple and robust strategy to achieve this: we will drive performance in our base business, deliver a suite of LNG projects and pursue focused opportunities in Asia.

In 2009, we demonstrated our determination to deliver the vision, making significant progress on all our strategic fronts.

Meeting an energy challenge

Australasia faces the challenge of achieving energy security for its growing economies in a carbon-constrained world. Natural gas as a fuel for electricity generation has the potential to underwrite significant cuts in greenhouse gas emissions while meeting energy needs.

Importantly, natural gas is abundant, affordable and available now.

We are Australia’s largest producer of gas for domestic consumption, and 95% of our proved and probable reserves are gas or associated gas liquids.

There is sufficient natural gas in eastern Australia to meet domestic needs and, at the same time, build a new LNG export industry on the east coast.

Australia – and Santos in particular – is poised to capture a significant market opportunity in LNG, demand for which is expected to double in Asia in the next 15 years.

LNG growth strategy

Santos’ LNG growth portfolio is unique for a company of our size.

We have made substantial progress on our flagship GLNG project and we are moving towards a final investment decision in the middle of 2010. GLNG has all the ingredients for success: an ideal site, high quality reserves, a binding sales contract and the experience and expertise of our partner PETRONAS, the largest LNG supplier in Asia.

Elsewhere, the PNG LNG project was approved for development at the end of 2009. The project has signed binding long-term LNG sales agreements with four Asian buyers and first sales are expected in 2014. The existing Darwin LNG project – our first LNG investment – delivered another excellent year of production.

Finally, in 2009 we added our fourth LNG project, Bonaparte LNG, in partnership with GDF SUEZ. This project exposes Santos to floating LNG technology and GDF SUEZ is targeting 2013 for the final investment decision.

Base business progress

Our growth strategy is not all about LNG. We have a pipeline of base business projects that will grow production in the near term before our LNG ventures deliver a step change in production and earnings from 2014.

In 2009, progress on the base projects was excellent, with two reaching initial production, three progressing to schedule and the approval of a sixth, the Chim Sáo oil project in Vietnam.

Our Oyong gas project in Indonesia delivered first gas in October 2009 on schedule, on budget and with an excellent safety record. In Vietnam, the Chim Sáo oil project was approved – our first in that country.

In Australia, we completed the upgrade of the Patricia-Baleen plant in Victoria to process gas from the offshore Longtom field. The Kipper and Henry gas projects in Victoria and the Reindeer project in Western Australia progressed well, with first gas from Henry achieved on schedule in early 2010.

Safety performance

Tragically, in August, a contractor was killed during a drilling rig move in our eastern Queensland fields. It was a sobering reminder of the need to always be conscious of risks in everything we do.

Overall in 2009, we achieved the lowest injury rate in the company’s history, which is pleasing. This result was built on strong safety systems and a series of initiatives that were implemented to improve our focus on safety.

Sustainability

Santos has reduced its carbon footprint by 1.5 million tonnes of carbon dioxide equivalent over the past five years. I encourage you to read our Sustainability Report 2009 and find out more about what sustainability means to Santos and what we are doing to achieve it.

It is important that we make meaningful contributions to the communities in which we operate. In 2009, we continued to support many community, education, arts, environment and indigenous organisations and initiatives throughout Australia, plus community programs in Indonesia and Vietnam.

Our partnership with the Santos Tour Down Under was the headline act of our community sponsorship program. The event attracted worldwide attention and was watched by 750,000 spectators over its six days.

Looking to the future

Looking forward, our excellent portfolio of current and future projects positions us well to achieve our growth strategies. Our focus remains on executing our transformational LNG growth projects and delivering production from our base businesses in Australia and Asia.

We are committed to doing all that safely and sustainably to deliver maximum value for our shareholders.

David Knox
Chief Executive Officer
and Managing Director