Financial highlights:
- EBITDA of $1,061 million for the full year ($1,087 million in 2002).
- Full year operating profit (after tax) of $327 million ($322 million in 2002).
- Results reflect one-off $55 million tax consolidation benefit.
- Operating cash flow $897 million, up 9%.
- Leverage reduced to 22.5%.
- $188 million of capital and operating savings achieved since 2001. SCIP program introduced to boost productivity.
- Final dividend of 15 cps, total dividend of 30 cps.
Santos Limited today reported net operating profit after-tax and exploration writeoffs of $327.0 million, or 52.1 cents per share, for the 12 months to the end of December 2003, up from $322.1 million in 2002.
The result was achieved on steady sales revenue of $1,465.0 million.
Full year earnings before interest, tax, depreciation, depletion and amortisation (EBITDA) were $1,061.2 million ($1,086.7 million in 2002).
Cash flow up 9%
Cash flow from operating activities, after interest and tax, increased by 9.3% to $897.3 million. The higher cash flow is equivalent to 153.8 cents per share, previously 141.3 cents per share.
Over the last decade, Santos’ operating cash flow has grown at an average rate of 12 per cent per annum.
Leverage (net debt to net debt plus equity) was reduced to 22.5% from 28.9% at the end of 2002.
Steady 15 cent final dividend
Santos Chairman, Mr Stephen Gerlach, said Directors had declared a fully franked final dividend of 15 cents per share.
“This maintains our total 2003 dividend on ordinary shares at a fully franked 30 cents per share and provides investors with a healthy dividend yield,” he said.
The final dividend will be paid on 31 March 2004 to shareholders registered in the books of the Company at the close of business on the record date: 11 March 2004.
Lowest gearing since 1960s
Notwithstanding a $750.3 million capital program, leverage (net debt to net debt plus equity) was reduced from 28.9 per cent to 22.5 per cent, the lowest gearing since the 1960’s. Net debt was reduced by $265.3 million to $897.6 million, the lowest level since the end of 2000.
“A year of achievement”- Managing Director
“This has been a year of achievement for Santos”, Managing Director, Mr John Ellice- Flint said today.
“Three years ago we set ourselves a number of challenging operational and financial targets to achieve by 2003. I am pleased to say that, while we have not hit them all in 2003, we have achieved many of them. Operationally we are close to target on finding and development costs and reserve replacement in 2003. Financially we have achieved good cash flow growth and total shareholder return of 20%, well ahead of our target of 14%.”
“As expected, earnings are similar to 2002. This is a reasonable result given that production was down and the Australian dollar appreciated by 32 per cent over the year”.
“Importantly 2003 was a year of achievement in cementing a number of important growth projects in place. Milestone projects like Bayu-Undan liquids and LNG, Mutineer-Exeter, Maleo/Oyong, Casino and John Brookes all advanced during the year. These will all translate into higher production over the next two years”.
“Notwithstanding all of the Company’s growth activity, I am pleased that we were also able to achieve the lowest level of gearing since the Company first began developing the Cooper Basin in the 1960s”.
Cost saving target exceeded by $138 million
Total savings in capital and operating expenditure reached $188 million. In 2001 the Company set a target of $50 million of savings to be achieved by the end of 2003. In February 2003 this target was increased to $100 million.
Field production costs fell by $6.2 million to $263.6 million largely due to a reduction in Cooper Basin production costs.
Total operating expenses increased from $404.8 million to $445.6 million largely driven by higher PRRT expenses and decrease in liquids inventories.
Santos Continuous Improvement Program
The next stage in increasing productivity, the Santos Continuous Improvement Program (SCIP) was launched late in 2003, with the aims of:
- Reviewing and improving key business processes,
- Simplifying the Santos organisation structure,
- Reducing the cost base, over and above ongoing efforts, and
- Changing the organisational culture.
Process improvements will be implemented over the course of 2004. A new
organisation structure will take effect from May 2004.
Portfolio management proceeds of $100 million
2003 was an active year in portfolio management. A number of non-core assets were divested: the Company’s minority shareholding in Oil Company of Australia and its interests in the Bentu and Korinci-Baru PSCs in Indonesia and a number of small fields in the United States. A portion of the Company’s interest in Bayu-Undan was also divested as part of arrangements to allow the LNG buyers to acquire a share in the project.
Proceeds of sale of non-current assets and controlled entities yielded cash proceeds of $130.4 million, with a total gain on sale of $59.6 million.
Increased interests were acquired in the Stag oil field and the John Brookes gas field, both offshore Western Australia ($30m).
Depreciation and depletion
The depreciation expense was $40.6 million higher at $172.0 million. The largest contributing factor was the accelerated depreciation of the Heytesbury facilities, due to the expected cessation of production during 2004, and the amortisation of additions made to plant and equipment in the Cooper Basin.
The depletion expense was $22.9 million higher at $333.8 million, reflecting revisions in Proven and Probable reserves in the Cooper Basin, East Spar and the United States.
The depletion charge per boe was $6.16, compared with $5.43 in 2002, reflecting the adjustments to reserves.
$60m exploration write-offs
Following a review of prospectivity, the Company has written off $38 million of a remaining total of $39 million of historic expenditure associated with exploration in Papua New Guinea. Together with amounts written off in the first half, total exploration write-offs before tax were $59.7 million ($75.3 million in 2002).
Tax consolidation
The 2003 income tax expense was $67.3 million lower than in 2002, reflecting lower tax on operating profit and a $55 million adjustment for tax consolidation.
Operational highlights:
- Commercialisation of 510 petajoules (net) of natural gas in 2003, the largest since the 1970s.
- $690 million of growth projects approved during 2003 (Bayu-Undan LNG and Mutineer-Exeter, $435 million) or under advanced consideration (John Brooks, Casino and Maleo $255 million).
- 22% of exploration acreage added during 2003.
Largest gas commercialisation in 30 years
2003 was the Company’s most successful year for gas commercialisation since the early 1970s, with 510 petajoules of gas net to Santos, either contracted or subject to heads of agreement. Highlights included:
- Approval of the Bayu-Undan LNG project (Timor Sea)
- Oyong gas sales agreement with PT Indonesian Power
- East Spar gas sales agreement with Alinta (Western Australia)
- Casino gas sales agreement with TXU (Victoria)
- Cooper Basin gas contracts with Pasminco and BHP Billiton
- Cooper Basin ethane contract extension with Quenos
Early in 2004 the John Brookes joint venture (Western Australia) and the Maleo joint venture (East Java) signed a Letter of Intent and a Heads Of Agreement respectively for substantial gas sales.
$690 million of growth projects approved or under consideration
Together with the approval of the Mutineer-Exeter oil project, the success in gas commercialisation led to the advanced consideration or approval of $690 million (Santos share) of new growth projects.
22% of exploration acreage added during 2003
During the year Santos implemented a material exploration program, appropriate for a Company producing 54 mmboe per annum. The program is based around a portfolio of prospects capable, if successful, of more than replacing 140% of production. This balanced exploration portfolio has some high risk/high reward and low risk/low reward targets.
A total of 19 exploration wells were spudded during 2003 for total expenditure of $136 million. No significant commercial discoveries were made during the year.
To further develop its exploration platform Santos is carrying out an active program of high-grading its exploration acreage to provide a basis for securing future growth projects. During 2003 the Company acquired 38,000 square kilometres of exploration acreage. At the end of the year total exploration acreage totalled 174,000 square kilometres (outside the United States).
2004 exploration
In 2004 Santos plans to undertake a high impact wildcat exploration program, drilling approximately 23 wells and acquiring or purchasing at least 9,700 kilometres of 2-dimensional seismic and 1,000 square kilometres of 3-dimensional seismic, for a total cost of approximately $134 million.
The program exposes investors to a mean risked resource of 106 mmboe, with an upside of over 250 mmboe.
Key wells in the first half of program are as follows: Agung, an oil prospect in the new North Bali PSC; Pohon, a deep water oil prospect in East Kalimantan; and Woodbine 1, a gas prospect in onshore Gulf of Mexico.
A detailed 2004 exploration program is attached.
Outlook
Mr Ellice-Flint said that the milestones achieved by the Company in 2003 continued to strengthen Santos’ growth outlook.
“Prior to the Moomba incident in January we said we expected production for 2004 to be around 53 mmboe. As a result of the Moomba incident we now expect production to be around 49 mmboe. However it is important to note that business interruption after 45 days is insured. Accordingly, as previously disclosed, the financial impact of the Moomba incident on 2003 earnings is expected to be between $25 and $30 million reduction in net profit after tax.
“Production in 2004 will also depend on the performance of the new Bayu-Undan gas recycling project, which is on-track for first commercial production in April this year.
“Other new projects are being fast tracked to contribute to production in 2005.
“In 2004 Santos plans to undertake a balanced wildcat exploration program, drilling approximately 23 wells.”
Mr Ellice-Flint said the Company’s performance remained subject to oil prices and exchange rates. A US$1 change in the oil price per barrel leads to a change of A$15 million in net profit after tax. A one US cent movement in the AUD/USD exchange rate leads to a change in profit after tax of A$5 million. A 1% change in interest rates will lead to a A$7 million change in after tax profit.
In the last three years Santos has continued to make significant strides towards meeting its long term strategic objectives of establishing a platform for growth. Santos spent approximately $783 million in 2004 on its capital program. Expenditure on exploration will total $134 million and delineation $82 million. A full suite of development projects like the Mutineer-Exeter and Bayu-Undan LNG projects will see $567 million spent on development in 2004.
