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Summary

Santos Aims for Top Tier Performance

Santos says it is aiming to lift its performance to equal that of the top 25% of world oil and gas companies by the end of 2003.

In presenting the outcome of a three-month strategy review, Santos’ Managing Director John Ellice-Flint said,

“Santos’ performance has been around the middle of the pack over the last five years. This is not good enough. We need to be in the top quartile. Getting there is going to be a challenge but I believe it is achievable. There is a lot of work still to be done and the future looks bright for Santos.”

To achieve this target Santos will, among other things:

  • Undertake a major program of reservoir optimisation in the Cooper Basin, which will aim to raise margins as well as increase production from the more than 400 oil and gas fields and related infrastructure that the Company operates.
  • Increase exploration efficiency and improve the inventory of medium term growth options, concentrating on more targets that could have a material impact on reserves.
  • Maintain an active program of acquisitions to supplement reserve additions from exploration and reservoir optimisation, as well as access new areas for growth.
  • Step up efforts to commercialise more of its existing gas reserves and the Company’s interest in over 6 trillion cubic feet (TCF) of static gas resources.
  • Be more proactive in securing its position in northern and southern gas and more innovative in pursuing opportunities within the gas value chain, including using its unique infrastructure.
  • Achieve capital, development and operating cost reductions of at least $50 million per annum by 2003 on a like for like basis

For Santos the next three years are about increasing profit and cashflow through a balanced program of growth in exploration and production, gas commercialisation and operational excellence. This will be within an overall framework of capital discipline.

“Capital discipline is fundamental. Our target is top quartile returns to our shareholders, not growth for its own sake,” John Ellice-Flint said.

The Review concluded that the company is in a strong financial position to embark on a growth program, with gearing at its lowest level in 20 years.

There is considerable scope for increasing returns from Santos’ existing assets. For example there are over 100 cased and suspended wells in the Cooper Basin that have never been brought into production. Making the most of what the Company already has in the Cooper Basin is the top priority. This is good for the Company and also good for customers, particularly in the states like South Australia with a strong demand for gas for power generation.

Another priority is to develop a deeper inventory of high reward exploration prospects. To do this Santos will be upgrading its intelligence on available opportunities, its skill base for assessing them and its speed of response.

A new Exploration Forum has already been formed to increase coordination and knowledge transfer across Business Units and improve the effectiveness of portfolio management. A small New Venture team will also be formed to search for growth opportunities.

The largest part of the Company’s static gas resources is in the Timor Sea. Santos is on record as saying that the Timor Sea has the potential for a world-class 20 TCF gas project and doing what it can to progress this as a major priority. The Company will also be more pro-active in working with other parties to develop gas consuming projects.

Increased capital efficiency is also high on the list of priorities. Cooper Basin development costs have been increasing and the target is to restrain this.

“From 2003 we are targeting growth in earnings per share at 10% or more through the oil price cycle. In the intervening period we expect base production to be broadly stable and we are targeting an overall production increase of 5-8% per annum above the base through a combination of reservoir optimisation, exploration and acquisitions, ” said Mr Ellice-Flint.

The review highlighted Company strengths that provide the platform for future growth. These include the strong existing staff base, field development expertise in harsh environments, position in Australian gas, substantial infrastructure, low risk exploration portfolio and acquisition competency.

It also identified the need for cultural transformation, based on the values of Respect, Innovation, Trust and Excellence.

In addition to targeting top quartile returns to shareholders, John Ellice-Flint emphasised,

“For our employees we want to provide job satisfaction and personal growth potential in a safe environment. For our joint venturers it is important that we are regarded as seeking mutually beneficial outcomes. For the communities in which we operate we want to be seen as responsible and environmentally conscious.”

Other internal issues identified by the Review include the need for better management of in-house knowledge and expertise, senior recruitment in a number of areas and greater business unit coordination.