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Santos announces new continuous improvement program

Santos Limited today announced details of its new business improvement program which will enhance the oil and gas groups future profits.

Features of the program are a new senior leadership team, a dramatic reduction in executive reporting structures, and a 16% reduction in staff and contractor numbers.

Detailing the improvement program, Santos Chief Executive Officer, Mr John Ellice-Flint, said it was expected to achieve improvements to after-tax earnings (before restructuring and implementation costs) in the order of $22 million in 2005 and $30 million in 2006.

The improvement in after-tax earnings will come primarily from reductions in operating expenditure, estimated to be $23 million in 2005 and $28 million (Santos share) in 2006. This is a reduction in operated operating expenditure of approximately 16% in 2005. There will also be some revenue improvement.

Savings in capital expenditure are estimated to be approximately $57 million (Santos share) in each of 2005 and 2006, largely in the Cooper Basin. This is a reduction in operated capital expenditure of approximately 13% in 2005 and will be derived from a number of initiatives including strategic sourcing, drilling and completions improvements and improved efficiency in flowline construction and connection. Reductions in DD&A and interest will result from the capital savings.

The program restructuring and implementation costs to be incurred in the current year to 31 December 2004, will be of the order of $20 million adverse impact on net profit after tax. Of this, around $14 million will be incurred in the current opening half to 30 June 2004. Costs in 2005 are expected to be around $4 million.

Mr Ellice-Flint said the program was the most significant reorganisation of Santos in 10 years and would further increase Santos focus on the identification and execution of value-adding growth projects.

“The main aim of this continuous improvement program is to achieve a leaner and more efficient Santos, enabling the Company to move forward in a progressive and competitive manner on the global resources stage,” he said.

The number of Santos executives in the top three levels of the Company has been halved under the new program from 120 to 60. Levels within the reporting structure for both field and office operations, have also been reduced to create a flatter organisation.

The re-organisation includes the net loss of approximately 300 positions across Santos operations, reducing total numbers from about 1,900 to 1,600.

The key objectives of the improvement program are:

  • Simplifying the Santos organisational structure;
  • Reviewing and improving key business processes to add value;
  • Reducing the cost base, over and above ongoing efforts, and
  • Improving the organisational culture.

In addition, key decision processes across Santos have also been identified and benchmarked, with steps under way to upgrade processes critical for growth.

The program commenced in November 2003 and all of our key business processes have now been reviewed, simplified and strengthened, Mr Ellice-Flint said.

As a result, we are implementing: a new streamlined organisational structure; cost savings able to have a meaningful impact on after-tax earnings; and, a cultural change program.

Streamlined organisational restructure

Effective this week, the Santos organisation has been restructured on a functional basis, a departure from the previous structure based on business units.

The core functions, reporting to the Chief Executive Officer, Mr Ellice-Flint, are:

Mr Jacques Gouadain has been appointed Vice President Geoscience and New Ventures, with responsibility for all exploration, appraisal and new venture activities in the Company. Mr Gouadain was previously General Manager, Exploration.

Mr Rick Wilkinson has been appointed Vice President Gas Marketing and Commercialisation, with responsibility for gas and liquids marketing, gas planning and economics and commercialisation projects, including discovered but not commercialised gas resources and developing new gas business. He was previously General Manager, Southern Australia.

Mr Paul Moore has been appointed Vice President Development Projects and Technical Services, with responsibility for the offshore and international development portfolio of the Company, including operated and non-operated projects, subsurface engineering and technical services. Mr Moore was previously General Manager Western Australia.

Mr Jon Young has been appointed Executive Vice President Operations, with responsibility for all of the Companys production operations, including delineation and development of onshore Australian operations, facilities engineering, maintenance and environment, health and safety. Mr Young was previously General Manager Central Australia.

Mr Bruce Wood has been appointed Vice President Strategic Projects, with responsibility for identified projects and regions of strategic importance to Santos, including the Timor/Bonaparte region and US and Indonesian interests. He was previously General Manager Gas Commercialisation and Marketing.

Mr Peter Wasow will continue in his role of Chief Financial Officer, with responsibility for finance, accounting, treasury, corporate planning, risk, audit, corporate development and investor relations.