Santos delivers solid full year result with improved second half

Transcription

1 19 February 2003 Santos delivers solid full year result with improved second half Full year operating profit of $392 million, before exploration write-offs of $70 million (after tax) Second half operating profit of $226 million (before exploration write-offs) - 14% higher than 2001 second half EBITDA of $1,084 million for the full year exceeded $1 billion for third year in a row Operating cash flow $821 million (+14%) Gas commercialisation delivers 600 petajoules (gross) of new contracts highest since 1996 Proven (1P) reserves replacement of 119% - exceeds annual production for first time in five years Final dividend of 15 cps, total dividend of 30 cps Santos Limited (ASX: STO, NASDAQ: STOSY) today announced a net profit after tax and exploration write-offs of $322.1 million, or 51.2 cents per share, for the 12 months ended 31 December The Company s underlying operating profit remained strong at $392.3 million before $70.2 million of after-tax exploration write-offs ($449.7 million operating profit before write-offs in 2001). Both the operating and net profits were historically strong results for the Company. Second half operating profit improved to $226.0 million before after-tax exploration write-offs, and was up by 35.9% from the 2002 first half operating profit and 14.0% higher than the 2001 second half result. Full year earnings before interest, tax, depreciation, depletion and amortisation (EBITDA) of $1,084.4 million exceeded $1 billion for the third year in a row. Cash flow from operating activities, after interest and tax, increased by 14.5% to $820.8 million ($1.41 per share). This is a solid result, reflecting the benefits of the disciplined implementation of our strategy, Santos Managing Director, Mr John Ellice-Flint, said.

2 The performance of the key drivers of our business is highly visible and delivering tangible, measurable benefits under the strategy for growth adopted in May 2001, Mr Ellice-Flint said. The result was achieved from record sales of 57 million barrels of oil equivalent (mmboe) and a higher average realised oil price in the second half. "These positive factors partly offset increased non-cash charges. Mr Ellice-Flint said the latest results reflected increased production and lower capital costs. Production grew by 3%, operating and capital cost-savings of $78 million were well ahead of our $50 million target for the end of 2003, and our 2002 exploration program brought the Company new oil and gas discoveries spread across Australia, the US, Papua New Guinea and Indonesia. We contracted Cooper Basin gas at improved margins, and replaced 119% of our annual production. During the year, Santos also acquired the Esenjay interests in South Texas as well as a 20% interest in the Patricia Baleen gas project offshore from Orbost in eastern Victoria, which will be Santos first off-shore Victorian production. Dividend Santos Chairman, Mr Stephen Gerlach, said Directors had declared a fully franked final dividend of 15 cents per share. This maintains our total 2002 dividend on ordinary shares at a fully franked 30 cents per share and provides investors with a healthy dividend yield, he said. Replaced more than produced for the first time since 1997 Annual reserve replacement in 2002 was 119%, which exceeded annual production for the first time in five years. The Company added 67 mmboe net of Proven reserves (1P) at a finding and development cost of US$6.78/boe. Exploration performance strongest for several years The total exploration program for 2002, which included 18 wildcat wells, cost $133 million, established a mean resource of 106 mmboe and resulted in three major discoveries, Mutineer and Exeter in the Carnarvon Basin, and Oyong in East Java

3 Other discoveries were made in southern Australia, PNG and South Texas with five of the six new US discoveries already in production. Progress was also made in acquiring new acreage in Australia and the United States. Exploration write-offs Santos wrote-off $75 million ($70 million after-tax) of historical exploration expenses, mainly from drilling in New Guinea, Sumatra and the Browse Basin. Santos Executive General Manager Finance and Accounting, Mr Peter Wasow said; We have introduced more objective guidelines for assessing whether past exploration expenditure should be carried forward. This ensures greater transparency in the reporting of exploration assets. Gas commercialisation delivers base for growth During 2002, Santos signed new gas contracts for 600 petajoules of gas (gross) the highest since A major achievement was the signing of new 15-year contracts with AGL for Cooper Basin gas to supply eastern Australia. The revenue from these contracts and associated recovered liquids will be worth in excess of $2 billion to the Cooper Basin producers. Supply commences this year and extends through to A Heads of Agreement was also signed to sell the entire 90 billion cubic feet of gas reserves of the Oyong gas and oil field in off-shore East Java to PT Indonesia Power. Production optimisation performance 200% higher than 2001 Production optimisation in the Cooper Basin added about 75 terajoules (TJ) per day of gross gas capacity at 30-40% of the cost of conventional gas development projects. This rate exceeded the target of 40 TJ per day and is a 200% increase over Santos 2001 performance. OUTLOOK Mr Ellice-Flint said Santos improving exploration achievements, together with further progress in gas commercialisation, would provide the foundation for future growth for the Company. We have strengthened our overall portfolio during the year. During the past 12 months, we have added the potential Bayu-Undan LNG, Mutineer and Exeter oil and Oyong gas projects, he said

4 New projects like these are being fast-tracked, which will positively impact future production. We are also targeting other opportunities to increase near term production such as oil optimisation in the Cooper Basin and early production from small discoveries close to infrastructure. However, it will be a significant challenge for the Company to match its 2002 production performance over the next two years, with 2003 and 2004 production, prior to acquisitions, likely to be around the levels achieved in 2000 and Sales volumes in 2003 are expected to be slightly down on the 2002 level. Santos remains focused on value over volume and will not seek to increase production to the detriment of shareholder value. Mr Ellice-Flint said that the Company s financial performance remained subject to oil prices and exchange rates. For instance, in 2003 a US$1 movement in the oil price will affect Net Profit After Tax (NPAT) by A$14.5 million and a one cent change in the US dollar exchange rate will affect NPAT by A$5.6 million, he said. Santos will maintain an active exploration program in 2003 comprising 26 wildcat wells targeting mean-risked resource potential of 90 mmboe. Total exploration expenditure will be around $146 million in 2003 compared with $133 million in 2002 and $93 million in FOR FURTHER INFORMATION PLEASE CONTACT: Graeme Bethune General Manager, Business Development (08) / Santos stock symbols: STO (Australian Stock Exchange), STOSY (NASDAQ ADR) The Analyst Presentation on the Results will be available from 19 February on the Santos website

5 SANTOS 2002 FULL YEAR RESULTS Year Ended 31/12/02 Year Ended 31/12/01 % Increase (Decrease) FINANCIAL PERFORMANCE ($ million) Product sales 1, , Other revenue from ordinary activities (31.7) Operating expenses (448.3) (423.0) 6.0 Book value of non current assets sold and other (15.4) (21.8) (29.4) Write-offs of exploration expenditure (75.3) (3.8) n/a Depreciation, depletion and amortisation (469.1) (421.3) 11.3 Earnings before interest and tax (22.0) Borrowing costs (46.7) (64.3) (27.4) Profit from ordinary activities before income tax expense (21.4) Income tax expense relating to ordinary activities (171.2) (181.7) (5.8) Net profit after income tax attributable to shareholders (27.8) Basic earnings per share (cents) (29.8) Ordinary dividend per share (cents fully franked) Earnings before interest, tax, depreciation, depletion and amortisation 1, ,117.0 (2.9) CASH FLOW ($ million) Net cash provided by operating activities per share (cents) FINANCIAL POSITION ($ million) Total equity 2, , Total assets 5, , Net debt 1, , CAPITAL EXPENDITURE ($ million) Exploration expenditure Delineation expenditure Development expenditure (incl. construction and fixed assets) Total RATIOS Net debt/net debt plus equity (%) n/a Net interest cover (times) n/a Return on average ordinary shareholders equity (%) n/a Return on average capital employed (%) n/a - 5 -

6 2002 FINANCIAL PERFORMANCE Sales Volumes 2002 sales volumes increased by 1.7 mmboe to 56.8 mmboe in the year to 31 December, mainly due to increased gas production and sales in the United States and southern Australia. Oil production and sales volumes eased due to field decline. Product Sales Revenue Sales revenues were up $18.7 million to $1,478.4 million, largely due to increased gas sales of 10.2 PJ and the stability of the average realised oil price. Other Revenue Other revenue from ordinary activities decreased by $32.4 million to $69.7 million primarily due to the accrual of the Moomba insurance recoveries in 2001 ($26.8 million), decreased interest revenue ($6.4 million) and lower proceeds from the sale of non-current assets ($2.9 million). Operating Expenses Operating expenses increased by $25.3 million to $448.3 million (or from $7.69/boe to $7.89/boe) largely reflecting increased insurance costs, the Cooper Basin production optimisation program, new production from Legendre and Scotia and higher government royalties. Write-offs of exploration expenditure Exploration write-offs increased by $71.5 million to $75.3 million largely as a result of the write-offs of expenditure in the Papuan, Sumatran and Browse Basins. The increase in write-offs resulted from the adoption of more objective carry forward guidelines for asset evaluation. Depreciation, Depletion and Amortisation (DDA) DDA was $469.1 million, an increase of $47.8 million. Depreciation expenses rose by $9.4 million to $132.2 million primarily as a result of the $184.9 million increase in fixed assets to $1,663.4 million. Depletion expenses were up by $33.8 million reflecting higher production and increases in estimated future development costs. Earnings Before Interest Expense, Tax, Depreciation, Depletion and Amortisation (EBITDA) EBITDA was $1,084.4 million. Earnings Before Interest Expense and Tax Earnings before interest expense and tax (EBIT) were down by $151.9 million to $540.0 million largely as a result of the increased depletion and exploration write-offs

7 Net interest expense decreased by $17.6 million to $46.7 million as a result of lower average interest rates during the first half partially offsetting increased net debt due to the Esenjay acquisition and an increase in the level of capitalised interest. Net interest cover remained strong at 8.1 times. Net Profit After Income Tax Attributable To Shareholders A net profit after tax of $322.1 million was achieved, with earnings of 51.2 cents per share compared with 72.9 cents per share in CASH FLOW AND FINANCIAL POSITION Cash flow from operating activities before interest expense and tax decreased by 1.2% to $1,084.6 million. Cash flow from operating activities after interest and tax increased to $820.8 million ($716.8 million in 2001) largely due to lower taxation payments and net interest costs, and the receipt of the Moomba insurance proceeds, partially offset by increased payments to suppliers and employees. Operating cash flow per share was $1.41 per share compared with $1.17 per share in Dividends of $193.2 million were paid to shareholders. The net debt to net debt plus equity ratio at the end of 2002 was 28.9% (28.0% in 2001). CAPITAL EXPENDITURE Exploration The total exploration program for 2002, which included 18 wildcat wells, cost $133 million and established a mean resource of 106 mmboe. Drilling activity in the second half of the year was accelerated with a total of 12 wells drilled. A total of three oil and nine gas discoveries were made, comprising the Mutineer and Exeter oil discoveries, the Bilip oil discovery in PNG, the Maleo gas discovery in East Java, Indonesia, the Casino discovery in southern Australia, the Sardine Creek gas discovery in east Queensland and six gas discoveries in South Texas. During 2002, the exploration portfolio was high graded with a number of exploration permits awarded in Australia. The most significant of these were the four deep-water blocks in the Otway and Sorrel Basins in southern Australia, a new key growth area covering 18,260 square kilometres, and a new permit in the Houtman Basin in Western Australia. The Houtman Basin permit is frontier acreage and covers 82,880 square kilometres

8 In the United States, Santos base acreage position grew in 2002 through two significant transactions. The Esenjay acquisition added approximately 174 square kilometres, primarily in the prolific Frio and Wilcox trends. The Dominion Knight Project added approximately 36 square kilometres in the Woodbine trend. Santos intends to maintain an active exploration program in 2003 including 26 wildcat wells - for a total cost of $146 million for a target mean-risked resource potential of 90 mmboe. Santos will drill a total of three deep-water wells in the Otway Basin, four wells in the Carnarvon Basin, one well in the Gippsland Basin, 11 exploration wells in onshore Australia, two wells in Indonesia, one well in PNG and four wells in the United States. In addition, 4,250 square kilometres of two dimensional and 2,130 square kilometres of three dimensional seismic will be acquired. Delineation, Development and Fixed Assets Total development, delineation and fixed assets expenditure was $627.8 million in 2002, reflecting the accelerated appraisal of exploration discoveries during the year and ongoing development of the Bayu-Undan liquids project in the Timor Sea, continued gas development activity in the Cooper Basin, eastern Queensland and the United States, and investment in new information technology platforms and production infrastructure. Despite an active 2003 delineation, development and fixed asset program, total expenditure will ease to $585 million in 2003 largely as a result of lower delineation activity. Delineation expenditure is forecast to decline to $46 million from $90.6 million and will principally address appraisal of Possible reserves (3P), near field exploration and commercialisation of contingent resources. BUSINESS IMPROVEMENT PROCESS A key strategy of Santos has been the focus on lower capital and operating expenditure. Early during 2002, Santos achieved its target of a $50 million reduction in total costs by the end of Total capital and operating costs were reduced by $78 million on a like-for-like basis, $28 million better than the original target. In 2002, operating cost reductions of $7 million and a total of $71 million in capital cost reductions were achieved, with a majority of this occurring in the Cooper Basin. Some of the areas in which savings have been made were production optimisation ($34 million), procurement ($8 million) and compressor optimisation ($5 million). These savings allowed for the reallocation of capital towards growth businesses like exploration and rapid delineation of 2002 exploration discoveries