Half-year report
incorporating Appendix 4D
Santos Limited and its controlled entities.
For the period ended 30 June 2017, under Listing Rule 4.2.
RESULTS FOR ANNOUNCEMENT TO THE MARKET
APPENDIX 4D FOR THE PERIOD ENDED 30 JUNE 2017
2017 2016 Change
US$million US$million %
Revenue from ordinary activities 1,496 1,205 24
Statutory Profit/(Loss) from ordinary activities after tax
attributable to members (506) (1,104) 54
Net Profit/(Loss) for the period attributable to members (506) (1,104) 54
Franked amount per
Interim Dividends Amount per security security at 30% tax
US cents US cents
On 23 August 2017, the Directors resolved not to pay an interim
dividend in relation to the half-year ended 30 June 2017.
Ordinary securities Nil Nil
CONTENTS ABOUT SANTOS
Half-year Report Santos is an Australian natural gas company. Established in
30 June 2017 Page 1954, the company is proud to deliver the economic and
environmental benefits of natural gas to homes and
Directors’ Report 2 businesses throughout Australia and Asia.
Review and Results of Operations 2 Five core long-life natural gas assets sit at the heart of a
disciplined, focused strategy to drive sustainable
Directors 6
shareholder value: the Cooper Basin, GLNG, Papua New
Rounding 6 Guinea, Northern Australia and Western Australia Gas.
Each of these core assets provide stable production, long-
Auditor’s Independence Declaration 7 term revenue streams and significant upside opportunities.
Half-year Financial Report 8
With one of the largest exploration and production
Consolidated Income Statement 8 acreages in Australia, a significant and growing footprint in
Consolidated Statement of Papua New Guinea and a strategic infrastructure position,
Comprehensive Income 9 Santos is well positioned to benefit from the growing
global demand for energy.
Consolidated Statement of
Financial Position 10
The Santos turnaround is now well underway. A three
Consolidated Statement of Cash Flows 11 phase strategy to Transform, Build and Grow the business
will drive returns as we continue to focus on the
Consolidated Statement of
Changes in Equity 12 exploration, development, production and sale of natural
gas.
Notes to the Half-year Consolidated
Financial Statements 13 Santos is focused on delivering sustainable shareholder
value by becoming a low-cost, reliable and high
Directors’ Declaration 27
performance business with the financial flexibility to build
Independent Auditor’s Report 28 and grow the business through the oil price cycle.
Appendix 4D continued 30
1 Santos Limited Half-year Financial Report – 30 June 2017
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their report together with the consolidated financial report of the consolidated entity, being
Santos Limited (“Santos” or “the Company”) and its controlled entities, for the half-year ended 30 June 2017, and the
auditor’s review report thereon.
REVIEW AND RESULTS OF OPERATIONS
Unless otherwise stated, all references to dollars are to US dollars.
A review of the results of the operations of the consolidated entity during the half-year is as follows:
Summary of results table 2017 2016 Variance
mmboe mmboe %
Production volume 29.5 31.1 (5)
Sales volume 40.1 40.9 (2)
$million $million
Product sales 1,453 1,191 22
1
EBITDAX 718 491 46
Exploration and evaluation expensed (53) (47) (13)
Depreciation and depletion (348) (399) 13
Net impairment loss (920) (1,516) 39
EBIT1 (603) (1,471) 59
Net finance costs (139) (131) (6)
Taxation benefit/(expense) 236 498 (53)
Net profit/(loss) for the period (506) (1,104) 54
Underlying profit/(loss) for the period1 156 (5) 3220
1 EBITDAX (earnings before interest, tax, depreciation, depletion, exploration and evaluation and impairment), EBIT (earnings before interest and tax) and underlying profit/(loss)
are non-IFRS measures that are presented to provide an understanding of the underlying performance of Santos’ operations. Underlying profit excludes the impacts of asset
acquisitions, disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments and
fluctuations in exchange rates. Please refer to page 5 for the reconciliation from net profit/(loss) to underlying profit/(loss) for the period. The non-IFRS financial information is
unaudited however the numbers have been extracted from the financial statements which have been subject to review by the Company’s auditor.
Sales volume Sales revenue
40.9 1,727
40.1
1,526
US$million
1,453
mmboe
28.9 30.9 1,261 1,191
27.4
HY13 HY14 HY15 HY16 HY17 HY13 HY14 HY15 HY16 HY17
Sales volumes of 40.1 million barrels of oil equivalent Sales revenue was up 22% compared to the previous
(mmboe) were 2% lower than the previous half. Higher half to $1.5 billion, primarily due to higher oil and LNG
LNG sales volumes due to the ramp-up of GLNG, prices. The average realised oil price was up 28% to
ongoing strong production from PNG LNG, and higher US$55/bbl and the average realised LNG price rose
domestic gas sales in WA, were offset by asset sales and 26% to US$7.21/mmBtu.
lower Cooper Basin sales volumes.
2 Santos Limited Half-year Financial Report – 30 June 2017
DIRECTORS’ REPORT
Production GLNG
GLNG produces liquefied natural gas (LNG) for export
to global markets from the LNG plant at Gladstone. Gas
31.1
28.3 29.5 is also sold into the domestic market. Santos has a 30%
25 interest in GLNG.
mmboe
24.5
The LNG plant has two LNG trains with a combined
nameplate capacity of 7.8 mtpa. Production from Train
1 commenced in September 2015 and Train 2 in May
2016. Feed gas is sourced from GLNG’s upstream fields,
Santos portfolio gas and third-party suppliers.
HY13 HY14 HY15 HY16 HY17
The LNG plant produced 2.4 million tonnes in the first
half of 2017 and shipped 42 cargoes.
Production was 5% lower than the previous half
primarily due to the sale of the Victorian, Mereenie and Santos aims to build GLNG gas supply through
Stag assets, partially offset by the ramp-up of GLNG and upstream development, seek opportunities to extract
higher PNG LNG production. value from existing infrastructure and drive efficiencies
to operate at lowest cost.
Review of Operations
Santos’ operations are focused on five core, long-life GLNG HY17 HY16
natural gas assets: Cooper Basin, GLNG, PNG, Production (mmboe) 5.6 4.3
Northern Australia and Western Australia Gas. Other Sales volume (mmboe) 10.6 9.1
assets are run separately for value as a standalone Revenue (US$m) 354 218
business. Production cost (US$/boe) 5.95 7.34
EBITDAX (US$m) 156 65
Cooper Basin Capex (US$m) 75 97
The Cooper Basin produces natural gas, gas liquids and
crude oil. Gas is sold primarily to domestic retailers, GLNG EBITDAX was $156 million, 141% higher than
industry and for the production of liquefied natural gas, the first half of 2016. This was a result of higher sales
while gas liquids and crude oil are sold in domestic and revenue reflecting the ramp up of upstream production
export markets. and higher LNG prices.
Santos’ strategy in the Cooper Basin is to deliver a low- Following a review, Santos recognised an impairment
cost, cash flow positive business by building production, charge against the carrying value for GLNG of $867
investing in new technology to lower development and million after tax in the 2017 half-year accounts. The
exploration costs, and increasing utilisation of impairment was primarily due to lower forecast US$ oil
infrastructure including the Moomba plant. prices.
Cooper Basin HY17 HY16 Papua New Guinea
Production (mmboe) 7.1 7.7 Santos’ business in PNG is centred on the PNG LNG
Sales volume (mmboe) 10.4 11.4 project. Completed in 2014, PNG LNG produces LNG
Revenue (US$m) 379 345 for export to global markets, as well as sales gas and gas
Production cost (US$/boe) 9.72 11.04 liquids. Santos has a 13.5% interest in PNG LNG.
EBITDAX (US$m) 157 104
Capex (US$m) 84 90 The LNG plant near Port Moresby has two LNG trains
with the combined capacity to produce more than eight
million tonnes per annum. Production from both trains
Cooper Basin EBITDAX was $157 million, 51% higher commenced in 2014 and operated at record rates in the
than the first half of 2016 primarily due to higher sales first half of 2017, producing four million tonnes of LNG
revenue impacted by higher oil prices, in addition to and shipping 54 cargoes. Condensate production was
lower production costs resulting from cost saving 5.4 million barrels.
initiatives.
Santos’ share of Cooper Basin sales gas and ethane Santos’ strategy in PNG is to work with its partners to
production of 28.6 petajoules (PJ) was lower than the align interests, and support and participate in backfill
corresponding period (31.5 PJ) due to lower and expansion opportunities at PNG LNG.
development activity and natural field decline.
In the first half of 2017, Santos and its partners
During the 2017 half-year, Santos recognised an announced a potentially significant new gas discovery at
impairment write-back of $336 million after tax. The Muruk, located 21 kilometres from the existing PNG
impacts of lower US$ oil price assumptions were more LNG production facilities at Hides. Data from the
than offset by a continuation of the cost efficiencies and Muruk drilling program will be evaluated to inform
performance improvement achieved during 2016 forward appraisal options. Well site preparations are
allowing increased drilling activity and production. being planned ahead of a potential Muruk appraisal
program in 2018.
3 Santos Limited Half-year Financial Report – 30 June 2017
DIRECTORS’ REPORT
PNG HY17 HY16 Santos’ position in two WA domestic gas hubs (Varanus
Production (mmboe) 6.2 5.9 Island and Devil Creek) provides opportunities to meet
Sales volume (mmboe) 5.8 5.7 short and long-term domestic gas demand in the state.
Revenue (US$m) 248 207
Production cost (US$/boe) 4.32 4.52 Santos’ focus in WA is to grow production and market
EBITDAX (US$m) 203 165 share in the WA domestic gas market.
Capex (US$m) 8 1
WA Gas HY17 HY16
Production (mmboe) 4.3 4.7
PNG EBITDAX was $203 million, 23% higher than the Sales volume (mmboe) 4.5 3.9
first half of 2016 mainly due to higher LNG prices. Revenue (US$m) 116 74
Production cost (US$/boe) 5.29 4.78
Northern Australia EBITDAX (US$m) 116 126
Capex (US$m) 5 10
Santos’ business in Northern Australia is focused on the
Bayu-Undan/Darwin LNG (DLNG) project. In
operation since 2006, DLNG produces LNG and gas WA Gas EBITDAX was $116 million, 8% lower than
liquids for export to global markets. Santos has an the first half of 2016.
11.5% interest in DLNG.
Santos’ share of Western Australia gas and condensate
The LNG plant near Darwin has a single LNG train with production in the first half of 2017 was 23.9 PJ and 0.2
a nameplate capacity of 3.7 mtpa. DLNG continued to mmbbl respectively.
perform strongly in the first half of 2017, producing 1.7
million tonnes of LNG and shipping 26 cargoes. Other assets – Asia, NSW and WA Oil
Condensate production was three million barrels.
Santos’ other assets have been packaged and run
Santos’ strategy in Northern Australia is to support separately as a standalone business. These assets
plans to progress Darwin LNG backfill, expand the include Santos interests in Indonesia, Vietnam, New
company’s acreage footprint and appraise the onshore South Wales and Western Australia oil. The portfolio
McArthur Basin. will be continually optimised to drive efficiency and
shareholder value.
During the first half of 2017, a two-well appraisal drilling
campaign in the Barossa field (Santos 25%) was Consistent with optimising the portfolio to maximise
successfully completed. Positive results from the value, Santos sold its Victorian assets and Mereenie
campaign, including a successful production test of (Northern Territory) effective 1 January 2017.
Barossa-6, strengthened the field’s position as lead
candidate to supply backfill gas to Darwin LNG. The Other assets HY17 HY16
campaign significantly reduced resource uncertainty and Production (mmboe) 4.2 6.2
further confirmed the high deliverability potential of the Sales volume (mmboe) 4.0 6.4
primary Elang reservoir. Revenue (US$m) 167 217
Production cost (US$/boe) 14.72 14.65
Northern Australia HY17 HY16 EBITDAX (US$m) 116 103
Production (mmboe) 2.1 2.2 Capex (US$m) 39 43
Sales volume (mmboe) 2.2 2.2
Revenue (US$m) 78 71
Production cost (US$/boe) 17.36 16.95 Other assets EBITDAX was $116 million, 13% higher
EBITDAX (US$m) 45 37 than the first half of 2016.
Capex (US$m) 40 1
Total production and sales volumes from Other assets
were lower than the previous half-year due to the sale
Northern Australia EBITDAX was $45 million, 22% of the Victorian, Mereenie and Stag assets.
higher than the first half of 2016 mainly due to higher
commodity prices. During the 2017 half-year, Santos recognised an
impairment charge of $149 million after tax on the non-
WA Gas core Ande Ande Lumut asset in Indonesia following an
assessment of the impact of lower oil prices.
Santos is one of the largest producers of domestic
natural gas in Western Australia and is also a significant
producer of gas liquids.
4 Santos Limited Half-year Financial Report – 30 June 2017
DIRECTORS’ REPORT
Net Loss
The 2017 first half net loss was $506 million; compared with a $1,104 million loss at half-year 2016. The $598 million
decrease in net loss is primarily due to higher product sales driven by higher commodity prices, in addition to a before
tax impairment loss of $920 million; compared with $1,516 million at half-year 2016.
Net loss includes items after tax of $662 million (before tax of $959 million), referred to in the reconciliation of net
profit/(loss) to underlying profit/(loss) below.
Reconciliation of Net Profit/(Loss) to 2017 2016
Underlying Profit/(Loss)1 $million $million
Gross Tax Net Gross Tax Net
Net profit/(loss) after tax attributable to
equity holders of Santos Limited (506) (1,104)
Add/(deduct) the following:
Impairment losses 920 (231) 689 1,516 (455) 1,061
Gains on sale of non-current assets (68) 17 (51) 6 (2) 4
Insurance recovery on remediation and related
costs for incidents - - - (9) - (9)
Foreign exchange losses/(gains) 93 (78) 15 29 (29) -
Fair value adjustments on embedded derivatives
and hedges (32) 9 (23) 12 (4) 8
Onerous contract 31 (9) 22 26 (8) 18
Redundancy/restructure 2 (1) 1 24 (7) 17
Other one-off tax adjustment 13 (4) 9 - - -
959 (297) 662 1,604 (505) 1,099
1
Underlying profit/(loss) 156 (5)
1 Underlying profit/(loss) is a non-IFRS measure that is presented to provide an understanding of the underlying performance of Santos’ operations. The measure excludes the impacts
of asset acquisitions, disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments
and fluctuations in exchange rates. The non-IFRS financial information is unaudited however the gross numbers presented above have been extracted from the financial statements
which have been subject to review by the Company’s auditor.
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF SANTOS LIMITED / DIVIDENDS
Equity attributable to equity holders of Santos Limited at 30 June 2017 was $6,917 million.
On 23 August 2017, the Directors resolved not to pay an interim dividend in relation to the half-year ended 30 June
2017.
CASH FLOW
The net cash inflow from operating activities of $662 million was 127% higher than the first half of 2016. This increase
is principally attributable to higher sales revenue driven by favourable product prices and increased sales volume. Net
cash used in investing activities of $244 million was $264 million higher than the first half of 2016 primarily due to the
proceeds realised from the disposal in 2016 of $411 million compared to $130 million in 2017. Cash flows used in
financing activities were $99 million higher than the first half of 2016 predominantly due to the early repayment of a
$250 million ECA facility, offset by the proceeds on share purchase plan of $148 million.
OUTLOOK
Sales volume guidance is upgraded to 77 to 82 mmboe and production guidance is maintained in the range of 57 to 60
mmboe for 2017.
POST BALANCE DATE EVENTS
On 23 August 2017, Santos exercised its option to redeem its 1,000 million subordinated notes at the first call date
of 22 September 2017.
On 23 August 2017, the Directors of Santos Limited resolved not to pay an interim dividend in relation to the half-year
ended 30 June 2017.
5 Santos Limited Half-year Financial Report – 30 June 2017
DIRECTORS’ REPORT
DIRECTORS
The names of Directors of the Company in office during or since the end of the half-year are:
Surname Other Names
Allen Yasmin Anita
Coates Peter Roland (Chairman)
Cowan Guy Michael
Franklin Roy Alexander
Gallagher Kevin Thomas (Managing Director and Chief Executive Officer)
Goh Hock
Hearl Peter Roland
Martin Gregory John Walton
1
Sheffield Scott Douglas
Guthrie2 Vanessa Ann
3
Shi Yujiang
1 Mr Sheffield ceased to be a Director of Santos Limited on 4 May 2017 at the completion of the 2017 Annual General Meeting.
2 Dr Guthrie was appointed a Director of Santos Limited by the Board with effect from 1 July 2017 and will stand for election at the Company’s next Annual General Meeting.
3 Mr Shi was appointed a Director of Santos Limited by the Board with effect from 26 June 2017 and will stand for election at the Company’s next Annual General Meeting.
Each of the above named Directors held office during or since the end of the half-year. There were no other persons
who acted as Directors at any time during the half-year and up to the date of this report.
ROUNDING
Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors’ Report) Instrument
2016/191 applies to the Company. Accordingly, amounts have been rounded off in accordance with that Instrument,
unless otherwise indicated.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the auditor’s independence declaration as required by section 307C of the Corporations Act 2001 (Cth) is set
out on page 7 and forms part of this report.
This report is made out on 23 August 2017 in accordance with a resolution of the Directors.
Director
23 August 2017
6 Santos Limited Half-year Financial Report – 30 June 2017
Ernst & Young Tel: +61 8 8417 1600
121 King William Street Fax: +61 8 8417 1775
Adelaide SA 5000 Australia ey.com/au
GPO Box 1271 Adelaide SA 5001
Auditor’s Independence Declaration to the Directors of Santos Limited
As lead auditor for the review of Santos Limited for the half-year ended 30 June 2017, I declare to the
best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the review; and
b) no contraventions of any applicable code of professional conduct in relation to the review.
This declaration is in respect of Santos Limited and the entities it controlled during the financial period.
Ernst & Young
R J Curtin
Partner
Adelaide
23 August 2017
A member firm of Ernst & Young Global Limited
7 Liability limited by a scheme approved under Professional Standards Legislation
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2017
30 June 30 June
2017 2016
Note $million $million
Product sales 2.2 1,453 1,191
Cost of sales 2.3 (1,088) (1,081)
Gross profit 365 110
Other revenue 43 14
Other income 74 74
Impairment of non-current assets 3.4 (920) (1,516)
Other expenses 2.3 (170) (158)
Finance income 4.1 14 6
Finance costs 4.1 (153) (137)
Share of net profit of joint ventures 5 5
Loss before tax (742) (1,602)
Income tax benefit 228 506
Royalty-related tax benefit/(expense) 8 (8)
Total tax benefit 236 498
Net loss for the period attributable to owners of Santos Limited (506) (1,104)
Earnings per share attributable to the equity holders of Santos
Limited ()
Basic loss per share (24.4) (62.4)
Diluted loss per share (24.4) (62.4)
Dividends per share ()
Paid during the period 2.4 – 4
Declared in respect of the period 2.4 – –
The consolidated income statement is to be read in conjunction with the notes to the half-year financial statements.
8 Santos Limited Half-year Financial Report – 30 June 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2017
30 June 30 June
2017 2016
$million $million
Net loss for the period (506) (1,104)
Other comprehensive income, net of tax:
Other comprehensive income to be reclassified to profit or loss in subsequent
periods:
Exchange gain on translation of foreign operations 116 12
Tax effect – –
116 12
Gain on foreign currency loans designated as hedges of net
investments in foreign operations 132 113
Tax effect (41) (34)
91 79
Gain on derivatives designated as cash flow hedges 9 4
Tax effect (3) (1)
6 3
Net other comprehensive income to be reclassified to profit
or loss in subsequent periods 213 94
Items not to be reclassified to profit or loss in subsequent periods:
Actuarial gain/(loss) on the defined benefit plan 2 (1)
Tax effect (1) –
1 (1)
Loss on financial liabilities at fair value through other comprehensive
income (FVOCI) (30) –
Tax effect 10 –
(20) –
Net other comprehensive loss not being reclassified to profit
or loss in subsequent periods (19) (1)
Other comprehensive income, net of tax 194 93
Total comprehensive loss attributable to owners of Santos
Limited (312) (1,011)
The consolidated statement of comprehensive income is to be read in conjunction with the notes to the half-year financial
statements.
9 Santos Limited Half-year Financial Report – 30 June 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
30 June 31 December
2017 2016
Note $million $million
Current assets
Cash and cash equivalents 2,226 2,026
Trade and other receivables 364 367
Prepayments 32 34
Inventories 284 321
Other financial assets 17 7
Tax receivable 6 15
Assets held for sale – 180
Total current assets 2,929 2,950
Non-current assets
Receivables 5 5
Prepayments 21 17
Investments in joint ventures 47 56
Other financial assets 145 152
Exploration and evaluation assets 3.1 422 495
Oil and gas assets 3.2 9,617 10,398
Other land, buildings, plant and equipment 130 135
Deferred tax assets 1,356 1,054
Total non-current assets 11,743 12,312
Total assets 14,672 15,262
Current liabilities
Trade and other payables 474 520
Deferred income 9 23
Interest-bearing loans and borrowings 415 420
Current tax liabilities 2 3
Provisions 95 121
Other financial liabilities 264 366
Liabilities directly associated with assets held for sale – 103
Total current liabilities 1,259 1,556
Non-current liabilities
Deferred income 108 99
Interest-bearing loans and borrowings 4,565 4,819
Deferred tax liabilities 210 221
Provisions 1,590 1,464
Other financial liabilities 23 23
Total non-current liabilities 6,496 6,626
Total liabilities 7,755 8,182
Net assets 6,917 7,080
Equity
Issued capital 4.2 9,034 8,883
Reserves (317) (510)
Accumulated losses (1,800) (1,293)
Total equity 6,917 7,080
The consolidated statement of financial position is to be read in conjunction with the notes to the half-year financial statements.
10 Santos Limited Half-year Financial Report – 30 June 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
30 June 30 June
2017 2016
$million $million
Cash flows from operating activities
Receipts from customers 1,542 1,278
Interest received 14 7
Dividends received 7 6
Pipeline tariffs and other receipts 43 7
Payments to suppliers and employees (739) (824)
Exploration and evaluation seismic and studies (28) (35)
Royalty and excise paid (26) (16)
Borrowing costs paid (126) (105)
Income taxes paid (37) (24)
Income taxes received 23 –
Royalty-related taxes paid (13) (10)
Other operating activities 2 7
Net cash provided by operating activities 662 291
Cash flows from investing activities
Payments for:
Exploration and evaluation assets (93) (58)
Oil and gas assets (262) (314)
Other land, buildings, plant and equipment (3) (7)
Acquisitions of oil and gas assets (14) –
Borrowing costs paid (5) (15)
Proceeds on disposal of non-current assets 130 411
Other investing activities 3 3
Net cash (used in)/provided by investing activities (244) 20
Cash flows from financing activities
Dividends paid – (43)
Repayments of borrowings (368) (75)
Proceeds/(costs) from issues of ordinary shares 148 (3)
Net cash used in financing activities (220) (121)
Net increase in cash and cash equivalents 198 190
Cash and cash equivalents at the beginning of the period 2,026 839
Effects of exchange rate changes on the balances of cash held in foreign
currencies 2 5
Cash and cash equivalents at the end of the period 2,226 1,034
The consolidated statement of cash flows is to be read in conjunction with the notes to the half-year financial statements.
11 Santos Limited Half-year Financial Report – 30 June 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Equity attributable to owners of Santos Limited
Financial Accumulated
Issued Translation Hedging liabilities at profits Accumulated Total
capital reserve reserve FVOCI reserve losses equity
$million $million $million $million $million $million $million
Balance at 1 January 2016 8,119 (808) (12) – 121 1 7,421
Transfer retained profits to accumulated profits reserve – – – – 258 (258) –
Items of comprehensive income:
Net loss for the period – – – – – (1,104) (1,104)
Other comprehensive income/(loss) for the period – 91 3 – – (1) 93
Total comprehensive income/(loss) for the period – 91 3 – – (1,105) (1,011)
Transactions with owners in their capacity as owners:
Shares issued 21 – – – – – 21
Dividends to shareholders – – – – (66) – (66)
Share-based payment transactions – – – – – 4 4
Balance at 30 June 2016 8,140 (717) (9) – 313 (1,358) 6,369
Balance at 1 July 2016 8,140 (717) (9) – 313 (1,358) 6,369
Net loss for the period – – – – – 57 57
Other comprehensive income/(loss) for the period – (113) 16 – – 2 (95)
Total comprehensive income/(loss) for the period – (113) 16 – – 59 (38)
Transactions with owners in their capacity as owners:
Shares issued 743 – – – – – 743
Share-based payment transactions – – – – – 6 6
Balance at 31 December 2016 8,883 (830) 7 – 313 (1,293) 7,080
Opening balance adjustment on adoption of new accounting standard
(refer Note 5.4) – – – – – (5) (5)
Balance at 1 January 2017 8,883 (830) 7 – 313 (1,298) 7,075
Net loss for the period – – – – – (506) (506)
Other comprehensive income/(loss) for the period – 207 6 (20) – 1 194
Total comprehensive income/(loss) for the period – 207 6 (20) – (505) (312)
Transactions with owners in their capacity as owners:
Shares issued 151 – – – – – 151
Share buy-back (held as Treasury shares) (3) – – – – – (3)
Share-based payment transactions 3 – – – – 3 6
Balance at 30 June 2017 9,034 (623) 13 (20) 313 (1,800) 6,917
The consolidated statement of changes in equity is to be read in conjunction with the notes to the half-year financial statements.
12 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 1: BASIS OF PREPARATION
This section provides information about the basis of preparation of the half-year financial report, and certain accounting
policies that are not disclosed elsewhere.
1.1 CORPORATE INFORMATION
Santos Limited (“the Company”) is a company limited by shares incorporated in Australia whose shares are publicly
traded on the Australian Securities Exchange (“ASX”). The condensed consolidated financial report of the
Company for the six months ended 30 June 2017 (“the half-year financial report”) comprises the Company and its
controlled entities (“the Group”). Santos Limited is the ultimate parent entity in the Group.
The half-year financial report was authorised for issue in accordance with a resolution of the Directors on 23
August 2017.
The half-year financial report is presented in United States dollars.
1.2 BASIS OF PREPARATION
This general purpose half-year financial report has been prepared in accordance with AASB 134 Interim Financial
Reporting and the Corporations Act 2001.
The half-year financial report does not include all notes of the type normally included within the annual financial
report and therefore cannot be expected to provide as full an understanding of the financial performance, financial
position and cash flows of the Group as the annual financial report.
It is recommended that the half-year financial report be read in conjunction with the annual financial report for the
year ended 31 December 2016 and considered together with any public announcements made by the Company
during the six months ended 30 June 2017, in accordance with the continuous disclosure obligations of the ASX
listing rules.
1.3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The significant accounting judgements, estimates and assumptions adopted in the half-year financial report are
consistent with those applied in the preparation of the Group’s annual financial report for the year ended
31 December 2016.
13 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 2: FINANCIAL PERFORMANCE
This section focuses on the operating results and financial performance of the Group. It includes disclosures of
segmental financial information and dividends.
2.1 SEGMENT INFORMATION
The Group has identified its operating segments to be the five key assets/operating areas of the Cooper Basin;
Gladstone LNG (“GLNG”); Papua New Guinea (“PNG”); Northern Australia; and Western Australia gas; based on
the nature and geographical location of the assets, plus “Other” non-core assets. This is the basis on which internal
reports are provided to the Chief Executive Officer for assessing performance and determining the allocation of
resources within the Group.
Segment performance is measured based on earnings before interest, tax, impairment, exploration and evaluation,
depletion, depreciation and amortisation “EBITDAX”. Corporate and exploration expenditure and inter-segment
eliminations are included in the segment disclosure for reconciliation purposes.
14 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
2.1 SEGMENT INFORMATION (continued)
Corporate,
Northern exploration,
Cooper Basin GLNG PNG Australia WA Gas Other eliminations Total
$million 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Revenue
Sales to external customers 319 330 347 210 248 207 78 71 116 74 165 214 180 85 1,453 1,191
Inter-segment sales* 60 15 7 8 – – – – – – 2 3 (69) (26) – –
Other revenue from
external customers 16 8 4 6 2 3 – – 19 – 3 – (1) (3) 43 14
Total segment revenue 395 353 358 224 250 210 78 71 135 74 170 217 110 56 1,496 1,205
Costs
Production costs (69) (85) (34) (31) (27) (26) (35) (37) (25) (23) (61) (91) 12 20 (239) (273)
Other operating costs (37) (40) (33) (35) (22) (19) (3) – (8) (2) (8) (8) (78) (66) (189) (170)
Third-party product
purchases (73) (108) (84) (62) (1) (1) – – – – – – (120) (79) (278) (250)
Inter-segment purchases* (1) (2) (57) (30) – – – – – – – – 58 32 – –
Other (58) (14) 6 (1) 3 1 5 3 14 77 15 (15) (57) (72) (72) (21)
EBITDAX 157 104 156 65 203 165 45 37 116 126 116 103 (75) (109) 718 491
Depreciation and depletion (72) (97) (96) (107) (52) (52) (29) (24) (36) (36) (50) (66) (13) (17) (348) (399)
Exploration and evaluation
expensed – – – – – – – – – – – – (53) (47) (53) (47)
Net impairment reversal
/(loss) 480 – (1,238) (1,500) – – – – (6) – (152) (16) (4) – (920) (1,516)
EBIT 565 7 (1,178) (1,542) 151 113 16 13 74 90 (86) 21 (145) (173) (603) (1,471)
Net finance costs (139) (131) (139) (131)
Loss before tax (742) (1,602)
Income tax benefit 228 506 228 506
Royalty-related tax
benefit/(expense) – – – – – – – (1) (11) (4) 11 (9) 8 6 8 (8)
Net loss for the period (506) (1,104)
* Inter-segment pricing is determined on an arm's length basis. Inter-segment sales are eliminated on consolidation.
15 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
2.2 REVENUE
30 June 2017 30 June 2016
$million $million
Product sales:
Gas, ethane and liquefied gas 1,053 806
Crude oil 262 285
Condensate and naphtha 106 76
Liquefied petroleum gas 32 24
Total product sales1 1,453 1,191
1. Total product sales include third party product sales of $392 million (2016: $278 million).
2.3 EXPENSES
30 June 2017 30 June 2016
$million $million
Cost of Sales:
Production costs:
Production expenses 208 232
Production facilities operating leases 31 41
Total production costs 239 273
Other operating costs:
LNG plant costs 32 26
Pipeline tariffs, processing tolls and other 88 85
Onerous pipeline contract 31 26
Royalty and excise 30 19
Shipping costs 8 14
Total other operating costs 189 170
Total cash cost of production 428 443
Depreciation of plant, equipment and buildings 221 238
Depletion of subsurface assets 126 157
Total depreciation and depletion 347 395
Third-party product purchases 278 250
Decrease/(increase) in product stock 35 (7)
Total cost of sales 1,088 1,081
Other expenses:
Selling 7 9
Corporate 48 57
Depreciation 1 4
Foreign exchange losses 93 29
(Gain)/loss from change in fair value of derivative financial
assets designated as fair value through profit or loss (2) 1
Fair value hedges, (gains)/losses:
On the hedging instrument 5 10
On the hedged item attributable to the hedged risk (35) 1
Exploration and evaluation expensed 53 47
Total other expenses 170 158
16 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
2.4 DIVIDENDS
Dividend Total
per share US$
US million
Dividends paid during the period:
2017
No dividends were paid during the period. nil nil
2016
Final 2015 ordinary – paid 30 Mar 2016 (A$0.05) 4 66
All dividends paid were franked at the tax rate of 30%.
Dividends declared in respect of the current period:
On 23 August 2017, the Directors resolved not to pay an interim dividend in relation to the half-year ended
30 June 2017.
17 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 3: CAPITAL EXPENDITURE, OPERATING ASSETS AND RESTORATION OBLIGATIONS
This section includes information about the assets used by the Group to generate profits and revenue, specifically
information relating to exploration and evaluation assets, oil and gas assets, and commitments for capital expenditure
not yet recognised as a liability.
The life cycle of our assets is summarised as follows:
Explorationand Abandonmentand
AppraisalDrilling Development Production Decommissioning
Evaluation Restoration
3.1 EXPLORATION AND EVALUATION ASSETS
Six months ended
30 June 31 December 30 June
2017 2016 2016
$million $million $million
Balance at the beginning of the period 495 551 520
Acquisitions 35 36 1
Additions 57 57 59
Expensed (18) (55) (16)
Impairment losses (156) (55) (4)
Transfer to oil and gas assets in development – – (1)
Transfer to oil and gas assets in production (6) – (15)
Transfer to assets held for sale – (28) –
Exchange differences 15 (11) 7
Balance at the end of the period 422 495 551
Comprising:
Acquisition costs 82 150 186
Successful exploration wells 290 249 253
Pending determination of success 50 96 112
422 495 551
18 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
3.2 OIL AND GAS ASSETS
Six months ended
30 June 31 December 30 June
2017 2016 2016
$million $million $million
Assets in development
Balance at the beginning of the period 90 149 1,037
Additions 4 3 58
Transfer from exploration and evaluation assets – – 1
Transfer to oil and gas assets in production – (61) (946)
Disposals – – (2)
Exchange differences – (1) 1
Balance at the end of the period 94 90 149
Producing assets
Balance at the beginning of the period 10,308 10,840 11,367
Additions1 179 (44) 353
Transfer from exploration and evaluation assets 6 – 15
Transfer from oil and gas assets in development – 61 946
Transfer to assets held for sale – (126) –
Disposals – (46) (2)
Depreciation and depletion expense (334) (326) (381)
Net impairment (losses)/reversals (764) 23 (1,512)
Net impairment losses on assets transferred to held for sale – (4) –
Exchange differences 128 (70) 54
Balance at the end of the period 9,523 10,308 10,840
Total oil and gas assets 9,617 10,398 10,989
Comprising:
Exploration and evaluation expenditure pending
commercialisation 182 223 338
Other capitalised expenditure 9,435 10,175 10,651
9,617 10,398 10,989
1. Includes impact on restoration assets following changes in future restoration provision assumptions.
3.3 CAPITAL COMMITMENTS
There has been no material change to the capital commitments disclosed in the most recent annual financial
report.
19 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
3.4 IMPAIRMENT OF NON-CURRENT ASSETS
Impairment expense 30 June 2017 30 June 2016
$million $million
Exploration and evaluation assets 156 4
Oil and gas assets 764 1,512
Total impairment 920 1,516
The carrying amounts of the Group’s oil and gas assets are reviewed at each reporting date to determine whether
there is any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable
amount is made.
The expected future cash flow estimation is based on a number of factors, variables and assumptions, the most
important of which are estimates of reserves, future production profiles, third party supply, commodity prices, costs
and foreign exchange rates. In most cases, the present value of future cash flows is most sensitive to estimates of
future oil price, discount rates and production.
Estimates of future commodity prices have been updated from the previous reporting date.
Future prices (US$/bbl) used were:
2017 2018 2019 2020 2021 20221
50.00 55.00 60.00 65.00 70.00 78.51
1. Based on US$70/bbl (2017 real) from 2022 escalated at 2.4% in 2017 and 2.3% in each year thereafter.
The future estimated foreign exchange rate applied is A$/US$0.70 in 2017, and A$/US$0.75 in all subsequent years.
The discount rates applied to the future forecast cash flows are based on the Group’s weighted average cost of
capital, adjusted for risks where appropriate. The range of pre-tax discount rates that have been applied to non-
current assets is between 10.3% and 16.2%.
In the event that future circumstances vary from these assumptions, the recoverable amount of the Group’s oil and
gas assets could change materially and result in impairment losses or the reversal of previous impairment losses.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact on
others and individual variables rarely change in isolation. Additionally, management can be expected to respond to
some movements, to mitigate downsides and take advantage of upsides, as circumstances allow. Consequently, it is
impracticable to estimate the indirect impact that a change in one assumption has on other variables and hence, on
the likelihood, or extent, of impairments or reversals of impairments under different sets of assumptions in
subsequent reporting periods.
Recoverable amounts and resulting impairment write-downs/(reversals) recognised for the half year ended 30 June
2017 are:
Subsurface Plant and Recoverable
assets equipment Total amount1
Segment $million $million $million $million
Exploration and evaluation assets:
AAL – Indonesia Exploration 149 – 149 nil2
PNG – PPL 287 Exploration 4 – 4 nil2
Gunnedah Basin Exploration 3 – 3 nil2
Total impairment of exploration and evaluation
assets 156 – 156
Oil and gas assets – producing:
GLNG GLNG – 1,238 1,238 4,155
Cooper Cooper Basin (256) (224) (480) 1,380
Barrow Other – 6 6 nil
Total impairment of oil and gas assets (256) 1,020 764
Total impairment of exploration and
evaluation and oil and gas assets (100) 1,020 920
1. Recoverable amounts represent the carrying values of assets before deducting the carrying value of restoration liabilities. All producing
oil and gas asset amounts are calculated using the value-in-use method, whilst all exploration and evaluation asset amounts use the fair
value less costs of disposal method.
2. Impairment of exploration and evaluation assets relates to certain individual licences/areas of interest that have been impaired to nil.
20 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
3.4 IMPAIRMENT OF NON-CURRENT ASSETS (continued)
Exploration and evaluation assets
The impairment of AAL has arisen mainly from the impact of lower oil prices.
Oil and gas assets
GLNG
Since the last carrying value assessment at 31 December 2016 there have been a number of changes to relevant
assumptions, principally lower US$ oil prices, that have impacted the recoverable amount. Additionally, the
Australian government has introduced regulations relating to the Australian Domestic Gas Security Mechanism since
31 December 2016. The impact on recoverable amount of the lower oil price assumption, combined with a higher
discount rate and lower assumed volumes of third party gas, has been partially offset by higher assumed equity gas
volumes resulting from positive upstream performance and lower costs.
Cooper Basin
Whilst the Cooper Basin has been impacted by lower US$ oil price assumptions, this has been more than offset by
lower forecast development costs combined with increased drilling activity and production, resulting in a reversal
of impairment.
Sensitivity
To the extent the oil and gas cash generating units have been written down to their respective recoverable amounts
in the current and prior years, any change in key assumptions on which the valuations are based would further
impact asset carrying values. When modelled in isolation, it is estimated that changes in the key assumptions would
result in the following additional impairment/lower impairment reversal:
Oil price
decrease
Production Discount rate US$5/bbl all
Sensitivity decrease 5% increase 0.50% years
$million $million $million
GLNG 270 237 504
Cooper Basin 265 70 257
21 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 4: FUNDING AND RISK MANAGEMENT
Our business has exposure to capital, credit, liquidity and market risks. This section provides information relating to
our management of, as well as our policies for measuring and managing these risks.
4.1 FINANCE INCOME/(COSTS)
30 June 30 June
2017 2016
$million $million
Finance income:
Interest income 14 6
Total finance income 14 6
Finance costs:
Interest paid to third parties (136) (131)
Deduct borrowing costs capitalised 5 15
(131) (116)
Unwind of the effect of discounting on provisions (22) (21)
Total finance costs (153) (137)
Net finance costs (139) (131)
22 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
4.2 ISSUED CAPITAL
Six months ended
30 June 31 December 30 June 30 June 31 December 30 June
2017 2016 2016 2017 2016 2016
Number of shares Number of shares Number of shares $million $million $million
Movement in fully paid ordinary shares
Balance at the beginning of the period 2,032,389,675 1,774,816,198 1,766,210,639 8,883 8,140 8,119
Institutional placement, net of costs – 256,000,000 – – 740 –
Rights issue, net of costs – – – – – (2)
Share purchase plan, net of costs 50,847,537 – – 151 – –
Santos Dividend Reinvestment Plan – – 8,205,002 – – 23
Santos Employee Share1000 Plan – 297,036 – – 1 –
Santos Employee ShareMatch Plan – 719,764 – – 2 –
Shares purchased on market (Treasury shares) – – – (3) – –
Issue of Treasury shares on vesting of
employee share schemes – – – 3 – –
Replacement of restricted classes of ordinary
shares with shares purchased on market (21,281) – – – – –
Shares issued on vesting of share acquisition
rights 5,365 188,755 390,063 – – –
Shares issued on vesting of Executive Deferred
Short-term Incentive – 253,747 – – – –
Shares issued on vesting of Executive Strategy
Grant – 106,827 – – – –
Santos Non-executive Director Shareholding
Plan – 7,348 10,494 – – –
Balance at the end of the period 2,083,221,296 2,032,389,675 1,774,816,198 9,034 8,883 8,140
23 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
4.3 FINANCIAL RISK MANAGEMENT
Exposure to foreign currency risk, interest rate risk, commodity price risk, credit risk and liquidity risk arises in the
normal course of the Group’s business. The Group’s overall financial risk management strategy is to seek to ensure
that the Group is able to fund its corporate objectives and meet its obligations to stakeholders. Derivative financial
instruments may be used to hedge exposure to fluctuations in foreign exchange rates, interest rates and commodity
prices.
The Group uses various methods to measure the types of financial risk to which it is exposed. These methods
include cash flow at risk analysis in the case of interest rate, foreign exchange and commodity price risk, and ageing
analysis for credit risk.
Financial risk management is carried out by a central treasury department which operates under Board-approved
policies. The policies govern the framework and principles for overall risk management and covers specific financial
risks, such as foreign exchange risk, interest rate risk, credit risk, approved derivative and non-derivative financial
instruments, and liquidity management.
(a) Foreign currency risk
Foreign exchange risk arises from commercial transactions and valuations of assets and liabilities that are
denominated in a currency that is not the entity’s functional currency.
The Group is exposed to foreign currency risk principally through the sale of products denominated in
currencies other than the functional currency, borrowings denominated in euros and capital and operating
expenditure in currencies other than US dollars, principally Australian dollars. In order to economically hedge
foreign currency risk, the Group from time to time enters into forward foreign exchange, foreign currency
swap and foreign currency option contracts.
The Group has certain investments in domestic and foreign operations whose net assets are exposed to foreign
currency translation risk.
All foreign currency denominated borrowings of Australian dollar functional currency companies are either
designated as a hedge of US dollar denominated investments in foreign operations (2017: $158 million; 2016:
$824 million), swapped using cross-currency swaps to US dollars and designated as a hedge of US dollar
denominated investments in foreign operations (2017: $1,410 million; 2016: $1,410 million), or offset by US
dollar denominated cash balances (2017: $1,875 million; 2016: $1,500 million). As a result, there were no net
foreign currency gains or losses arising from translation of US dollar-denominated borrowings recognised in
the income statement in 2017.
Monetary items, including financial assets and liabilities, denominated in currencies other than the functional
currency of an operation, are periodically restated to US dollar equivalents, and the associated gain or loss is
taken to the income statement. The exception is foreign exchange gains or losses on foreign currency
provisions for restoration at operating sites that are capitalised in oil and gas assets.
(b) Market risk
Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from its borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest
rate risk.
The Group adopts a policy of ensuring that the majority of its exposure to changes in interest rates on
borrowings is on a floating rate basis. Interest rate swaps have been entered into as fair value hedges of
medium-term notes, long-term notes and subordinated debt. When transacted, these swaps had maturities
ranging from 1 to 20 years, aligned with the maturity of the related notes.
The Group’s interest rate swaps had a notional contract amount of $1,777 million (2016: $1,777 million) and
a net fair value of $71 million (2016: $83 million). The net fair value amounts were recognised as fair value
derivatives.
Commodity price risk exposure
The Group is exposed to commodity price fluctuations through the sale of petroleum products and other oil
price linked contracts. The Group may enter into commodity crude oil price swap and option contracts to
manage its commodity price risk. At 30 June 2017, the Group has 5.52 million barrels of open oil price option
contracts (31 December 2016: 10.95 million barrels), covering calendar 2017 exposures. The 3-way option
structure does not qualify for hedge accounting, with the movement in fair value recorded in the Income
Statement. The Group continues to monitor oil price volatility and to assess whether further commodity price
hedging is appropriate.
24 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
4.3 FINANCIAL RISK MANAGEMENT (continued)
(c) Hedging
Hedges in place
The Group has issued 1,000 million subordinated notes with an average fixed interest rate of 8.25%.
In order to reduce the variability of the cash flows arising from the euro principal and interest payments to
September 2017, the Group entered into cross-currency interest rate swap contracts in March 2011, under
which it has a right to receive interest at fixed euro rates and pay interest at floating US dollar interest rates.
These contracts are in place to cover principal and interest payments on 950 million of the subordinated
notes through to the first call date in September 2017.
Subordinated notes totalling 50 million have been swapped to a fixed US dollar interest rate of 8.48% through
to the first call date in September 2017.
The Group has entered into US dollar interest rate swap contracts, under which it has a right to receive
interest at floating US dollar rates and pay interest at fixed US dollar interest rates. These contracts are in
place to cover coupon payments on $1,200 million of US dollar floating rate loans through to March 2019.
The cross-currency and interest rate swap contracts are recognised at fair value and all gains and losses
attributable to the hedged risks are recognised in the hedge reserve and reclassified into the income statement
when the interest expense is recognised.
(d) Fair values
The initial fair values of receivables, payables, interest-bearing liabilities and other financial assets and
liabilities, which are not subsequently measured at fair value, approximate their carrying value.
The following summarises the significant methods and assumptions used in estimating the fair values of
financial instruments:
Derivatives
The fair value of interest rate swaps is calculated by discounting estimated future cash flows based on the
terms of maturity of each contract and using market interest rates for a similar instrument at the reporting
date. Where these cash flows are in a foreign currency, the present value is converted to Australian dollars
at the foreign exchange spot rate prevailing at reporting date.
Financial liabilities
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at
the market rate of interest at the reporting date. Where these cash flows are in a foreign currency, the
present value is converted to Australian dollars at the foreign exchange spot rate prevailing at reporting
date.
Interest rates used for determining fair value
The interest rates used to discount estimated future cash flows, where applicable, are based on the market
yield curve and credit spreads at the reporting date. The interest rates including credit spreads used to
determine fair value were as follows:
30 June 2017 31 December 2016
% %
Derivatives (0.4) – 3.3 (0.3) – 3.9
Loans and borrowings (0.4) – 3.3 (0.3) – 3.9
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments
by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly;
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not
based on observable market data.
All of the Group’s financial instruments were valued using the Level 2 valuation technique.
25 Santos Limited Half-year Financial Report – 30 June 2017
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 5: OTHER
This section provides information that is not directly related to the specific line items in the financial statements,
including information about contingent liabilities, events after the end of the reporting period, and changes to
accounting policies and disclosures.
5.1 ACQUISITION/DISPOSAL OF CONTROLLED ENTITIES
There were no acquisitions or disposals of controlled entities during the six months ended 30 June 2017.
5.2 CONTINGENT LIABILITIES
There has been no material change to the contingent liabilities disclosed in the most recent annual financial report.
5.3 EVENTS AFTER THE END OF THE REPORTING PERIOD
On 23 August 2017, Santos exercised its option to redeem its 1,000 million subordinated notes at the first call
date of 22 September 2017.
On 23 August 2017, the Directors of Santos Limited resolved not to pay an interim dividend in relation to the
half-year ended 30 June 2017.
5.4 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of the half-year financial report are consistent with those applied
in the preparation of the Group’s annual financial report for the year ended 31 December 2016, except for new
standards, amendments to standards and interpretations effective from 1 January 2017.
The following standards, all consequential amendments and interpretations, applicable from 1 January 2017, have
been adopted by the Group. These amendments to standards and interpretations have not impacted on the
accounting policies, financial position or performance of the Group, or on presentation or disclosure in the half-year
financial report, with the exception of AASB 9, which is discussed below:
AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised
Losses - AASB 112
AASB 2016-2 Amendments to Australian Accounting Standards – Amendments to AASB 107
In addition, several other standard amendments were applicable for the first time in 2017, but were not relevant
to the Group and do not impact the half-year financial report.
Adoption of AASB 9 – Financial Instruments
The Group elected to early adopt AASB 9 Financial Instruments from 1 January 2017. AASB 9 replaces AASB 139
Financial Instruments: Recognition and Measurement, and generally simplifies the classification and measurement of
financial instruments, introduces a new expected credit loss model for calculating impairment of financial assets,
and aligns hedge accounting more closely with an entity’s risk management practices.
The Group has applied the new hedge accounting requirement prospectively, while the remainder of the
requirements of AASB 9 have been applied retrospectively in line with the requirements of the standard.
The adoption of AASB 9 results in the following key changes in the Group’s accounting and reporting:
For the Group’s financial liabilities that are measured at Fair Value through Profit and Loss (“FVTPL”), the
element of gains or losses attributable to changes in the Group’s own credit risk will now be recognised in
Other Comprehensive Income (“OCI”) instead or profit and loss, and accumulate in a reserve called “Financial
Liabilities at FVOCI”. During the half-year ended 30 June 2017 this amounted to a $20 million loss.
Hedging effectiveness testing will now be performed on a prospective basis with no defined numerical range
of effectiveness applied in this testing.
The Group holds an equity investment previously measured at amortised cost under AASB 139 which is now
measure at FVTPL. An opening adjustment of $5 million loss has been recognised in retained earnings upon
initial measurement under AASB 9.
No other changes arising from the adoption of AASB 9 have had a material effect on the financial reporting of the
Group.
26 Santos Limited Half-year Financial Report – 30 June 2017
DIRECTORS’ DECLARATION
FOR THE SIX MONTHS ENDED 30 JUNE 2017
In accordance with a resolution of the Directors of Santos Limited (“the Company”), we state that:
In the opinion of the Directors of the Company:
1. The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001
(Cth), including:
(a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its
performance for the half-year ended on that date; and
(b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations
2001 (Cth); and
2. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
Dated this 23rd day of August 2017
On behalf of the Board:
Director
Adelaide
27 Santos Limited Half-year Financial Report – 30 June 2017
Ernst & Young Tel: +61 8 8417 1600
121 King William Street Fax: +61 8 8417 1775
Adelaide SA 5000 Australia ey.com/au
GPO Box 1271 Adelaide SA 5001
Independent Auditor's Review Report to the Members of Santos
Limited
Report on the Half-Year Financial Report
Conclusion
We have reviewed the accompanying half-year financial report of Santos Limited (the Company) and its
subsidiaries (collectively the Group), which comprises the condensed consolidated statement of
financial position as at 30 June 2017, the condensed consolidated statement of comprehensive
income, condensed consolidated statement of changes in equity and condensed consolidated
statement of cash flows for the half-year ended on that date, notes comprising a summary of
significant accounting policies and other explanatory information, and the directors’ declaration.
Based on our review, which is not an audit, nothing has come to our attention that causes us to believe
that the half-year financial report of the Group is not in accordance with the Corporations Act 2001,
including:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017
and of its consolidated financial performance for the half-year ended on that date; and
b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations
Regulations 2001.
Directors’ Responsibility for the Half-Year Financial Report
The directors of the Company are responsible for the preparation of the half-year financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the Corporations
Act 2001 and for such internal control as the directors determine is necessary to enable the
preparation of the half-year financial report that is free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our responsibility is to express a conclusion on the half-year financial report based on our review. We
conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410
Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state
whether, on the basis of the procedures described, anything has come to our attention that causes us
to believe that the half-year financial report is not in accordance with the Corporations Act 2001
including: giving a true and fair view of the Group’s consolidated financial position as at 30 June 2017
and its consolidated financial performance for the half-year ended on that date; and complying with
Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.
As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements
relevant to the audit of the annual financial report.
A review of a half-year financial report consists of making enquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with Australian Auditing Standards
and consequently does not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
A member firm of Ernst & Young Global Limited
28 Liability limited by a scheme approved under Professional Standards Legislation
Independence
In conducting our review, we have complied with the independence requirements of the Corporations
Act 2001.
Ernst & Young
R J Curtin L A Carr
Partner Partner
Adelaide
23 August 2017
A member firm of Ernst & Young Global Limited
29 Liability limited by a scheme approved under Professional Standards Legislation
APPENDIX 4D
FOR THE SIX MONTHS ENDED 30 JUNE 2017
For ‘Results for Announcement to the Market’ refer to page 1 of this Half-year Report
NTA BACKING
30 June 2017 30 June 2016
Net tangible asset backing per ordinary security N/A N/A
CHANGE IN OWNERSHIP OF CONTROLLED ENTITIES
There were no acquisitions or disposals of controlled entities during the six months ended 30 June 2017.
DETAILS OF JOINT VENTURE AND ASSOCIATE ENTITIES
Percent ownership interest held
at the end of the period
30 June 2017 30 June 2016
% %
Joint venture entities
Darwin LNG Pty Ltd 11.5 11.5
GLNG Operations Pty Ltd 30.0 30.0
GLNG Property Pty Ltd 30.0 30.0
Lohengrin Pty Ltd1 – 50.0
Papua New Guinea Liquefied Natural Gas Global Company LDC 13.5 13.5
1 company deregistered on 7 May 2017.
30 Santos Limited Half-year Financial Report – 30 June 2017
