Commentary - Santos

Directors’ Report
(continued)
Net Profit
The 2012 net profit attributable to equity holders of Santos Limited of $519 million is $234 million lower than in 2011. This decrease is
primarily due to a $529 million before tax ($408 million after tax) gain on sale of non-current assets during 2011, combined with higher
cost of sales, offset by higher sales revenue driven by higher liquids volumes and higher gas prices in the current period.
Net profit includes items before tax of $96 million ($87 million after tax), as referred to in the reconciliation of net profit to underlying
profit below.
Reconciliation of net profit to underlying profit 1 2012 $million 2011 $million
Gross Tax Net Gross Tax Net
Net profit after tax attributable to equity holders of Santos Limited 519 753
Add/(deduct) the following:
Net gains on sales of non-current assets (11) 3 (8) (529) 121 (408)
Impairment losses 106 (29) 77 127 (25) 102
Foreign exchange losses/(gains) 2 (1) 1 (18) 5 (13)
Fair value adjustments on embedded derivatives and hedges (7) 2 (5) 5 (2) 3
Remediation costs for incidents net of related insurance recoveries 2 (1) 1 - - -
Other expense/(income) items 4 (1) 3 (3) 2 (1)
Tax adjustments relating to prior years - 17 17 - 17 17
Other tax adjustments - 1 1 - - -
96 (9) 87 (418) 118 (300)
Underlying profit 1 606 453
1 Underlying profit 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 audited financial statements. ‘Other expense/(income) items’ in 2012
comprises amounts recognised for restructuring provision.
Significant Changes in the State of Affairs
The Directors consider that matters or circumstances that have significantly affected, or may significantly affect, the operations, results of
operations or the state of affairs of the Company in subsequent financial years are as follows:
Carbon tax
On 1 July 2012 the Australian Government’s Clean Energy legislation was introduced. This legislation requires Santos to surrender, to the
Government, one carbon permit for each tonne of carbon dioxide equivalent (“CO 2
e”) emitted from its affected facilities. The price set by
the Government for the first compliance year of the scheme is $23 per tonne of CO 2
e.
The cost of carbon for Santos in the 12 months from 1 July 2012 is forecast to be in the range of $45–$65 million. Santos expects to recoup
the majority of these carbon costs via cost pass through in domestic sales agreements and an allocation of free carbon permits that will be
issued under the Jobs and Competitiveness program of the legislation for LNG operations.
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