snto - Santos

Managing Director’s Review 1998
In March 1999, Santos acquired an approximate 7.5%
economic interest in Retention Lease Vic/RL2, which
contains part of the Kipper gas field and is located in
Bass Strait in the Gippsland Basin. Under the terms
of the renewal of Retention Lease Vic/RL2, which
was granted in December 1998, the participants will
be undertaking a work program to evaluate the
commercial viability of the Kipper field.
6
N R Adler
Managing Director
Santos achieved record production and sales of
45.6 million barrels of oil equivalent (boe) and
45.1 million boe respectively in 1998.
Earnings in 1998 were $176.3 million, a reduction of
14.5% on the record 1997 earnings. This resulted from
the fall in the average oil price received of 23.6% in
Australian dollar terms, which more than offset
record production.
Operating cash flow was $457.6 million, close to the
record achieved in 1997.
Low oil prices are providing Santos with
opportunities to acquire additional interests on
attractive terms.
Three such opportunities were realised by the
Company in early 1999. In February, Santos
announced that it had entered into an agreement
for the acquisition of a 31% interest in Petroleum
Development Licence 1 (PDL1) in Papua New Guinea,
subject to Papua New Guinea Government approval.
PDL1 contains the majority of the Hides gas field.
The Hides field is a world-class resource which is
estimated to contain proven and probable reserves in
excess of five trillion cubic feet of gas. This acquisition
is of strategic importance. Reserves from the
Hides gas field are planned to be incorporated into
the proposed Papua New Guinea to Queensland
gas project.
The Company also acquired interests in PEP132 (40%)
and PEP108 (50%) onshore in the Otway Basin. This
transaction was finalised in early 1999 and provides
the Company with opportunities to increase gas sales
in Victoria.
Production
1998 was a record year for Santos production,
marked by growing production outside the
company’s traditional core areas.
This resulted from the completion of four major
development projects during the year – the Stag oil
field in the Carnarvon Basin, the Elang/Kakatua/Kakatua
North oil fields in the Timor Gap, the SE Gobe oil
field in Papua New Guinea and the infrastructure
required to provide gas to Mt Isa. Total production
reached 45.6 million barrels of oil equivalent (boe),
an increase of 11.0% from the 1997 level.
Exploration
The Company also maintained an active exploration
program in 1998, with a total success rate of 54%.
Total reserves fell slightly from 1,009 million boe at
the end of 1997 to 966 million boe. This reflects the
sale of Santos Europe and its associated reserves,
record production, revisions and the fact that a
number of the discoveries made during the year
require further appraisal and development studies
prior to reserve booking.
Business Unit Development
Santos aims to generate increasing value for its
shareholders by:
■ Maximising the value of its South Australian
gas business.
■ Continuing the growth of its
Queensland/Northern Territory and Offshore
Australia businesses.
■ Building up its businesses in the US and South
East Asia.
Additional progress was made during the year in
creating further value in all of the regions in which
the Company operates.