The company also outlined what it called its most significant reorganisation of the last 10 years, resulting in a new senior leadership team, a dramatic reduction in executive reporting structures, and a 16% reduction in staff and contractor numbers.
Addressing the meeting in Adelaide today, Santos chairman, Stephen Gerlach, said there were several contributing factors behind the expected strong growth in production, cash flow and earnings in 2005.
“Santos has entered 2004 – the year marking the company’s 50th anniversary – with six new company-building projects located in South East Asia, the Timor Gap and offshore Victoria and Western Australia,” Gerlach told shareholders.
“Like all shareholders, we look forward to Santos benefiting from the many positive developments that we currently have in train that will significantly increase our production in 2005, 2006 and 2007,” he said.
Gerlach repeated earlier advice that Santos expected lower production in 2004 ahead the expected 2005 improvement.
“Our current estimate is for 2004 production of around 47-to-48 million barrels of oil equivalent (boe) compared with our 49 million boe forecast made earlier this year,” he said.
“This reflects reduced deliverability from the East Spar gas field off Western Australia and lower than previously forecast Cooper Basin oil production.
“However, Cooper Basin oil production is expected to be steady in the current year, arresting the continuous decline in output over the past 17 years.
“Production next year is expected to rebound to a record level of between 58 and 60 million barrels of oil equivalent (boe),” he said.
“Subject to oil prices and the currency, 2005 should also see further strong growth in cash flow on top of our 9% rise in cash flow from operating activities to $897 million in 2003.
Gerlach said that, as previously advised, the Moomba incident was likely to have an adverse impact on Santos’ net profit after tax of $25-30 million in the current year, after expected insurance recoveries.
“On the other side of the ledger, we have today announced details of a new business improvement program which will enhance future profits,” he said.
Santos managing director, John Ellice-Flint, told the meeting that the program, the most significant Santos reorganisation in 10 years, featured a new senior leadership team, a dramatic reduction in executive reporting structures, and a 16% reduction in staff and contractor numbers.
“We expect to achieve increases in the company’s after-tax earnings in the order of $22 million in 2005 and $30 million in 2006 from the program, prior to restructuring and implementation costs. There will be savings in operating expenditure of approximately $23 million in 2005 and $28 million in 2006 (Santos share) and savings in capital expenditure of around $57 million (Santos share) in each of those years, largely in the Cooper Basin.
“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.”
The new executives are Jacques Gouadain who has been appointed Vice President Geoscience and New Ventures, with responsibility for all exploration, appraisal and new venture activities in the Company. Gouadain was previously General Manager, Exploration.
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.
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.
Jon Young has been appointed Executive Vice President Operations, with responsibility for all of the Company’s 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.
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.
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.
Mike Roberts will continue in his role of General Counsel and Company Secretary until his retirement on 1 July, 2004.
The company said an appointment to the role of Vice President Corporate and People, responsible for Strategic Human Resources, Corporate EHS and Sustainability, Corporate Affairs, Government Affairs, Media and Shared Business Services, is yet to be confirmed.
