Peter Coates – Chairman
David Knox – CEO and Managing Director
Kenneth Dean – Director
Jane Hemstritch – Director
Gregory Martin – Director
Hock Goh – Director
Kenneth Borda – Director
Santos Limited (OTCPK:STOSF) 2013 Annual General Meeting Call May 8, 2013 8:30 AM ET
Good morning ladies and gentlemen. My name is Peter Coates. Welcome to the 2013 Annual General Meeting of Santos Limited. As today’s meeting is being webcast live, I also extend a welcome to shareholders joining us online. Your Board and the Senior Management team are very pleased to be here with you today to review our progress during 2012, and to discuss our plans for 2013 and beyond.
Before we start I will explain the emergency procedures for this venue. In the event of an emergency an initial standby beeping alarm will be sounded. No action should be taken unless there is a further evacuation alarm. If a second alarm is sounded we will follow the directions of the Adelaide Convention Center Staff. They will direct everyone to assemble at an appropriate location depending on the nature of the incident and it is important that you follow the directions provided. If you require assistance at that time please seek the assistance of the Adelaide Convention Center staff. They can be identified by their black and while uniform and name badges.
I confirm that a quorum is present and I now formally declare the meeting open. Joining me on stage for the meeting are from my far right, Independent Non-Executive Directors, Hock Goh, Jane Hemstritch, Mike Harding, Ken Borda and next to me is David Lim, the Company Secretary. The other Independent non-Executive Directors from my far left are Greg Martin, Roy Franklin, Den Dean and of course seated here on my left is the company’s CEO and Managing Director, David Knox. Also present today is (Trevor Hammond) representing our Auditor, Ernst & Young and he is available to answer questions relevant to the audit report, accounting policies and the independence of the Auditor.
The notice of meeting for this year’s Annual General Meeting was distributed to Shareholders on the 8th of April 2013. Unless there is any dissent I propose to take the notice of meeting as read. Thank you.
I would like to commence our business today with my report to you and I will then invite the CEO and Managing Director David Knox to give his presentation on the operating highlights for the past year and our future plans.
Sadly, this will be my last address to you as Santos Chairman. Last month, I announced my retirement as Chairman, and this comes into effect today at the conclusion of this Annual General Meeting. My decision to stand down as Chairman was a difficult one. This Company is in great shape and on the cusp of completing the exciting transformation that we commenced some six years ago. Recently I accepted an invitation to take on the executive role with Glencore International. As a result I will not have the time that I believe is required to fully carry out my responsibilities as Chairman of Santos. It is therefore appropriate that I stand aside from this role.
I can assure you that the Chairman’s role is in very good hands. Ken Borda has been a Non-Executive Director of Santos since 2007. He is amply qualified to lead your Board, both in terms of his experience as a Non-Executive Director of Santos and his international business career. I am confident that the Santos Board under Ken’s Chairmanship will continue to drive the company’s strategy to create long-term value for shareholders. I will remain a Non-Executive Director to ensure an orderly handover of responsibilities. I will invite Ken to address you at the conclusion of today’s meeting.
Let’s turn now to the Company’s performance in 2012. We clearly had a very good year. This is a testament to the focus on delivery across all parts of the business; in eastern Australia, Western Australia, and Asia. The two company changing LNG projects in Gladstone and Papua New Guinea are on track. And this moves us closer to our vision of being a leading oil and gas exploration and production company in both Australia and Asia.
A core part of the strategy is to continue to increase production year-on-year from our base business. And this is especially important while we invest heavily in the transformational LNG projects. 2012 production was up 10%. As well as the strong performance from the base business this result included new producing assets such as the Chim Sáo oil and Reindeer gas projects.
Our guidance for 2013 points to ongoing growth. We are again forecasting strong production from the base business. And this includes the Fletcher Finucane oil project in the Carnarvon Basin. That project is progressing ahead of schedule. And David will speak more about its imminent start up later in the meeting.
Increased production, higher third party oil sales and continuing strong oil and gas prices combined to deliver record sales revenue of $3.2 billion in 2012. That’s up 18% on the previous year. Underlying net profit of $606 million was 34% higher compared with 2011. This continues the growth trend since 2009 and represents a compound annual earnings growth rate of 33% over the past three years. Reported profit of $519 million was lower than the previous year, but that’s because the 2011 result was boosted by gains on asset sales of $408 million after tax.
We expect 2013 to be another busy year both for project delivery and our exploration program. Our growth program remains well funded with $5.8 billion of cash and available credit facilities as of last December. This is supported by our strong operating cash flow which over the past five years averaged more than $1.3 billion per year. Whilst this is a very strong cash position we still have a large capital program ahead. So the Board remains conservative with the level of dividends to be paid in the short term. We will continue to offer a dividend reinvestment plan which will enable you to increase your shareholding at a 2.5% discount to the market price, and without brokerage.
The Board is very aware that the transformation program has required your patience, particularly with respect to dividend flow. However, I think this chart is a good reminder that your investment in Santos continues to generate long-term value growth. As the chart shows Santos shares have strongly outperformed the benchmark ASX200 index over the past 10 years. David Knox, the management team and staff have worked diligently to deliver a strong financial performance for shareholders.
If we look back over the past three years we have seen sales revenue increase by 45% to the record $3.2 billion in 2012. Underlying net profit has increased by more than 60% to $606 million. And operating cash flow jumped by 30% over this time to the record $1.7 billion last year. So all in all ladies and gentlemen, I believe we can be pleased with the performance of the business over recent years in particular.
However, what is undoubtedly more important to discuss today is the transformation that is taking place at Santos and the potential for growth that this company continues to offer. As I look back on my time as Chairman and more broadly at the Company’s history, Santos has come a long way from the South Australian pioneer that found oil and gas in the Cooper Basin. That early find was important. It was the foundation on which Santos was created. The Cooper Basin fields have provided natural gas for homes across eastern Australia, for industry, and for the generation of electricity for many years. Thanks to our new capacity to pursue unconventional sources of gas today the Cooper will continue to supply eastern Australia for many more years to come.
Santos is now one of the largest producers of gas to the domestic market. Over the last three to four years, we have pursued a strategy to take advantage of not just the growth in the domestic market, but also the economic rise of Asia. Asia’s growth has seen a corresponding growth in energy demand. Recent estimates see global energy demand growing by more than one-third between now and 2030. And almost all of that growth will come from emerging economies such as China and India. These changes in our region’s demand for energy have provided Santos with the opportunity to transform itself, to become a significant oil and gas provider for both the Australian and Asian markets in what is now clearly the Asian century.
The key to this transformation is the equity stakes Santos has established in four LNG projects, three of which are in Australia. You can see the four projects detailed on the screens behind me. In pursuing these transformational projects we have partnered with global energy companies such as ExxonMobil, ConocoPhillips, Total, and GDF Suez. These partnerships bring not only capital, but high levels of expertise. They have helped us build the skills and the teams needed for such projects.
We have also formed joint ventures with major Asian energy companies such as PETRONAS, Malaysia’s national oil and gas company and the world’s second largest LNG exporter; and also KOGAS, the world’s largest buyer of LNG. These joint ventures are not only securing major gas sales revenues over the coming decades they are helping Santos better engage in the region. This will position us as a major energy partner of choice for the region.
Of course, meeting Australia’s growing demand for gas remains a critical part of Santos’ strategy. Gas demand on the eastern seaboard is expected to triple by 2016. Clearly, the LNG export projects in Queensland are a material part of that increase in demand, but local demand is also growing amongst both households and business consumers. We have the capacity to satisfy both the domestic and export markets. We have the largest exploration and production acreage position of any company in Australia, with a presence in every major hydrocarbon basin.
Our acquisition of Eastern Star Gas in 2011 gave Santos the largest natural gas reserve position in New South Wales. These reserves give us the potential to supply at least 25% of the natural gas used annually by New South Wales homes and businesses.
We are also making encouraging but early progress on unconventional gas resources in the Cooper and new conventional gas opportunities in Western Australia. Last year, our appraisal efforts throughout Asia and Australia have allowed us to again increase reserves. In fact, Santos has increased its reserves in eight of the past nine years. To put this in perspective, we have enough reserves today for 27 years of production based on last year’s production levels. It is the strength of these reserves that will deliver a significant step-change to both production and cash flow, ultimately delivering greater returns for shareholders.
Today, we are exporting around 300,000 tonnes per annum from Darwin LNG. Once GLNG and PNG are fully ramped up Santos will deliver over 3 million tonnes of LNG per annum into Asian markets. That’s just under 1000% growth, which is, quite simply, extraordinary.
Ladies and Gentlemen, our future is clearly well set up and exciting but we are not overlooking the challenges ahead. First amongst these is the regulatory uncertainty that continues at both the State and Federal level. The industry now faces substantial duplication of processes, uncertainty about further changes to the regulatory framework, and frankly not enough urgency on the part of governments to resolve these issues. The result is a complex mix of regulatory and policy hurdles, without the appropriate coordination to ensure that developments can be assessed efficiently and effectively.
This is particularly important for New South Wales. Their gas is 95% imported from other states, and that supply is largely uncontracted from 2017 onwards. New South Wales now faces a substantial supply shortage in future years that it doesn’t need to have. It has plenty of its own gas, but it must progress development more quickly to keep its future energy cost increases to a minimum.
We understand the need for Government to ensure that industries operate safely and sustainably. However, it is equally important that developments proceed in a timely manner, if a secure supply of gas is to be maintained. Getting the balance right isn’t easy, but it’s essential. We have been working with both the New South Wales and the Commonwealth Governments to address the remaining regulatory uncertainty. However, before any firm project commitments can be made, these issues must be settled.
The second challenge that must be addressed is our cost competitiveness as a gas producing nation. Australia’s gas industry is one that several other countries around the world aspire to. As Asia seeks to increase its security of supply it will look to diversify its supply sources. As a destination for the world’s capital, Australia has many advantages. Our geographic proximity to the growing Asian markets, our track record of reliable delivery, and our abundant resources put us in an enviable position. However, we must protect that position.
LNG projects are being developed in Canada, East Africa and the U.S. The challenge for Australian projects and for policy makers is to ensure that Australia remains cost competitive. This is the only way that further Australian projects can be sanctioned to meet both domestic and Asian demand. If we don’t remain competitive, others will step in. For Santos that means being leaner, more efficient, and prioritizing innovation throughout the business. For our industry, it means working together with governments to ensure that we have certainty through long-term, stable and clear policy settings. I am certain that governments and the industry can work together to both protect and benefit from our natural advantage. But time is of the essence.
Ladies and gentlemen, with those comments on our performance, our strategy, and our outlook, I conclude my final report to you as shareholders as your Chairman. It has been a great honor to serve you during an essential transformation that I truly believe secures a great future for this company. To my Board colleagues I wish to acknowledge a debt of gratitude for your support, insight and independence of thought about every aspect of good governance on behalf of shareholders.
I also extend my congratulations to David, members of the senior executive team and each and every staff member on the successful and safe delivery of increased production, reserves, and solid strategic planning for the future. And finally on behalf of the Board, I thank shareholders for your support. I trust that the company’s results and our report to you today demonstrate that your Board and management remain fully focused on realizing the company’s potential, to create substantial value for shareholders over the coming years.
I will now ask David Knox to address the meeting.
Thank you very much, Peter and good morning everyone.
Following Peter’s update on our transformational strategy and performance, I want to focus on three things. First, the important role that the gas industry is playing in meeting Australia’s and our region’s energy needs; Secondly, how Santos is responding to take advantage of these opportunities in creating our energy future; and finally, further detail on our performance across the businesses to deliver growth to our shareholders.
Well, first of all let me start with safety. Exploring, developing, and operating oil and gas assets must be done in a safe manner. At Santos no business objective takes priority over safety, and no task is so important or urgent that it cannot be done safely. This is part of our culture and a commitment we expect everyone at Santos to adopt.
As a result of our approach in 2012 Santos recorded no serious safety incidents. A record 19 million people-hours were worked across the company, yet our lost time injury frequency was a five-year low of 0.7. This is a top-quartile performance in the global oil and gas industry. Low severity injuries did increase. This reflected the record level of manual and construction work being conducted on a day-to-day basis. As our business expands as more kit is built and production increases, we are placing even greater attention on safety. We are very focused on influencing the behavior of new employees and contractors to instill within them the Santos way of doing things.
So let me turn to the first part of my discussion with you today, the role of gas in Australia. As Peter has outlined Asia’s growth is leading to a sharp increase in global projections for gas demand. In fact, the global demand for gas is projected to grow 50% faster than any other fossil fuel in the 25 years to 2035. Natural gas is also fundamental to Australia’s economic prosperity. Today, more than five million homes use natural gas. Natural gas supplies nearly half of the energy needs of the manufacturing and construction sectors, and provides over one-fifth of the generation capacity in the national electricity market.
Recent modeling shows that gas is set to increase its share of energy supply in Australia from 23% today to 35% by 2035. The importance of natural gas for domestic use and for export markets is providing Australia with a large and growing market for our gas resources. And the gas industry is responding to the opportunity in a way that will benefit the nation. Our industry, the gas industry is continuing to invest. It is easy to focus on the negative, on announcements of projects that have stalled or not received project sanction. This is human nature. But rather than an industry that is stalling, the oil and gas industry is one that is building. Including our GLNG project, there are seven LNG projects being built around the country today and at a combined investment of around $180 billion.
Gas in Australia is abundant. Based on projected demand, Australia has more than 50 years of known gas reserves and resources to support both domestic and export markets. The challenge facing industry and government is to develop the gas in a timely manner so that it flows into the pipes to drive manufacturing and retail growth. We must simply get more of that gas out of the ground. We are fortunate for the last twenty years Australia has been well served by a bipartisan approach to energy reform and support for resource development. I am confident that this bipartisanship will continue.
We do have policy hurdles as Peter has outlined, they must be overcome. A steady hand on the tiller and a better recognition of the long-term nature of oil and gas investments is needed if industry is to be able to continue delivering the jobs, the infrastructure and income that our national and regional communities are benefitting from today. So that is the context for both our operations today, and our outlook.
This slide shows our plans to build production at 6% compound growth from 2011 to 2020. That’s around 85 million barrels of oil equivalent in 2020, up from 52 million barrels we produced last year. Of real note to shareholders is the number of opportunities open to us, in the light blue yet to be sanctioned, and the grey, upside potential boxes at the top right hand side of the chart.
If I focus on the upside potential late last year, we made a significant gas discovery at the Crown exploration well in the Browse Basin off the northwest coast of Australia. Moving the clock forwards you will see that we are currently drilling shale and tight gas in the Cooper Basin. Back across to the West again and we are drilling at 3,500 meters on the Zola appraisal well, where at 2,000 meters, we are drilling the exciting Winchester exploration prospect. And currently we are at 5,000 meters on the potentially large Basset West exploration well.
So far from being a company which is entirely focused on delivering PNG LNG and GLNG, our upside activities are in full flow. Never has Santos had a more exciting exploration portfolio than it has today. As you all know of course the drill bit never lies. So we have to wait to see the results. But the point is that there are plenty of opportunities to be harvested for Santos, and also for Australia.
As Peter has already pointed out in 2012 we delivered stronger production, record sales revenue, and higher underlying earnings. The base business is making a significant contribution to our performance. It is generating strong cash flows from our domestic operations, as well as our Asian portfolio. This is funding our growth projects and shareholder returns.
In Eastern Australia, we continue to be a leading producer. With the demand for natural gas in the eastern Australian states expected to triple by 2016, our assets, reserves and resources have positioned Santos very well for growth. Of particular note is the Cooper Basin, where our company had its first success over 40 years ago. The Cooper continues to shine for Santos, delivering our highest oil production in three years. The Cooper is currently undergoing a re-invigoration. We are unlocking gas previously too difficult or too costly to bring to the market. The key to this is technology and our adoption of innovative drilling and completion techniques that were developed in the U.S. over the last 10 years.
By bringing this technology to bear, Santos has the opportunity to extract at least the same amount of gas out of the Cooper Basin going forward as has been produced over the last 40 years. A stand out for 2012 in this area was our first use of multi-well pad drilling to improve efficiency and reduce our environmental footprint. Currently, we are testing a 16-well pad development in the Cooper. Already we are seeing greater efficiency through simultaneous drilling, fracturing and completion of these wells.
Another exciting development in the Cooper Basin is the early success we are having with our unconventional gas program. Many of Australia’s known unconventional and shale plays are spread across remote areas like the Cooper Basin. However the Cooper Basin has the advantage of existing processing facilities, transportation and infrastructure. This makes it much easier and faster to deliver the gas to the east coast markets. If we can prove an unconventional play in the Cooper, I believe that Santos will have a distinct advantage.
Towards this end, in the second half of 2012 Santos achieved a significant milestone. We commenced Australia’s first commercial production of gas from a shale well; the Moomba-191 well. This well continues to flow at 2.3 million standard cubic feet per day, over seven months after it was connected to our Moomba processing plant.
We have also had an exciting result from our Gaschnitz-1 well, drilled earlier this year. Gaschnitz-1 demonstrated gas saturation over 1,000 meters across multiple targets, and is an important first step to proving the Basin Centered Gas play in the Nappamerri Trough. Our next step is to define the potential productivity of this resource. If this is successful and we achieve similar upside results in other exploration wells, the play could be very big indeed.
Now turning to the Western Australia and Northern Territory business. I am very pleased to report that the Fletcher Finucane project is progressing well. This project was sanctioned only last year. The project will be commissioned later this month ahead of schedule and is expected to flow at an average gross rate of 15,000 barrels per day for the first 12 months. It is in the Carnarvon Basin, offshore Western Australia. This is an area in which Santos has existing assets and considerable experience, and which delivered record gas production in 2012. The remarkable story around this project is that it has only taken 16 months from sanction to first oil. It shows what is possible. It shows that with good management, and support from our suppliers, regulators and our partners, we can move at pace in Australia.
I should also mention that good progress has been made on Bonaparte LNG since we last met. With our partner and operator GDF Suez, this project is seeking to develop a floating liquefaction project in the Timor Sea. Last year, we received environmental approval from the Federal Government, only the second floating LNG project to do so. We are now well into the concept definition stage and are aiming to enter FEED at the beginning of 2014.
Now moving on to Asia; Santos has a focused exploration-led portfolio of operations in Indonesia, Vietnam and Papua New Guinea. Starting in Vietnam, we have built on the success of the Chim Sáo oil project with the sanctioning of the Dua oil project in August of last year. Dua is a three-well, subsea tie-back to Chim Sáo. It is expected to produce up to 10,000 barrels per day, adding to the 25,000 barrels of oil per day that Chim Sáo is currently producing. The project is now over 50% complete. It is a pleasing result in an environment of strong oil prices.
Preparations are also underway in Vietnam for drilling of the Hon Khoai exploration well in close proximity to Chim Sáo. This will again add upside potential to our Asian portfolio.
Our business in Indonesia accounted for 10% of company-wide production in 2012. We sanctioned the Peluang project earlier this year. This project will be a tie-back to the existing Maleo asset. We expect peak production of 25 terajoules per day from the first half of 2014. Again if all goes to plan, the time from investment decision to first gas will be only around 14 months.
We have also had very encouraging initial results in the first of a six-well coal seam gas exploration program in the South Sumatra Basin in Indonesia. Together with Oyong, Peluang, Maleo and the Wortel gas project which is pictured here, the team in Indonesia continues to actively grow our asset portfolio.
I’d now like to turn to our progress in delivering our transformational LNG projects. And I am going to begin with the Gladstone LNG Project, or GLNG. GLNG is on track now and is over 50% complete.
In the upstream, our drilling program is progressing well. Like in the Cooper, we are adopting new technology through the use of multi-well pads. This approach has allowed us to expose more coal per well, drill wells both faster and cheaper, and importantly to also reduce our surface footprint. We drilled 143 wells in 2012. In 2013, we expect to spud more than 200 wells.
GLNG is also delivering on its strategy to execute the most efficient gas supply for the project by sourcing gas from underground storage, supply from our own Santos portfolio and supply from third parties. Importantly, this gas is all available for delivery from 2015 onwards.
In terms of construction, this year is critical. It is a year in which construction will peak, and as a result, today more than 7,000 people are working on the project. Approximately 1,700 of those are working on the upstream construction. This photo shows progress being made at one of our three hub compressor sites. Construction of the pipeline is also progressing. Around 220 kilometers has been cleared and graded, a 180 kilometers of pipe strung and over 11,000 welds have been completed.
At Gladstone, a team from our contractor, Thiess recently completed the assembly of a 100-meter-long tunnel boring machine on site. This machine commenced tunneling on the 15th of April to begin the marine crossing underneath the Narrows in Gladstone Harbor. Across the harbor on Curtis Island, construction continues to ramp up on the plant and port. The teams are rapidly moving from civil to mechanical works, with good progress being made on both trains, and the LNG tanks. The project is on track to deliver first LNG in 2015 as expected and with that to begin to generate substantial cash flow.
Now I’d like to turn to PNG LNG. This is the largest single project in Papua New Guinea. It will provide a significant opportunity for the country to grow its economy, deliver training, education and social benefits for its people. It’s operated by ExxonMobil and the project includes the development of gas and condensate resources in the Southern Highlands and the Western Provinces of Papua New Guinea, construction of over 700 kilometers of pipeline and a two-train LNG plant near Port Moresby.
For Santos, PNG LNG will deliver 15% of our total current production levels through one mega project. The potential to expand this project in the future provides even greater opportunity for Santos and our shareholders. With a workforce of nearly 20,000 people, the project is now more than 80% complete.
In the past few weeks, PNG LNG celebrated a significant milestone with the completion of the Komo airfield. And the first wells of the Hides drilling program are also underway, with two drilling rigs now in operation. As you can see we have concrete reasons for our confidence in seeing the first LNG cargo next year and the beginning of substantial cash flows to Santos from this project.
Ladies and gentlemen let me conclude my presentation by reaffirming that our business is in good shape, and is growing. Our LNG portfolio, which is critical to achieving our vision of being a leading oil and gas company in the region is on track. We are also becoming more efficient and we are daring to innovate. The result is a very different Santos from the one you saw four years ago, but it will deliver significant value to shareholders. Our strategy to unlock the company’s resources and to do so safely, sustainably and profitably will not change. We will always ensure that we do the right thing, and we always look after our staff and the communities in which we operate.
I want to sincerely thank our 3,200 employees for their commitment and their hard work to deliver on these outcomes. I also want to thank you, our shareholders for supporting Santos.
Now before I conclude my final remarks today I would also like to thank my current Chairman, Peter Coates. Peter is a highly respected Chair. He is an absolute businessman to the very core. He is a lifelong learner and his advice to me has been extremely wise. He is also an extremely good listener and he has provided much advice and support. I just wanted to personally thank Peter for his tremendous contribution as Chair over the past four years.
I’d also like to welcome Ken Borda who is taking over from Peter after this meeting. Ken has been on the Board for six years. He’s been an outstanding leader of our Finance Committee and I know he will be a fantastic Chair. So welcome to Ken. Finally thank you, ladies and gentlemen.
Thank you, David. And thank you for you kind words. Ladies and gentlemen, we now come to the formal business of the meeting. Each of the agenda will be considered in turn and shareholders will be able to ask questions and make comments before voting on each item. Details of each resolution will appear on the screens behind me.
This year we are again using the electronic voting system which we introduced last year. Using this electronic voting system we will be determining all resolutions at this meeting by way of a poll. This means that each shareholder, present in person or by proxy has one vote for every ordinary share owned. If you do not have a handset and believe you are eligible to vote and/or speak please raise your hand now and a representative of Computershare will assist you.
The electronic voting system will calculate the results from the votes received including all votes cast by proxy. We will display the provisional result immediately after each item of business is completed. The final results will be announced to the ASX after the meeting.
I will now explain how the handset works. When you registered for the meeting you would have been a white plastic smartcard. If you have not already done so, please insert your card into the slot at the top of the handset with the barcode at the bottom and facing toward you. When inserted correctly a welcome message will appear briefly on the screen. Then you will be returned to the holding screen where your name will now appear at the top of the display.
Once voting begins your voting options will appear on the handset screen. To vote for the resolution press one, to vote against press two or if you wish to abstain from voting press three. The word received will appear briefly on screen confirming your vote has been cast. You will then be returned to the voting options, the vote you selected will now be indicated by a cross. If you wish to change your vote simply select a new option by pressing one, two or three, your original vote will be canceled and your new selection will be counted. Any appointed proxies would vote in the same method that is to press one, two or three. This will cast any open votes you have available.
Instructions given to you by the shareholder will automatically be cast as directed when the poll is closed. Once the poll is closed the results will be displayed on the screen showing the combination of votes cast in the room and proxies received prior to the meeting.
I will now explain the process by which you can ask questions. All questions should be addressed to me as the Chair. When I open the floor to questions you will see a prompt on the handsets that ask for you to join a queue. If you wish to ask a question or make a comment on a resolution please press the green button below the screen. You will receive a confirmation that you are now in the queue and your name will appear on our list, on one of the monitors we have here in front of us. When you see the orange confirmation screen please make your way to the nearest microphone. When I call your name please ask your question. If you change your mind and decide not to ask your question or if your question’s already been asked please remove the red triangle (inaudible) to be removed from the queue and return to your seat. It’s important that as many shareholders as possible who wish to questions get an opportunity to do so. And I ask that speakers restrict themselves to no more than two questions or comments per turn at the microphone.
If you do have two questions please ask both questions at once. Once you have asked your question you will be removed from the queue. Anyone wishing to speak more than once may be given a subsequent opportunity to do so if time permits and in the meantime should kindly resume their seat. If you wish to ask another question simply repeat the process by pressing the green switch.
The first item on the agenda is to receive and to consider the financial report, Director’s report and auditor’s report for the year-ending 31 of December, 2012. This item of business also gives shareholders the opportunity to ask questions about the Santos Group and its operations. I now put before the meeting, the financial report, the Director’s report and the auditor’s report for the financial year ending 31, December 2012.
If you wish to ask a question or make a comment on this item of business please press the green button on your handset now And make your way to the nearest microphone. I ask that you hold any questions relating to the remuneration report until we reach agenda item three.
The first question is from the Australian Shareholder’s Association.
Thank you, Mr. Coates. We have some questions about possible cost blowouts for the PNG and the Gladstone plant. I know that some of the analysts are saying that there have been cost blowouts for Papua New Guinea and Gladstone of 20% and 16% respectively and further to that, couple of the analysts were saying that profitability for Gladstone is possibly marginal. Quickly comment on that please.
Thank you, Mr. Samuel. Part of our transformation of LNG strategy, sorry the LNG projects, a part of our transformational strategy. They make the company a major supplier of gas to the Asian market and on top of that they expose Santos and its east coast reserves to international pricing. Those projects have long-term strategic value and the projects remain attractive. The value continues to exceed our cost of capital.
Thank you. I have another minor question. Concerning the unconventional shale gas production from the Cooper Basin, how profitable is that? There is much talk about the price discount to be received for gas these kind of wells probably slow the production, cost for these wells due to their nature are going to be higher than normal. How profitable is that?
I think that’s a very good question because it is the exposure to international pricing which actually unlocks the Cooper Basin again. It gives it a new life. So part of that transformational strategy which I just mentioned the LNG strategy is exposing our east coast gas to international pricing and that unlocks the value in the Copper Basin. It changes the whole future for the Cooper Basin. Cooper has significant shale potential as David mentioned we have got the first commercial shale gas production from Moomba-191 that’s the first in the country. We have got and you know the processes used in shale gas production are essentially the same as conventional gas production but the important point is that without exposing, without the opportunity to expose east coast gas prices to international pricing then you would not unlock the future value of the Cooper.
Thanks. Next question is from Mr. David Quince.
Yes, thank you, Peter. I direct this question just regarding the Gunnedah Basin since it’s where I come from, as well as being a shareholder of Santos. Santos started the gas reserves under this equate what’s called the biogenic freehold which is an area which is probably under the (Morsperdal) and producing part of the deliverable propane 4,000 terrajoules of gas or equivalent to two times the present Australian production of both tight and conventional gas annually. But it also equates to 14% of their LNG project. As a farmer in this area we have undertaken surveys and census and as a consequence we locked up over 550,000 acres of deliverable propane and this number is growing rapidly with 96% totally against CSG.
Consequently how is Santos going to handle this considering they sand we will not take any individual or the land holder to the land environment court and how will it affect the LNG project concerning the recent comments by Tony (Adam) that farmers should have right to say no to coal-seam gas and mine developments on the land?
Thanks David. David we do recognize that the community has concerns about the coals-seam gas industry and we recognize we got to do a better job of demonstrating to the public that coal-seam gas operations can have a positive impact on farming and minimal and sometimes positive impact on water. Now we are working with the farming communities. We have farmer’s forums information days and thousands of community meetings and one-on-one discussions. We have got a proven track record of performance and safe operation and coexisting with farmers. I mean you look at our records speak for itself. We have only ever worked with land holders that agree to host our activities and we have 100s of agreements with farmers in place.
Numerous studies confirm that coal-seam gas extraction will have a minimal impact on local ground water levels, over their 70 year life and we have been extracting coal-seam gas safely and sustainably for the past 20 years. There is no evidence of Santos ever damaging an aquifer or contaminating a water coast and I will tell you the industry is very highly and affective to regulate it.
With those Santos results are 96% plus are against coal-seam gas, they are not going to change their mind about coal-seam gas. How are you going about accessing that gas?
Again, we recognize the community concern and I think the real point is that New South Wales needs gas. Our operations in the short term are in the Pilliga and that’s where we are going to focus our business for the time being. In the meantime, we have got to convince the community and general public that we can safely harvest gas, in almost any area. Going back to New South Wales this is a very important question because coal-seam gas is absolutely essential for the ongoing prosperity of New South Wales. 95% of New South Wales gas is sourced from Victoria in the Cooper Basin. The state is largely uncontracted post 2017 and there is lots of competition for gas in that period. As I said our initial focus is in the Pilliga and (inaudible) it’s consistent with New South Wales guidelines is not prime agriculture land and it’s more than two kilometers in township. We have earmarked a 100 terrajoules a day that gas to go to New South Wales. Thank you.
Next question is from Mr. Trevor Mulvihill
Thank you. I have got two questions. One was a few years ago this Annual General Meeting I asked a question about you equating your green credentials and I commented that LNG is not a really green product because it takes close to 50% of the gas coming out of the ground to run the compressors to liquefy the gas, this was an unknown fact by the shale at that time and I acquired something like I believe it was only 3% to 9% and I just wanted to know whether that figure is still correct?
I don’t think that figure is correct. First of all, we are in the business of harvesting CSG. So we don’t allow fugitive emissions to, of any note to escape into the atmosphere that’s the business we are in. We are not sort of – it’s economic suicide to let gas escape. And the second point is I think the evidence that’s coming out of the U.S. as the US is moving across from coal in some cases and oil to using more and more gases that there has been a significant improvement in reduction in greenhouse gas conditions.
But to the compressors to the draw of the compression of that gas to liquid do they produce pollutants into the air? They drive some tighter use of gas coming into them.
In some cases we lose the gas coming out of the well. In other cases we use electricity out of the grid but there is significant net reduction in greenhouse gas emissions compared with the alternatives such as coal or other fossil fuels.
Another question relates shareholder value I think you referred to having reserves of about 27 years at current production rates?
And 27 years ago the cost of a share in Santos taken inflation has remained pretty close to the same for last 27 years so, where are the shareholders?
Good question. We’ll start off by just referring you back to the job. We have outperformed the ASX over the past 10 years, no question about that. I don’t want to comment on the actual share price, other than to agree that we would all like to see the share price higher. This stock is viewed as a growth stock. We have some large capital projects to deliver. As we come closer to delivering those projects I am confident that the market will see value in our company.
The Board’s job, the Board Manager’s job is to set the strategies and deliver those strategies. Growing our domestic gas business, delivering our transformational LNG strategy and building a focused exploration led development of our Asian business. If we do that, the strategy will result in 60% growth in production by 2020 and the market will see that. That’s the only answer I can give you. I am sorry.
I thank you for that.
One small comment. It seems that this early generations over the last 40 years pretty well helped fund the situation where Santos is mining. Are we beginning to receive the big benefits going to the next generation?
I am sorry I can’t comment. Thank you. Next question is Mr. Terry McBride.
My question relates to the Gunnedah basin. Given the widespread public opposition and unknown outcomes from the environmental laws introduced by the Federal Government called Water Trigger as well as the extra cost of connecting the gas field to the pipeline. The Gas fields to the main infrastructure pipelines of some substantial distance away. Is this going to become an expense for the company? Is this going to damage to the company’s image? Expose the shareholders to substantial cost blowouts and liabilities to future damages claims by land holders.
The simple answer is no, I don’t believe so. As I said earlier we work with people, we work in collaboration with people and we have got a proven track record in this area but proven track record of success in all areas associated with the harvesting of gas and delivering of gas.
(Maui) leases the land to get the gas line across to the main infrastructure gas line is quite unstable to build on and surely will be an extra cost?
I am sure that the route that our engineers select and the route that is approved by development approval whatever that maybe we will take all those matters into account. The cost of the project will be taken into account. The returns on the project will be taken into account before final investment decision is made but in the end we make decisions based on fact and commercial return.
Well then when you get farmers in that band not letting you inside, isn’t that causing a cost blowout?
Of course it’s a great concern.
If in the future with the – not being able to burn your reserves of greenhouse gases then what ways do the shareholders have as in earning a stranded asset, you may set the infrastructure out but this time you may not use that asset.
For what reason did you say?
Because not being able to burn your greenhouses gases, so not been allowed to add extra carbon dioxide and methane to the atmosphere.
Part of the attractiveness of LNG natural gas, part of the attractiveness of natural gas is that it has about 50% of the emissions of coal. Currently the majority of Australians east coast electricity is delivered by coal and the transition to gas will have effectively reduced greenhouse gas dramatically.
Yeah the whole life cycle of methane it’s only 50% reduction when you use it at the end of the process with fugitive emissions, transport, liquefaction like that the whole life cycle of methane is about the same as a coal fired power station so you are not really gaining anything.
I dispute that. But thank you very much. John Ivan Splint. Good morning John.
Good morning Chairman. Thank you very much. I would like to ask two questions and a suggestion if I may. Unfortunately in the last five years the share price trend has been declining at approximately 5% during a period of low risk project engineering work from a high of around $22. These are world-class projects and we do see globally other company share price rise during the construction phase and well-managed, world-class LNG projects. Close example is Oil Search in our Exxon operated PNG project with both in there, both Santos and Oil Search.
Santos’s share price trend should have been up not down. The company’s share price is now mid $12. From this background I would like to now ask two questions and make a comment. The cost base of the company has continued to increase and with so much happening when various business units I have seen a huge increase in the use of consultants. And do you or any of the board now how many consultants you currently have on the payroll and including the annual run rate for these consultants?
I think the simple answer to the question is no we don’t know. I don’t think any member of the Board would know the number of consultants we have. Possibly I am sure the CEO would have a good understanding of the cost to consultants. Look I think the more important point is coming back to the beginning John over a five year period we have also outperformed the ASX. So it’s very-very hard to draw a conclusion from that and particularly in comparing us with one company….
I am sorry, that is not one company, so I am referring to Chairman, there are other companies globally that have outperformed during the construction phases.
I am sure there are. We have not outperformed during the construction phase. These projects are very-very large projects and you know the market is not focused on growth projects at the moment. I believe as I said earlier that as we come closer to delivery of those projects the market will see value in our stock. Now we start delivering those projects in 2014 next year and I am reasonably confident that the value in our business will return, the perceived value in our business will return.
Thank you. I would like to make a comment on the issue of consultants. There are two reasons why this is important to our company. One is their cost price which is far too high but the other which is the most important to the company’s culture; the Australian oil & gas workforce is the most highly paid oil & gas workforce in the world. In 2000, this company was turned around without these consultants by empowering our employees. They took initiative and delivered a fantastic result for the shareholders.
Culture is the glue that drives a great company like Santos. This can do and will do culture is key to our success. Over use of consultants erodes the culture. Secondly a minimal consultant approach dramatically lowers our cost base this is why it is imperative for the Board executives know exactly the answer to this question and [inaudible] on a continual basis.
Thank you very much John. We appreciate your comments. They are taken aboard and I think we certainly agree with you that the cost price of the company is very-very important and it’s something that we are paying attention to and we will continue to pay attention to. Thank you.
The next question relates to making sure how Santos workforce is protected. Have you or any of the Board for that matter any of the senior executives read the inquest findings of the world’s greatest hydrocarbon disaster, the 2010 Gulf of Mexico Macondo disaster.
The Board has been briefed on that disaster and I am sure members of management have read the report.
The reason I asked is because it should be compulsory reading for all oil & gas company executives as it has implications for how our businesses safely performed in the 21st century in particular there is one major section that has implications for our company on three levels; safety, efficiency and cost. The business unit organization model which Santos now uses, which was used by BP and the inquest proved that it was in effect a dangerous approach. BP have since restructured to the functional expert model. This functional model is used by the world’s best performing oil & gas companies, was used by Santos from 2000 to 2008. The current Board and management restructured the business unit structure in 2009 to be the same as it was pre 2000. As a shareholder I am concerned with this change and the results to-date. I refer you to BP’s reorganization presentation early in 2011.
Thank you very much John. Your comments are noted.
Thank you. My final comment is I have a suggestion on capital management and the huge amount of shareholder money currently tied up in Franklin Credits at Santos. At $1 billion this is approximately 10% of the company’s market capitalization. These funds should be in the hands of the shareholders and what’s more, the Australian shareholders at risk of losing access to this 1 billion if a foreign company takes over the company. I understand we don’t want that to happen but it’s certainly a risk at these current share prices. I understand that you have looked at ways to return these funds to shareholders without success. I would suggest that there is a very viable and simple alternate approach to the one that has recently been outlined. The approach will help maintain fiscal discipline to ensure you have ample funds available while finishing the projects.
The approach I am recommending is a staged divided payoff in line with the completion milestones in your large LNG projects. Why wait till 100% project completion and total derisking of the project when you can payout shareholders at for example 60, 70 or 80 percent milestone, completion milestone. Your current dividend strategy remained large fund will wait 11 months till they are ready to pay until you are ready to pay special dividend before buying back into the stock. Why should they take the risk of investing now? This approach rewards your long suffering shareholders while maintaining fiscal discipline and will help your share price performance over the 12 month period. Thank you and I wish you good speed in delivering Santos LNG projects and also successful exploration.
Thanks John. Thanks for your contribution. The next question is from Mr. Robert Cooper.
Thank you Mr. Chairman. I am following on from the discussion in relation to the dividend. I am a long term shareholder for 25 years, I have seen from $3 to $12 in 2000 $18 and now to $50. As a shareholder I am not happy about the price of the share. In 2008 the share was $0.42 a share dividend. Now you have probably said you have got $0.30 a share dividend same as last year and I know that you are investing into capital. However where’s the greater returns for the shareholders. The expected return for divided yield is 2.6%, not a great effort really. You have got $5.8 billion in cash and undrawn credit as of the end of 2012 and you need to draw down 3.1 billion until the PNG and GLNG project projects are finished in 2014.
My argument is the shareholders need a proper return from our investment. We are relying on this income for our income. We need to live off the shares and the dividends that we have invested in your company. I could compare you against (Woodside) where they expected a dividend of 6.5% and $0.63 per share special dividend. I would like to see an increase in our dividends for our hard earned cash into our company. Thank you Mr. Chairman.
Thanks for your comment. Look we recognize the importance of dividends to shareholders and all I can say is that we have committed to reviewing our dividend policy as soon as the PNG LNG project starts to come on line and I mean that’s 12 months away but that’s a commitment we have made that we will review it as soon as it starts to come on line. Mr. Peter Mason.
Thank you Mr. Chairman. You spoke many times about having a strong exploration program, significant reserves and a step up in production coming soon. Last year the company entered into a significant agreement to buy gas from a competitor, Origin Energy. Would you please talk about why the Board thought this was necessary and are we not expecting some of the Santos reserves to be economic?
That’s not the case. We have within the GLNG supply, the Gladstone supply we have sufficient reserves for supply to two complete trains. You know our regional investment decision it was always intended that we would buy some gas for the early stages of particularly train two. We have done that. We don’t always envision accessing third-party gas for GLNG. We got further gas within the Santos portfolio and quite frankly we still look for the opportunity for buying more third-party gas. Mr. Lloyd David.
Good morning Chairman.
Mr. Mulvihill and Mr. Clinton and Mr. Cooper have sort of taken – beat me to it as it were in terms of the question I had but I guess perhaps a bit of follow-up as far as, good news. Santos is a great Australian company. I hope it stays that way. You tell us the sales are up, the profits are up, the reserves are up or maintained all tremendous stuff. You tell us about the company on the earnings growth over the last 3 years been equivalent to 33% that’s also a great stuff. I guess then sort of getting back to that question that were harping on it but that news is great news. The company (employees) is doubling effectively during that period. As has been commented the dividend hasn’t doubled, share price hasn’t doubled, yield hasn’t doubled.
You have mentioned about 2020, could not more, (inaudible) nobody will review in 2014, I am just wondering for us ordinary shareholders whether you might just give a little bit more.
Your point’s well-made and all I can say is we do recognize the importance of dividends to shareholders particularly retail shareholders. We are in the middle of a very intensive capital program, we are a conservative board, we don’t want to expose the company to financial risk but we will review that dividend policy as soon as we can. Thank you. Next question is from Prue Wadsworth.
Thank you. I have two questions related to the Gunnedah project and firstly Santos have stated that you are going to concentrate in the Pilliga and prove up the resources. Yet they recently applied to the Gunnedah council for 64 men fly in, fly out camp. This has received already close to 400 objections from the local community and the social impacts of fly in, fly out camps well recognized being alcohol and drug problems with little benefits for the local communities of not having families located there. So Santos haven’t required this type of worker’s camp for any of their other exploration works and it’s some distance from the Pilliga so why have you applied for this worker’s camp outside of Gunnedah.
I am sorry I am not aware that we had applied for worker’s camp but I am sure it’s part of the – it’s a necessary part of the project. I can only say again you know the coal-seam gas is absolutely essential for the ongoing prosperity of New South Wales and currently 95% of the gas for New South Wales, all gas is important. I can’t say any more than that. We have stated and stated quite clearly that our initial focus is Pilliga.
Okay just quickly in response to that before I ask my second question. You have already said that Australia is very rich in gas resources. So any shortage is not due to lack of resource if it’s actually due to export markets rather. So rather than risking this area, this food producing land and our environment then I would ask that you don’t develop coal-seam gas in that particular region. And my second question is there has been a lot of financial analysts say in recent news reports and in the papers and they say that they don’t attribute much value to the Gunnedah project and some have stated that the assets need to be written down due to significant project delays, community opposition and a heavy CapEx burden.
James Baulderstone, the Manager of the Eastern Operations has said, I need to start drilling holes again. We have done nothing in New South Wales for two years. So considering the risks of the Gunnedah project that you have already stated being international – sorry, supplies from America coming online and also the other risks that you have stated in your introduction today, would you consider shelving this Gunnedah project?
We in the early stages of the development of a project in that region. We are going through exploration drilling. We have not made any decision of the exploration. At some point in time the project will be placed before the Board, an application for capital to fund the major project and at that time we will take all of those risks into account. At this stage it’s in very early stages of exploration.
Thank you. Mr. Glenwood Wood.
Long time, local shareholder. I watched your wonderful presentation. I am amazed of the number of ships, the huge steel structures, the number of machines you are using, could you give us an idea of what percentage of these are Australian made and do you give preference to Australian materials?
No, I can’t tell you what percentage of Australian made. I doubt that any – I doubt that Australia has the capacity to manufacture some of the items that you are talking about.
We can make submarines in Adelaide.
Yeah I don’t know what percentage is Australian made and I doubt there is capacity to make the sort of ships and other things….
Is there any preference for Australian made?
Well I am not, no I doubt that. I think we have gone for turnkey project I can’t – I am going to ask David, is not anything specific in the contract that talks about Australian content.
I think when you are thinking about the Gladstone project which is really big flagship project so I will just mention that one. 70% of the capital we spent, the $18.5 billion is spent in Australian dollars, 70% and that basically means 70% of the money is going straight in to the Australian economy, it is being spent on Australian suppliers. Our largest of course cost in that 70% is labor. So really ultimately we employ awful lot of Australian labor in developing that project. So 70% is Australian and other 30% is mostly U.S., little bit in euros but mostly US dollars.
So absolutely we take our involvement in the Australian industry extremely seriously and absolutely we will seek to invest in Australia where it’s possible to do. So but there are certain things as ships that Peter mentioned that they are built in Australia currently but I’d say what we are doing right now is creating enormous employment opportunities in jobs in Australia both in the big cities, big towns like Adelaide but also in the regional communities such as [inaudible] and really reinvigorating those communities.
Does that help you? I think that’s…
Well we are disappointed that we can make submarines in Adelaide but not for Santos. Can I make a comment about your printed instructions for the electronic machines. As an old school teacher it (outrages) me to say orange light, could we have an orange light please.
My apologies, I didn’t notice it. Thank you. Mr. Dan Monsow.
My question relates to the one facility at [inaudible]. I am interested to know the status of the groundwater contamination remediation works that have been undergoing there for a number of years now. I am also interested to know if the company is anticipating any future legal costs related to what actions with EPA for example.
Thank you. I might hand it over to David.
We have been monitoring the ground water at (inaudible) since 2008 and I am pleased to report that all is basically in order and no we do not expect any legal action to be taken.
Okay, thank you. Next question is from Mr. David Quint.
Yes, thank you Peter. Glad to hear that you are a conservative Board because I recently [inaudible] is on Gunnedah council and I was able to attend a presentation of Pilliga operations to which several councils in the Gunnedah basin were invited to. We heard for nearly whole day from both the General Manager, Mr. Peter Mitchley as well as numerous employees describing how and what a mess the whole of the previous Eastern Star coal-seam gas project in the Pilliga was. And I could verify that because I’d have a look at it beforehand. Yet this company paid I think was $900 million.
They have had extra cost of another 20 million to repatriate this mess that Eastern Star had built there. I think another further $2 million to dismantle a water treatment plant and it’s also apparently costing operationally $2 million per rig without any production. David Knox has stated that the Gunnedah basin will come on line in 2015, well it’s still two years away. Yet Peter said that he had to disagree with his boss and he now believes it’s 2017, that’s another 4 years off. From our rough calculations that is considerable cost to Santos. Surely public opinion as far as the Gunnedah basin and community concern that you would take the right option and write down these operations.
Thank you. We still see that as a valuable business and you can understand why we are in a hurry to get moving there. And I said before this gas, I have said it number of times is absolutely essential for the ongoing prosperity of New South Wales. Thank you.
Just a second point on that I think that BHP has numerous gas reserves down in (Bastray) and they will normal as far as construction then getting a pipeline up here that would be far easy I would imagine then the sort of operation you were talking about in the Gunnedah basin which obviously the bulk of is going to go for export and it would also alleviate the risk this project might put to the ground water and the agriculture land.
I appreciate your comments again. I am sure we take all of those methods into account when we make a commercial decision. But there are some very significant problems with getting this volume gas up from Gibson basin to New South Wales. Mr. Michael Demski.
Yeah my question is regarding the Gladstone LNG project and the significant shipping impacts on the harbor there. Recently the UN has put the Great Barrier Reef on an endangered list and due to the increased shipping numbers for LNJ projects, particularly .Gladstone Harbor. I was just wondering what the Board is doing to minimize the impact of shipping in the area particularly in Gladstone Harbor and the resulting effect?
We have been watching what’s happening. I think from what I’ve seen the impact of dredge – a lot of most recent investigations by the Queensland government indicated that some of the problems in the harbor more associated with the fresh water coming down from the rain then dredging but sitting at the side yeah we are aware of it. The gas industry the gas shipping industry in particular has an unblemished record of safety. I know there has been some commentary about excess increased activity of coal. We take all of that medicine to camp when we making the commercial decision.
And you know I think on top of that, I mean the most important thing, I want to stress this say the environmental impact statement for our Queensland business fall back to the Four Corners program recently which was just absolutely absurd and totally misleading. The environmental impact statement for the development of our Gladstone project took 18 months of preparation, prior to starting the process, three years in the process of approval, there were 13,500 pages of environmental statements, another 6,000 pages of follow-up, something like 20,000 page document, 20,000 page document you could imagine it which covered all of the issues you are talking about, investigated issues such a great barrier reef, dredging the harbor, the impact on the environment.
The ultimate result was that we have 1,200 conditions placed on this project, which on top of the Santos’ own excellent safety performance I believe puts us in a very, very well regulated and safe position.
I think we have covered all the speakers, all the people who are asking the few questions. If there are no more question we will move to the next item of business.
The next item of business is reelection and election of Directors. Details of the qualification and experience of each candidate are set out in the notice of meeting. A separate motion will be proposed for each candidate. Mr. Ken Dean is retiring by rotation in accordance with rule 34-C of the constitution and being eligible offers himself for reelection. Mr. Dean has been an independent non-executive director since the 23rd February, 2005. He is Chairman of the Audit Committee and a member of the Finance Committee of the Board. Mr. Dean has been the director of Santos Finance Limited since the 30 of September, 2005. I now invite Ken Dean to speak.
Thank you, Peter and good morning ladies and gentlemen. Thanks for the opportunity Peter to address the meeting this morning. We have heard a lot this morning from Peter in his address and from David in his and from the video before the beginning of the meeting about the exciting phase that our company is in and it is. It’s a busy time for the company. There are number of projects underway, and new things being done not only the two flagship LNG projects, but the working the Cooper Basin in Western Australia and our activities overseas well in Asia. I’ve being pleased and privileged as a director to be part of the process of deciding on and building all of those projects.
And as they mature over the coming years they will form the platform for the growth in our company in the future. And I think we talk a lot about this morning, and I won’t focus on that further other than to say that I am pleased to have been part of that and I am keen to continue to be part of that growth in our company. And as you all must be aware I bring to the Board now with the passage of time, mine 35 years of background and experience in the international and Australian oil and gas industry. After a 30 year career in Shell including six years on the Board of Woodside, and now Director of Santos since 2005. I am also Non-Executive director of Bluescope Steel.
So let me assure the questioner earlier I have a great interest in the Australian content of a lot of project going on at the moment and happily Australian manufactured sheet goods are used extensively in our project in Gladstone. I am also Director of EnergyAustralia, and I serve on the audit committees of all three of the company’s which I am non-executive director, and on financing bodies in all of those companies as well. And there is great value for Santos in having directors who are involved in other companies with related industries and in related parts of the economy.
I am committed to bring my skills and experience to bear on the decisions that we as a board and as company make over the coming years. If elected today and I will at the conclusion of another three years term have served as a director of that company for 11 years, and I’d just advise now in 2016 it would not be my intention to seek reelection for another term.
Ladies and gentlemen thank you for your indulgence, thank you for your support in the past, and I seek your support to continue to serve as a director of our company.
Thank you, Ken. I now move that Kenneth Alfred Dean be reelected as a Director. Is there anyone who wishes to speak on the motion? As before if you wish to ask a question or make a comment on some of those item of business please press the green button on your handset and make your way to the nearest microphone.
I will now open the poll on this item. Please enter your vote now using your electronic handset, to vote four press one, to vote against press two, and if you wish to abstain from voting press three. Has everyone who wishes to vote entered their selection? If you had not yet done so please do so now as the electronic voting would be closing shortly. I now declare that voting on this item is closed. Results of the poll now appears on the screen. It is clear that the resolution has been passed. And I now have pleasure in declaring Kenneth Alfred Dean reelected as a director of the company. Congratulation, Ken.
Ms. Jane Hemstritch is also retiring by rotation and being eligible offers herself for reelection. Ms. Hemstritch has been independent non-executive director since 16 of February 2010. She is a member of the People and Remuneration Committee of the Board and also the Audit Committee of the Board. I will now ask Jane Hemstritch to speak.
Good morning fellow shareholders. It’s been a real privilege for me to serve on the Santos Board of Directors for the last three years. And I want to give you a sense of what it is that I bring to the Board table at Santos. And I think there are three things. Firstly, my experience as a senior executive in Accenture, which is a large global company where I had responsibility for 12 Asia Pacific countries including Japan, China and India, and over 30,000 personnel. And I think that enables me to bring to the table some experience of how you manage multinational operations of this sort with Santos has.
Secondly, during my 25 year tenure with Accenture, the main professional discipline that I operated in was the delivery of large transformational programs, mostly involving big information technology projects. That gives me a grasp of what it takes to run a successful project and program and also what the issues are involved in both changing a culture but also maintaining solid cultures that work to the success of the company.
Santos has a wonderful culture as has been pointed out before. And I think I can bring to the table ideas about how to maintain the strong culture that has made this company a great company. Thirdly I am a Director of other major Australian companies including the Commonwealth Bank of Australia, Lend Lease Corporation and Tabcorp Holdings. And that allows me to bring to Santos insights into government’s best practice and to the ways in which other companies are tackling major change and implementing new initiatives.
With respect to my committees I chair two Audit Committees at other organizations and I belong to two Remuneration Committees, one of which I chair. While Santos has unique circumstances in some ways, in others it has very similar challenges to other large ….companies and insights from other places can help and form Santos’ choices. I am proud to be been part of the team that is the Santos Board of Directors for the last three years. And I ask for your support for my reelection as Director and I will be pleased to continue working on behalf of all Santos shareholders during the next phase of the company’s development. Thank you.
Thank you, Jane. I now move that Jane Sharman Hemstritch be reelected as a director. Is there anyone who wishes to speak on the motion? If so please press the green button on your handset and make your way to the nearest microphone. I will now open the poll on this item. Please enter your vote now using your electronic handset. To vote for press one, to vote against press two and if you wish to abstain press three. Has everyone who wishes to vote entered their selection? If you have not yet entered your vote then please do so now as the electronic voting will be closing shortly. I now declare the voting on this item is closed. The result of the poll now appears on the screen. It is clear that resolution has been passed, and now I have pleasure in declaring Jane Sharman Hemstritch reelected as the Director of the company.
Mr. Greg Martin is also retiring by rotation and being eligible offers himself for reelection. Mr. Martin has been an independent non-executive Director since 29 October of 2009. He is Chairman of the People and Remuneration Committee of the Board, and a member of the Environment, Health, Safety and Sustainability Committee in the Board. I will now ask Greg Martin to speak.
Thanks very much Peter and good morning ladies and gentlemen and indeed fellow Santos shareholders. I must say it’s quite a procession this morning, I think you are certainly getting value for money I think you are going to see all but two of us speak to you during the course of the annual general meeting which is rather nice for us because I am sitting up here looking like puppets is often a difficult thing for us to for a couple of hours. So it’s a tremendous opportunity we got to speak with you on this morning.
I have been a member of the Board of Santos for 3.5 years so I guess you might say I am one of the newer members of the board very quickly to other members that I have joined since I joined back in 2009. As Peter said I am Chair of the People and Remuneration Committee of the Board, and I am also a member of the Environmental, Health, Safety and Sustainability Committee. As we have heard this morning from both Peter’s presentation and from David’s presentation, this has certainly been a very exhilarating and challenging journey during my time on the board.
But I am pleased to say to you this morning that considerable progress has been made in transforming Santos from its predominately Australian domestic focus to becoming a leading oil and gas exploration and production company in the Asian region. And I want you to know this morning that I am committed to assisting and completing that transformation of the company. Santos has a very strong and growing Australian domestic business in an energy market that I know very well having spent 25 years in the domestic market working for AGL in operational, commercial and executive management roles.
I was very pleased to hear Bob ask a question this morning about the dividend, about work. Bob worked at (AG) South Australia and I must say for an existing and the previous AGL South Australian employees I will be delighted to have a cup coffee and chat with you after the meeting this morning. Since I left AGL seven years ago, I have continued to focus my efforts and activities in the energy and was also sector both domestically and internationally. Through my other Board and private equity investment activities I have been able to maintain a deep and contemporary understanding of the forces and the factors that play in the Australian domestic as well as global energy markets with a particular focus in Asia.
I have sought to bring the knowledge and insights gained from these other roles to the decision making and governance processes in Santos along with my other directors who bring their experience from other places. As a former CEO of a large Australian public company I think I have got firsthand knowledge and insight to enter the challenges that David and his senior management team face. And I have sought to bring that experience in those perspective and in assessing strategy execution and related business risks. In conclusion ladies and gentlemen it’s been a real privileged to be a member of the Santos Board over the past three and half years. And if reelected today I would be pleased to continue working on behalf of all Santos shareholders through the next phase of growth and development of this great Australian company. Thank you very much.
Thank you, Greg. I now move that Gregory John Walton Martin be reelected as a Director. Is there anyone who wishes to speak on the motion? If so please press the green button on your handset and make your way to the nearest microphone. We do have a speaker, Mr. Freddie Bean Kat.
Thank you for the opportunity to ask questions. I noticed that Greg you are very busy, you’ve got a lot of jobs. How can I be assuring that you are actually can give this job the time and dedication it needs.
I will answer that question if you don’t mind. We are a very, very – said as a Board and we are very, very satisfied with the contribution that Greg is making to the business. I think the fact that he is busy, the fact that he has a number of – just shows how much talent he has. And just brings out the broader skills of Greg. I think also having experience to number of other businesses and really gives us actually transfer benefit to Santos. We get the benefit of that ongoing business experience any direction with other companies. So appreciate your comment but I can say that this board is very, very supportive of the contribution that Mr. Martin makes and will make in the future.
Okay, I will now open the poll on this item. Please enter your vote now using your electronic handset. To vote for press one, to vote against press wish and if you wish to abstain press three. Has everyone who wishes to vote entered their selection? If you have not yet entered your vote then please do so now as the electronic voting will be closing shortly. I now declare the voting on this item is closed. The result of the poll now appear on the screen. It is clear that resolution has been passed, and now I have pleasure in declaring Gregory John Walton Martin reelected as a director of the company.
Mr. Hock Goh, who was appointed the Director on the 22nd of October, 2012 retires in accordance with rule 34-B of the company’s constitution and being eligible offer himself for election. I will now ask Hock Goh to speak
Good morning, shareholders. My name is Hock Goh; I was humbled and privileged to join to be invited to join the Santos Board, as Peter said, October last year. I know Santos pretty well having started as field engineer for Schlumberger, a leading oilfield services company in the early 80s. So I used to be one of those what you call crazy guys running over the rigs and trying to do logging jobs and testing jobs for the oil company. So during my long career with Schlumberger I worked and managed business in more than 10 countries, spanning Australia, Asia, the Middle East and Europe. We were key focus on introducing state-of-the-art technology, information evaluation and reservoir characterizations, simply put trying to understand and evaluate the rocks.
So these innovations have helped our customer’s oil and gas companies increase their reserves for their shareholders. In recent times we’ve seen how advanced burning technology have unlocked new or previously uncommercial resources. During this time I have and by the way Santos has worked to grow and become an important regional energy company. As a member of the Santos Board I would be able to bring the insights I have gained from my extensive experience working with major oil and gas companies worldwide, in understanding the challenges they face and finding solutions to overcome these challenges.
I look forward to using my experience to help our Board, our company, our shareholders and our stakeholders meet Santos’ growth objective. I seek your support in this election. Thank you.
Thank you, Hock. I now move that Hock Goh be elected as a Director. Is there anyone who wishes to speak on the motion? If so please press the green button and make your way to the nearest microphone. We have the question from the Australian shareholders association. Mr. Samuel.
Thank you, Mr. Coates. I’d just like to comment that we note that Mr. Goh has three other Chairmanships, and another non-executive directorship. The Association has a rule that chairmanship counts for two Directorships and anybody with more than an equivalent of six directorships may not have the time to devote to the shareholders interest. However in this case since the company is asking Goh and I think one or two cases enacted we are not going to make a fuss about that. But I will ask a question. Mr. Goh, are you planning to buy some shares in Santos, having just joined the Board obviously you don’t have any. And we would like to think all the Directors in Santos have some skin in the game so to speak. Would you do so? Thank you.
Thank you, Mr. Samuel. Would you like Mr. Goh to answer now or just take to the board your points were made, I think.
I think just to take it on board. I have heard it say that the average shareholder should own enough shares to be equivalent to their annual fees. And I think accumulate them over a period say five years. So you can put 20% of your fees into it the mark-up now this year and do the same for the next five years would be fine.
Thanks, Mr. Samuel, that’s very good advice. Thank you.
I will be happy to take your advice. I love equity and I love to invest in what I know and being on the Board of Santos basically I do what’s happening and I would love to buy Santos shares.
I will now open the poll on this item. Please enter your vote now using your electronic handset. To vote for press one, to vote against press two and if you wish to abstain press three. Has everyone voted? If you have not yet entered your vote then please do so, we will be closing. I now declare the voting on this item is closed. The result of the poll now appears on the screen. It is clear that resolution has been passed. And I have pleasure in declaring Hock Goh elected as a director of the company.
The next item of business ask shareholders to adopt the company’s remuneration report. This is a non-binding advisory guide to shareholders. Before opening this item to questions and any discussion; I wish to make some brief comments. First, you will see that our policy is to pay fairly and competitively in order to attract and retain the best talent. This is essential in order to ensure the long term success of the company.
Secondly, we set challenging targets for our executive team in order to focus on maximizing potential shareholder value. If the targets are not met total actual remuneration is reduced. And finally in response to feedback from shareholders we have made some changes to our LTI program which took effect in 2012. These include stopping the previous practice of awarding some shares to executive by solely on the length of the time they stayed with the company. I now move the resolution that the remuneration report be adopted. I would be pleased to take any comment or question you may have in relation to the objective remuneration in the 2012 remuneration report.
If you have any question which related to the proposed grant share acquisition right to the CEO please hold those questions and raise them when we come to discuss the next general item. Is there anyone who wishes to speak on the motion? We have the Australian Shareholders Association, Mr. Samuel.
Unidentified Company Speaker
Thank you, Mr. Coates. As you know we would not direct or vote undirected proxies in favor of this acceptance of this report. A number of reasons given are unchanged from last year and the first one is that we object to the allocation of short term incentives to the CEO, particularly from a company like Santos. Where we believe you should always take a long view.
For the long term incentives we object to first of all the three year evaluation period. We think it’s too short it should be four years. We object to also method of vestment when 50% of the incentives were invested at the 50th percentile comparison to the ASX 100 and 100% at the 75th percentile, we think that is too generous. And we ask that this matter be addressed by remuneration committee.
I also have concern about the method of estimation of the shares allocated to the senior management for the long term incentives. There is a method we refer to as the fair value method. And we believe that this fair value method confuses the issue and it gives shareholders ordinary shareholders the impression that the senior executives concerned will get the number of shares equivalent to the amount of money mentioned, divided by whatever the market price of the share is at the present time. Now this is not the case. Apparently this fair value method estimates the value of the shares using a technique called the multi (inaudible) simulation. Now mathematically this is right over my head but it has the effect of increasing the number of shares given to the senior management by 40%. I will say that again 40%.
So that if for instance you say an amount of money and you divide that by the share price at the time or the average share price over a period of time, that is nothing like the number of shares that senior manager concerned is going to get, it’s going to be 40% greater than that. And I ask that the remuneration committee maybe address this. I would suggest you can use any method you like to calculate the number of shares but if you simply announce that the long term incentive for this particular senior management or whatever is so many shares rather than shares to the value of then you give a more accurate estimation to the shareholders of just what he is getting. And that way the senior management concerned when shares are vested is riding market in the same way that the ordinary shareholder is doing. Thank you.
Thanks, John. Comments were noted. Just to come back to first of all issue. We changed the process of valuing that allocation of shares from market value to fair value, based on the trends in the market and what other companies were doing. And that is the norm or pretty much the norm. In terms of the Remuneration Committee and the Board, regularly review industry remuneration trends to ensure that the CEO and the executive team are being remunerated competitively. Our objective is to remunerate them competitively to ensure that we get the best possible people.
We also go to major shareholders and talk to major shareholder and ensure that we do have shareholder support for what we are doing. And I think remuneration is a moving piece. The trends are changing all the time. I think your point about three year LTI vesting is very valid and the trend is going up to four and even longer in some cases. We are taking all that aboard.
I think to demonstrate that our remuneration policy or long term incentives even though they might based on fair value we can demonstrate that they – that the system is well aligned with the interest of shareholders. No LTI was vested during 2011 or 2012. There were none of the LTI vested, none of the LTI awarded, vested for the last two years. So there was no LTI granted. That was because of the share price performance. The management is totally aligned with shareholders in relation to the share price performance.
And the only other thing I think worth commenting on is that the short-term incentive, I disagree with the comment in relation to short term incentive, although there are changing trends there as well. Sometimes short term incentives have to be paid partially in shares. And that’s another trend that we are looking at. But if you look at the why our short-term incentive works and the very comprehensive score sheet that’s associated with it, look at – even though we had a great result, 2012 relatively speaking, I think we paid the lowest short term incentive percentage wise that is being paid in the history of the company and simply because this board set very, very strict and tough criteria in relation to performance.
So I feel very comfortable with our remuneration package and the way we designed it and how we are applying it. But certainly the comments that are coming from the Australian Shareholders Association and industry trends are continually being taken into account. Thank you.
I have Mr. Lloyd Davies.
Hello, again Chairman. I would just like to support what Mr. Samuel has put forward, not as one of his members but as one of the other shareholders. In particular long term incentive which I think we have mentioned before, at 50%, for a 50% performance, I am not in agreement with and also having got the top of the head 100% even it’s at 75% performance that’s not real good either. I just would like to bring the incoming Board’s attention to the fact that not every company follows the same industry advice, which is often the quoted in response to questions like this. One of the top 10 companies, that has looked at that (Tiebold) done something like 40% at 50% and taken up to 80% or something of that order. I am sure your people would have access to that. So it can be done.
Thanks Mr. Davies. Look I can just appreciate your comments. We are continually reviewing it. We recognize that their salary packages look large but they are driven by the market and we have to remain competitive. It’s in your interest that we maintain a competitive salary package. What we have got to do is continue to make sure that we are reflecting the views of shareholders. Thank you.
I think we have got another question from the ASA.
Yes, thank you Mr. Coates. I am sorry there is one item that I intended to mention before. Buried away in the back pages of the remuneration report there is a table of monies paid to consultants on salary. Now I note that one of the consultants I think it’s PriceWaterHouse Coopers has other payments made there of about $4 million and this compares to the total monies paid to the total consultants or around about a 150-160, 170,000 something of that order.
I think that PriceWaterHouse Cooper people might be forgiven for thinking that if they can come up with the right recommendation to senior management maybe this other work, this other $4 million job that they are doing might sort of move away in to the sunset. So is this the correct interpretation that I have or am I wrong here.
I think that other work relates to mainly, probably in the main taxation advice general consulting fees, it is general work that PriceWater has been doing for us. Am I correct in saying that, David?
It’s not, are you suggesting, I am not quite sure what this…
No, my suggestion is that PriceWaterHouse Coopers were being generous in their recommendation to you on remuneration in view of the fact that they are having $4 million worth of other work.
I am sorry I missed the point totally, my apologies. Look, you can rest assure that we cross check every bit of information we get. The Board is extremely independent in relation to remuneration and I don’t think we have a problem in that regard. I am absolutely confident we haven’t got a problem in that regard.
Thank you. Mr. A. M. Loam? Okay, let’s move on. As set out in the notes of the meeting, a voting exclusion applies to this item of business under the Corporation Act. I will not open the poll in this item. Please enter your votes not using your electronic handset; to vote for press one, to vote against press two, if you wish to abstain press three. Have everyone who wishes to vote entered their selection. If you have not entered your vote then please do so now as the electronic voting will be closing shortly. I now declare that voting on this item is closed. The results of the poll will now appear on the screen. It’s clear that the resolution has been passed.
I also note that the resolution was passed with more 75% of the votes being cast in favor, which is of course relevant under the new two-stroke principle.
The fourth item of business, ask shareholders to approve a grant of share acquisitions rights to the CEO and Managing Director, Mr. David Knox. This is Mr. Knox’s regular annual LTI award for 2103. A detailed explained to CEO’s LTI award is set out in the notice of meeting. In summary the LTI grant will have a three-year performance period from the 1st of January 2013 to the 31st of December, 2015. The receipt of the shares will be subject to our relative total shareholder performance or TSR, performance conditions. Broadly TSR is the growth in share price plus dividends reinvested.
The performance condition ranks the TSR performance of the company against the TSR performance of the companies in the ASX 100 Index. I now move the resolution as it appears on the screen. If there is anyone who wishes to speak on the motion please press the green button and make your way to the nearest microphone.
As Mr. – the Australian Shareholders Association.
Thank you again Mr. Coates. I will just reiterate what was said earlier generally for the remuneration report that we object to the evaluation periods and the method of vesting on this. And we would again recommend that long term incentives if paid in share be nominated as a number of shares, rather than going through this fair value business. However there is one further thing I would add, probably further to Mr. – what Ellis Ford was saying and this is about franking credits. Now you might think this has got nothing to do with salaries. But I am aware that a company like Santos is accumulating franking credits because we are accumulating the profits which are reinvested in the capital works which is fine.
I am also aware that the only way that franking credits can generally be returned to shareholders is either a taxed dividends or some kind of off market share buyback. And neither of these courses of return is suitable for Santos to look at right now. But I have also seen some stuff that says that franking credits can be calculated into the total shareholder return when estimating senior management salary and incentive entitlements.
Now obviously this is a bit of complicated mathematics to do this, but then probably we can work out this multi (inaudible) simulation business. So this is clearly (inaudible). So I would suggest to the remuneration committee that maybe you look at incorporating the franking credits in the total shareholder return. Thank you.
I think that’s very good advice. Mr. Samuel we will certainly look at that. Look just for the record I want to reaffirm that David’s package, David Knox’s package is competitive with his peer group. We put a lot of effort into ensuring that it is. It’s important that it is for your sake and David’s sake and it is well aligned with the interest of shareholders. David had none of his LTI vests for the last two years. And that’s because you haven’t seen shareholder growth in your share price. So it is absolutely aligned.
We have established also on top of that a strategic grant for David, which only vests at the end of 2015 with three transparent targets to meet. So I can assure you that this is treated with a very important part of business and Mr. Greg Martin who is Chairman of the Remuneration Committee has put an enormous of effort into getting this right. So that’s just my word of assurance, but that’s where we are. So thank you for your contribution.
As set out in the notice of meeting voting exclusions apply to this item of business under the Corporations Act and the ASX listing rules. I will now open the poll on this item. Please enter your vote now, using your electronic handset; to vote for press one, against press two and to abstain press three. Has everyone entered their vote? If you have not entered your vote then please do so now as voting will be closing. I now declare that voting on this item is closed. The results of the poll will now appear on the screen. It’s clear that resolution has been passed and I declare that the grant of a share acquisition rights to Mr. Knox has been approved.
The fifth item of business asks shareholders to approve an increase to the agreed amount of remuneration that can be paid in any financial year to the company’s non-executive directors, from 2.1 million to 2.6 million. The proposed increase will provide the Board with strategic flexibility to make additional Board appointments should it wish to do so in the future. It will also ensure that non-Executive Director fees can be set at a sufficiently competitive rate to attract and retain non-Executive Directors of the necessary qualifications and caliber having regard to fees paid by companies while comparable companies list on the ASX.
If the increase is approved the Board does not intend to distribute all of the new fees in the current year. I now move the resolution as it appears on the screen. Is there anyone who wishes to speak on the motion, please press the green button and make your way to the microphone?
As set out in the notice of meeting voting exclusions apply to this item of business under the Corporation’s Act and the ASX listing rules. I will now open the poll on this item. Please enter your vote now using your electronic handset. To vote for, press one, to vote against press two and if you wish to abstain press three. Has everyone who wishes to vote entered their selection? Please do so now as the electronic voting will be closing shortly. I now declare that voting on this item is closed. The results of the poll will now appear on the screen. It’s clear that the resolution has been passed. Thank you.
Ladies and gentlemen as you know Mr. Ken Borda will take on the role of Chairman at the conclusion of today’s AGM. As I indicated in my address earlier I would now like to invite Ken as incoming chairman to address the meeting. Ken?
Thanks, Peter. Good morning ladies, gentlemen, and fellow shareholders. Let me say at the outset it’s an honor and a privilege to Chair your company It’s been quite a long meeting, so I will limit my remarks to three topics; firstly, our strategy and positioning; secondly, our dividend policy; and thirdly, our engagement with our retail and non-institutional shareholders.
Following the post-AGM press conference, the Board including Peter, David and I will be in the foyer having a cup of tea. So please feel free to come and talk to us. We would be pleased to answer your questions and to listen to any comments you may have. This is your AGM so please let us know how it went.
It is fitting that my first address as Chairman Elect is to this AGM, and to you, the individual and family shareholders. As individual shareholders you comprise more than 95% of our register. You own more than 30% of our shares. Peter and David have outlined for us today the successful transformation of Santos to become a leading Australian energy resource company. We are now well on the way to becoming an energy partner-of-choice for the region, in this, the Asian century.
As Peter said, while we are expanding Santos to deliver resources to export markets, our commitment to the domestic market and our commitment to providing resources for the benefit of local industry is integral to our strategy. Our intention to remain as one of the leading suppliers of natural gas to Australian customers is clear cut. I want to confirm that the Board’s major priority is to ensure that the delivery of our major LNG projects are executed effectively and efficiently.
The journey that Santos has embarked on is not just good for shareholders and our company. It is one that will bring change that will be critical to the success of Australia’s future in our region. Natural gas developed at scale and using the best technology has the potential to deliver long-term structural change to this country. It will support Australian manufacturing industries but will also create a massive export industry that will help our region maintain its overall growth rate. These twin outcomes are fundamental to a strong outlook for the Australian economy. By focusing on these twin outcomes we are underpinning jobs for Australians, and bringing new technology and practices to our shores.
The natural gas industry is here for the long-term and I firmly believe it is an industry that we can all be proud of. I agree with Peter’s observations on the challenges that the industry faces. And I will comment on two of the most significant of these challenges. First of note is the high cost environment in which the oil and gas sector operates within Australia, especially over the last few years. Your Board remains committed to ensuring that Santos continues to operate efficiently, and ensuring that the management team maintain a relentless approach to driving down costs across our business. We have to deliver significant reductions in the costs of drilling and other contract services.
On that matter, it is pleasing to see that some costs in Australia are already falling from their unsustainable high levels. We must leverage our position in all contract tenders to deliver further real cost savings.
Peter also raised the issue of regulatory uncertainty which must be eliminated. The best way to deliver gas to our customers’ at the most economic price is to increase exploration and production. Australia has the gas but we need to get it out of the ground. We can do that provided we are supported by sensible and consistent government policy.
A senior national political leader last week described Santos as a sensible company, and so we are. But if we are to deliver the gas that the nation needs to grow and prosper, we need to operate under sensible conditions, with sensible government policies and properly informed community attitudes. The reality is the oil and gas industry has traditionally operated offshore or many hundreds of kilometers from homes, from farmers, or from towns. Today, our operations are much more visible. As a result we can be seen as a new industry but of course we are not.
We recognize that it is imperative that our industry demonstrates to communities, landowners and government representatives that we operate safely and sustainably, just as we have done for decades, out of sight, and therefore largely out of mind. As we seek to develop our coal seam gas assets in Queensland and New South Wales, Santos is at the very center of this change. With this position comes responsibility and accountability. We are committed to doing what is right.
I firmly believe that it is this approach that makes Santos the right company to help communities navigate through change. We intend to make sure the integrity of our people and our focus on operating responsibly and for the long term will be what makes the difference. On behalf of the Board, I would like to express our commitment to deliver the company’s strategy. And I would also like to express our confidence in David and the management team’s ability to deliver this strategy safely, sustainably. We must work to deliver positive outcomes to shareholders, investors, employees and the communities in which we operate, as well as our customers both here and abroad.
As your incoming Chairman, I want to recognize the many individual and family shareholders, many of whom are with us today and who have been with Santos and supported our company for many years. It is important that we do our best to maintain and build upon the strong relationships we have with you. We must provide you with the opportunity to engage with us so that you can understand our operations, our decisions and our performance, and of course, to allow you to have your say, your vote, when it matters.
Andrew Nairn, our Head of Investor Relations – Andrew is here today. And Andrew is taking a series of steps to increase our engagement with retail brokers and self-managed super funds. As shareholders you have been with us on the transformational journey that the company has embarked on. Your investment in our company over these years does not go unnoticed. This commitment to Santos will be recognized as we consider our capital management and dividend policies as the major LNG projects come on stream.
The Board is keenly aware that returns are a key priority for shareholders. It is our intent to review the dividend policy as we approach PNG LNG production. We want to reward shareholders as earnings increase. But we need to do so in a way that strikes the right balance between dividends and ongoing investment for growth. Santos is a growth company, and as we change our dividend policy in line with higher earnings, that policy must be sustainable.
Now as David mentioned to you earlier, progress on PNG LNG is on track. Last month I joined a number of Santos executives and Board Members in PNG to observe and understand the work that was being carried out. I was particularly impressed with the size and scale of the project, both in the upstream and at the LNG plant site in Port Moresby.
So that concludes my initial remarks to you. I would like to take this opportunity to congratulate Peter on an excellent job as Chairman in working tirelessly and thoughtfully to steer Santos through some of the biggest investment and strategic decision making the company has ever faced in its almost six decades of operations. Peter, it has been both a pleasure and a rewarding experience to work with you, and I thank you for staying on to assist with a smooth transition.
I also would like to acknowledge and welcome Mr. Stephen Gerlach AM and Mr. John Ellice-Flint who are with us here today. Stephen was the Chairman, and John the CEO, when I joined the Board in 2007. Ladies and gentlemen, along with my Board colleagues, I look forward to regularly reporting to you on our progress over the next twelve months.
I will now hand back to Peter to close the meeting. All the very best, thank you.
Thanks Ken. Ladies and gentlemen that completes the items of business for the 2013 Annual General Meeting. I now request that the company’s Auditors hand to me a list of shareholders who subject to their confirmation as to eligibility will be invited to participate in the annual shareholder visit to (inaudible). Thank you.
We have Kathleen Mary-Butler, Joel Fitch, Jeff Turton, John Richard-Nichski, Peter Maison, Anne Rodney-Partridge, Warren Lloyd-Donahue, Donald John Nance, Valeria Don Lindsey, Trevor Garnet, Mobe Hill, Ronald Woodlee, Angeline Murrey Cusenza, Patrick James Williams, John Steward Stackee, Robert William Fleming, Colin Browns Bailey, Ellen Cook, Robert Keith Williams, Rosemary Jean Murdoch and Alexander Jean Jarvis. Congratulations, it’s a great experience, well enjoyed by those who have attended in prior years. You will be contacted by the company and advised to the date and other details of the visit.
That concludes the business of the meeting. Before everyone rises I advise that light refreshments will be served in the foyer outside the auditorium overlooking look in the Torrens River I hope shareholders will take the opportunity to meet with the company Directors, senior leadership team and staff. Please hand back your handsets and smart cards to one of the Computershare reps at the door as you leave the room.
I now formally declare the meeting closed subject to finalization of polls on each item of business and thank all members present for their attendance. Thank you all. Thank you
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