||
|-|
|Half-year reportincorporating Appendix 4DSantos Limited and its controlled entities.For the period ended 30 June 2017, under Listing Rule 4.2.|

RESULTS FOR ANNOUNCEMENT TO THE MARKET
APPENDIX 4D FOR THE PERIOD ENDED 30 JUNE 2017
|||||
|-|-|-|-|
|2017|2016|n|Change|
|US$million|US$millio||%|

 Revenue from ordinary activities
1,496 1,205
24 Statutory Profit/(Loss) from ordinary activities after tax
attributable to members
(506) (1,104)
54 Net Profit/(Loss) for the period attributable to members
(506) (1,104)
54
||||
|-|-|-|
|Interim Dividends|Amount per securityUS cents|Franked amount per|
|||security at 30% tax|
|||US cents|

 On 23 August 2017, the Directors resolved not to pay an interim
dividend in relation to the half-year ended 30 June 2017.
Ordinary securities Nil Nil CONTENTS ABOUT SANTOS
Half-year Report Santos is an Australian natural gas company. Established in 30 June 2017 Page 1954, the company is proud to deliver the economic and environmental benefits of natural gas to homes andDirectors’ Report 2 businesses throughout Australia and Asia.
Review and Results of Operations 2 Five core long-life natural gas assets sit at the heart of a disciplined, focused strategy to drive sustainable Directors 6
shareholder value: the Cooper Basin, GLNG, Papua New Rounding 6 Guinea, Northern Australia and Western Australia Gas. Each of these core assets provide stable production, long-Auditor’s Independence Declaration 7
term revenue streams and significant upside opportunities. Half-year Financial Report 8
With one of the largest exploration and production Consolidated Income Statement 8 acreages in Australia, a significant and growing footprint in Papua New Guinea and a strategic infrastructure position, Consolidated Statement of
Comprehensive Income 9 Santos is well positioned to benefit from the growing global demand for energy.
Consolidated Statement of
Financial Position 10
The Santos turnaround is now well underway. A three Consolidated Statement of Cash Flows 11
phase strategy to Transform, Build and Grow the business will drive returns as we continue to focus on the Consolidated Statement of
exploration, development, production and sale of natural Changes in Equity 12
gas.
Notes to the Half-year Consolidated
Financial Statements 13
Santos is focused on delivering sustainable shareholder value by becoming a low-cost, reliable and highDirectors’ Declaration 27
performance business with the financial flexibility to build
IndependentAuditor’s Report 28
and grow the business through the oil price cycle.
Appendix 4D continued 30
DIRECTORS’ REPORTDIRECTORS’ REPORT
The Directors present their report together with the consolidated financial report of the consolidated entity, being Santos Limited (“Santos” or “the Company”) and its controlled entities, for the half-year ended 30 June 2017, and theauditor’s review report thereon.
REVIEW AND RESULTS OF OPERATIONS
Unless otherwise stated, all references to dollars are to US dollars.
A review of the results of the operations of the consolidated entity during the half-year is as follows:
|||||
|-|-|-|-|
|Summary of results table|2017|2016|Variance|

 mmboe mmboe % Production volume 29.5 31.1 (5) Sales volume 40.1 40.9 (2)$million $million
Product sales 1,453 1,191 22 EBITDAX1 718 491 46 Exploration and evaluation expensed (53) (47) (13) Depreciation and depletion (348) (399) 13 Net impairment loss (920) (1,516) 39 EBIT1 (603) (1,471) 59 Net finance costs (139) (131) (6) Taxation benefit/(expense) 236 498 (53) Net profit/(loss) for the period (506) (1,104) 54 Underlying profit/(loss) for the period1 156 (5) 3220 1 EBITDAX (earnings before interest, tax, depreciation, depletion, exploration and evaluation and impairment), EBIT (earnings before interest and tax) and underlying profit/(loss) are non-IFRS measures that are presented to provide an understanding of the underlying performance ofSantos’ operations. Underlying profit excludes the impacts of asset acquisitions, disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments and fluctuations in exchange rates. Please refer to page 5 for the reconciliation from net profit/(loss) to underlying profit/(loss) for the period. The non-IFRS financial information is unaudited however the numbers have been extracted from the financial statements which have been subject to review by theCompany’s auditor.
Sales volume Sales revenue
1,727
40.9 40.1
1,526
1,453 30.9 1,261
28.9 1,191
27.4
HY13 HY14 HY15 HY16 HY17
HY13 HY14 HY15 HY16 HY17
Sales volumes of 40.1 million barrels of oil equivalent Sales revenue was up22% compared to the previous
(mmboe) were2% lower than the previous half. Higher half to$1.5 billion, primarily due to higher oil and LNG
LNG sales volumes due to the ramp-up of GLNG, prices. The average realised oil price was up28% to
ongoing strong production from PNG LNG, and higher US$55/bbl and the average realised LNG price rose
domestic gas sales in WA, were offset by asset sales and 26% toUS$7.21/mmBtu.
lower Cooper Basin sales volumes.
2 Santos Limited Half-year Financial Report– 30 June 2017 eobmm
noillim$SU
DIRECTORS’ REPORT Production GLNG
GLNG produces liquefied natural gas (LNG) for export to global markets from the LNG plant at Gladstone. Gas 31.1
29.5 is also sold into the domestic market. Santos has a30% 28.3
24.5 25
interest in GLNG.
The LNG plant has two LNG trains with a combined nameplate capacity of 7.8 mtpa. Production from Train 1 commenced in September 2015 and Train 2 in May 2016. Feed gas is sourced fromGLNG’s upstream fields, Santos portfolio gas and third-party suppliers. HY13 HY14 HY15 HY16 HY17
The LNG plant produced 2.4 million tonnes in the first half of 2017 and shipped 42 cargoes.
Production was5% lower than the previous half
primarily due to the sale of the Victorian, Mereenie and
Santos aims to build GLNG gas supply through Stag assets, partially offset by the ramp-up of GLNG and
upstream development, seek opportunities to extract higher PNG LNG production.
value from existing infrastructure and drive efficiencies to operate at lowest cost.
Review of Operations eobmm
||||
|-|-|-|
|GLNG|HY17|HY16|
|Production (mmboe)|||
|Sales volume (mmboe)|||
|Revenue (US$m)|||
|Production cost (US$/boe)|||
|EBITDAX (US$m)|||
|Capex (US$m)|||

 The Cooper Basin produces natural gas, gas liquids and
crude oil. Gas is sold primarily to domestic retailers,
GLNG EBITDAX was$156 million,141% higher than industry and for the production of liquefied natural gas,
the first half of 2016. This was a result of higher sales while gas liquids and crude oil are sold in domestic and
revenue reflecting the ramp up of upstream production export markets.
and higher LNG prices.
Santos’ strategy in the Cooper Basin is to deliver a low- Following a review, Santos recognised an impairment cost, cash flow positive business by building production, charge against the carrying value for GLNG of$867 investing in new technology to lower development and million after tax in the 2017 half-year accounts. The exploration costs, and increasing utilisation of impairment was primarily due to lower forecastUS$ oil infrastructure including the Moomba plant. prices.
Papua New Guinea
||||
|-|-|-|
|Cooper Basin|HY17|HY16|
|Production (mmboe)|||
|Sales volume (mmboe)|||
|Revenue (US$m)|||
|Production cost (US$/boe)|||
|EBITDAX (US$m)|||
|Capex (US$m)|||

 million tonnes per annum. Production from both trains Cooper Basin EBITDAX was$157 million,51% higher
commenced in 2014 and operated at record rates in the than the first half of 2016 primarily due to higher sales
first half of 2017, producing four million tonnes of LNG revenue impacted by higher oil prices, in addition to
and shipping 54 cargoes. Condensate production was lower production costs resulting from cost saving
5.4 million barrels.
initiatives.
Santos’ share of Cooper Basin sales gas and ethane
Santos’ strategy in PNG is to work with its partners to production of 28.6 petajoules (PJ) was lower than the
align interests, and support and participate in backfill corresponding period (31.5 PJ) due to lower
and expansion opportunities at PNG LNG.
development activity and natural field decline.
In the first half of 2017, Santos and its partners
During the 2017 half-year, Santos recognised an announced a potentially significant new gas discovery at
impairment write-back of$336 million after tax. The Muruk, located 21 kilometres from the existing PNG
impacts of lowerUS$ oil price assumptions were more LNG production facilities at Hides. Data from the
than offset by a continuation of the cost efficiencies and Muruk drilling program will be evaluated to inform
performance improvement achieved during 2016 forward appraisal options. Well site preparations are
allowing increased drilling activity and production. being planned ahead of a potential Muruk appraisal
program in 2018.
DIRECTORS’ REPORT
||||
|-|-|-|
|PNG|HY17|HY16|
|Production (mmboe)|||
|Sales volume (mmboe)|||
|Revenue (US$m)|||
|Production cost (US$/boe)|||
|EBITDAX (US$m)|||
|Capex (US$m)|||

||||
|-|-|-|
|WA Gas|HY17|HY16|
|Production (mmboe)|||
|Sales volume (mmboe)|||
|Revenue (US$m)|||
|Production cost (US$/boe)|||
|EBITDAX (US$m)|||
|Capex (US$m)|||

Bayu-Undan/Darwin LNG (DLNG) project. In
operation since 2006, DLNG produces LNG and gas
WA Gas EBITDAX was$116 million,8% lower than liquids for export to global markets. Santos has an
the first half of 2016.
11.5% interest in DLNG.
Santos’ share of Western Australia gas and condensate The LNG plant near Darwin has a single LNG train with
production in the first half of 2017 was 23.9 PJ and 0.2 a nameplate capacity of 3.7 mtpa. DLNG continued to
mmbbl respectively.
perform strongly in the first half of 2017, producing 1.7
million tonnes of LNG and shipping 26 cargoes.
Other assets– Asia, NSW and WA Oil
Condensate production was three million barrels.
Santos’ other assets have been packaged and runSantos’ strategy in Northern Australia is to support separately as a standalone business. These assets plans to progress Darwin LNG backfill, expand the include Santos interests in Indonesia, Vietnam, Newcompany’s acreage footprint and appraise the onshore South Wales and Western Australia oil. The portfolio McArthur Basin. will be continually optimised to drive efficiency and shareholder value.
During the first half of 2017, a two-well appraisal drilling
campaign in the Barossa field (Santos25%) was Consistent with optimising the portfolio to maximise successfully completed. Positive results from the value, Santos sold its Victorian assets and Mereenie campaign, including a successful production test of (Northern Territory) effective 1 January 2017. Barossa-6, strengthened thefield’s position as lead
||||
|-|-|-|
|Other assets|HY17|HY16|
|Production (mmboe)|||
|Sales volume (mmboe)|||
|Revenue (US$m)|||
|Production cost (US$/boe)|||
|EBITDAX (US$m)|||
|Capex (US$m)|||

||||
|-|-|-|
|Northern Australia|HY17|HY16|
|Production (mmboe)|||
|Sales volume (mmboe)|||
|Revenue (US$m)|||
|Production cost (US$/boe)|||
|EBITDAX (US$m)|||
|Capex (US$m)|||

 were lower than the previous half-year due to the sale of the Victorian, Mereenie and Stag assets.
Northern Australia EBITDAX was$45 million,22%
higher than the first half of 2016 mainly due to higher
During the 2017 half-year, Santos recognised an commodity prices.
impairment charge of$149 million after tax on the non- core Ande Ande Lumut asset in Indonesia following an WA Gas
assessment of the impact of lower oil prices.
Santos is one of the largest producers of domestic
natural gas in Western Australia and is also a significant
producer of gas liquids.
DIRECTORS’ REPORT Net Loss
The 2017 first half net loss was$506 million; compared with a$1,104 million loss at half-year 2016. The$598 million decrease in net loss is primarily due to higher product sales driven by higher commodity prices, in addition to a before tax impairment loss of$920 million; compared with$1,516 million at half-year 2016.
Net loss includes items after tax of$662 million (before tax of$959 million), referred to in the reconciliation of net profit/(loss) to underlying profit/(loss) below.
||||
|-|-|-|
|Reconciliation of Net Profit/(Loss) to|2017|2016|
|Underlying Profit/(Loss)1|$million|$million|

 Gross Tax Net Gross Tax Net Net profit/(loss) after tax attributable to
equity holders of Santos Limited (506) (1,104) Add/(deduct) the following:
Impairment losses 920 (231) 689 1,516 (455) 1,061 Gains on sale of non-current assets (68) 17 (51) 6 (2) 4 Insurance recovery on remediation and related
costs for incidents - - - (9) - (9) Foreign exchange losses/(gains) 93 (78) 15 29 (29) - Fair value adjustments on embedded derivatives
and hedges (32) 9 (23) 12 (4) 8 Onerous contract 31 (9) 22 26 (8) 18 Redundancy/restructure 2 (1) 1 24 (7) 17 Other one-off tax adjustment 13 (4) 9 - - - 959 (297) 662 1,604 (505) 1,099 Underlying profit/(loss)1 156 (5) 1 Underlying profit/(loss) is a non-IFRS measure that is presented to provide an understanding of the underlying performance ofSantos’ operations. The measure excludes the impacts of asset acquisitions, disposals and impairments, as well as items that are subject to significant variability from one period to the next, including the effects of fair value adjustments and fluctuations in exchange rates. The non-IFRS financial information is unaudited however the gross numbers presented above have been extracted from the financial statements which have been subject to review by theCompany’s auditor.
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF SANTOS LIMITED / DIVIDENDS
Equity attributable to equity holders of Santos Limited at 30 June 2017 was$6,917 million.
On 23 August 2017, the Directors resolved not to pay an interim dividend in relation to the half-year ended 30 June 2017.
CASH FLOW
The net cash inflow from operating activities of$662 million was127% higher than the first half of 2016. This increase is principally attributable to higher sales revenue driven by favourable product prices and increased sales volume. Net cash used in investing activities of$244 million was$264 million higher than the first half of 2016 primarily due to the proceeds realised from the disposal in 2016 of$411 million compared to$130 million in 2017. Cash flows used in financing activities were$99 million higher than the first half of 2016 predominantly due to the early repayment of a$250 million ECA facility, offset by the proceeds on share purchase plan of$148 million.
OUTLOOK
Sales volume guidance is upgraded to 77 to 82 mmboe and production guidance is maintained in the range of 57 to 60 mmboe for 2017.
POST BALANCE DATE EVENTS
On 23 August 2017, Santos exercised its option to redeem its€1,000 million subordinated notes at the first call date
of 22 September 2017.
On 23 August 2017, the Directors of Santos Limited resolved not to pay an interim dividend in relation to the half-year
ended 30 June 2017.
DIRECTORS’ REPORT DIRECTORS
The names of Directors of the Company in office during or since the end of the half-year are:
|||
|-|-|
|Surname|Other Names|

Allen Yasmin Anita
Coates Peter Roland (Chairman)
Cowan Guy Michael
Franklin Roy Alexander
Gallagher Kevin Thomas (Managing Director and Chief Executive Officer)
Goh Hock
Hearl Peter Roland
Martin Gregory John Walton
Sheffield1 Scott Douglas
Guthrie2 Vanessa Ann
Shi3 Yujiang
1 Mr Sheffield ceased to be a Director of Santos Limited on 4 May 2017 at the completion of the 2017 Annual General Meeting.
2 Dr Guthrie was appointed a Director of Santos Limited by the Board with effect from 1 July 2017 and will stand for election at theCompany’s next Annual General Meeting. 3 Mr Shi was appointed a Director of Santos Limited by the Board with effect from 26 June 2017 and will stand for election at theCompany’s next Annual General Meeting. Each of the above named Directors held office during or since the end of the half-year. There were no other persons who acted as Directors at any time during the half-year and up to the date of this report.
ROUNDING
Australian Securities and Investments Commission Corporations (Rounding inFinancial/Directors’ Report) Instrument 2016/191 applies to the Company. Accordingly, amounts have been rounded off in accordance with that Instrument, unless otherwise indicated.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of theauditor’s independence declaration as required by section 307C of the Corporations Act 2001 (Cth) is set out on page 7 and forms part of this report.
This report is made out on 23 August 2017 in accordance with a resolution of the Directors.
Director
23 August 2017
Ernst& Young Tel:+61 8 8417 1600
121 King William Street Fax:+61 8 8417 1775
Adelaide SA 5000 Australia ey.com/au
GPO Box 1271 Adelaide SA 5001
Auditor’s Independence Declaration to the Directors of Santos Limited As lead auditor for the review of Santos Limited for the half-year ended 30 June 2017, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Santos Limited and the entities it controlled during the financial period. Ernst& Young
R J Curtin
Partner
Adelaide
23 August 2017
A member firm of Ernst& Young Global Limited
7
Liability limited by a scheme approved under Professional Standards Legislation
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2017
30 June 30 June 2017 2016 Note $million $million Product sales 2.2 1,453 1,191 Cost of sales 2.3 (1,088) (1,081) Gross profit 365 110 Other revenue 43 14 Other income 74 74 Impairment of non-current assets 3.4 (920) (1,516) Other expenses 2.3 (170) (158) Finance income 4.1 14 6 Finance costs 4.1 (153) (137) Share of net profit of joint ventures 5 5 Loss before tax (742) (1,602) Income tax benefit 228 506 Royalty-related tax benefit/(expense) 8 (8) Total tax benefit 236 498 Net loss for the period attributable to owners of Santos Limited (506) (1,104) Earnings per share attributable to the equity holders of Santos
Limited(¢)
Basic loss per share (24.4) (62.4) Diluted loss per share (24.4) (62.4) Dividends per share(¢)
Paid during the period 2.4 – 4 Declared in respect of the period 2.4 – – The consolidated income statement is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2017
30 June 30 June 2017 2016$million $million Net loss for the period (506) (1,104) Other comprehensive income, net of tax:
Other comprehensive income to be reclassified to profit or loss in subsequent
periods:
Exchange gain on translation of foreign operations 116 12 Tax effect – – 116 12 Gain on foreign currency loans designated as hedges of net
investments in foreign operations 132 113 Tax effect (41) (34) 91 79 Gain on derivatives designated as cash flow hedges 9 4 Tax effect (3) (1) 6 3 Net other comprehensive income to be reclassified to profit
or loss in subsequent periods 213 94 Items not to be reclassified to profit or loss in subsequent periods:
Actuarial gain/(loss) on the defined benefit plan 2 (1) Tax effect (1) – 1 (1) Loss on financial liabilities at fair value through other comprehensive
income (FVOCI) (30) – Tax effect 10 – (20) – Net other comprehensive loss not being reclassified to profit
or loss in subsequent periods (19) (1) Other comprehensive income, net of tax 194 93 Total comprehensive loss attributable to owners of Santos
Limited (312) (1,011) The consolidated statement of comprehensive income is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
30 June 31 December 2017 2016 Note $million $million Current assets
Cash and cash equivalents 2,226 2,026 Trade and other receivables 364 367 Prepayments 32 34 Inventories 284 321 Other financial assets 17 7 Tax receivable 6 15 Assets held for sale – 180 Total current assets 2,929 2,950 Non-current assets
Receivables 5 5 Prepayments 21 17 Investments in joint ventures 47 56 Other financial assets 145 152 Exploration and evaluation assets 3.1 422 495 Oil and gas assets 3.2 9,617 10,398 Other land, buildings, plant and equipment 130 135 Deferred tax assets 1,356 1,054 Total non-current assets 11,743 12,312 Total assets 14,672 15,262 Current liabilities
Trade and other payables 474 520 Deferred income 9 23 Interest-bearing loans and borrowings 415 420 Current tax liabilities 2 3 Provisions 95 121 Other financial liabilities 264 366 Liabilities directly associated with assets held for sale – 103 Total current liabilities 1,259 1,556 Non-current liabilities
Deferred income 108 99 Interest-bearing loans and borrowings 4,565 4,819 Deferred tax liabilities 210 221 Provisions 1,590 1,464 Other financial liabilities 23 23 Total non-current liabilities 6,496 6,626 Total liabilities 7,755 8,182 Net assets 6,917 7,080 Equity
Issued capital 4.2 9,034 8,883 Reserves (317) (510) Accumulated losses (1,800) (1,293) Total equity 6,917 7,080
The consolidated statement of financial position is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
30 June 30 June 2017 2016$million $million Cash flows from operating activities
Receipts from customers 1,542 1,278 Interest received 14 7 Dividends received 7 6 Pipeline tariffs and other receipts 43 7 Payments to suppliers and employees (739) (824) Exploration and evaluation seismic and studies (28) (35) Royalty and excise paid (26) (16) Borrowing costs paid (126) (105) Income taxes paid (37) (24) Income taxes received 23 – Royalty-related taxes paid (13) (10) Other operating activities 2 7 Net cash provided by operating activities 662 291 Cash flows from investing activities
Payments for:
Exploration and evaluation assets (93) (58) Oil and gas assets (262) (314) Other land, buildings, plant and equipment (3) (7) Acquisitions of oil and gas assets (14) – Borrowing costs paid (5) (15) Proceeds on disposal of non-current assets 130 411 Other investing activities 3 3 Net cash (used in)/provided by investing activities (244) 20 Cash flows from financing activities
Dividends paid – (43) Repayments of borrowings (368) (75) Proceeds/(costs) from issues of ordinary shares 148 (3) Net cash used in financing activities (220) (121) Net increase in cash and cash equivalents 198 190 Cash and cash equivalents at the beginning of the period 2,026 839 Effects of exchange rate changes on the balances of cash held in foreign
currencies 2 5 Cash and cash equivalents at the end of the period 2,226 1,034 The consolidated statement of cash flows is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Equity attributable to owners of Santos Limited
Financial Accumulated
Issued Translation Hedging liabilities at profits Accumulated Total capital reserve reserve FVOCI reserve losses equity$million $million $million $million $million $million $million Balance at 1 January 2016 8,119 (808) (12) – 121 1 7,421 Transfer retained profits to accumulated profits reserve – – – – 258 (258) – Items of comprehensive income:
Net loss for the period – – – – – (1,104) (1,104) Other comprehensive income/(loss) for the period – 91 3 – – (1) 93 Total comprehensive income/(loss) for the period – 91 3 – – (1,105) (1,011) Transactions with owners in their capacity as owners:
Shares issued 21 – – – – – 21 Dividends to shareholders – – – – (66) – (66) Share-based payment transactions – – – – – 4 4 Balance at 30 June 2016 8,140 (717) (9) – 313 (1,358) 6,369 Balance at 1 July 2016 8,140 (717) (9) – 313 (1,358) 6,369 Net loss for the period – – – – – 57 57 Other comprehensive income/(loss) for the period – (113) 16 – – 2 (95) Total comprehensive income/(loss) for the period – (113) 16 – – 59 (38) Transactions with owners in their capacity as owners:
Shares issued 743 – – – – – 743 Share-based payment transactions – – – – – 6 6 Balance at 31 December 2016 8,883 (830) 7 – 313 (1,293) 7,080 Opening balance adjustment on adoption of new accounting standard
(refer Note 5.4) – – – – – (5) (5) Balance at 1 January 2017 8,883 (830) 7 – 313 (1,298) 7,075 Net loss for the period – – – – – (506) (506) Other comprehensive income/(loss) for the period – 207 6 (20) – 1 194 Total comprehensive income/(loss) for the period – 207 6 (20) – (505) (312) Transactions with owners in their capacity as owners:
Shares issued 151 – – – – – 151 Share buy-back (held as Treasury shares) (3) – – – – – (3) Share-based payment transactions 3 – – – – 3 6 Balance at 30 June 2017 9,034 (623) 13 (20) 313 (1,800) 6,917
The consolidated statement of changes in equity is to be read in conjunction with the notes to the half-year financial statements.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 1: BASIS OF PREPARATION
This section provides information about the basis of preparation of the half-year financial report, and certain accounting policies that are not disclosed elsewhere.
1.1 CORPORATE INFORMATION
Santos Limited (“the Company”) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (“ASX”). The condensed consolidated financial report of the Company for the six months ended 30 June 2017 (“the half-year financial report”) comprises the Company and its controlled entities (“the Group”). Santos Limited is the ultimate parent entity in the Group.
The half-year financial report was authorised for issue in accordance with a resolution of the Directors on 23 August 2017.
The half-year financial report is presented in United States dollars.
1.2 BASIS OF PREPARATION
This general purpose half-year financial report has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001.
The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and cash flows of the Group as the annual financial report.
It is recommended that the half-year financial report be read in conjunction with the annual financial report for the year ended 31 December 2016 and considered together with any public announcements made by the Company during the six months ended 30 June 2017, in accordance with the continuous disclosure obligations of the ASX listing rules.
1.3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The significant accounting judgements, estimates and assumptions adopted in the half-year financial report are consistent with those applied in the preparation of theGroup’s annual financial report for the year ended 31 December 2016.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 2: FINANCIAL PERFORMANCE
This section focuses on the operating results and financial performance of the Group. It includes disclosures of segmental financial information and dividends.
2.1 SEGMENT INFORMATION
The Group has identified its operating segments to be the five key assets/operating areas of the Cooper Basin; Gladstone LNG (“GLNG”); Papua New Guinea (“PNG”); Northern Australia; and Western Australia gas; based on the nature and geographical location of the assets, plus “Other” non-core assets. This is the basis on which internal reports are provided to the Chief Executive Officer for assessing performance and determining the allocation of resources within the Group.
Segment performance is measured based on earnings before interest, tax, impairment, exploration and evaluation, depletion, depreciation and amortisation “EBITDAX”. Corporate and exploration expenditure and inter-segment eliminations are included in the segment disclosure for reconciliation purposes.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
2.1 SEGMENT INFORMATION (continued)
Corporate, Northern exploration, Cooper Basin GLNG PNG Australia WA Gas Other eliminations Total
|||||||||||||||||||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
||201|7|||2017||||2017||||2017||||2017||||2017|||2017||||2017||
||||330158||||21086||||207–3||||71––||||74––|||2143–||||85(26)(3)||||
||319||||347||||248||||78||||116||||165|||180||||1,453||
||60||||7||||–||||–||||–||||2|||(69|)|||–||
|16||||4||||2||||–||||19||||3|||(1)||||43|||
||16||||4||||2||||–||||19||||3|||(1||||43||
||395||353||358||224||250||210||78||71||135||74||170|217||110||56||1,496||
||||(85)(40)(108)(2)(14)104(97)––||||(31)(35)(62)(30)(1)65(107)–(1,500)||||(26)(19)(1)–1165(52)––||||(37)–––337(24)––||||(23)(2)––77126(36)––|||(91)(8)––(15)103(66)–(16)||||20(66)(79)32(72)(109)(17)(47)–||||
||(69|)|||(34|)|||(27|)|||(35|)|||(25|)|||(61)|||12||||(239|)|
||(37|)|||(33|)|||(22|)|||(3|)|||(8|)|||(8)|||(78|)|||(189|)|
|(73)||||(84)||||(1)||||–||||–||||–|||(120)||||(278)|||
||(73||||(84||||(1||||–||||–||||–|||(120||||(278||
||(1|)|||(57|)|||–||||–||||–||||–|||58||||–||
||(58|)|||6||||3||||5||||14||||15|||(57|)|||(72|)|
||157||||156||||203||||45||||116||||116|||(75|)|||718||
||(72|)|||(96|)|||(52|)|||(29|)|||(36|)|||(50)|||(13|)|||(348|)|
|–||||–||||–||||–||||–||||–|||(53)||||(53)|||
|480||||(1,238)||||–||||–||||(6)||||(152)|||(4)||||(920)|||
||480||||(1,238||||–||||–||||(6||||(152)|||(4||||(920||
||565||||(1,178|)|||151||||16||||74||||(86)|||(145|)|||(603|)|
|||||||||||||||||||||||||(139|)|||(139|)|
||||||||||||||||||||||||||||(742)|||
|||||||||||||||||||||||||||||(742||
|||||||||||||||||||||||||228||||228||
|–||||–||||–||||–||||(11)||||11|||8||||8|||
||–|||||||||||||||||||||||||||||
||||||||||||||||||||||||||||(506)|||

* Inter-segment pricing is determined on an arm's length basis. Inter-segment sales are eliminated on consolidation.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
2.2 REVENUE
30 June 2017 30 June 2016$million $million Product sales:
Gas, ethane and liquefied gas 1,053 806 Crude oil 262 285 Condensate and naphtha 106 76 Liquefied petroleum gas 32 24 Total product sales1 1,453 1,191 1. Total product sales include third party product sales of$392 million (2016:$278 million).
2.3 EXPENSES
30 June 2017 30 June 2016$million $million Cost of Sales:
Production costs:
Production expenses 208 232 Production facilities operating leases 31 41 Total production costs 239 273 Other operating costs:
LNG plant costs 32 26 Pipeline tariffs, processing tolls and other 88 85 Onerous pipeline contract 31 26 Royalty and excise 30 19 Shipping costs 8 14 Total other operating costs 189 170 Total cash cost of production 428 443 Depreciation of plant, equipment and buildings 221 238 Depletion of subsurface assets 126 157 Total depreciation and depletion 347 395 Third-party product purchases 278 250 Decrease/(increase) in product stock 35 (7) Total cost of sales 1,088 1,081 Other expenses:
Selling 7 9 Corporate 48 57 Depreciation 1 4 Foreign exchange losses 93 29 (Gain)/loss from change in fair value of derivative financial
assets designated as fair value through profit or loss (2) 1 Fair value hedges, (gains)/losses:
On the hedging instrument 5 10 On the hedged item attributable to the hedged risk (35) 1 Exploration and evaluation expensed 53 47 Total other expenses 170 158
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
2.4 DIVIDENDS
Dividend Total per share US$ US¢ million Dividends paid during the period:
2017
No dividends were paid during the period. nil nil 2016
Final 2015 ordinary– paid 30 Mar 2016(A$0.05) 4 66 All dividends paid were franked at the tax rate of30%.
Dividends declared in respect of the current period:
On 23 August 2017, the Directors resolved not to pay an interim dividend in relation to the half-year ended 30 June 2017.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 3: CAPITAL EXPENDITURE, OPERATING ASSETS AND RESTORATION OBLIGATIONS This section includes information about the assets used by the Group to generate profits and revenue, specifically information relating to exploration and evaluation assets, oil and gas assets, and commitments for capital expenditure not yet recognised as a liability.
The life cycle of our assets is summarised as follows:
Exploration and
Appraisal Drilling Development Production Decommissioning
Abandonment and Evaluation Restoration 3.1 EXPLORATION AND EVALUATION ASSETS
Six months ended
30 June 31 December 30 June 2017 2016 2016$million $million $million Balance at the beginning of the period 495 551 520 Acquisitions 35 36 1 Additions 57 57 59 Expensed (18) (55) (16) Impairment losses (156) (55) (4) Transfer to oil and gas assets in development – – (1) Transfer to oil and gas assets in production (6) – (15) Transfer to assets held for sale – (28) – Exchange differences 15 (11) 7 Balance at the end of the period 422 495 551 Comprising:
Acquisition costs 82 150 186 Successful exploration wells 290 249 253 Pending determination of success 50 96 112 422 495 551
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
3.2 OIL AND GAS ASSETS
Six months ended
30 June 31 December 30 June 2017 2016 2016$million $million $million Assets in development
Balance at the beginning of the period 90 149 1,037 Additions 4 3 58 Transfer from exploration and evaluation assets – – 1 Transfer to oil and gas assets in production – (61) (946) Disposals – – (2) Exchange differences – (1) 1 Balance at the end of the period 94 90 149 Producing assets
Balance at the beginning of the period 10,308 10,840 11,367 Additions1 179 (44) 353 Transfer from exploration and evaluation assets 6 – 15 Transfer from oil and gas assets in development – 61 946 Transfer to assets held for sale – (126) – Disposals – (46) (2) Depreciation and depletion expense (334) (326) (381) Net impairment (losses)/reversals (764) 23 (1,512) Net impairment losses on assets transferred to held for sale – (4) – Exchange differences 128 (70) 54 Balance at the end of the period 9,523 10,308 10,840 Total oil and gas assets 9,617 10,398 10,989 Comprising:
Exploration and evaluation expenditure pending
commercialisation 182 223 338 Other capitalised expenditure 9,435 10,175 10,651 9,617 10,398 10,989 1. Includes impact on restoration assets following changes in future restoration provision assumptions.
3.3 CAPITAL COMMITMENTS
There has been no material change to the capital commitments disclosed in the most recent annual financial report.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
3.4 IMPAIRMENT OF NON-CURRENT ASSETS
Impairment expense 30 June 2017 30 June 2016$million $million Exploration and evaluation assets 156 4 Oil and gas assets 764 1,512 Total impairment 920 1,516 The carrying amounts of theGroup’s oil and gas assets are reviewed at each reporting date to determine whether there is any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made.
The expected future cash flow estimation is based on a number of factors, variables and assumptions, the most important of which are estimates of reserves, future production profiles, third party supply, commodity prices, costs and foreign exchange rates. In most cases, the present value of future cash flows is most sensitive to estimates of future oil price, discount rates and production.
Estimates of future commodity prices have been updated from the previous reporting date.
Future prices(US$/bbl) used were:
2017 2018 2019 2020 2021 20221
50.00 55.00 60.00 65.00 70.00 78.51
1. Based onUS$70/bbl (2017 real) from 2022 escalated at2.4% in 2017 and2.3% in each year thereafter.
The future estimated foreign exchange rate applied isA$/US$0.70 in 2017, andA$/US$0.75 in all subsequent years. The discount rates applied to the future forecast cash flows are based on theGroup’s weighted average cost of capital, adjusted for risks where appropriate. The range of pre-tax discount rates that have been applied to non- current assets is between10.3% and16.2%.
In the event that future circumstances vary from these assumptions, the recoverable amount of theGroup’s oil and gas assets could change materially and result in impairment losses or the reversal of previous impairment losses. Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect impact on others and individual variables rarely change in isolation. Additionally, management can be expected to respond to some movements, to mitigate downsides and take advantage of upsides, as circumstances allow. Consequently, it is impracticable to estimate the indirect impact that a change in one assumption has on other variables and hence, on the likelihood, or extent, of impairments or reversals of impairments under different sets of assumptions in subsequent reporting periods.
Recoverable amounts and resulting impairment write-downs/(reversals) recognised for the half year ended 30 June 2017 are:
Subsurface Plant and Recoverable assets equipment Total amount1 Segment $million $million$million $million Exploration and evaluation assets:
AAL– Indonesia Exploration 149 – 149 nil2 PNG– PPL 287 Exploration 4 – 4 nil2 Gunnedah Basin Exploration 3 – 3 nil2 Total impairment of exploration and evaluation
assets 156 – 156
Oil and gas assets– producing:
GLNG GLNG – 1,238 1,238 4,155 Cooper Cooper Basin (256) (224) (480) 1,380 Barrow Other – 6 6 nil Total impairment of oil and gas assets (256) 1,020 764
Total impairment of exploration and
evaluation and oil and gas assets (100) 1,020 920
1. Recoverable amounts represent the carrying values of assets before deducting the carrying value of restoration liabilities. All producing
oil and gas asset amounts are calculated using the value-in-use method, whilst all exploration and evaluation asset amounts use the fair
value less costs of disposal method.
2. Impairment of exploration and evaluation assets relates to certain individual licences/areas of interest that have been impaired to nil.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
3.4 IMPAIRMENT OF NON-CURRENT ASSETS (continued)
Exploration and evaluation assets
The impairment of AAL has arisen mainly from the impact of lower oil prices.
Oil and gas assets
GLNG
Since the last carrying value assessment at 31 December 2016 there have been a number of changes to relevant assumptions, principally lowerUS$ oil prices, that have impacted the recoverable amount. Additionally, the Australian government has introduced regulations relating to the Australian Domestic Gas Security Mechanism since 31 December 2016. The impact on recoverable amount of the lower oil price assumption, combined with a higher discount rate and lower assumed volumes of third party gas, has been partially offset by higher assumed equity gas volumes resulting from positive upstream performance and lower costs.
Cooper Basin
Whilst the Cooper Basin has been impacted by lowerUS$ oil price assumptions, this has been more than offset by lower forecast development costs combined with increased drilling activity and production, resulting in a reversal of impairment.
Sensitivity
To the extent the oil and gas cash generating units have been written down to their respective recoverable amounts in the current and prior years, any change in key assumptions on which the valuations are based would further impact asset carrying values. When modelled in isolation, it is estimated that changes in the key assumptions would result in the following additional impairment/lower impairment reversal:
Oil price decrease Production Discount rate US$5/bbl all Sensitivity decrease5% increase0.50% years$million $million $million GLNG 270 237 504 Cooper Basin 265 70 257
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 4: FUNDING AND RISK MANAGEMENT
Our business has exposure to capital, credit, liquidity and market risks. This section provides information relating to o ur management of, as well as our policies for measuring and managing these risks.
4.1 FINANCE INCOME/(COSTS)
30 June 30 June 2017 2016$million $million Finance income:
Interest income 14 6 Total finance income 14 6 Finance costs:
Interest paid to third parties (136) (131) Deduct borrowing costs capitalised 5 15 (131) (116) Unwind of the effect of discounting on provisions (22) (21) Total finance costs (153) (137) Net finance costs (139) (131)
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
4.2 ISSUED CAPITAL
Six months ended
30 June 31 December 30 June 30 June 31 December 30 June 2017 2016 2016 2017 2016 2016 Number of shares Number of shares Number of shares $million $million $million Movement in fully paid ordinary shares
Balance at the beginning of the period 2,032,389,675 1,774,816,198 1,766,210,639 8,883 8,140 8,119 Institutional placement, net of costs – 256,000,000 – – 740 – Rights issue, net of costs – – – – – (2) Share purchase plan, net of costs 50,847,537 – – 151 – – Santos Dividend Reinvestment Plan – – 8,205,002 – – 23 Santos Employee Share1000 Plan – 297,036 – – 1 – Santos Employee ShareMatch Plan – 719,764 – – 2 – Shares purchased on market (Treasury shares) – – – (3) – – Issue of Treasury shares on vesting of
employee share schemes – – – 3 – – Replacement of restricted classes of ordinary
shares with shares purchased on market (21,281) – – – – – Shares issued on vesting of share acquisition
rights 5,365 188,755 390,063 – – – Shares issued on vesting of Executive Deferred
Short-term Incentive – 253,747 – – – – Shares issued on vesting of Executive Strategy
Grant – 106,827 – – – – Santos Non-executive Director Shareholding
Plan – 7,348 10,494 – – – Balance at the end of the period 2,083,221,296 2,032,389,675 1,774,816,198 9,034 8,883 8,140
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
4.3 FINANCIAL RISK MANAGEMENT
Exposure to foreign currency risk, interest rate risk, commodity price risk, credit risk and liquidity risk arises in the normal course of theGroup’s business. TheGroup’s overall financial risk management strategy is to seek to ensure that the Group is able to fund its corporate objectives and meet its obligations to stakeholders. Derivative financial instruments may be used to hedge exposure to fluctuations in foreign exchange rates, interest rates and commodity prices.
The Group uses various methods to measure the types of financial risk to which it is exposed. These methods include cash flow at risk analysis in the case of interest rate, foreign exchange and commodity price risk, and ageing analysis for credit risk.
Financial risk management is carried out by a central treasury department which operates under Board-approved policies. The policies govern the framework and principles for overall risk management and covers specific financial risks, such as foreign exchange risk, interest rate risk, credit risk, approved derivative and non-derivative financial instruments, and liquidity management.
(a) Foreign currency risk
Foreign exchange risk arises from commercial transactions and valuations of assets and liabilities that are denominated in a currency that is not theentity’s functional currency.
The Group is exposed to foreign currency risk principally through the sale of products denominated in currencies other than the functional currency, borrowings denominated in euros and capital and operating expenditure in currencies other than US dollars, principally Australian dollars. In order to economically hedge foreign currency risk, the Group from time to time enters into forward foreign exchange, foreign currency swap and foreign currency option contracts.
The Group has certain investments in domestic and foreign operations whose net assets are exposed to foreign currency translation risk.
All foreign currency denominated borrowings of Australian dollar functional currency companies are either designated as a hedge of US dollar denominated investments in foreign operations (2017:$158 million; 2016:$824 million), swapped using cross-currency swaps to US dollars and designated as a hedge of US dollar denominated investments in foreign operations (2017:$1,410 million; 2016:$1,410 million), or offset by US dollar denominated cash balances (2017:$1,875 million; 2016:$1,500 million). As a result, there were no net foreign currency gains or losses arising from translation of US dollar-denominated borrowings recognised in the income statement in 2017.
Monetary items, including financial assets and liabilities, denominated in currencies other than the functional currency of an operation, are periodically restated to US dollar equivalents, and the associated gain or loss is taken to the income statement. The exception is foreign exchange gains or losses on foreign currency provisions for restoration at operating sites that are capitalised in oil and gas assets.
(b) Market risk
Cash flow and fair value interest rate risk
TheGroup’s interest rate risk arises from its borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
The Group adopts a policy of ensuring that the majority of its exposure to changes in interest rates on borrowings is on a floating rate basis. Interest rate swaps have been entered into as fair value hedges of medium-term notes, long-term notes and subordinated debt. When transacted, these swaps had maturities ranging from 1 to 20 years, aligned with the maturity of the related notes.
TheGroup’s interest rate swaps had a notional contract amount of$1,777 million (2016:$1,777 million) and a net fair value of$71 million (2016:$83 million). The net fair value amounts were recognised as fair value derivatives.
Commodity price risk exposure
The Group is exposed to commodity price fluctuations through the sale of petroleum products and other oil price linked contracts. The Group may enter into commodity crude oil price swap and option contracts to manage its commodity price risk. At 30 June 2017, the Group has 5.52 million barrels of open oil price option contracts (31 December 2016: 10.95 million barrels), covering calendar 2017 exposures. The 3-way option
structure does not qualify for hedge accounting, with the movement in fair value recorded in the Income
Statement. The Group continues to monitor oil price volatility and to assess whether further commodity price
hedging is appropriate.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
4.3 FINANCIAL RISK MANAGEMENT (continued)
(c) Hedging
Hedges in place
The Group has issued€1,000 million subordinated notes with an average fixed interest rate of8.25%. In order to reduce the variability of the cash flows arising from the euro principal and interest payments to September 2017, the Group entered into cross-currency interest rate swap contracts in March 2011, under which it has a right to receive interest at fixed euro rates and pay interest at floating US dollar interest rates. These contracts are in place to cover principal and interest payments on€950 million of the subordinated notes through to the first call date in September 2017.
Subordinated notes totalling€50 million have been swapped to a fixed US dollar interest rate of8.48% through to the first call date in September 2017.
The Group has entered into US dollar interest rate swap contracts, under which it has a right to receive interest at floating US dollar rates and pay interest at fixed US dollar interest rates. These contracts are in place to cover coupon payments on$1,200 million of US dollar floating rate loans through to March 2019. The cross-currency and interest rate swap contracts are recognised at fair value and all gains and losses attributable to the hedged risks are recognised in the hedge reserve and reclassified into the income statement when the interest expense is recognised.
(d) Fair values
The initial fair values of receivables, payables, interest-bearing liabilities and other financial assets and liabilities, which are not subsequently measured at fair value, approximate their carrying value.
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments:
Derivatives
The fair value of interest rate swaps is calculated by discounting estimated future cash flows based on the terms of maturity of each contract and using market interest rates for a similar instrument at the reporting date. Where these cash flows are in a foreign currency, the present value is converted to Australian dollars at the foreign exchange spot rate prevailing at reporting date.
Financial liabilities
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Where these cash flows are in a foreign currency, the present value is converted to Australian dollars at the foreign exchange spot rate prevailing at reporting date.
Interest rates used for determining fair value
The interest rates used to discount estimated future cash flows, where applicable, are based on the market yield curve and credit spreads at the reporting date. The interest rates including credit spreads used to determine fair value were as follows:
30 June 2017 31 December 2016% % Derivatives (0.4)– 3.3 (0.3)– 3.9 Loans and borrowings (0.4)– 3.3 (0.3)– 3.9 The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
All of theGroup’s financial instruments were valued using the Level 2 valuation technique.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
SECTION 5: OTHER
This section provides information that is not directly related to the specific line items in the financial statements, i ncluding information about contingent liabilities, events after the end of the reporting period, and changes to accounting policies and disclosures.
5.1 ACQUISITION/DISPOSAL OF CONTROLLED ENTITIES
There were no acquisitions or disposals of controlled entities during the six months ended 30 June 2017. 5.2 CONTINGENT LIABILITIES
There has been no material change to the contingent liabilities disclosed in the most recent annual financial report. 5.3 EVENTS AFTER THE END OF THE REPORTING PERIOD
On 23 August 2017, Santos exercised its option to redeem its€1,000 million subordinated notes at the first call date of 22 September 2017.
On 23 August 2017, the Directors of Santos Limited resolved not to pay an interim dividend in relation to the half-year ended 30 June 2017.
5.4 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of the half-year financial report are consistent with those applied in the preparation of theGroup’s annual financial report for the year ended 31 December 2016, except for new standards, amendments to standards and interpretations effective from 1 January 2017.
The following standards, all consequential amendments and interpretations, applicable from 1 January 2017, have been adopted by the Group. These amendments to standards and interpretations have not impacted on the accounting policies, financial position or performance of the Group, or on presentation or disclosure in the half-year financial report, with the exception of AASB 9, which is discussed below:
 AASB 2016-1 Amendments to Australian Accounting Standards– Recognition of Deferred Tax Assets for Unrealised Losses - AASB 112
 AASB 2016-2 Amendments to Australian Accounting Standards– Amendments to AASB 107
In addition, several other standard amendments were applicable for the first time in 2017, but were not relevant to the Group and do not impact the half-year financial report.
Adoption of AASB 9– Financial Instruments
The Group elected to early adopt AASB 9 Financial Instruments from 1 January 2017. AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement, and generally simplifies the classification and measurement of financial instruments, introduces a new expected credit loss model for calculating impairment of financial assets, and aligns hedge accounting more closely with anentity’s risk management practices.
The Group has applied the new hedge accounting requirement prospectively, while the remainder of the requirements of AASB 9 have been applied retrospectively in line with the requirements of the standard. The adoption of AASB 9 results in the following key changes in theGroup’s accounting and reporting:
 For theGroup’s financial liabilities that are measured at Fair Value through Profit and Loss (“FVTPL”), the element of gains or losses attributable to changes in theGroup’s own credit risk will now be recognised in Other Comprehensive Income (“OCI”) instead or profit and loss, and accumulate in a reserve called “Financial Liabilities at FVOCI”. During the half-year ended 30 June 2017 this amounted to a$20 million loss. Hedging effectiveness testing will now be performed on a prospective basis with no defined numerical range of effectiveness applied in this testing.
 The Group holds an equity investment previously measured at amortised cost under AASB 139 which is now measure at FVTPL. An opening adjustment of$5 million loss has been recognised in retained earnings upon
initial measurement under AASB 9.
No other changes arising from the adoption of AASB 9 have had a material effect on the financial reporting of the
Group.
DIRECTORS’ DECLARATION
FOR THE SIX MONTHS ENDED 30 JUNE 2017
In accordance with a resolution of the Directors of Santos Limited (“the Company”), we state that:
In the opinion of the Directors of the Company:
1. The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001 (Cth), including:
(a) giving a true and fair view of the consolidatedentity’s financial position as at 30 June 2017 and of its performance for the half-year ended on that date; and
(b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 (Cth); and
2. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
Dated this 23rd day of August 2017
On behalf of the Board:
Director
Adelaide
Ernst& Young Tel:+61 8 8417 1600
121 King William Street Fax:+61 8 8417 1775
Adelaide SA 5000 Australia ey.com/au
GPO Box 1271 Adelaide SA 5001
Independent Auditor's Review Report to the Members of Santos
Limited
Report on the Half-Year Financial Report
Conclusion
We have reviewed the accompanying half-year financial report of Santos Limited (the Company) and its subsidiaries (collectively the Group), which comprises the condensed consolidated statement of
financial position as at 30 June 2017, the condensed consolidated statement of comprehensive
income, condensed consolidated statement of changes in equity and condensed consolidated
statement of cash flows for the half-year ended on that date, notes comprising a summary of
significant accounting policies and other explanatory information, and thedirectors’ declaration. Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the half-year financial report of the Group is not in accordance with the Corporations Act 2001, including:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the half-year ended on that date; and
b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.
Directors’ Responsibility for the Half-Year Financial Report
The directors of the Company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the
preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, anything has come to our attention that causes us to believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of theGroup’s consolidated financial position as at 30 June 2017 and its consolidated financial performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements
relevant to the audit of the annual financial report.
A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
A member firm of Ernst& Young Global Limited
28
Liability limited by a scheme approved under Professional Standards Legislation
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.
Ernst& Young
R J Curtin L A Carr
Partner Partner
Adelaide
23 August 2017
A member firm of Ernst& Young Global Limited
29
Liability limited by a scheme approved under Professional Standards Legislation
APPENDIX 4D
FOR THE SIX MONTHS ENDED 30 JUNE 2017
For‘Results for Announcement to theMarket’ refer to page 1 of this Half-year Report
NTA BACKING
|||
|-|-|
|30 June 2017|30 June 2016|

 Net tangible asset backing per ordinary security N/A N/A CHANGE IN OWNERSHIP OF CONTROLLED ENTITIES
There were no acquisitions or disposals of controlled entities during the six months ended 30 June 2017.
DETAILS OF JOINT VENTURE AND ASSOCIATE ENTITIES
||
|-|
|Percent ownership interest held|
|at the end of the period|

 30 June 2017 30 June 2016% % Joint venture entities
Darwin LNG Pty Ltd 11.5 11.5 GLNG Operations Pty Ltd 30.0 30.0 GLNG Property Pty Ltd 30.0 30.0 Lohengrin Pty Ltd1 – 50.0 Papua New Guinea Liquefied Natural Gas Global Company LDC 13.5 13.5 1 company deregistered on 7 May 2017.