RESULTS FOR ANNOUNCEMENT TO THE MARKET
APPENDIX 4D FOR THE PERIOD ENDED 30 JUNE 2018
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|-|-|-|
|2018US$million|2017|Change|
||US$million|%|

 Revenue from ordinary activities 1,680 1,449 16 Statutory Profit/(Loss) from ordinary activities after tax
attributable to members 104 (506) nm Net Profit/(Loss) for the period attributable to members 104 (506) nm
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|-|-|-|
|Interim Dividend|Amount persecurityUS cents|Franked amount per|
|||security at 30% tax|
|||US cents|

 Directors resolved to pay an interim dividend in relation to the
half-year ended 30 June 2018.
Ordinary securities
3.5 3.5 29 August 2018 is the record date for determining entitlements
to the dividend
CONTENTS RESULTS FOR THE PERIOD
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|-|-|
|2018|Change|
|US$million||

Underlying profit1 217 99%Directors’ Report 2
Product sales 1,680 16% Review and Results of Operations 2
EBITDAX1 883 23% Directors 6 Free cash flow1 367 22% Interim dividend (UScps) 3.5 3.5cps Rounding 6
1 Underlying profit, EBITDAX (earnings before interest, tax, depreciation, depletion, exploration, evaluation and impairment) and free cash flow (operating cash flows less investing cash flows netAuditor’s Independence Declaration 7 of acquisitions and disposals) are non-IFRS measures that are presented to provide an understanding of the performance ofSantos’ operations. The non-IFRS financial information is Half-year Financial Report 8 unaudited however the numbers have been extracted from the financial statements which have been subject to review by theCompany’s auditor.
Consolidated Income Statement 8
ABOUT SANTOS
Consolidated Statement of
Comprehensive Income 9 Santos is an Australian natural gas company. Established in 1954, thecompany’s purpose is to provide sustainable Consolidated Statement of
returns for our shareholders by supplying reliable, Financial Position 10
affordable and cleaner energy to improve the lives of people in Australia and Asia.
Consolidated Statement of Cash Flows 11
Consolidated Statement of Five core long-life natural gas assets sit at the heart of a Changes in Equity 12 disciplined, focused strategy to drive sustainable shareholder value: the Cooper Basin; Queensland and Notes to the Half-year Consolidated
NSW; Papua New Guinea; Northern Australia; and
Financial Statements 13
Western Australia. Each of these core assets provide
stable production, long-term revenue streams and
Directors’ Declaration 30
significant upside opportunities. As a low-cost, reliable and
IndependentAuditor’s Report 31 high performance business, we are proud to deliver the
economic and environmental benefits of natural gas to
Appendix 4D continued 33
homes and businesses throughout Australia and Asia.
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 2018, 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:
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|-|-|-|-|
|Summary of results table|2018|2017|Variance|

 mmboe mmboe % Production volume 28.0 29.5 (5) Sales volume 38.0 40.1 (5)$million $million
Product sales 1,680 1,449 16 EBITDAX1 883 718 23 Exploration and evaluation expensed (45) (53) 15 Depreciation and depletion (328) (348) 6 Net impairment loss (76) (920) 92 Change in future restoration assumptions 9 – 100 EBIT1 443 (603) 173 Net finance costs (108) (139) 22 Taxation (expense)/benefit (231) 236 (198) Net profit/(loss) for the period 104 (506) nm Underlying profit for the period2 217 109 99 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.
2 Underlying profit excludes the impacts of asset acquisitions, disposals and impairments and the impact of hedging. Please refer to page 5 for the reconciliation from net profit/(loss) to underlying profit/(loss) for the period. The calculation of underlying profit has changed from prior periods, please refer page 5 for further details. Prior period underlying profit has been restated to a like for like basis for comparability. 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
40.9 40.1
1,727
1,680 38.0
1,449
28.9
30.9 1,261
1,191
HY14 HY15 HY16 HY17 HY18 HY14 HY15 HY16 HY17 HY18
Sales volumes of 38 million barrels of oil equivalent Sales revenue was up16% compared to the previous
(mmboe) were5% lower than the previous half. Lower half to$1.7 billion, primarily due to higher oil and LNG
LNG sales volumes due to a temporary outage at PNG prices and higher oil sales volumes. The average
LNG, following the PNG Highlands earthquake in realised oil price was up38% toUS$75/bbl and the
February 2018, combined with planned maintenance at average realised LNG price rose24% to
Darwin LNG, were partially offset by higher Cooper US$8.96/mmBtu.
Basin oil sales volumes.
2 Santos Limited Half-year Financial Report– 30 June 2018 eobmm
noillim$SU
DIRECTORS’ REPORT Production Queensland and NSW
The GLNG project in Queensland produces liquefied natural gas (LNG) for export to global markets from 31.1
29.5 the LNG plant at Gladstone. Gas is also sold into the 28.3 28.0
25.0
domestic market. Santos has a30% 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. HY14 HY15 HY16 HY17 HY18
The LNG plant produced 2.5 million tonnes in the first Production was5% lower than the previous half
half of 2018 and shipped 40 cargoes.
primarily due to the temporary outage at PNG LNG
following the PNG Highlands earthquake partially offset Santos aims to build GLNG gas supply through by higher Cooper Basin, Queensland and Western upstream development, seek opportunities to extract Australia gas production. value from existing infrastructure and drive efficiencies to operate at lowest cost.
Review of Operations eobmm
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|-|-|-|
|Queensland and NSW|HY18|HY17|

 natural gas assets: Cooper Basin, Queensland and Production (mmboe) 5.9 5.6 NSW, PNG, Northern Australia and Western Sales volume (mmboe) 11.0 10.6 Australia. Product Sales(US$m) 463 354 Production cost(US$/boe) 6.39 5.95 Cooper Basin
EBITDAX(US$m) 285 153 The Cooper Basin produces natural gas, gas liquids and Capex(US$m) 110 79 crude oil. Gas is sold primarily to domestic retailers,
industry and for the production of liquefied natural gas, Queensland and NSW EBITDAX was$285 million,86% while gas liquids and crude oil are sold in domestic and higher than the first half of 2017. This was a result of export markets. higher sales revenue reflecting the ramp up of upstream production and higher LNG prices.
Santos’ strategy in the Cooper Basin is to deliver a low-
Papua New Guinea
cost, cash flow positive business by building production,
investing in new technology to lower development and Santos’ business in PNG is centred on the PNG LNG exploration costs, and increasing utilisation of project. Completed in 2014, PNG LNG produces LNG infrastructure including the Moomba plant. for export to global markets, as well as sales gas and gas liquids. Santos has a13.5% interest in PNG LNG.
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|-|-|-|
|Cooper Basin|HY18|HY17|

Production (mmboe) 7.5 7.1 The LNG plant near Port Moresby has two LNG trains Sales volume (mmboe) 10.3 10.4 with the combined capacity to produce more than eight Product sales(US$m) 502 375 million tonnes per annum. Production from both trains Production cost(US$/boe) 8.42 9.72 commenced in 2014.
EBITDAX(US$m) 229 157
Capex(US$m) 108 84 PNG LNG production and sales in the first half of 2018 were significantly impacted by a severe earthquake that struck the PNG Highlands region in February 2018. Cooper Basin EBITDAX was$229 million,46% higher
PNG LNG was safely shut-in and there were no than the first half of 2017 primarily due to higher sales
releases of hydrocarbons or significant injuries to revenue impacted by higher oil prices, in addition to
personnel. Production recommenced in April and lower production costs ofUS$8.42/boe, down13%,
resumed full rates in May.
resulting from cost saving and efficiency initiatives.
Santos’ share of Cooper Basin sales gas and ethane
Santos’ strategy in PNG is to work with its partners to production of 29.7 petajoules (PJ) was4% higher than
align interests, and support and participate in backfill the corresponding period, primarily due to higher
and expansion opportunities at PNG LNG. Santos drilling activity and strong production from newly
along with the other PNG LNG parties are in connected wells, which more than offset the impact of
discussions to build alignment for the proposed planned maintenance at the Moomba plant.
construction of three additional LNG trains at the PNG
LNG site. Santos is also in discussions regarding a
Santos’ share of oil and condensate production was 1.4
proposal received for Santos to farm-in to PRL 3 which
million and 448,800 barrels respectively.
contains the multi-tcfP’nyang field.
DIRECTORS’ REPORT
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|-|-|-|
|PNG|HY18|HY17|

 Production (mmboe) 4.6 6.2 Island and Devil Creek) provides opportunities to meet Sales volume (mmboe) 4.1 5.8 short and long-term domestic gas demand in the state. Product Sales(US$m) 215 248
Production cost(US$/boe) 6.91 4.32
Santos’ focus in WA is to grow production and market EBITDAX(US$m) 165 203
share in the WA domestic gas market.
Capex(US$m) 15 16
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|-|-|-|
|Western Australia|HY18|HY17|

 Production (mmboe) 5.6 5.0 PNG EBITDAX was$165 million,19% lower than the
Sales volume (mmboe) 5.7 5.2 first half of 2017.
Product Sales(US$m) 168 152 Northern Australia
Production cost(US$/boe) 8.90 9.41Santos’ business in Northern Australia is focused on the
EBITDAX(US$m) 114 129 Bayu-Undan/Darwin LNG (DLNG) project. In
Capex(US$m) 17 35 operation since 2006, DLNG produces LNG and gas
liquids for export to global markets. Santos has an
Western Australia EBITDAX was$114 million,12%11.5% interest in DLNG.
lower than the first half of 2017.
The LNG plant near Darwin has a single LNG train with
Santos’ share of Western Australia gas production a nameplate capacity of 3.7 mtpa. LNG production of
increased17% to 27.9 PJ in the first half of 2018 due to 1.5 million tonnes in the first half was lower than the
strong asset performance and the commencement of corresponding period, due to a planned one-month
two new gas sales contracts.Santos’ share of maintenance shutdown in May 2018.
condensate and oil production was 307,600 and 475,700 barrels respectively.
Santos’ strategy in Northern Australia is to support
plans to progress Darwin LNG backfill, expand the
Asia
company’s acreage footprint and appraise the onshore
Santos’ non-core Asian assets have been packaged and McArthur Basin.
run separately as a standalone business. These assets include Santos interests in Indonesia, Vietnam, Malaysia In April 2018, Santos announced that agreement had
and Bangladesh.
been reached with our joint venture partners to enter
the front-end engineering and design (FEED) phase for
In May 2018, Santos announced the sale of its Asian the development of the Barossa project to backfill
portfolio to Ophir Energy plc forUS$221 million. Darwin LNG. A final investment decision is targeted
Under the terms of the sale, the transaction will have towards the end of 2019. Santos has a25% interest in
an effective date of 1 January 2018. Completion is Barossa and successful development would extend the
expected in the second half of 2018, and is subject to operating life of Darwin LNG for more than 20 years,
customary consents and approvals for a transaction of and more than doubleSantos’ current production in
this nature.Santos’50% interest in the North West Northern Australia.
Natuna PSC (Ande Ande Lumut) oil development in Indonesia is not included in the transaction package,
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|-|-|-|
|Northern Australia|HY18|HY17|

 Production (mmboe) 1.7 2.1
Sales volume (mmboe) 1.7 2.2
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|-|-|-|
|Asia|HY18|HY17|

Production (mmboe) 2.8 3.5 Production cost(US$/boe) 23.23 17.36
Sales volume (mmboe) 2.7 3.3 EBITDAX(US$m) 35 44
Product Sales(US$m) 134 128 Capex(US$m) 29 44
Production cost(US$/boe) 11.22 10.83 EBITDAX(US$m) 92 99 Northern Australia EBITDAX was$35 million,20%
Capex(US$m) 4 9 lower than the first half of 2017. Unit production costs
were impacted by the planned shutdown in May 2018.
Asia EBITDAX was$92 million,7% lower than the first half of 2017.
Western Australia
Santos is one of the largest producers of domestic Total production and sales volumes from the Asian natural gas in Western Australia and is also a significant assets were lower than the previous half-year due to producer of gas liquids. natural field decline and lower net entitlement.
DIRECTORS’ REPORT Net Profit/(Loss)
The 2018 first half net profit was$104 million; compared with a$506 million loss at half-year 2017. The$610 million increase in net profit is driven in part by a higher commodity price; as well as the significant reduction in the before tax impairment loss of$76 million posted in 2018, compared to the$920 million posted in 2017.
Underlying profit of$217 million includes items after tax of$113 million (before tax of$130 million), referred to in the reconciliation of net profit/(loss) to underlying profit below.
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|-|-|-|
|Reconciliation of Net Profit/(Loss) to|2018|2017|
|Underlying Profit/(Loss)1|$million|$million|

 Gross Tax Net Gross Tax Net Net profit/(loss) after tax attributable to
equity holders of Santos Limited 104 (506) Add/(deduct) the following:
Impairment losses 76 – 76 920 (231) 689 Gains on sale of non-current assets (55) 16 (39) (68) 17 (51) Fair value adjustments on embedded derivatives
and hedges – – – (2) – (2) Fair value adjustments on commodity hedges 109 (33) 76 (30) 9 (21) 130 (17) 113 820 (205) 615 Underlying profit1 217 109 1 Underlying profit excludes the impacts of asset acquisitions, disposals and impairments and the impact of hedging. The calculation of underlying profit has changed from prior periods, to simplify the definition of underlying profit to enhance comparability to peer companies. Prior period underlying profit has been restated to a like for like basis for comparability. 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.
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF SANTOS LIMITED / DIVIDENDS
Equity attributable to equity holders of Santos Limited at 30 June 2018 was$6,998 million.
On 22 August 2018, the Directors resolved to pay a fully franked interim dividend of$0.035 per fully paid ordinary share on 27 September 2018 to shareholders registered in the books of the Company at the close of business on 29 August 2018 (“Record Date”). The Board also resolved that the Dividend Reinvestment Plan (“DRP”) will not be in operation for the 2018 interim dividend.
CASH FLOW
The net cash inflow from operating activities of$644 million was0.6% higher than the first half of 2017. This increase is principally attributable to higher receipts from customers, offset by higher payments to suppliers and employees and higher taxes. Net cash used in investing activities of$258 million was$36 million higher than the first half of 2017 primarily due to lower proceeds realised from disposal of assets in 2018, of$23 million compared to$130 million in 2017. Cash flows used in financing activities were$100 million lower than the first half of 2017, predominantly due to$250 million early repayment of the ECA facility in 2017, as well as lower proceeds from issues of ordinary shares in 2018.
OUTLOOK
Sales volume guidance is maintained in the range of 72 to 76 mmboe and production guidance is maintained in the range of 55 to 58 mmboe for 2018.
POST BALANCE DATE EVENTS
On 22 August 2018, the Directors of Santos Limited resolved to pay an interim dividend on ordinary shares in respect of the 2018 half-year period as outlined above. The financial effect of these dividends has not been brought to account in the half-year financial report for the six months ended 30 June, 2018.
On 22 August 2018, Santos announced the acquisition of Quadrant Energy forUS$2.15 billion. The acquisition is forecast
to complete in the second half of 2018. The acquisition has no financial effect in the half-year financial statements for
the six months ended 30 June 2018.
DIRECTORS’ REPORT DIRECTORS
The names of Directors of the Company in office during or since the end of the half-year are:
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|-|-|
|Surname|Other Names|

Allen Yasmin Anita
Coates1 Peter Roland (Chairman)
Cowan Guy Michael
Gallagher Kevin Thomas (Managing Director and Chief Executive Officer)
Goh Hock
Guthrie Vanessa Ann
Hearl Peter Roland
Shi Yujiang
Spence2 Keith William (Chairman)
1 Mr Coates ceased to be a Director and Chairman of Santos Limited effective 19 February, 2018.
2 Mr Spence was appointed a Director of Santos Limited on 1 January 2018 and was appointed Chairman on 19 February 2018
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 22 August 2018 in accordance with a resolution of the Directors.
Director
22 August 2018
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 2018, 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
22 August 2018
A member firm of Ernst& Young Global Limited
7
Liability limited by a scheme approved under Professional Standards Legislation
CONSOLIDATED INCOME STATEMENT
FOR SIX MONTHS ENDED 30 JUNE 2018
(Restated) 30 June 2018 30 June 2017 Note $million $million Revenue from contracts with customers– Product sales 2.2 1,680 1,449 Cost of sales 2.3 (1,162) (1,097) Gross profit 518 352 Revenue from contracts with customers– Other 2.2 47 57 Other income 68 73 Impairment of non-current assets 3.4 (76) (920) Other expenses 2.3 (115) (170) Finance income 4.1 12 14 Finance costs 4.1 (120) (153) Share of net profit of joint ventures 1 5 Profit/(loss) before tax 335 (742) Income tax (expense)/benefit 2.4 (212) 228 Royalty-related taxation (expense)/benefit (19) 8 Total taxation (expense)/benefit (231) 236 Net profit/(loss) for the period attributable to owners of
Santos Limited 104 (506) Earnings per share attributable to the equity holders of
Santos Limited(¢)
Basic profit/(loss) per share 5.0 (24.4) Diluted profit/(loss) per share 5.0 (24.4) Dividends per share(¢)
Paid during the period 2.5 – – Declared in respect of the period 2.5 3.5 – The consolidated income statement is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2018
(Restated) 30 June 2018 30 June 2017$million $million Net profit/(loss) for the period 104 (506) Other comprehensive income, net of tax:
Other comprehensive income to be reclassified to profit or loss in
subsequent periods:
Exchange (loss)/gain on translation of foreign operations (186) 116 Tax effect – – (186) 116 (Loss)/gain on foreign currency loans designated as hedges of net
investments in foreign operations (83) 132 Tax effect 25 (41) (58) 91 (Loss)/gain on derivatives designated as cash flow hedges (16) 9 Tax effect 5 (3) (11) 6 Net other comprehensive (loss)/income to be reclassified
to profit or loss in subsequent periods (255) 213 Items not to be reclassified to profit or loss in subsequent periods:
Actuarial gain on the defined benefit plan 3 2 Tax effect (1) (1) 2 1 Loss on financial liabilities at fair value through other
comprehensive income (FVOCI) (2) (30) Tax effect 1 10 (1) (20) Net other comprehensive income/(loss) that will not be
reclassified to profit or loss in subsequent periods 1 (19) Other comprehensive (loss)/income, net of tax (254) 194 Total comprehensive loss attributable to owners of Santos
Limited (150) (312) 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 2018
30 June 2018 31 December 2017 Note $million $million Current assets
Cash and cash equivalents 1,492 1,231 Trade and other receivables 411 440 Prepayments 11 28 Inventories 252 266 Other financial assets 14 – Tax receivable 40 7 Assets held for sale 3.5 282 – Total current assets 2,502 1,972 Non-current assets
Prepayments 15 17 Investments in joint ventures 44 43 Other financial assets 38 134 Exploration and evaluation assets 3.1 355 459 Oil and gas assets 3.2 9,215 9,536 Other land, buildings, plant and equipment 103 126 Deferred tax assets 1,139 1,419 Total non-current assets 10,909 11,734 Total assets 13,411 13,706 Current liabilities
Trade and other payables 455 495 Other liabilities 12 5 Contract liabilities 16 3 Interest-bearing loans and borrowings 803 207 Current tax liabilities 18 17 Provisions 125 142 Other financial liabilities 132 82 Liabilities directly associated with assets held for sale 3.5 182 – Total current liabilities 1,743 951 Non-current liabilities
Other liabilities 2 1 Contract liabilities 103 113 Interest-bearing loans and borrowings 3,026 3,736 Deferred tax liabilities 160 240 Provisions 1,344 1,494 Other financial liabilities 35 20 Total non-current liabilities 4,670 5,604 Total liabilities 6,413 6,555 Net assets 6,998 7,151 Equity
Issued capital 4.2 9,028 9,034 Reserves 122 51 Accumulated losses (2,152) (1,934) Total equity 6,998 7,151
The consolidated statement of financial position is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
30 June 2018 30 June 2017$million $million Cash flows from operating activities
Receipts from customers 1,725 1,542 Interest received 12 14 Dividends received – 7 Pipeline tariffs and other receipts 23 43 Payments to suppliers and employees (889) (739) Exploration and evaluation seismic and studies (45) (28) Restoration expenditure (11) (22) Royalty and excise paid (27) (26) Borrowing costs paid (88) (126) Income taxes paid (47) (37) Income taxes received 2 23 Royalty-related tax paid (13) (13) Other operating activities 2 2 Net cash provided by operating activities 644 640 Cash flows from investing activities
Payments for:
Exploration and evaluation assets (17) (93) Oil and gas assets (251) (240) Other land, buildings, plant and equipment (3) (3) Acquisitions of exploration and evaluation assets (4) (14) Borrowing costs paid – (5) Proceeds on disposal of non-current assets 23 130 Other investing activities (6) 3 Net cash used in investing activities (258) (222) Cash flows from financing activities
Dividends paid – – Repayments of borrowings (112) (368) Proceeds from issues of ordinary shares – 152 Purchase of shares on market (Treasury shares) (8) (4) Net cash used in financing activities (120) (220) Net increase in cash and cash equivalents 266 198 Cash and cash equivalents at the beginning of the period 1,231 2,026 Effects of exchange rate changes on the balances of cash held in
foreign currencies (5) 2 Cash and cash equivalents at the end of the period 1,492 2,226 The consolidated statement of cash flows is to be read in conjunction with the notes to the half-year financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2018
Equity attributable to owners of Santos Limited
Financial Accumulated
Issued Translation Hedging liabilities at profits Accumulated Total capital reserve reserve FVOCI reserve losses equity$million $million $million $million $million $million $million Balance at 1 January 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 Balance at 1 July 2017 9,034 (623) 13 (20) 313 (1,800) 6,917 Transfer retained profits to accumulated profits reserve – – – – 282 (282) – Items of comprehensive income:
Net profit for the period – – – – – 146 146 Other comprehensive income/(loss) for the period – 95 (8) (1) – (1) 85 Total comprehensive income/(loss) for the period – 95 (8) (1) – 145 231 Transactions with owners in their capacity as owners:
Share buy-back (held as Treasury shares) (5) – – – – – (5) Share-based payment transactions 5 – – – – 3 8 Balance at 31 December 2017 9,034 (528) 5 (21) 595 (1,934) 7,151 Balance at 1 January 2018 9,034 (528) 5 (21) 595 (1,934) 7,151 Transfer retained profits to accumulated profits reserve – – – – 327 (327) – Items of comprehensive income:
Net profit for the period – – – – – 104 104 Other comprehensive (loss)/income for the period – (244) (11) (1) – 2 (254) Total comprehensive (loss)/income for the period – (244) (11) (1) – 106 (150) Transactions with owners in their capacity as owners:
Share buy-back (held as Treasury shares) (8) – – – – – (8) Share-based payment transactions 2 – – – – 3 5 Balance at 30 June 2018 9,028 (772) (6) (22) 922 (2,152) 6,998
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 2018
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 2018 (“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 22 August 2018.
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 financing and investing activities 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 2017 and considered together with any public announcements made by the Company during the six months ended 30 June 2018, in accordance with the continuous disclosure obligations of the ASX listing rules.
Changes to significant accounting policies are described in Section 5.
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 2017, except for those that have arisen as a result of new standards, amendments to standards and interpretations effective from 1 January 2018, as outlined in note 5.4.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
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, Queensland& NSW, Papua New Guinea (“PNG”), Northern Australia and Western Australia (“WA”), based on the nature and geographical location of the assets, plus Asia and “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. Comparative disclosures have been restated to a consistent basis. 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.
Changes in Segment information
As at 1 January 2018, the “Other” reporting segment was restructured to compriseSantos’ Asian assets only. New South Wales entered the core portfolio and is now reported under the segment “Queensland and NSW” and WA Oil is now reported under the segment “Western Australia”. Comparative disclosures have been restated to a consistent basis.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
2.1 SEGMENT INFORMATION (continued)
Corporate, Queensland exploration, Cooper & Northern Western eliminations Basin NSW PNG Australia Australia Asia & other Total$million 2018 2018 2018 2018 2018 2018 2018 2018 Revenue
Product sales to external
customers 449 416 215 75 168 134 223 1,680 Inter-segment product
sales1 53 47 – – – – (100) – Revenue– other from
external customers 27 6 2 – 4 – 8 47 Total segment
revenue 529 469 217 75 172 134 131 1,727 Costs
Production costs (63) (38) (31) (40) (50) (31) 10 (243) Other operating costs (31) (38) (22) – (8) (8) (53) (160) Third-party product
purchases (200) (120) – – – – (106) (426) Inter-segmentpurchases* (3) (33) – – – – 36 – Other (3) 45 1 – – (3) (55) (15) EBITDAX 229 285 165 35 114 92 (37) 883 Depreciation and
depletion (98) (86) (58) (24) (39) (13) (10) (328) Exploration and
evaluation expensed – – – – – – (45) (45) Net impairment
(loss)/reversal – (4) (25) – – (47) – (76) Change in future
restoration assumptions – – – – 9 – – 9 EBIT 131 195 82 11 84 32 (92) 443 Net finance costs (108) (108) Profit before tax 335 Income tax expense (212) (212) Royalty-related taxation
benefit/(expense) – – – – (22) – 3 (19) Net profit for the
period 104 1.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 2018
2.1 SEGMENT INFORMATION (continued)
Corporate, Queensland exploration, Cooper & Northern Western eliminations Basin NSW PNG Australia Australia Asia & other Total$million (Restated) 2017 2017 2017 2017 2017 2017 2017 2017 Revenue
Product sales to external
customers 315 347 248 78 152 128 181 1,449 Inter-segment product
sales1 60 7 – – – – (67) – Revenue– other from
external customers 26 7 3 – 23 – (2) 57 Total segment
revenue 401 361 251 78 175 128 112 1,506 Costs
Production costs (69) (34) (27) (37) (47) (34) 9 (239) Other operating costs (37) (33) (22) – (8) (7) (82) (189) Third-party product
purchases (82) (84) (1) – – – (120) (287) Inter-segmentpurchases* (1) (57) – – – – 58 – Other (55) - 2 3 9 12 (44) (73) EBITDAX 157 153 203 44 129 99 (67) 718 Depreciation and
depletion (72) (96) (52) (29) (49) (37) (13) (348) Exploration and
evaluation expensed – – – – – – (53) (53) Net impairment
(loss)/reversal 480 (1,241) (4) – (6) (149) – (920) EBIT 565 (1,184) 147 15 74 (87) (133) (603) Net finance costs (139) (139) Loss before tax (742) Income tax benefit 228 228 Royalty-related taxation
benefit/(expense) – – – 3 (12) – 17 8 Net loss for the period (506) 1.Inter-segment pricing is determined on an arm's length basis. Inter-segment sales are eliminated on consolidation.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
2.2 REVENUE FROM CONTRACTS WITH CUSTOMERS
(Restated) 30 June 2018 30 June 2017$million $million Product sales:
Gas, ethane and liquefied gas 1,114 1,049 Crude oil 400 262 Condensate and naphtha 132 106 Liquefied petroleum gas 34 32 Total product sales1 1,680 1,449 1
Total product sales include third party product sales of$523 million (2017:$392 million).
Revenue– other:
Liquidated damages 5 25 Pipeline tolls& tariffs 35 22 Other 7 10 Total revenue– other 47 57 Total revenue from contracts with customers 1,727 1,506
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
2.3 EXPENSES
(Restated) 30 June 2018 30 June 2017$million $million Cost of Sales:
Production costs:
Production expenses 227 208 Production facilities operating leases 16 31 Total production costs 243 239 Other operating costs:
LNG plant costs 33 32 Pipeline tariffs, processing tolls and other 84 88 Fair value losses on onerous pipeline contracts – 31 Royalty and excise 35 30 Shipping costs 8 8 Total other operating costs 160 189 Total cash cost of production 403 428 Depreciation and depletion costs:
Depreciation of plant, equipment and buildings 212 221 Depletion of sub-surface assets 115 126 Total depreciation and depletion 327 347 Third-party product purchases 426 287 Decrease in product stock 6 35 Total cost of sales 1,162 1,097 Other expenses:
Selling 7 7 General& administration 43 48 Depreciation 1 1 Foreign exchange (gains)/losses (90) 93 Fair value losses/(gains) on commodity derivatives (oil
hedges) 109 (30) Fair value hedges, (gains)/losses:
On the hedging instrument 13 33 On the hedged item attributable to the hedged risk (13) (35) Exploration and evaluation expensed 45 53 Total other expenses 115 170
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
2.4 TAXATION
Current income tax expense of$212 million (2017: tax benefit$228 million) recognised in the income statement for the Group includes the following, which attributes to the high effective tax rate for the period:
 Foreign exchange losses relating to AUD tax bases in USD denominated companies of$67 million; and Foreign losses not recognised of$23 million, relating to impairment charge of$76 million on the Bestari exploration asset.
2.5 DIVIDENDS
Dividend
per share Total Franked/ Payment¢ $million unfranked date Dividends paid during the period:
2018
Nil nil nil
2017
Nil nil nil
Franked dividends paid during the period were
franked at the tax rate of30%.
Dividends declared in respect of the
current period:
2018 Interim dividend per ordinary share 3.5 72.9
After the reporting date, on 22 August 2018, the 2018 interim dividend of 3.5 cents per share was declared by the Directors. Consequently, the financial effect of the dividend has not been brought to account in the half-year financial statements for the six months ended 30 June 2018, and will be recognised in subsequent financial reports.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
SECTION 3: CAPITAL EXPENDITURE, OPERATING ASSETS AND RESTORATION
OBLIGATIONS
This section includes information about the assets used by the Group to generate profits and revenue, specifically information relating to exploration and evaluation assets, oil and gas assets, and commitments for capital expenditure not yet recognised as a liability.
The life cycle of our assets is summarised as follows:
Exploration and
Appraisal Drilling Development Production Decommissioning
Abandonment and Evaluation Restoration
:
3.1 EXPLORATION AND EVALUATION ASSETS
Six months ended
30 June 2018 31 Dec 2017 30 June 2017$million $million $million Balance at the beginning of the period 459 422 495 Acquisitions 4 14 35 Additions 25 37 57 Expensed (2) – (18) Impairment losses (29) (7) (156) Transfer to oil and gas assets in production (7) (7) (6) Net impairment losses on assets transferred to held
for sale (76) – – Exchange differences (19) – 15 Balance at the end of the period 355 459 422 Comprising:
Acquisition costs 70 95 82 Successful exploration wells 173 253 290 Pending determination of success 112 111 50 355 459 422
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
3.2 OIL AND GAS ASSETS
Six months ended
30 June 2018 31 Dec 2017 30 June 2017$million $million $million Assets in development
Balance at the beginning of the period 119 94 90 Additions 36 25 4 Transfer to oil and gas assets in production (1) (2) – Exchange differences (1) 2 – Balance at the end of the period 153 119 94 Producing assets
Balance at the beginning of the period 9,417 9,523 10,308 Additions1 226 238 179 Transfer from exploration and evaluation assets 7 7 6 Transfer from oil and gas assets in development 1 2 – Disposals – (4) – Depreciation and depletion (316) (384) (334) Net impairment losses – (1) (764) Transfer to assets held for sale (153) – – Net impairment reversals on assets transferred to held
for sale 29 – – Exchange differences (149) 36 128 Balance at the end of the period 9,062 9,417 9,523 Total oil and gas assets 9,215 9,536 9,617 Comprising:
Exploration and evaluation expenditure pending
commercialisation 98 95 182 Other capitalised expenditure 9,117 9,441 9,435 9,215 9,536 9,617 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 2018
3.4 IMPAIRMENT OF NON-CURRENT ASSETS
Impairment expense recorded during the period is as follows:
30 June 2018 30 June 2017 Note $million $million Assets held for sale 3.5 47 – Exploration and evaluation assets 29 156 Oil and gas assets – 764 Total impairment 76 920 The carrying amounts of theGroup’s oil and gas assets are reviewed at each reporting date to determine whether there is any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made.
The expected future cash flow estimation is based on a number of factors, variables and assumptions, the most important of which are estimates of reserves, future production profiles, third party supply, commodity prices, costs and foreign exchange rates. In most cases, the present value of future cash flows is most sensitive to estimates of future commodity prices, discount rates and production.
Future prices(US$/bbl) used were:
2018 2019 2020 2021 20221 20231
65.00 60.00 65.00 70.00 75.77 77.29
1. Based onUS$70/bbl (2018 real) from 2022 escalated at2% p.a.
The future estimated foreign exchange rate applied isA$1/US$0.75.
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, including functional currency of the asset, and risk profile of the countries in which the asset operates. The range of pre-tax discount rates that have been applied to non-current assets is between11% and14%.
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 recognised for the half year ended 30 June 2018 are: Subsurface Plant and Recoverable assets equipment Total amount Segment $million $million $million $million Exploration and evaluation assets:
PNG– PPL 426 Exploration 25 – 25 nil1 Gunnedah Basin Exploration 4 – 4 nil1 Total impairment of exploration and
evaluation 29 – 29
1. Impairment of exploration and evaluation assets relates to certain individual licenses/areas of interest that have been impaired to nil.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
3.5 ASSETS HELD FOR SALE
Non-current assets are classified as held for sale and measured at the lower of their carrying amount and fair value less costs of disposal if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset to be classified as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less cost of disposal. A gain is recognised for any subsequent increases in fair value less cost of disposal of an asset (or disposal group) but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
Following theGroup’s decision to divest its interests in its non-core Asian assets, the associated assets and liabilities attributed to the Asia segment, have been classified as held for sale at 3 May 2018. The sale and purchase agreements remained subject to outstanding conditions at 30 June 2018 and will be accounted for upon completion or waiver of each significant condition.
The following amounts are included within the financial statements in relation to assets and liabilities classified as held for sale:
30 June 2018 Assets and liabilities classified as held for sale $million Trade and other receivables 45 Inventories 9 Other financial assets 75 Oil and gas assets 153 Assets classified as held for sale 282 Trade and other payables 46 Other liabilities 45 Restoration provisions 91 Liabilities classified as held for sale 182 Net assets 100 Impairment
A net impairment loss of$47 million attributed to the write-down/(reversal) of the Asian assets held for sale to their fair value less costs of disposal has been recorded.
The impairment has arisen as each Asian asset disposed has been written down to the lower of its carrying amount and fair value less cost to sell. Upon completion of the sale, currently forecast for the second half of 2018, a gain upon disposal will arise from the carrying value recorded at 30 June 2018. In addition, upon completion, the foreign currency translation reserve relating to the companies disposed of will be recycled to the Income Statement. The Group currently forecasts that the net impairment will be offset in the full year accounts and a net gain on disposal to arise upon completion of these transactions.
Income statement impact
For the period ended 30 June 2018, the net loss after tax attributable to the assets held for sale is$9 million. When excluding the net loss of the assets held for sale from the net profit of the Group, the impact on reported earnings per share is negligible.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
SECTION 4: FUNDING AND RISK MANAGEMENT
Our business has exposure to capital, credit, liquidity and market risks. This section provides information relating to ou r management of, as well as our policies for measuring and managing these risks.
4.1 NET FINANCE COSTS
30 June 2018 30 June 2017$million $million Finance income:
Interest income 12 14 Total finance income 12 14 Finance costs:
Interest paid to third parties (99) (136) Deduct borrowing costs capitalised 2 5 (97) (131) Unwind of the effect of discounting on provisions (23) (22) Total finance costs (120) (153) Net finance costs (108) (139)
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
4.2 ISSUED CAPITAL
Six months ended
30 June 2018 31 December 2017 30 June 2017 30 June 2018 31 December 2017 30 June 2017 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 2,083,070,879 2,083,221,296 2,032,389,675 9,034 9,034 8,883 Share purchase plan, net of costs – – 50,847,537 – – 151 Shares purchased on-market (Treasury
shares) – – – (8) (5) (3) Issue of Treasury shares on vesting of
employee share schemes – – – 2 5 3 Replacement of restricted classes of ordinary
shares with shares purchased on-market (55,451) (150,417) (21,281) – – – Shares issued on vesting of share acquisition
rights – – 5,365 – – – Balance at the end of the period 2,083,015,428 2,083,070,879 2,083,221,296 9,028 9,034 9,034 30 June 2018 31 December 2017 30 June 2017 Number of shares Number of shares Number of shares Movement in Treasury shares
Balance at the beginning of the period 587,993 735,599 – Shares purchased on-market 2,000,000 1,200,000 1,400,000 Treasury shares utilised:
Santos Employee Share1000 Plan – (301,584) – Santos Employee ShareMatch Plan – (553,416) – Utilised on vesting of SARs (40,461) (357,724) (21,221) Executive STI (deferred SARs) (312,731) – (261,011) Executive STI (ordinary shares) – – (193,977) Executive sign-on grants (42,585) (23,777) (166,911) Santos Employee Share1000 Plan (relinquished shares) – 39,312 – Replacement of partially paid shares with shares purchased on-market (15,000) – – Replacement of ordinary shares with shares purchased on-market (55,451) (150,417) (21,281) Balance at the end of the period 2,121,765 587,993 735,599
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
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 and sensitivity analysis in the case of foreign exchange, interest rate and commodity price risk, and ageing and credit rating concentration 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 and 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, borrowings and capital and operating expenditure incurred in currencies other than the functional currency. 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 (2018:$1,407 million; 2017:$1,407 million), swapped using cross-currency swaps to US dollars and designated as a hedge of US dollar denominated investments in foreign operations (2018:$nil; 2017:$nil), or offset by US dollar denominated cash balances (2018:$802 million; 2017:$835 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 2018.
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 long-term notes. When transacted, these swaps had maturities ranging from 1 to 20 years, aligned with the maturity of the related notes.
The Group has entered into interest rate swaps which fix the reference rate on$1,200 million of US dollar denominated floating rate debt. These contracts are in place to cover interest payments through to 21 March 2019 and are designated as cash flow hedges.
TheGroup’s interest rate swaps have a notional contract amount of$1,577 million (2017:$1,577 million) and a net fair value of$45 million (2017:$61 million). The net fair value amounts were recognised as fair value derivatives.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
4.3 FINANCIAL RISK MANAGEMENT (continued)
Commodity price risk
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 crude oil price swap and option contracts to manage its commodity price risk. At 30 June 2018, the Group has 9.7 million barrels (2017: 12.5 million) of open oil price option contracts covering 2018 (2018: 6.3 million; 2017: 12.5 million) and 2019 exposures (2018: 3.4 million; 2017: nil).
The 3-way collar option structure utilised for the 2018 exposures does not qualify for hedge accounting, with the movement in fair value recorded in the income statement. The 2019 exposures are hedged using zero cost collars and are designated as cash flow hedges.
(c) Fair values
The financial assets and liabilities of the Group are all initially recognised in the statement of financial position at their fair values. Receivables, payables, interest-bearing liabilities and other financial assets and liabilities, which are not subsequently measured at fair value, are carried at amortised cost.
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, 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 US 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 US 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 2018 31 Dec 2017% % Derivatives 2.0– 3.0 1.4– 2.5 Loans and borrowings 2.0– 3.0 1.4– 2.5 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 2018
SECTION 5: OTHER
This section provides information that is not directly related to the specific line items in the financial statements, in cluding 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 2018. 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 22 August 2018, the Directors of Santos Limited declared an interim dividend on ordinary shares in respect of the 2018 half-year period. Consequently, the financial effect of these dividends has not been brought to account in the half-year financial statements for the six months ended 30 June 2018. Refer to note 2.5 for details. On 22 August 2018, Santos announced the acquisition of Quadrant Energy forUS$2.15 billion. The acquisition is forecast to complete in the second half of 2018. The acquisition has no financial effect in the half-year financial statements for the six months ended 30 June 2018.
5.4 ACCOUNTING POLICIES
(a) 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 2017, except for new standards, amendments to standards and interpretations effective from 1 January 2018. The Group has adopted AASB 15 Revenue from Contracts with Customers (“AASB 15”) from 1 January 2018. The impact of the adoption of this standard and the new accounting policies are disclosed in more detail below.
A number of other new standards are effective from 1 January 2018 but they do not have a material impact on theGroup’s half-year financial report.
(b) Adoption of AASB 15
Description
AASB 15 establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaced AASB 118 Revenue and AASB 111 Construction Contracts and related interpretations. The Group has adopted AASB 15 from 1 January 2018 which resulted in changes in accounting policies and adjustments to amounts recognised in the half-year consolidated financial statements.
Transition
In accordance with the transition provisions of AASB 15, the Group has adopted the full retrospective transition approach, where any adjustment to historical revenue transactions (that impacts net profit) has been recorded against opening retained earnings as at 1 January 2017. Comparatives for the 2017 reporting period have been restated.
The Group undertook a detailed review of its revenue contracts that were entered into during the transition period and concluded that there were no adjustments required to net profit or opening retained earnings on transition.
Application of AASB 15 has resulted in the following insignificant transition adjustments:
i. Reclassification of other income and other revenues to revenue from contracts with customers; and ii. Adjustments of equal or similar amounts to product sales and cost of sales line items, arising from gas
swap arrangements.
NOTES TO THE HALF-YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2018
5.4 ACCOUNTING POLICIES (continued)
(b) Adoption of AASB 15 (continued)
The total impact of transition adjustments on 30 June 2017 reported revenue is as follows:
Transition (Restated) 30 June 2017 adjustment 30 June 2017 Revenue from contracts with customers–
Product sales 1,453 (4) 1,449 Cost of sales (1,088) (9) (1,097) Gross profit 365 (13) 352 Revenue from contracts with customers– Other 43 14 57 Other income 74 (1) 73 Total –
The Group has elected to change from the “entitlements method” to the “sales method” of accounting for sales revenue. Previously under the entitlements method, sales revenue was recognised on the basis of theGroup’s interest in a producing field. Under the sales method, revenue will be recognised based on volumes sold under contracts with customers, at the point in time where performance obligations are considered met.
Accounting policy
Revenue
Revenue from contracts with customers is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue is recognised and measured at the fair value of the consideration or contributions received, net of goods and services tax or similar taxes, to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
Sales revenue
Sales revenue is recognised using the “sales method” of accounting. The sales method results in revenue being recognised based on volumes sold under contracts with customers, at the point in time where performance obligations are considered met. Generally, regarding the sale of hydrocarbon products, the performance obligation will be met when the product is delivered to the specified measurement point (gas) or point of loading/unloading (liquids).
Revenue earned under a production sharing contract (“PSC”) is recognised on a net entitlements basis according to the terms of the PSC. Generally, under these terms the local government retains title to the resources, and is therefore entitled to its share of the production and revenue, after allowing for the joint venture partners to extract and sell their share of hydrocarbons to recover specified costs and a profit margin.
Contract liabilities
A contract liability is recorded for obligations under sales contracts to deliver natural gas in future periods for which payment has already been received.
DIRECTORS’ DECLARATION
FOR THE SIX MONTHS ENDED 30 JUNE 2018
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 2018 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 22nd day of August 2018
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 2018, 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 2018 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 2018 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
31
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
22 August 2018
A member firm of Ernst& Young Global Limited
32
Liability limited by a scheme approved under Professional Standards Legislation
APPENDIX 4D
FOR THE SIX MONTHS ENDED 30 JUNE 2018
For‘Results for Announcement to theMarket’ refer to page 1 of this Half-year Report
NTA BACKING
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|30 June 2018|30 June 2017|

 Net tangible asset backing per ordinary security N/A N/A CHANGE IN OWNERSHIP OF CONTROLLED ENTITIES
The following companies have been approved for sale during the six months ended 30 June 2018:
Santos Asia Pacific Pty Ltd
Santos (SPV) Pty Ltd
Santos (Madura Offshore) Pty Ltd
Santos (Sampang) Pty Ltd
Santos Sabah Block R Pty Ltd
Santos Petroleum Ventures B.V.
Santos Vietnam Pty Ltd
DETAILS OF JOINT VENTURE AND ASSOCIATE ENTITIES
Percent ownership interest held at the end of the period 30 June 2018 30 June 2017% % 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 – - Papua New Guinea Liquefied Natural Gas Global Company LDC 13.5 13.5 1 company deregistered on 7 May 2017.