The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Mark Greenwood - Citi - Analyst: G'day, David. I guess I understand where you're coming from in terms of gas markets and the large resource base here, but it's seems to me the acreage is still largely unproven. When do you think you'll be able to achieve sustainable production out of the Gunnedah Basin to a point where you could actually market this gas to customers?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: So you'd' be aiming to get, I mean at the moment production is being sporadic at best, when do you think you'll get sustainable production? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: I guess many in the market are still concerned that you don't have enough gas for trains 1 and 2 for Gladstone LNG . Where do you see this gas fitting into your commercialisation plans?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: So this is not for Gladstone LNG trains 1 and 2, can you confirm that?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: Okay, thank you that's all for now.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Stuart Baker - Morgan Stanley - Analyst: Morning, David. Two questions, firstly any expected push back from the ACCC? The second question, looking at the Eastern Star Gas' previous strategy was to try to take some of this gas down to Newcastle and do mini LNG does not seem to fit with ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43 any current identifiable strategy Santos would have. Is it fair to assume that the development option they were pursuing is perhaps not one that Santos would prefer?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Stuart Baker - Morgan Stanley - Analyst: Thanks, David, that's all from me.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Adrian Wood - Macquarie - Analyst: Yes hi, David. Just very quickly could you talk a little bit about the timing of this transaction? I appreciate the Eastern Star share price has come off quite a long way but same can be also said of the Santos share price. You know I just wonder if has there been any recent drilling results that as a partner I these assets you are well aware of that have given you greater confidence about the outlook?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Stuart Baker - Morgan Stanley - Analyst: Okay and then just a second ago you said very clearly that this resource is not about underpinning Gladstone's trains 1 and 2, but you do say on slide 8 that access to the Wallumbilla infrastructure could enable getting this gas into Gladstone at some point in the future. Presumably that would be around train 3. First of all can you just confirm that is what you are thinking? But ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43 also why would you see this as preferential supply source for train 3 over and above what you may or may not have in the Cooper?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Stuart Baker - Morgan Stanley - Analyst: Okay great, thanks very much.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Jason Mabee - Royal Bank of Scotland - Analyst: Yes hi, David, just a couple of questions, firstly just following on from some of the other guys. I wonder if you could just give us your spin on the completion techniques used to date. You know that you guys have used to date and whether you think you might sort of head off on a different tack or are you pretty comfortable with where they've - what they've been doing?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Jason Mabee - Royal Bank of Scotland - Analyst: Okay and then the second thing was you mentioned sort of all the MOUs well certainly the new council LNGs under consideration. Does that apply to the existing power agreements, like for example the Wellington Power Station with ERM Power? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43
Answer By: David Knox - Santos - CEO and Managing Director
Question: Jason Mabee - Royal Bank of Scotland - Analyst: Okay and TRU doesn't have any guaranteed offtake as part of this deal, strictly the 20% ownership the anchorage?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Jason Mabee - Royal Bank of Scotland - Analyst: Okay, thanks for that.
Answer By: David Knox - Santos - CEO and Managing Director
Question: James Bullen - Merrill Lynch - Analyst: Thanks, good morning guys. Just a couple of questions, firstly around the contingent resource. I mean you obviously have a very large contingent resource sitting in the Cooper basin, some 44 tcf. I'm just wondering the rationale behind adding what is another substantial chunk of resource rather than trying to prove up the contingent resource that you have in the Cooper?
Answer By: David Knox - Santos - CEO and Managing Director
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Jason Mabee - Royal Bank of Scotland - Analyst: Yes thanks and just in terms of extracting the resource from the Gunnedah you talked about completion techniques and potentially optimising your horizontals. Do you think that you will move to do more fracking to extract gas from the coal seams? Unidentified Company Representative As David described we're looking at running multi-stack laterals which because you're exposing so much of the coal seam via those laterals we don't believe we'll need to frack and the gaps will flow through the laterals through a vertical producer. Unidentified Participant Great. Thanks very much.
Question: Chris File - UBS - Analyst: Yeah, look thanks very much for the call. On the debt and rating side it seems to me you've structured this as a scrip offer to limit any raise impact. Can you confirm that? That is was your BBB+ rating kept in mind in structuring this acquisition and [inaudible] as a scrip offer and secondly can I just clarify, are there any incremental debt amounts that Santos is taking on to its balance sheet as part of this acquisition? Unidentified Company Representative What I'll do is I'll ask Andrew to address the details of that question but you know obviously what we've done here is to preserve our balance sheet strength through this transaction. I mean I'll ask Andrew to give you some more details.
Answer By: Andrew Seaton - Santos - CFO
Question: Chris File - UBS - Analyst: Yeah, that's absolutely known. I just wonder are you able to elaborate as to any incremental debt amounts that you're taking on to the balance sheet as part of this acquisition or is that ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43 Unidentified Company Representative Okay, so within ESG, ESG have one small debt facility which is - so for $10 million secured against the land in Newcastle.
Question: Chris File - UBS - Analyst: Okay. So pretty small? Unidentified Company Representative Yeah, pretty small and they also have net cash which we would expect to well exceed that number by the time the schemes implemented. So we're in good shape there.
Question: Chris File - UBS - Analyst: Okay. Thank you for your comments. Unidentified Company Representative Thank you, Chris.
Question: Sandra McCullagh - Credit Suisse - Analyst: Good morning, David. Can you comment on - give us some colour on TRU's ability to take their 20% of the gas versus you signing future gas supply agreements with TRUenergy?
Answer By: David Knox - Santos - CEO and Managing Director
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Sandra McCullagh - Credit Suisse - Analyst: Okay and can you confirm that there is agreement with MacGen and ERN Power are non-binding and that you can walk away from them?
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Sandra McCullagh - Credit Suisse - Analyst: Right and can you make a comment then about the whole portfolio play of this versus freeing up gas in Cooper? Does this help you put gas into Mt Isa or have you walked away from Mt Isa as a market post 2013?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Sandra McCullagh - Credit Suisse - Analyst: So you're still hoping to pick up Mt Isa as a customer post 2013?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Sandra McCullagh - Credit Suisse - Analyst: Right. Is there any play on carbon here so that you've got optionality to put the more carbon intensive gas into the export market?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Sandra McCullagh - Credit Suisse - Analyst: What impediments do you have in achieving this portfolio from your joint venture partners in Cooper and now with TRUenergy? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43
Answer By: David Knox - Santos - CEO and Managing Director
Question: Sandra McCullagh - Credit Suisse - Analyst: Thanks Jason, David. Thank you.
Answer By: David Knox - Santos - CEO and Managing Director
Question: John Young - Wilson HTM - Analyst: Thank you and thank you David. Look the question I had was with respect to some additional clarity around what you meant by proving up the gas resources in the Gunnedah Basin please, in terms of what level of confidence you are looking for there in terms of is that across to 2P or 1P and if you could just please confirm the amount of capital that you expected to spend over the next three years to achieve that result please.
Answer By: David Knox - Santos - CEO and Managing Director
Question: John Young - Wilson HTM - Analyst: Okay. Thank you.
Answer By: David Knox - Santos - CEO and Managing Director
Question: John Young - Wilson HTM - Analyst: In terms of the amount of capital to deliver that reserve definition strategy you mentioned - I think in the documentation that came out - that the $35 million of cash from TRU would cover your commitment to that. But I thought heard a larger number mentioned in your presentation today.
Answer By: David Knox - Santos - CEO and Managing Director
Answer By: Andrew Seaton - Santos - CFO
Question: John Young - Wilson HTM - Analyst: Okay so that $500 million will result in approximately 50 wells is that correct?
Answer By: David Knox - Santos - CEO and Managing Director
Question: John Young - Wilson HTM - Analyst: Okay, but that wouldn't include any pipelines or anything like that. This is all field-based at this point in time over the next three years?
Answer By: David Knox - Santos - CEO and Managing Director
Question: John Young - Wilson HTM - Analyst: Thank you. Just one other question - this is related to the involvement of TRU - does this do you think signal potentially a larger involvement by downstream customers in the east coast industry going forward? Do you think - are you able - I'm not expecting to comment on TRU's intentions here, but from Santos's point of view do you see increased involvement with downstream customers in ownership of gas resources going forward? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43
Answer By: David Knox - Santos - CEO and Managing Director
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: John Young - Wilson HTM - Analyst: Okay, thank you for that.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Gordon Ramsay - UBS - Analyst: Thank you. Couple of questions - I guess the first one relates to Newcastle LNG. My understanding is that project is undergoing seed at the moment and I'm just wondering whether Santos is going to continue that and if it doesn't is there any cost involved or any penalties to Santos or Eastern Star Gas if it does pull out of that project?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Gordon Ramsay - UBS - Analyst: Okay. The second question relates to the Cooper Basin on contracted conventional gas, the 750 PJs that you're looking at adding to GLNG. Can you just update me on where that is in terms completing that transaction and also whether or not this transaction would enable you to potentially swap Gunnedah Basin gas for Cooper longer term and add to that volume load to Cooper that might end up in GLNG? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43
Answer By: David Knox - Santos - CEO and Managing Director
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Gordon Ramsay - UBS - Analyst: So the preference then is to bring Gunnedah gas up to GLNG instead of swapping it for Cooper?
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Gordon Ramsay - UBS - Analyst: Okay, thank you.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Gordon Ramsay - UBS - Analyst: Thanks, David.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Derek Francis - Mollers Company - Analyst: Hello?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Derek Francis - Mollers Company - Analyst: Good day. Look, just quickly my question is, I notice that there's material adverse change defined in the defined terms but I can't see any actual scheme documentation whether it is subject to a material adverse change or not. I was just wanting clarification on that?
Answer By: Andrew Seaton - Santos - CFO
Question: Derek Francis - Mollers Company - Analyst: 5% reduction?
Answer By: Andrew Seaton - Santos - CFO
Question: Derek Francis - Mollers Company - Analyst: Yeah, before we get [unclear] which clauses - I'm just struggling to find it or maybe you can tell me afterwards.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Derek Francis - Mollers Company - Analyst: Okay, thanks a lot.
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: Just a follow up question. I'm just wondering whether you could give us from your perspective a summary of the technical status at the Gunnedah Basin? What are the key issues that have prevented Eastern Star from signing binding off take agreements to date?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: What are the hurdles you need to - what are the things you need to do to be able to contract this gas though?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: east coast in your portfolio? So shown [unclear] conventional in the Cooper, Gunnedah?
Answer By: David Knox - Santos - CEO and Managing Director
Question: Mark Greenwood - Citi - Analyst: Thank you.
Answer By: Andrew Seaton - Santos - CFO
Question: Mark Greenwood - Citi - Analyst: Thank you.
Answer By: David Knox - Santos - CEO and Managing Director
Answer By: David Knox - Santos - CEO and Managing Director
Question: Jonathan Foster - Religare Capital Markets - Analyst: Hi, guys. Just a couple of quick questions regarding the structure I suppose of the scheme itself. Firstly, TRUenergy I assume because there's a separate deal I guess that you're doing with them they won't be eligible to vote at the scheme and a second question I guess flowing on from that do you see any ASIC or court issues at all if for some reason the value of the scrip offer is materially different to $0.90 come the scheme?
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Jonathan Foster - Religare Capital Markets - Analyst: Got it. So despite the fact I guess that there's a cash amount paid to TRU it shouldn't impact?
Answer By: James Baulderstone - Santos - VP Eastern Australia
Question: Jonathan Foster - Religare Capital Markets - Analyst: Got it. Understood. Thank you, guys. ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43
Answer By: David Knox - Santos - CEO and Managing Director
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