2012 Annual Corporate Update

1. 2012 Annual Corporate Update Understanding the Business impacts of theCarbon Pricing Mechanism Susie Smith, Santos Limited

2. Disclaimer • All reasonable effort has been made to provide accurate information in this presentation. • As the Carbon Pricing Mechanism is constantly evolving, with updates to legislation, regulation and determinations, this presentation should not be relied upon for any decision making.

3. Agenda • Introduction • Overview of the Australian Carbon Pricing Mechanism • Emissions Measurement and Reporting • Standard Carbon Clauses • Flow-on Impacts of Carbon Pricing

4. Australia’s carbon emissions Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011

5. Bipartisan support for 5% emissions reduction

6. Different policies proposed to deliver same target

7. Carbon politics is finely balanced • Minority ALP government was formed on 21 Aug 2010 with support from Independents and Greens • Opposition has pledged to repeal the carbon tax • Repealing the carbon tax in itself would not increase policy certainty, as there will be an economic cost to lower carbon emissions in the future Lower House requires 76 votes to pass legislation. Senate requires 39 votes to pass legislation.

8. Overview of the Australian Carbon Pricing Mechanism

9. Greenhouse gas emissions include Intent of the Carbon Pricing Mechanism is that the end user pays …

10. Santos’ carbon emissions • Direct liability (Scope 1 emissions): • Direct operated reported emissions of ~3.6 mtCO2e for 2010-11 • Electricity purchases (Scope 2): • Indirect emissions from operated sites ~0.04 mtCO2e • These costs associated with scope 2 emissions will be passed through to Santos via higher electricity prices • Customer use of natural gas (Scope 3): • Embodied emissions of ~16.6 mtCO2e (assumes that all products are combusted) • Embodied emissions from natural gas are transferred to the buyer through an OTN (obligation transfer number) • Supplier is not liable for embodied emissions in liquid fuels. Depending on its use, an equivalent carbon price may be applied for the user of the liquid fuels

11. Implementation of Carbon Policy FIXED PRICE ($23.00; $24.15; $25.40 per tonne of CO2e) FLEXIBLE PRICE (floor/ceiling for 3-years) Clean Energy Bill commences (1 July 2012) Carbon trading* commences (1 July 2015) *Carbon trading will commence earlier than 2015, with the govt likely to release vintages of permits from 2014, however these ‘flexible’ permits will only be eligible for surrender from the 2015/16 compliance period. Compliance reports include: NGER =National Greenhouse and Energy Reporting; EEO = Energy Efficiency Opportunities; NPI = National Pollution Inventory.

12. Carbon Pricing Mechanism: worked example e.g. Facility Joint Operating Agreement Compliance obligations JVP 1 Government Reporting JVP 2 $ Joint Venture Partners JVP 3 Operator reports NGERS and Clean Energy data on behalf of the Joint Venture JVP 4 Operator prepares GHG reports and manages permit liability via JOA Gas Sales Agreement Operator acquires permits on behalf of the Joint Venture and surrenders to government to meet liability Surrender Permits Intent of carbon pricing mechanism is to embed carbon pricing into the sale of goods and services $ Sales to Customers

13. Emissions Measurement & Reporting

14. Mapping emissions sources OPERATED FACILITIES Fugitives Fugitives Fuel, Flare, Vent Plant Fuel, Flare, Vent Fuel, Flare, Vent Wells Facilities Sales by product Emissions are split across multiple products based on their nature: - e.g. Sales gas, ethane, LPG, condensate

15. Robust GHG data and reporting system Santos’ GHG data systems support three different functions developed to meet regulatory and business requirements. Emissions determined in accordance with legislative requirements and audited annually

16. Flow-on impacts of Carbon Pricing

17. About two thirds of Australia’s emissions are covered bythe carbon pricing scheme Partially Covered Excluded Covered Covered Covered Partially Covered Excluded Covered Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011

18. Overall impact • Treasury modelling suggest that carbon pricing will increase aggregate consumer prices in 2012-13 by 0.7 per cent • A further 0.2% increase is expected in 2015-16, once emissions trading starts, bringing the total CPI impact to 0.9 per cent over 4 years Source: Treasury modelling, 2011

19. Electricity • Treasury modelling estimates that household electricity prices will increase ~10%. The majority of this increase is attributed to electricity generation. • The average carbon intensity of the National Electricity Market (NEM) is ~0.9tCO2e/MWh equating to the increase of ~$20/MWh • In theory, impact on electricity costs will vary based on the carbon intensity of the source, though many other factors at play Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011

20. Liquid Fuels • Households and on-road business use of light vehicles will not face a carbon price on fuel • Rail, shipping, domestic aviation, off-road transport (eg on mine sites) and non transport liquid fuels will face an effective carbon price, through changes to the current fuel tax regime • Heavy on-road vehicles will not face a carbon price, but the Government intends to apply an effective carbon price on heavy on-road vehicles from 1 July 2014 • There is a mechanism to ‘opt-in’ under the carbon pricing scheme rather than the fuel tax system, but Santos does not see any benefits in this Source: Clean Energy Plan, Transport Fuels factsheet, DCCEE 2011

21. Questions ?