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© Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. 2012 Annual Corporate Update Understanding the Business impacts of.

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1 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited Annual Corporate Update Understanding the Business impacts of the Carbon Pricing Mechanism Susie Smith, Santos Limited

2 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. 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 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Agenda Introduction Overview of the Australian Carbon Pricing Mechanism Emissions Measurement and Reporting Standard Carbon Clauses Flow-on Impacts of Carbon Pricing

4 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Australia’s carbon emissions Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011

5 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Bipartisan support for 5% emissions reduction

6 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Different policies proposed to deliver same target Government’s Clean Energy Legislation Coalition’s Direct Action Plan Target5% reduction by 2020 Start date1 July 2012t.b.c. Scheme Cap and trade ETS ~ 2/3 of Australia’s emissions covered Proposed Direct Action policy - government selection Carbon Price YR1 $23; YR2 $24.15; YR3 $25.40 Flexible price trading commencing YR4 Price Collars for 3 years of flexible price No penalty for ‘Business as Usual (BAU)’ emissions - penalties not defined yet - BAU methodology not defined yet Permit allocation / funding -Emissions Intensive, Trade Exposed industries i.e. where competitor countries do not have a similar carbon impost -Funding for Renewables, Clean Energy -Energy Security Fund (coal fired power generators) -Household Assistance Package Funding through a tender process - government selection International linking Only in flexible price period (post 2015) Up to 50% international units No details

7 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Carbon politics is finely balanced As at 1/7/2011 House of Reps Senate Australian Labor Party Liberal Party of Australia The Nationals 12 6 Australian Greens 1 9 Independent / Other 5 2 Total 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 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Overview of the Australian Carbon Pricing Mechanism

9 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Greenhouse gas emissions include Intent of the Carbon Pricing Mechanism is that the end user pays …

10 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Santos’ carbon emissions Direct liability (Scope 1 emissions): Direct operated reported emissions of ~3.6 mtCO2e for 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 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Implementation of Carbon Policy FY 11/12FY 12/13 (yr1)FY 13/14 (yr2)FY 14/15 (yr3)FY 15/16 (yr4) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q % acquittal 15 Jun Final acquittal 1 Feb % acquittal Final acquittal % acquittal Final acquittal JOA $C cash call 30 Mar NPI 31 Oct NGER 20 Dec EEO 30 Mar NPI 31 Oct NGER 20 Dec EEO 30 Mar NPI 31 Oct NGER 20 Dec EEO 30 Mar NPI 31 Oct NGER 20 Dec EEO 30 Mar NPI Australian election due Government permit auctioning scheduled to commence* FLEXIBLE PRICE (floor/ceiling for 3-years) FIXED PRICE ($23.00; $24.15; $25.40 per tonne of CO2e) 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 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Joint Operating Agreement Intent of carbon pricing mechanism is to embed carbon pricing into the sale of goods and services Operator acquires permits on behalf of the Joint Venture and surrenders to government to meet liability Sales to Customers Surrender Permits $ Gas Sales Agreement $ Operator reports NGERS and Clean Energy data on behalf of the Joint Venture Government Reporting e.g. Facility JVP 1 JVP 2 JVP 3 JVP 4 Joint Venture Partners Operator prepares GHG reports and manages permit liability via JOA Carbon Pricing Mechanism: worked example Compliance obligations

13 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Emissions Measurement & Reporting

14 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Mapping emissions sources Wells Facilities Plant OPERATED FACILITIES Fuel, Flare, Vent Fugitives Fuel, Flare, Vent Fugitives Emissions are split across multiple products based on their nature: - e.g. Sales gas, ethane, LPG, condensate Sales by product Fuel, Flare, Vent

15 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. NGER Compliance Reporting Joint Venture GHG Reporting GHG System Product GHG Reporting Robust GHG data and reporting system Emissions determined in accordance with legislative requirements and audited annually Santos’ GHG data systems support three different functions developed to meet regulatory and business requirements.

16 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Flow-on impacts of Carbon Pricing

17 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. About two thirds of Australia’s emissions are covered by the carbon pricing scheme Source: Securing a clean energy future: The Australian Government’s Climate Change Plan, 2011 Covered Partially Covered Excluded Partially Covered Excluded Covered

18 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Overall impact Treasury modelling suggest that carbon pricing will increase aggregate consumer prices in by 0.7 per cent A further 0.2% increase is expected in , once emissions trading starts, bringing the total CPI impact to 0.9 per cent over 4 years Source: Treasury modelling, 2011

19 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. 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 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. 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 © Chartered Secretaries Australia Ltd 2012 Prepared and presented by Santos Limited. Questions ?


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