Annual Report 2004 85
32. Additional Financial Instruments Disclosure (continued)
(b) Interest rate risk exposure
To manage interest rate risk the Santos Group has entered into interest rate swap contracts with maturities ranging from one to eighteen years.
At 31 December 2004 the Santos Group has open interest rate swap contracts which if closed out would have resulted in a gain of $44.2 million
(2003: gain of $63.3 million).
The Santos Group’s exposure to interest rate risk and the effective weighted average interest rates for classes of interest-bearing financial assets
and financial liabilities is set out below:
Fixed interest repriced
Weighted or maturing in
average Floating Non
interest interest 1 year Over 1 More than interest-
rate* rate or less to 5 years 5 years bearing Total
Note $million $million $million $million $million $million
31 December 2004
Financial assets
Cash 4.55% 128.0 –––– 128.0
Receivables 7 N/A –––– 409.1 409.1
Other financial assets 12 N/A –––– 1 . 2 1 . 2
128.0 – – – 410.3 538.3
Financial liabilities
Payables 14 N/A –––– 371.6 371.6
Deferred income N/A –––– 22.1 22.1
Interest-bearing liabilities 15 5.50% 1.0 480.6 193.4 584.4 – 1,259.4
Interest rate swaps** – 522.8 (98.3) (424.5) – –
1.0 1,003.4 95.1 159.9 393.7 1,653.1
31 December 2003
Financial assets
Cash 4.36% 111. 1–––– 111.1
Receivables 7 N/ A–––– 171.7 171.7
Other financial assets 12 N/ A–––– 11.7 11.7
111.1––– 183.4 294.5
Financial liabilities
Payables 14 N/ A–––– 291.3 291.3
Deferred income N/ A–––– 27.7 27.7
Interest-bearing liabilities 15 4.72% – 155.4 202.9 650.4 – 1,008.7
Interest rate swaps** – 525.6 (84.2) (441.4) – –
– 681.0 118.7 209.0 319.0 1,327.7
* After incorporating the effect of interest rate swaps
** Notional principal amounts
(c) Commodity price risk exposure
The Santos Group is exposed to commodity price fluctuations through the sale of petroleum products denominated in US dollars. The Santos Group
enters into commodity crude oil price swap and option contracts and natural gas swap and option contracts to manage its commodity price risk.
At 31 December 2004 the Santos Group has open oil price swap contracts with settlement expiry dates up to nine months. If closed out at
balance date these contracts would have resulted in a loss of $11.2 million (2003: loss of $1.8 million).
(d) Credit risk exposure
Credit risk represents the potential financial loss if counterparties fail to perform as contracted.
The credit risk on financial assets, excluding investments, of the Santos Group which have been recognised on the statements of financial
position is indicated by the carrying amount.
The credit risk on off-balance sheet derivatives is the cost of replacing the contract if the counterparty were to default and is measured by their
market value at balance date. As at 31 December 2004, counterparty default of foreign currency swaps, foreign currency option contracts, oil
price swap contracts and interest rate swap contracts would result in a loss of $37.2 million (2003: loss of $61.9 million).
The Santos Group controls credit risk on derivative financial instruments by setting exposure limits related to the credit worthiness of
counterparties, all of which are selected banks or institutions with a Standard and Poor’s rating of A or better.
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