foreign operations are translated at the
exchange rate existing at balance date.
Equity items are translated at historical
rates. The statements of financial
performance are translated at a weighted
average rate for the year. Exchange
differences arising on translation are
taken directly to the foreign currency
translation reserve.
(f) Derivative financial instruments
The Santos Group uses derivative financial
instruments to hedge its exposure to
changes in foreign exchange rates,
commodity prices and interest rates arising
in the normal course of business. The
principal derivatives used are forward
foreign exchange contracts, foreign
currency swaps, foreign currency option
contracts, interest rate swaps and options,
commodity crude oil price swap and option
contracts and natural gas swap and option
contracts. Their use is subject to a
comprehensive set of policies, procedures
and limits approved by the Board of
Directors. The Santos Group does not trade
in derivative financial instruments for
speculative purposes.
Gains and losses on derivative financial
instruments designated as hedges are
accounted for on the same basis as the
underlying exposures they are hedging.
The gains and losses on derivative
financial instruments hedging specific
purchase or sale commitments are deferred
and included in the measurement of the
purchase or sale.
Where hedge transactions are designated as
a hedge of an anticipated specific purchase
or sale, the gains or losses on the hedge
arising up to the date of the anticipated
transaction, together with any costs or
gains arising at the time of entering into
the hedge, are deferred and included in the
measurement of the anticipated transaction
when the transaction has occurred as
designated. Any gains or losses on the
hedge transaction after that date are
included in the statements of financial
performance. The net amounts receivable or
payable under forward foreign exchange
contracts and the associated deferred gains
or losses are recorded on the statements of
financial position from the inception of the
hedge transaction.
Exchange differences relating to amounts
payable in foreign currencies designated
as a hedge of a self-sustaining foreign
operation, together with any related
income tax expense/benefit, are
transferred on consolidation to the foreign
currency translation reserve.
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