Annual Report 2004 55
1. Statement of Accounting Policies
(continued)
of usage, degree of technical
obsolescence, expected commercial life
and the period of time during which the
right or entitlement to the asset exists.
The depreciation rates are reviewed and
reassessed periodically in light of technical
and economic developments.
The useful lives for each class of onshore
asset will vary depending on their
individual technical and economic
characteristics but will generally fall
within the following ranges:
• Plant and equipment
– Computer equipment 3 – 5 years
– Motor vehicles 4 – 7 years
– Furniture and fittings 10 – 20 years
– Pipelines 10 – 30 years
– Plant and facilities 10 – 50 years
• Buildings 20 – 50 years
Depreciation of offshore plant and
equipment is calculated using a unit of
production method which will
proportionately depreciate the assets over
the life of the Proven plus Probable (“2P”)
reserves on a field by field basis.
Depletion charges are calculated using a
unit of production method which will
amortise, over the life of the 2P reserves,
exploration and development expenditure
together with future costs necessary to
develop the reserves in the respective
areas of interest.
Depletion is not charged on costs
carried forward in respect of areas of
interest in the development stage until
production commences.
(r) Restoration
Provisions are made for environmental
restoration of areas of interest where gas
and petroleum production is undertaken.
Such provisions recognise the estimated
future restoration obligations
incrementally over the life of the reserves
on a unit of production basis. The
estimated future obligations include
removing of facilities, abandoning of wells
and restoring the affected areas. Estimates 
for the future restoration obligations are
reviewed and reassessed regularly, based
on current legal requirements and
technology and are measured in current
dollars on an undiscounted basis.
Adjustments to the provisions are made
on a prospective basis.
(s) Employee benefits
The provisions for employee benefits for
wages, salaries and annual leave expected
to be settled within twelve months of the
balance date represent present obligations
resulting from employees services provided
to balance date, calculated at
undiscounted amounts based on
remuneration wage and salary rates that
the Santos Group expects to pay as at
balance date including related on-costs.
Long service leave is provided in respect
of all employees, based on the present
value of the estimated future cash outflow
to be made resulting from employees’
services up to balance date. The provision
is calculated using expected future
increases in wage and salary rates
including related on-costs and expected
settlement dates, and is discounted using
the rates attached to the Commonwealth
Government bonds at balance date which
most closely match the terms of maturity
of the related liabilities.
The Company and several controlled entities
contribute to a number of defined benefit
and cash accumulation superannuation
plans. Contributions are recognised as an
expense as they are made.
(t) Employee share ownership plans
The Company operates a number of share
ownership plans.
Shares issued under the Santos Executive
Share Plan, Santos Executive Share Option
Plan and the Santos Employee Share
Purchase Plan are recorded as contributed
equity at the fair value of the
consideration received, if any.
The value of the shares issued to eligible
employees under the Santos Employee
Share Acquisition Plan is expensed over
a three year period.
(u) Income tax
Tax effect accounting is applied whereby
the income tax charged in the statements
of financial performance is matched with
the accounting profit after allowing for
permanent differences. Income tax on
timing differences, which arise from items
being brought to account in different
periods for income tax and accounting
purposes, is carried forward in the
statements of financial position as a