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Summary

Santos achieves high value reserves growth in 2003

Santos Limited today announced 148% (80 million barrels of oil equivalent) replacement in Proven (1P) reserves at a world-class average cost of US$5.62 per barrel of oil equivalent for the year ended 31 December 2003.

It follows the 119% reserves replacement achieved in 2002. Santos’ Proven reserves at the end of 2003, after 54.2 million barrels of oil equivalent (mmboe) of production and after divestments, totalled 338 mmboe, compared with 312 mmboe at the end of 2002. (on a net entitlement basis).

Oil and natural gas liquids comprised 29% per cent of 1P reserves. Around 30 per cent of 1P reserves were located in the Cooper Basin at the end of the year, where the Company’s strategy is to convert Proven and Probable (2P) reserves to 1P on a just-in-time basis to maximise shareholder value.

“This is the second successive year of positive revisions in Proven reserves since the Company commenced reporting Proven reserves at the end of 2001,” Santos’ Managing Director, Mr John Ellice-Flint, said today.

“Significantly, we have been able to achieve the target we set three years ago of 150% proven reserves replacement by the end of 2003 and at a world-class cost. At the same time the quality of our reserves is increasing,” he said.

“Of 1P reserve additions, 88% were through the drill-bit, 45% resulting from
drilling in 2003.

“In 2003 we also achieved our key target of converting 2P to 1P reserves.

“Going forward the focus will be on converting our substantial Proven, Probable and Possible (3P) reserves and Contingent Resources to 2P and 1P reserves.”

Competitive average cost

Santos achieved a world-class reserve replacement performance in 2003 replacing 1P reserves at a competitive average cost of US$5.62 per barrel of oil equivalent (boe) or US$0.97 per thousand cubic feet equivalent (mcfe). Average finding costs during the year averaged US$1.77 per boe (US$0.30 per mcfe).

Developed Reserves

Developed 1P reserves in the Cooper Basin at the end of 2003 were 79% of total Cooper Basin 1P reserves. For the Company as a whole Proven Developed reserves were 43% of total proven reserves. Santos has a significant number of approved or sanctioned growth projects under development, which will convert Proven Undeveloped reserves in other areas to Proven Developed over the next two years.

Proven plus Probable reserves (2P)

2P reserves declined during the year from 710 mmboe at the end of 2002 to 636 mmboe at the end of 2003 (on a net entitlement basis).

Additions came from gas commercialisation/appraisal (25 mmboe) and acquisitions (24 mmboe). Reductions resulted from production, divestments of the Bentu gas field in Indonesia and a portion of the Company’s interest in Bayu-Undan (40 mmboe), the reclassification of 2P reserves in the Reindeer field and field revisions in the Cooper Basin, East Spar and in the United States (29 mmboe).

Contingent resources increase

Contingent resources (best estimate) increased from 1,233 mmboe at the end of 2002 to 1,450 mmboe at the end of 2003.

Reserves reported on net entitlement basis

Reflecting the increasing share of its reserves in Production Sharing Contracts (PSCs) in Timor-Leste and Indonesia, Santos is reporting its reserves in PSCs on a net entitlement basis for the first time. This is consistent with leading international practice.

In PSCs, the State maintains ownership of the hydrocarbons and provides the PSC parties with an entitlement to a portion of the hydrocarbons (net entitlement or economic interest). Accordingly, a company’s net entitlement to production in a PSC is lower than its working interest in a permit. For comparison purposes 2002 reserve estimates have also been adjusted to a net entitlement basis.

Reserves process

Santos’ reserves estimation processes are audited annually by international oil and gas consultants, Gaffney Cline and Associates. The guidelines conform to reserve definitions of the Australian Stock Exchange, the Society of Petroleum Engineers (SPE) and the World Petroleum Congress (WPC).

Reserves glossary

Proven reserves are those reserves that, to a high degree of confidence (90%) are recoverable.

Proven developed reserves are reserves that can be recovered from existing wells with existing infrastructure and operating methods.

Proven undeveloped reserves require development. Santos has substantial development projects underway, notably the Bayu-Undan liquids and LNG projects, the Mutineer-Exeter oil project and gas projects in Australia, the reserves of which are proven but not yet fully developed.

Proven and Probable reserves are those reserves that are more likely than not (50% probability) to be recovered. Reserves are discovered and commercial.

Contingent resources are discovered but sub-commercial hydrocarbon resources. Development may be pending, on-hold or not currently viable.

Reserve replacement cost per barrel of oil equivalent equals exploration, delineation and development expenditure per annum divided by reserve additions net of acquisitions and divestments. Development includes all development and fixed asset expenditure net of stay-in-business and corporate capital expenditure.

Finding cost per barrel of oil equivalent equals exploration and delineation expenditure per annum divided by reserve additions net of acquisitions and divestments.