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Summary

Santos forecasts improved 2005

Santos Limited expects its annual results to improve significantly in 2005 following the previously forecast downturn in the current calendar year.

Addressing the Company’s Annual General Meeting in Adelaide today, Santos Chairman, Mr Stephen Gerlach, outlined several factors that would contribute to strong growth in production, cash flow and earnings in 2005.

“Santos has entered 2004 the year marking the Companys 50th anniversary with six new company-building projects located in South East Asia, the Timor Gap and offshore Victoria and Western Australia,” Mr Gerlach told shareholders.

“Like all shareholders, we look forward to Santos benefiting from the many positive developments that we currently have in train that will significantly increase our production in 2005, 2006 and 2007,” he said.

Mr Gerlach repeated earlier advice that Santos expected lower production in 2004 ahead the expected 2005 improvement.

“Our current estimate is for 2004 production of around 47-to-48 million barrels of oil equivalent (boe) compared with our 49 million boe forecast made earlier this year,” he said.

“This reflects reduced deliverability from the East Spar gas field off Western Australia and lower than previously forecast Cooper Basin oil production.

“However, Cooper Basin oil production is expected to be steady in the current year, arresting the continuous decline in output over the past 17 years.

“All of these forecasts are prior to any acquisitions.”

Mr Gerlach said that, as previously advised, the Moomba incident was likely to have an adverse impact on Santos net profit after tax of $25-30 million in the current year, after expected insurance recoveries.

“On the other side of the ledger, we have today announced details of a new business improvement program which will enhance future profits,” he said.

Santos Managing Director, Mr John Ellice-Flint, told the meeting that the program, the most significant Santos reorganisation in 10 years, featured a new senior leadership team, a dramatic reduction in executive reporting structures, and a 16% reduction in staff and contractor numbers.

“We expect to achieve increases in the Company’s after-tax earnings in the order of $22 million in 2005 and $30 million in 2006 from the program, prior to restructuring and implementation costs. There will be savings in operating expenditure of approximately $23 million in 2005 and $28 million in 2006 (Santos share) and savings in capital expenditure of around $57 million (Santos share) in each of those years, largely in the Cooper Basin.

“The program restructuring and implementation costs to be incurred in the current year to 31 December 2004, will be of the order of $20 million adverse impact on net profit after tax. Of this, around $14 million will be incurred in the current opening half to 30 June 2004. Costs in 2005 are expected to be around $4 million.”