2004 Santos Capital Management Initiative: FUELS 24^th Aug 2004

Santos Limited today announced an offer of Franked Unsecured Equity Listed Securities (FUELS) and the redemption and buyback of its existing Reset Convertible Preference Shares (Resets).

The offer of FUELS which are non-cumulative, redeemable and convertible preference shares, is for $500 million. The redemption and buyback of Resets will be for all outstanding Resets with a total Face Value of $350 million.

“The offer of FUELS and the redemption and buyback of Resets is consistent with Santos’ ongoing commitment to capital management”, said Santos Chairman, Mr. Stephen Gerlach.

“FUELS have more equity like features than Resets and will achieve a more efficient capital structure for Santos.

“The Company has decided to use some of the proceeds from the issue of FUELS to fund a redemption of Resets. The remaining funds will be used to partially fund Santos’ growth development program, which will deliver increased production in the future,” he said.

FUELS Offer

Under the offer made through a public prospectus, Santos is proposing to issue 5.0 million FUELS at a Face Value of $100 each, to raise $500 million. Santos may accept oversubscriptions for additional FUELS and reserves the right to issue less than $500 million. The key features of FUELS are:

• a non-cumulative floating rate dividend set at a margin above the 180 day Bank Bill Swap Rate;
• the margin will be determined via an institutional bookbuild and is expected to be announced on 31 August 2004. The initial margin will, unless the FUELS are exchanged or converted by Santos, step-up by 2.25% on 30 September 2009;
• dividends are expected to be fully franked and payable half-yearly subject to certain conditions;
• Santos may convert or exchange some or all of the FUELS at its election for Ordinary Shares at a 2.5% discount, or $100 in cash for each FUELS on 30 September 2009 and each Dividend Payment Date thereafter. Santos has the right to convert or exchange FUELS prior to 30 September 2009 under certain circumstances; and
• FUELS have been given a BBB- rating by Standard & Poor’s Ratings Services. Securities rated BBB- or above by Standard & Poor’s Rating Services are generally considered to be investment grade.

FUELS will be offered to institutional and retail investors with a registered Australian address. The minimum investment for Applicants is $5,000 or 50 FUELS. However, Eligible Reset Holders (holders of Resets as at 5.00pm (Melbourne Time) on 2 September 2004 with a registered Australian address) will receive a guaranteed entitlement to participate in the issue of FUELS using the proceeds of the sale or redemption of their Resets even if that equates to less than 50 FUELS.

Santos Eligible Reset Holders and Eligible Ordinary Shareholders (holders of Ordinary Shares as at 5.00pm (Melbourne Time) on 2 September with a registered Australian address) will receive a priority allocation over general Applicants.

The ASX has granted the Company a waiver from listing rule 10.11 that allows all of the Directors of the Company (and their related parties) to participate in the issue of FUELS, provided that the extent of the participation for all of the Directors (and their related parties) combined is limited to no more than 0.2% of the total issue of the FUELS, without obtaining shareholder approval for the issue.

Full details of the Offer of FUELS and the Redemption of Resets will be contained in the Prospectus which investors should read in full.

Redemption and Buyback of Reset Convertible Preference Shares

Under announced changes to accounting standards, Santos’ Resets will not be classified as equity in the Company’s statement of financial position after 1 January 2005. In these circumstances, the terms of issue permit a redemption of the Resets. On this basis, the Directors intend to redeem all Resets that remain on issue on 30 September 2004, in accordance with their terms of issue, provided that the new issue of FUELS is made on or before that date.

The redemption of Resets will be effected by the Company paying the Face Value of $100 in cash for each Reset to holders registered as at 30 September 2004. The normal half-yearly fully franked dividend of $3.294 per share will also be paid to Eligible Reset Holders on that date.

Whilst the Company can only redeem the Resets for $100 each, it recognises that the market value of Resets has generally exceeded $100 each and is therefore offering a number of options intended to provide a fair outcome to all Reset holders. All Reset holders are urged to carefully consider their available options to maximise the value of their investment.

Eligible Reset Holders who elect to have their Resets redeemed by Santos and the proceeds reinvested in FUELS will also be entitled to a $5.00 Special Dividend for those FUELS issued out of the redemption proceeds. This dividend is expected to be fully franked. This Special Dividend, payable shortly after the allotment of the FUELS, will not be paid to other FUELS investors.

Reset holders will also have the option to sell their Resets on-market for cash. Santos will offer to purchase Resets in an on-market buyback at $105 per Reset.

If the options being made available are not exercised, the Resets will be redeemed at Face Value of $100 each on 30 September 2004.

Santos has made an application to the ASX for trading in Resets on the ASX to cease on or about 24 September 2004.

Summary of Key Dates

Below is a summary of the key dates relating to the offer of FUELS and the redemption and buyback of Resets.

Issue of FUELS:

Resets Redemption and Buyback:

Merrill Lynch has been appointed Arranger, Underwriter and Sole Manager for the Offer of FUELS and as financial adviser for the redemption and buyback of Resets.

Additional Information

1. Dates in this document are indicative only and are subject to change.
2. Invitations to invest in FUELS will be made in the FUELS Prospectus. A prospectus dated 24 August 2004 has been lodged with ASIC. Anyone wishing to acquire FUELS will need to complete the application form that will accompany the FUELS Prospectus.