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Capital to be used to fund PNG LNG Project and FUELS redemption.

An opportunity to invest in Santos’ LNG growth strategy PNG LNG project is progressing well; key milestones are being reached.

Santos today launched a 2-for-5 accelerated pro-rata non-renounceable entitlement offer at an offer price of A$12.50 per share to raise a minimum of A$1.65 billion:

The institutional component of this entitlement offer has been fully underwritten and will raise a minimum of A$1.65 billion

The retail component of the entitlement offer is not underwritten but may raise up to an additional A$1.35 billion depending on take up

Santos will use A$1.05 billion of the proceeds of the offer to fund Santos’ share of the capital expenditure on the Papua New Guinea LNG project and A$600 million for the redemption of FUELS.

Any additional capital raised will be available to fund Santos’ other growth projects, including the GLNG project in Queensland, which is expected to reach Final Investment Decision (FID) in the first half of 2010. Santos has reiterated its previous 2009 guidance below.

Santos currently intends to maintain its 2009 dividend per share (on the expanded capital base) in line with the 2008 dividend of A$0.42 per share.

Santos Chief Executive Officer David Knox said “This is an opportunity to invest in Santos’ LNG growth strategy.”

“The underwritten proceeds of this raising provide Santos with the capital required to fund its equity share of the PNG LNG project and guarantee its share of the project finance debt while maintaining a strong balance sheet consistent with its BBB+ credit rating.

The PNG LNG project is expected to create significant value for Santos and, along with GLNG, is a critical part of our growth strategy.”

The PNG LNG operator, ExxonMobil, has made solid progress on the project.

The achievement of the most recent milestones, being the agreement of the key terms of a non-binding customer heads of agreement and the imminent approval to spend significant pre-FID capital on early works, gives Santos confidence that the project will reach FID as scheduled before the end of 2009. Santos recently announced that the joint venture partners for the PNG LNG project have agreed the key terms of a non-binding heads of agreement with a major Asian customer for the purchase of 2 million tonnes per annum (mtpa) of LNG, the execution of which is subject to final Government approval.

“The PNG LNG project is expected to materially enhance Santos’ earnings once it is completed, and we are raising equity today to fully participate in the project while maintaining our strong financial position.” Mr Knox said.

Mr Knox said Santos continued to respond to the low oil price environment and maintained a very tight focus on costs. “Santos has implemented across the board cost reduction measures to ensure the company can weather uncertain economic conditions and achieve our strategy to deliver our base business while pursuing growth through LNG and in Asia.”

The equity raising is consistent with Santos’ objective of maintaining a credit rating from Standard & Poor’s of at least BBB+.