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Record Sales Mitigate Oil Price Impact

Santos today announced an after tax operating profit for the 1998 full year of $176.3 million, a reduction of 14.5% on the record 1997 earnings. Record production and sales volumes mitigated the impact of the fall in the average oil price received of 23.6% in Australian dollar terms.

This result is in line with the companys expectations as announced in the Fourth Quarter Report in January 1999.

Commenting, Managing Director Mr Ross Adler said:

1998 was another record year for Santos in terms of production and sales achieved. It is disappointing that the fall in the oil price prevented the benefits of this progress flowing to profit.

Despite the fall in prices, operating cash flow was $457.6 million, approximately equal to the record 1997 level of $460.7 million.

Directors declared a final ordinary dividend of 13 cents per share, fully franked. The final dividend will be paid on 30 April 1999 to shareholders registered in the books of the company at the close of business on 8 April 1999. The final dividend brings Santos total 1998 dividend to 25 cents per share, the same level as the 1997 dividend.

The substantial progress made during the year included:

The commencement of production from the Stag (Carnarvon Basin), Elang/Kakatua/Kakatua North (Timor Gap) and SE Gobe (Papua New Guinea) oil fields.

Delivery of first gas from south west Queensland to Mt Isa.

Commencement of the Eugene Island 335 oil and gas development project in the Gulf of Mexico.

Drilling of 81 exploration wells with a 54% success rate including a successful program in the Carnarvon Basin with three discoveries (Legendre South, Mutineer and John Brookes) out of six wells drilled and the successful appraisal of the Reindeer gas field proven by the Caribou-1 well.

The signing of a further contract for East Spar gas.

The acquisition of additional interests in south west Queensland and the Gulf of Mexico.

The successful sale of Santos Europe Ltd.

Subsequent to year end the company announced the acquisition of a 31% interest in PDL 1 in Papua New Guinea . PDL 1 contains the majority of the Hides Gas Field. The Hides Field is a world class resource which is estimated to contain proven and probable reserves in excess of five trillion cubic feet of gas. Reserves from the Hides Gas Field are planned to be incorporated into the proposed Papua New Guinea to Queensland gas project. There is also scope for Hides to supply other value-adding gas projects in Papua New Guinea .

Commenting on the outlook for 1999, Mr Adler said:

With oil prices at 12 year lows, we expect 1999 to be another difficult year.

During the first two months of 1999 the price of West Texas Intermediate Crude has averaged USD12.26 per barrel, 15% below the average price of USD14.43 in 1998. These prices are well below the five year average price of USD18.50.

The company is actively seeking to further mitigate the fall in world oil prices through increasing production, conserving capital, curtailing spending and enhancing productivity.

Production and sales volumes increased to record levels in 1998 and are likely to be higher again in 1999 with the full year effect of recent development projects. In 1998 operating costs per boe produced fell for the third year in a row and we plan to reduce them further in 1999.

Spending on exploration and development is being reduced by approximately $170 million. This reflects the completion of a number of major development projects, the Companys substantial level of reserves – with an average life of over 20 years – and the impact of low oil prices.

Looking to the longer term, the Companys outlook is positive with a good suite of exploration and development opportunities.