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Performance against strategic targets in 2006

Santos achieved strong results in 2006 against a series of targets established three years ago to measure performance.

2006 PERFORMANCE AGAINST TARGETS

Production Growth

Production growth for the year was above target at 9% as the impact of new projects more than offset the natural decline of existing fields.

6-8%

9%

Target

Actual

EBITDAX Growth Per Share

Santos’ netback target was set at a A$45 oil price. Given the oil price experienced during the year, the Company was able to exceed this target. Together with the higher level of production, this has resulted in more cash being available to build reserves.

The same cycle that is driving netback higher is also driving replacement cost higher. Three-year average reserve replacement cost of US$10.74 per boe was above target, reflecting cost inflation seen across the industry.

Taking netback and reserve replacement cost together shows that Santos’ ability to replace reserves from the cash generated by production remains strong.

Reserve Replacement Ratio**

>10%

15%

Target

Actual

Netback

140%

162%

Target

Actual

Return on Capital Employed

$22

$33*

Target

Actual

>10%

15%

Target

Actual

US$5.50

US$10.74

Target

Actual

Reserve Replacement Cost Per boe**

* **

Normalised for the A$45 oil price implicit in the target, netback would have been approximately $20. Three-year rolling average.

Over the past three years, Santos has replaced 162% of production on a Proven (1P) basis which exceeds the Company’s target reserve replacement rate and therefore extends reserve life. This is a strong performance when the industry generally is struggling to replace reserves.

Success on these metrics in conjunction with higher prices means Santos is increasing its cash generation and operating income per share at well above target rates. Return on capital is also well in excess of target.

Santos Annual Report 2006 9

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