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Record production and sales were achieved

Santos achieved its highest ever oil and gas output of 61 mmboe in 2006 as production from new developments came on-stream.

For the first time in the Company’s history, areas outside the Cooper Basin contributed more than 50% of total hydrocarbons produced.

Nevertheless, production from the Cooper Basin Oil Project more than offset the natural decline in the basin’s existing oil fields. The success of this venture to date bodes well as drilling and development activity accelerates in 2007.

COOPER OIL SUCCESS

The initial results from the Cooper Basin Oil Project exceeded expectations in 2006. This is a high-value, scaleable opportunity that is unique to Santos.

FAIRVIEW DELIVERS

Santos’ coal seam gas (CSG) production from the Fairview field in southern Queensland was another operations highlight in 2006.

Fairview has been fully integrated into Santos’ CSG operations and now forms an important element of the Wallumbilla gas hub, near Roma.

Since its acquisition in late 2005, production at Fairview has increased by 67%, with the extra output readily finding a market through Santos’ extensive sales portfolio.

Importantly, production efficiency has been enhanced with a decrease in water production.

Activities relating to the project added 2P reserves of 15 mmbbl to Santos’ portfolio in 2006.

In an Australian first in 2006, Santos successfully trialed the underground injection of salty water produced with the CSG at Fairview.

The potential of the Cooper Basin Oil Project was further expanded during 2006 and early 2007 with a number of farm-ins by Santos securing additional exploration acreage.

Santos’ net acreage has increased by more than 33% in the past four years to more than 30,000 square kilometres.

This sustainable solution for the disposal of produced water will, at current injection rates, prevent the equivalent of five tonnes of salt from entering the Dawson River system each day.

Santos plans to expand its CSG exploration program in the Roma area in 2007.

12 Santos Annual Report 2006

REDOUBLING SAFETY EFFORT

Santos recorded a disappointing increase in contractor personal safety incidents in 2006, many of which were hand and finger injuries.

As the Company expands its operations, a large increase in workforce numbers, including contractors, presents challenges in educating new staff and instilling Santos’ strong commitment to employee health and safety.

Santos’ goal in 2007 will be to return to the continuous improvement that had been achieved in the previous three years which produced a 50% reduction in the Company’s total recordable case frequency rate – a statistical measure of safety performance.

Further discussion of Santos’ safety performance appears on page 26.

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