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R e c o r d r e s u l t s a s t a r g e t s m e t R E V I E W B Y S T E P H E N G E R L A C H , C H A I R M A N

Santos achieved its operational targets in 2006 to deliver a record production performance and robust financial results.

increase in the interim payment, shareholders will receive a full year dividend of 40 cents per share, up 5% on the total distribution for 2005.


There were a number of changes to the composition of Santos’ Board in 2006.

Sustained high product prices combined with lower production costs to generate a 7% increase in underlying net profit after tax of $683 million – the best result in the Company’s history.

However, this gain was offset by one-off significant items, including costs associated with the Banjar Panji mudflow incident in Indonesia, with reported net profit after tax 16% lower at $643 million.

Operating cash flow of $1,550 million was a record for the Company and enabled a reduction of gearing at year end to 30.2%.


Notwithstanding this excellent operational result, Santos’ share price declined during the year with a total shareholder return of negative 17%.

While the lower global oil price resulted in negative sentiment towards companies operating in the upstream oil and gas sector, Santos was further impacted by uncertainty surrounding our ultimate exposure to the Banjar Panji mudflow incident, and disappointing appraisal drilling results at the Jeruk oil discovery.

This underperformance is of great concern to the Board and management, and we are committed to driving future increases in shareholder value.

Santos’ strong production and financial performance reflects the growth strategies which are creating a balanced production portfolio across onshore and offshore locations in Australia and overseas.


The oil and gas sector remains inherently a ‘high-risk, high-reward’ business and companies like Santos must be pragmatic and adaptable as they pursue continued growth.

With the costs of drilling rigs and other services at historically high rates, Santos will spend less on exploration in 2007 as the Company increases its focus on near-field targets of the type being pursued in the Cooper Basin Oil Project and coal seam gas activities in Queensland.

That said, Santos is also looking forward to further exploration in the exciting offshore acreage the Company has acquired in India and Vietnam where positive results have already been achieved.

Santos’ contingent resources now comprise more than 2.2 billion barrels of oil equivalent in projects offshore and onshore Australia, Papua New Guinea and Asia. This provides a solid foundation for Santos’ future development and the opportunity to create further shareholder value.


We were saddened by the sudden death of Mr Chris Recny in June 2006 following a short illness. Chris was a very able and constructive Director and his contribution to the work of the Board will be missed.

Mr Michael O’Leary resigned from the Board in December 2006 following 10 years of service.

Mr Roy Franklin was appointed to the Board in September 2006, bringing extensive international petroleum experience from his recent roles as CEO of Paladin Resources plc and Clyde Petroleum plc and from previous senior positions with BP plc.

Mr Kenneth Borda was appointed to the Board in February 2007 bringing to the Board his extensive international banking experience drawing on his most recent position as CEO – Middle East and North Africa of Deutsche Bank.

On behalf of the Board, I would like to record my appreciation for the significant contribution made by both Mr Recny and Mr O’Leary and to formally welcome Mr Franklin and Mr Borda to the Company.

On behalf of the Directors, I thank everyone at Santos for their continuing commitment and performance during 2006 to building value for shareholders.


The Board of Directors declared an unchanged final dividend of 20 cents per share. With the earlier

Our focus on high quality corporate governance continues to be recognised by the independent report prepared by leading accounting and management firm, Horwath, and the University of Newcastle. For the fifth successive year, this highly regarded report has awarded Santos a measure of five out of five for its corporate governance.


15 MARCH 2007

4 Santos Annual Report 2006

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