We expect to participate in drilling a record 157 wells during 2005, of which 25 are exploration wildcat wells. Consistent with  the growing internationalisation of Santos, this includes eight wells in Indonesia and six wells in the Gulf of Suez, Egypt. This program offers an attractive combination of risk and reward and is a new focus to our overseas exploration effort. Bayu-Undan is currently stripping liquids and re-injecting the gas pending tie-in of the pipeline to Darwin in May 2005 for future LNG production. The onshore LNG facilities are more than two-thirds complete. With a gross production of 19 million barrels, 22% above expectations for the year, we were pleased with the performance of Bayu-Undan and look forward to  a full year contribution from this exciting project in 2005. Production is expected to rise  in 2005 when, as usual, our financial performance will be subject to oil prices, exchange rates and interest rates. These factors have a significant effect on our bottom line. A US$1 per barrel change in the oil price equates to a A$16 million change in net profit after tax in 2005.  is also located in relatively  shallow water with infrastructure nearby, creating options for  early production. At Santos, we are proud that an Australian company took on that challenge and succeeded, and I congratulate the exploration and drilling teams on a great effort. With the Jeruk discovery behind us, Indonesia is at the forefront of our international exploration efforts. With eight wells planned in the region for 2005, Santos is currently the most active explorer in Indonesia.  A one US cent movement in the Australia–US dollar exchange rate would produce a change in profit after tax of A$8 million, and  a 1% change in interest rates equates to a change in net profit after tax of A$9 million. The Minerva gas field off Victoria's western coast started production in December 2004  and is ramping up to full field production of around 150 TJ  per day. Our share in this project is 10%, and is significant because  it represents our first foray  into marketing gas directly to customers or into the Victorian spot market through our sales vehicle, Santos Direct, aimed  at delivering higher prices. In the US, two exploration wells are planned, one onshore, and one offshore in the shallow waters of the Gulf of Mexico. In Australia, our increasing focus on the potential of offshore areas will see Santos drill three wells off Western Australia in 2005,  one off southern Australia and two wells off northern Australia. We will also drill two wells onshore in Queensland and one onshore in Victoria.  2004 has also been an important period for shareholders, with a significant improvement in the Santos share price combined with an increase in the dividend. It was pleasing that Santos  was able to conclude 2004  on a higher note than it started.  A STRONG FINANCIAL PERFORMANCE PRODUCTION TO REBOUND RECORD EXPLORATION  EFFORT AHEAD BIGGEST DEVELOPMENT  YEAR YET We achieved record annual revenue thanks to higher oil and gas prices combined with the return of full production at Moomba to produce a 21.5% jump in second half sales: the best result for any six-month period  in Santos' history.  While we expected lower production overall in 2004, our output was obviously curtailed further by the incident at the Moomba plant. The good news  is that several projects emerged from the development pipeline during the year and made positive contributions to our expanding suite of oil and gas facilities. Exploration is a great way to increase shareholder value so  I am pleased to be able to report that in 2004, Santos drilled 16 wildcat wells resulting in seven hydrocarbon discoveries. The discovery of oil and gas  at Hiu Aman in the Kutei Basin, offshore East Kalimantan, has provided a strong start to our 2005 exploration program and  we look forward with anticipation to further work on that significant find. Santos has a  50% interest in the discovery. We believe this region of Indonesia  is very promising and Santos expects to drill four wells in the Kutei Basin in 2005. The average realised price for crude oil was up nearly 19%  to A$51.83 per barrel. These results have left Santos well positioned to continue its strong investment program which saw capital expenditure peak at $930 million in 2004.  Production is forecast to increase by 15% in 2005, or by 4% after excluding the effect of the Moomba downtime, to about  54 million boe. We expect this positive forward trend to be followed by further production growth of more than 10% in 2006. Growing our oil and gas reserves for future production is the goal of our exploration efforts. On  a rolling three-year average we have replaced the hydrocarbons that Santos has produced at  a rate of 130% of Proven (1P) reserves, at an average replacement cost of around  US$7 per boe.  I am pleased also to report  that 2004 was a record year for development with six projects advancing through the pipeline. The start-up of the Mutineer- Exeter oil field is a significant milestone in Santos' development history. This project off the Santos has an exciting exploration program for 2005: one that I believe holds the highest resource potential of any program in the Company's 50-year history. The Bayu-Undan liquids project came on line in April 2004  and, at its increased design throughput of just over one billion cubic feet of gas per day, produced liquids at a rate of 100,000 barrels per day.  In 2005 we expect to invest around $850 million of new capital in projects and our strategy is to plan for firm developments based on affordability at relatively low oil prices. If higher prices continue and some projects mature quickly and can be given the green light, our overall capital expenditure may be higher. Annual Report 2004 5