’01 ’02 ’03 ’04 Operating cash flow Capital expenditure 0 200 400 600 8 00 1000 717 660 761 750 605 8 21 89 7 930 OPERATING CASH FLOW AND CAPITAL EXPENDITURE $ million DEPRECIATION, DEPLETION AND AMORTISATION CASH FLOW LOWER All things being equal, DD&A could have been expected to  be lower this year, as Santos produced lower volumes and had written off the Heytesbury plant in the onshore Otway Basin  last year. However, two factors caused an increase in 2004 DD&A. Firstly, while reserve revisions were positive overall, negative revisions were predominantly in producing areas which increased depletion rates in 2004, while positive reserve revisions were in areas where Santos is not yet producing or where straight line depreciation is dominant; for example, Casino and John Brookes. Secondly, on the future development cost side, depletion is up partly because Santos is starting to factor in higher steel and service company costs into long-term economic models. While Santos had a strong profit year, this is not fully reflected in cash flows. There were large movements  in trade debtors between years, reflecting the timing of liftings and the payments for them. In addition, Santos has not yet been paid for the insurance claim relating to the Moomba incident. A total of $117 million was recognised in sundry income, which represents an estimate  of the amount receivable from insurers for lost revenue, additional costs and replacement plant and equipment. At year end the money was still owed and so is not shown as part of operating cash flow. The final quantification of the claim with insurers is progressing. RECORD CAPITAL EXPENDITURE Capital expenditure ended  right on target at $930 million – a record year for Santos – approaching a level which is double DD&A, reflecting how rapidly the portfolio is changing. Santos will continue with a high development expenditure in 2005, but expects to spend more in line with cash generation. Exploration spend is estimated to be about $150 million, while development spend is expected to be reduced to $530 million and delineation to $90 million. Other capital spending is expected to be reduced to $80 million. This results in a total planned capital expenditure for 2005 of approximately $850 million. FINANCIAL FLEXIBILITY INTACT Santos ended the year in a  strong financial position with its financial flexibility intact, despite the record development spending. The FUELS issue was successful and Santos’ gearing increased only marginally, despite the large capital program in 2004. This is important in Santos’ business as the Company needs  to be able to fund exploration success as it occurs, and our development projects are increasing in size. Annual Report 2004 11