ACQUIRING NEW ACREAGE Future exploration success depends on quality exploration acreage. Santos acquired five exploration blocks in three hydrocarbon provinces during 2004. The most significant of these were in Egypt and Indonesia. Egypt and surrounding countries are a focus area for Santos. The Company has farmed in to three exploration blocks in Egypt with US petroleum group, Devon Energy, committing approximately $70 million to an eight-well exploration joint venture over  the next three years in the Gulf  of Suez. This is Santos’ first move into the North Africa–Middle East region, which is considered the world’s premier hydrocarbon province. Santos continues to seek other exploration opportunities in this area, concentrating on the Gulf  of Suez and the onshore Desert Basins. Santos has acquired six exploration permits in Indonesia over the past three years, including an interest in the Donggala PSC in the Kutei Basin during late 2004. This block lies between Santos’ other Kutei acreage: the Papalang and  Popodi PSCs. The addition of the Donggala PSC gives Santos a particularly strong presence in the Kutei Basin and covers a highly prospective trend, while adding to the Company’s growing Indonesian operations. Other exploration acreage portfolio management and activities during 2004 included: • the award of exploration permit T/36P in the Sorell Basin, offshore Tasmania Annual Report 2004 16 • the addition of three new venture areas in the shallow waters of the Gulf of Mexico and onshore Montana and  Texas, which significantly expands and diversifies the  US exploration acreage and prospect inventory • the farm-out of a 16.67% interest in the WA-264-P permit offshore Western Australia to Beach Petroleum • the farm-out of a 60% interest and operatorship of the NT/P61 permit in the Bonaparte Basin, offshore northern Australia to ConocoPhillips • the farm-out of a 70% interest in the deep water exploration block, Nth Bali 1 PSC, offshore East Java Basin to Total  and Mitsui • the farm-out of a 25%  interest in the VIC P/51  block containing the Callister prospect to Mitsui & Co subsidiary Mitwell Energy Resources.  These farm-outs continued the trend of risk-sharing with quality partners. Santos is now in a position that exploration success in 2004 and good acreage management has created future options that will ultimately translate into greater value for the business in 2005 and beyond. This has been achieved by focusing on ‘basin excellence’. This means becoming a technical leader in basins, within our focus areas, entering early where possible to keep entry costs down, balancing the commercial and the technical risks and selecting the right co-venturers. ADDING MATERIAL PROSPECTS An example of this is the strong position Santos has created in the Kutei Basin, with interests in three neighbouring production sharing contracts: Popodi, Donggala and Papalang. 2004 also marked the year that Santos drilled its first operated deep water wells – a significant achievement for a company that had its beginnings in a desert environment. Drilling $63.6 million Geoscience and other $37.5 million Seismic  $17.2 million New ventures $7.3 million Offshore Australia $32.6 million Onshore Australia $23.4 million South East Asia  $41.4 million United States $28.2 million 2004 EXPLORATION  EXPENDITURE BY CATEGORY 2004 EXPLORATION  EXPENDITURE BY REGION KUTEI BASIN