Capturing and Delivering Growth COMMISSIONING AND  DELIVERING  GROWTH PROJECTS The diversification of Santos  is evident in the creation of a number of new higher margin producing assets such as the Bayu-Undan liquids project offshore northern Australia, the Casino gas field offshore southern Australia, and the Mutineer-Exeter oil and John Brookes gas fields offshore Western Australia. reservoir for later use as part  of the future LNG stage of  the project.  The liquids are loaded onto a Floating Storage and Offloading facility. Santos has a 10.6% interest and is the only Australian-owned company involved in the project, which was recently rated as one of the top 100 projects to change the world by Goldman Sachs JBWere. Named the MODEC Venture 11,  the vessel left Singapore in early 2005 to take up anchorage in the Carnarvon Basin off the Western Australian coast. First oil production from Mutineer-Exeter is starting about three months ahead of schedule. Outside Australia, Santos has also built a core business in Indonesia through new field developments such as Oyong and Maleo. Santos is further reinforcing its capabilities to implement high value offshore development projects through an improved drilling capability (including deepwater and high pressure reservoirs) and functional leadership in the areas of reservoir and production engineering. The other project that commenced production during  the year was the Minerva gas field in the Otway Basin offshore Victoria which started up  in December. Four high-tech horizontal wells have been drilled and completed, which are expected to provide initial peak plateau oil production of 70,000 to 90,000 barrels per day. The wells are fitted with dual electric submersible pumps and are supported further by seabed flow boost pumps to maintain high well rates throughout  field life. ‘2004 was the year that  we really got the conveyor  belt moving in terms of development projects. In 2005 we’ll hand over to Operations our first offshore operated project, Mutineer-Exeter, ahead of schedule and under budget, and we’ll continue to progress several other new offshore developments, targeted to be on stream during 2005-06.’ Santos, with the assistance  of external experts and other members of the joint venture, assessed the risk of reserve uncertainty against the incremental value to be created by a fast-track development and decided to proceed with the development, which was designed to provide substantial flexibility to cope with a wide range of production rate and reserve outcomes.  While Santos' share of production is only 10%, the project has greater significance for Santos because it has enabled the commencement of direct-to- customer marketing through Santos Direct. There has been considerable progress on all of these projects during 2004 with two projects being commissioned: Bayu-Undan liquids and Minerva gas. Vice President  Development Projects  and Technical Services Another important project for Santos is the Mutineer-Exeter  oil fields development. Despite disappointments regarding the size of reserves during development and appraisal drilling, the construction and connection of the fields proceeded at a rapid pace with the project 89% complete by  year end. Bayu-Undan started liquids production in April 2004 and  was ramped up during the year  to meet an increased design throughput of 1.1 billion cubic feet per day of raw gas. This resulted in liquids production of more than 100,000 barrels per day. This excellent performance generated production for the year of 19 million barrels – 22% above expectations. The project will come on stream earlier than expected, delivering strong cash flow in this high oil price environment. Coupled with this, the project will cost at least 10% less than budget. by the end of the year. This  is a significant achievement considering the field was only discovered in late 2002. The $200 million development commenced following the granting of the necessary Board approvals as well as the finalisation of a larger Gas Sales Agreement with TXU. Gas production is expected to start  in the first quarter of 2006. All formal environmental approvals have now been  granted for the project by the Commonwealth Government. The use of existing onshore facilities and a low environmental impact design have been integral to While two projects came into production, Santos added two more to the development conveyor with the sanctioning of the Casino and John Brookes gas projects during the year. Casino was formally sanctioned  in October and was 25% complete The conversion of the state-of- the-art Floating Production Storage and Offloading facility was completed at the Jurong shipyard in Singapore in December 2004 with no lost time safety incidents despite a massive workforce completing over two million work hours.  The liquids project involves extracting and processing wet gas to remove condensate, propane and butane (liquids) before re- injecting dry gas back into the PAUL MOORE  MUTINEER-EXETER COMMISSIONING BAYU-UNDAN AND MINERVA COMMISSIONED CASINO AND JOHN BROOKES SANCTIONED Annual Report 2004 18