ANALYSING FINANCIAL PERFORMANCE  2004 WAS A YEAR OF GOOD OPERATING RESULTS PRODUCTION HAMPERED BY MOOMBA INCIDENT PRODUCTION COSTS  UNDER CONTROL PRODUCTION AND SALES REVENUE ‘The sound operating results achieved in 2004 underline  the changing face of Santos towards a higher value, higher margin business. We ended the year with a strong financial position and our financial flexibility intact.’ PETER WASOW Chief Financial Officer Overall the increase in 2004 profit of 16% reflected a year of sound operating performance. Sales revenue was a record $1,501 million, up 2.5% on 2003, reflecting higher prices across most products and was achieved despite lower production as a result of the Moomba incident and declining output from late life fields. Santos benefited from higher world oil prices and realised US$51.83 per boe in 2004, an increase of 19% over 2003. The benefit of higher world oil prices substantially offset the impact  of lower production volumes.  Santos was also able to negotiate higher domestic gas prices (up 4% on average) and deliver new revenue streams from project start-ups and acquisitions during the year. 2004 production was lower due  to the Moomba incident, which reduced production by 4.6 million Production costs in 2004 were $309 million, up $45 million or 17% on 2003. Analysis shows that Santos was able to continue Piecing this together, the key themes in our financial performance were: For 2005, production is expected to improve by around 15%, or  4% excluding the impact of the Moomba incident. Santos now expects production to be around 54 million boe in 2005. This increase is largely driven by the commissioning of Mutineer-Exeter in March 2005 and the John Brookes gas field in the middle  of the year. Offsetting these factors, Santos’ growth projects are starting to come on line and have begun to reverse the decline experienced over the past three years. Two projects were commissioned in 2004: the Bayu-Undan liquids project and the Minerva gas project. In addition, acquisitions contributed 0.8 million boe to production.  boe. Field decline reduced production by a further  5.0 million boe. to effectively control its costs  in the face of significant external pressures in the form of rising services and materials prices. Examining production costs in detail reveals: • the start-up of Bayu-Undan and acquisitions added $16 million to Santos’ cost base • changes in our accounting added a further $16 million  to Santos’ production costs • higher insurance premiums  ($8 million) and one-off stock write-offs ($5 million) were offset by $17 million in cost savings largely as a result of Santos’ continuous improvement initiatives • the Moomba incident resulted in $17 million of one-off costs in 2004. • cost savings in established production areas more than offset increases in the price  of services and materials • Santos’ cost base rose as production from new developments and acquisitions were added to the Company’s expanding portfolio of producing assets. 10 Annual Report 2004 ’01 ’02 ’03 ’04 Revenue Net profit after tax P roduction 1,460 445 322 327 380 1,47 8 1,465 54.2 57.3 55.7 1,501 47 . 1 0 500 1000 1500 2000 0 10 20 30 40 50 60 $ million mmboe