Managing Options UNLOCKING THE VALUE OF STRATEGIC ASSETS UNITED STATES GAS PAPUA NEW GUINEA GAS TIGHT GAS Annual Report 2004 22 ‘Our objective is to derive value from undeveloped assets which have been outside of Santos’ base business.’ Santos’ Strategic Projects team focuses on assets that have proven difficult to commercialise or that need to be considered  in a regional context rather than on an individual basis. The other key activity for this team has been to lead Santos’ continuous improvement focus. The US gas business was a major focus in 2004 for a number of reasons, not the least of which are the higher gas prices in the US compared with the domestic Australian market, and the ability to rapidly commercialise new discoveries.  working up a range of possible evaluation projects to be undertaken in 2005. Santos has a significant existing gas resource base and some promising exploration acreage  in the waters offshore Darwin, where it intends to drill a gas exploration well later this year. The Company currently operates the Mereenie gas field in the Amadeus Basin in central Australia, which supplies gas to Darwin. Santos’ first offshore gas production in northern Australia begins in 2006, sending Bayu- Undan gas to Darwin for conversion to LNG. Santos plans to build upon its growing position in the region to target further development which could ensure long-term gas supplies  for the current market, or an expanded Northern Territory domestic market, or for export. An ongoing development and delineation program was carried out during the year, yielding better than planned production. The exploration initiative also continued to seek higher risk  but more material prospects,  aimed at enhancing the move into the shallow water area of  the Gulf of Mexico. Exploration results in this area during 2005 will shape Santos’ future strategy in the US. Santos is in active discussions with the PNG Gas Project participants to potentially  re-enter the PNG Gas Project. Santos has a significant interest in a large part of the liquids-rich Hides gas field which is integral to the development of  the Project. Hydrocarbons contained in traps with poor permeability are known as ‘tight gas’. Large tight gas resources are known to exist in the Cooper Basin. Under current circumstances, this gas cannot  be economically developed but, with the combination of improved production techniques and better commercial terms, could prove attractive.  Santos assessed the resources  and potential technologies that could be applied to unlock these resources during 2004 and is now 2004 CONTINGENT RESOURCES (TOTAL 1,443 mmboe) Northern Australia  709 mmboe Western Australia  71 mmboe Central Australia  240 mmboe Southern Australia  32 mmboe Papua New Guinea  391 mmboe NORTHERN AUSTRALIA GAS Vice President  Strategic Projects BRUCE WOOD 