Santos had used its expanded and established advantages in Indonesia to strengthen its niche in this energy-hungry country, according to Gerlach.

“Recently, the Indonesian government announced both a reduction in domestic diesel subsidies – which will significantly expand domestic gas sales – and new incentives to encourage the development of marginal oil fields,” he said.

Gerlach said while Santos was among those Australian companies – large and small – that were broadening their areas of exploration activity outside of Australia, its Cooper Basin stakes remained a valuable core asset and the cashflow generated by Santos’ position as the largest domestic gas producer in Australia enabled it to fund its transformation.

“Almost half of our annual production now comes from other locations and we continue to broaden our areas of operations,” he said.

“During 2004, we continued the company’s global expansion beyond its current interests in Australia, Indonesia, Papua New Guinea, and the United States by entering a farm-in agreement to explore in Egypt where we are currently drilling the second and third wells in an eight well program.”

Santos has again increased this year’s exploration budget to $170 million – up from the $153m previously announced – for the drilling of 28 wildcat exploration wells, managing director John Ellice-Flint, told the meeting

“This is 35% higher than the $126 million spent in 2004,” he said.

Ellice-Flint said the Company’s 2004 exploration success rate of 44% included discoveries onshore and offshore Australia, offshore Indonesia and onshore USA.

“Potentially the most significant result was the Jeruk oil discovery in Indonesia which will shortly be further evaluated by the re-entry and sidetracking to the north-west of last year’s successful Jeruk-2 well,” he said.

“This work will allow us to further evaluate reservoir information from a location between the existing Jeruk-1 and Jeruk-2 wells. In particular, core samples and production testing will assist in better defining the reservoir and fluid properties, as well as providing information needed to right size potential production facilities.

“We have also acquired 3 dimensional seismic over the Jeruk field and surrounding areas, and depending on the interpretation of this data, rig availability, and approvals, we plan to drill additional appraisal wells, possibly starting in the fourth quarter of this year.”

This seismic should also help define new exploration opportunities and options for early production from the Jeruk field were being evaluated, he said.

Santos had also had promising results elsewhere in Indonesia at the deep-water Kutei Basin off Kalimantan where the Hiu Aman gas and oil discovery was drilled early in 2005.

Ellice-Flint said Santos expected to meet its production projections of around 54 million barrels of oil equivalent during 2005 - compared with 47 million barrels produced in 2004 – with a further increase of at least 10% in 2006.

“There was rapid progress last year for our flagship Mutineer-Exeter oil field development – production started three months ahead of schedule and 10% under budget,” he said.

Soon after start up in March this year, production was ramped up to an initial rate of 105,000 barrels of oil per day. Since then, the fields have produced on free flow at around the facility design capacity of 100,000 barrels per day before being stabilised at the current rate of about 90,000 barrels per day, as Santos gathers reservoir performance data. About 2 million barrels of oil have already been sold from Mutineer-Exeter.

Additional appraisal and development drilling is planned for the second and third quarters of this year with the successful Mutineer-11 appraisal well now being completed.

Santos glossed over a disappointing reserves downgrade at the Mutineer-Exeter field that would reduce 2005 and 2006 earnings. In February reserves at the field were downgraded by 40% to 61 million barrels and Santos reduced its forecast for 2006 output from the field by 46% to 19 million barrels.

But fast-tracking production from Jeruk would more than offset this shortfall.

Gerlach said Santos’ highlights of the past year included a strong financial performance that delivered total returns to shareholders of 28%, including share price appreciation and dividends paid.

“This is a significant increase from the 20% return achieved in 2003 and is well above

our target of at least 14%,” he said.

“Dividend payments were increased to a total of 33 cents a share for the year and were again fully franked. This represents a grossed up yield of around 5% and marks the 28th successive year in which your company has paid a dividend.

"Our strong cash flow and low gearing provide us with confidence that Santos is well positioned to be able to maintain its current level of dividend payments.”