Santos owns 75% of Maleo in partnership with state-owned Malaysian petroleum exploration and production company PC Madura (25%). The joint venture expects to start work shortly on the production facilities with a development capital budget of about $US75 million ($A98.67 million).

Gas production is expected to start in the second half of next year.

Santos managing director John Ellice-Flint said the partners rapidly advancement of the project was due in part to recent Indonesian regulatory changes to reduce diesel subsidies and encourage greater use of gas.

The gross Maleo proved and probable (2P) reserves of about 240 billion cubic feet will be produced using a mobile offshore production unit and an eight kilometre spur line to the under-used East Java gas pipeline that supplies the city of Surabaya.

Under the gas supply agreement, the joint venture will supply gas at a plateau rate of up to 110 million standard cubic feet per day. Plateau production is expected to last for at least six years.

The Maleo gas field, discovered in June 2002, is in the Madura offshore production sharing contract, 140km east of Surabaya.

Santos farmed into the block following the Oyong gas and oil discovery made in the adjoining Sampang area in August 2001.

Santos shares closed yesterday 11 cents weaker at $10.08 after closing at a record $10.19 on Monday.