The contract will provide the company with some much needed good press after a fire at its Moomba Gas Plant led to gas restrictions at a number of major manufacturing plants in South Australia and New South Wales.

Santos said the HoA between the Madura PSC participants and PT Perusahaan Gas Negara (PGN), Indonesia's state-owned gas distributor, is an important step towards agreeing on a Gas Sales Agreement (GSA) that will underpin the field's development.

"This is an important milestone for Santos' Indonesian operations as we continue to secure long-term customers for our gas," said Santos' managing director, John Ellice-Flint.

Project sanction is targeted for mid 2004 with production commencing in the second half of 2005 at rates of up to 100 million cubic feet of gas per day for more than five years.

The joint venture is advanced in its planning for the development of the Maleo field, which will be developed using an innovative development concept utilising a Mobile Offshore Production Unit (MOPU) incorporating a converted jack-up rig. This concept meets the customer's requirement for early first gas and significantly alleviates the East Java gas market shortfall.

The development of the Maleo field will involve drilling three gas wells in 57 metres of water. The MOPU will be connected to the East Java Gas Pipeline by a 7 kilometre subsea pipeline.

The Maleo offshore gas field is expected to be developed in record time for Indonesia, taking approximately three years from discovery to first gas.

"It adds to the solid base we are building in South East Asia and is in line with our overall growth strategy which includes the international diversification of our gas business," said Ellice-Flint.

The finalisation of the development option is subject to approval by the joint venture partners and government authorities and appropriate payment security cover.

The Maleo gas field, which was discovered by the Santos-led joint venture in June 2002, is located in shallow waters of the Madura Strait, 140km east of the city of Surabaya in the East Java region of Indonesia.

Santos farmed into the Madura Offshore PSC following the Oyong gas and oil discovery made in the adjoining Sampang PSC in August 2001.

Participants in the Madura Offshore PSC are Santos 75% (Operator) and Talisman 25%.