Preliminary Final Report

For announcement to the market

Condensed consolidated statement of financial performance

Earnings per security (EPS)

Notes to the condensed consolidated statement of financial performance

Profit from ordinary activities attributable to members

Revenue and expenses from ordinary activities

Consolidated retained profits

Intangible and extraordinary items

Comparison of half year profits

ż

Condensed consolidated statement of financial position

Notes to the condensed consolidated statement of financial position

Exploration, delineation and development expenditure capitalised in areas in the exploration, delineation and development stage

Exploration, delineation and development expenditure capitalised in areas in which production has commenced

Condensed consolidated statement of cash flows Г

Non-cash financing and investing activities

Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows are as follows.

None.

Reconciliation of cash

Other notes to the condensed financial statements

Ratios

Earnings per security (EPS)

$10$ Details of basic and diluted EPS reported separately in accordance with paragraph 9 and 18 of AASB1027 : Earnings per Share are as follows.

Partly paid shares outstanding, issued under the Santos Executive Share Plan, and options outstanding, issued under the Santos Executive Share Option Plan, have been classified as potential ordinary shares and included in the calculation of diluted earnings per share. The number of shares included in the calculation are those assumed to be issued for no consideration, being the difference between the number that would have been issued at the exercise price and the number that would have been issued at the average market price.

During the year, 3,485,000 options and 222,500 partly paid shares were converted to ordinary shares.

The reset convertible preference shares have not been included in the calculation of diluted EPS as they are not dilutive.

NTA backing

Discontinuing Operations

12.1 Discontinuing operations

None

Control gained over entities having material effect

Loss of control of entities having material effect

$\sqrt{ }$

Dividends

• $15.1$ Date the dividend is payable
• 15.2 Record date to determine entitlements to the dividend (ie. on the basis of proper instruments of transfer received by 5.00 pm if securities are not CHESS approved, or security holding balances established by 5.00 pm or such later time permitted by SCH Business Rules if securities are CHESS approved)
• 15.3 If it is a final dividend, has it been declared?

Amount per security

Total dividend per security (interim plus final)

Preliminary final report - final dividend on all securities

• Dividend on preference securities in respect of the period 30 September, 2002 to 30 March, 2003 (inclusive) and payable on 31 March, 2003.
• ** Dividend on preference securities in respect of the period from 4 December, 2001 (date of allotment) to 30 March, 2002 (inclusive) and paid in 2002.

The Santos Dividend Reinvestment Plan has been suspended until further notice.

The last date(s) for receipt of election notices for the dividend or distribution plans

$N/A$

31 March 2003

Yes

Any other disclosures in relation to dividends.

Details of aggregate share of profits (losses) of associates and joint venture entities

Material interests in entities which are not controlled entities

Issued and quoted securities at end of current period

Balance to be called up is not quantified and will depend upon the event giving rise to the call.

$\star$

Segment reporting

Refer to attached schedule

Comments by directors

Basis of financial report preparation

• $19.1$ $N/A$
• 19.2 Material factors affecting the revenues and expenses of the economic entity for the current period.

• material effect and which is not already reported elsewhere in this Appendix or in attachments, with financial effect quantified (if possible). None
• 19.4 Franking credits available and prospects for paying fully or partly franked dividends for at least the next year.

The consolidated entity has $272.9 million (2001: $479.6 million) of franking account credits at 30% available for future distribution, after adiusting for franking credits which will arise from the payment of the current income tax provision at 31 December 2002 and after deducting franking credits to be used in payment of the preferential and ordinary dividends payable on 31 March 2003.

From 1 July 2002 the franking credits available have been measured in accordance with the New Business Tax System (Imputation) Act 2002 as the amount of income tax paid rather than being based on after-tax profits as in previous periods.

Comparative information has not been restated for this change in measurement. Had the comparative information been recalculated on the new basis, the consolidated "franking credits available" balance would have been $205.5 million.

This change in the basis of measurement does not change the value of franking credits to shareholders who may be entitled to franking credit benefits.

19.5 Unless disclosed below, the accounting policies, estimation methods and measurement bases used in this report are the same as those used in the last annual report. Any changes in accounting policies, estimation methods and measurement bases since the last annual report are disclosed as follows.

The consolidated entity has applied the following revised standards for the first time from 1 January 2002:

• AASB 1005 "Segment Reporting"
• AASB 1012 "Foreign Currency Translation"
• AASB 1027 "Earnings per Share"
• Refer to attached commentary for further details.
• 19.6 Revisions in estimates of amounts reported in previous interim periods.

None

19.7 Changes in contingent liabilities or assets.

The increase in contingent liabilities is predominantly due to litigation against Esenjay Exploration Inc which was acquired during 2002.

Annual meeting

The annual meeting will be held as follows:

Compliance statement

$\mathbf{1}$ This report has been prepared in accordance with AASB Standards, other AASB authoritative pronouncements and Urgent Issues Group Consensus Views or other standards acceptable to ASX.

Identify other standards used

Nil

• $\overline{2}$ This report, and the financial statements upon which the report is based, use the same accounting policies.
• 3 This report does give a true and fair view of the matters disclosed.
• $\overline{4}$ This report is based on financial statements to which one of the following applies.

The financial statements have been audited.

The financial statements have been subject to review.

The financial statements are in the process of being

audited or subject to review.

e financial statements have t vet been audited or riewed.

• 5 The auditors' report is attached.
• $,6,$ The entity has a formally constituted audit committee.

Sign here:

...................................... M G Roberts Company Secretary

Phone: (08) 8218 5111

Santos Ltd Schedule

Segment Information

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise dividend revenue, interest-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Geographic Segments

The consolidated entity operates primarily in Australia but also has International operations in the United States, Papua New Guinea and Indonesia.

Secondary Reporting

Business Segments

The consolidated entity operates predominantly in one business, namely the exploration, development, production, transportation and marketing of hydrocarbons. Revenue is derived from the sale of gas and liquid hydrocarbons and the transportation of crude oil.

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF

SANTOS LTD

Scope

We have audited the financial report of Santos Ltd for the financial year ended 31 December 2002, consisting of the statements of financial performance, statements of financial position, statements of cash flows, accompanying notes 1 to 33, and the directors' declaration. The financial report includes the consolidated financial statements of the consolidated entity, comprising the Company and the entities it controlled at the end of the year or from time to time during the financial year. The Company's Directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the Company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Ourprocedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements and statutory requirements in Australia so as to present a view which is consistent with our understanding of the Company's and the consolidated entity's financial position, and performance as represented by the results of their operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit opinion

In our opinion, the financial report of Santos Ltd is in accordance with:

• $(a)$ the Corporations Act 2001, including:
  • giving a true and fair view of the Company's and the consolidated entity's financial j) position as at 31 December 2002 and of their performance for the financial year ended on that date: and
  • complying with Accounting Standards in Australia and the Corporations Regulations ii) 2001: and
• other mandatory professional reporting requirements in Australia. $(b)$

KPMG

Peter A Jovic Partner

Adelaide 19 February 2003

19 February 2003

Santos delivers solid full year result with improved second half

• Full year operating profit of $392 million, before exploration write-offs of $70 million (after tax)
• Second half operating profit of $226 million (before exploration write-offs) - 14% higher than 2001 second half
• EBITDA of $1,084 million for the full year exceeded $1 billion for third year in a row
• Operating cash flow $821 million (+14%)
• Gas commercialisation delivers 600 petajoules (gross) of new contracts – highest since 1996
• Proven (1P) reserves replacement of 119% exceeds annual production for first time in five years
• Final dividend of 15 cps, total dividend of 30 cps

Santos Limited (ASX: STO, NASDAQ: STOSY) today announced a net profit after tax and exploration write-offs of $322.1 million, or 51.2 cents per share, for the 12 months ended 31 December 2002.

The Company's underlying operating profit remained strong at $392.3 million before $70.2 million of after-tax exploration write-offs ($449.7 million operating profit before write-offs in 2001).

Both the operating and net profits were historically strong results for the Company.

Second half operating profit improved to $226.0 million before after-tax exploration write-offs, and was up by 35.9% from the 2002 first half operating profit and 14.0% higher than the 2001 second half result.

Full year earnings before interest, tax, depreciation, depletion and amortisation (EBITDA) of $1,084.4 million exceeded $1 billion for the third year in a row.

Cash flow from operating activities, after interest and tax, increased by 14.5% to $820.8 million ($1.41 per share).

"This is a solid result, reflecting the benefits of the disciplined implementation of our strategy," Santos' Managing Director, Mr John Ellice-Flint, said.

"The performance of the key drivers of our business is highly visible and delivering tangible, measurable benefits under the strategy for growth adopted in May 2001," Mr Ellice-Flint said.

"The result was achieved from record sales of 57 million barrels of oil equivalent (mmboe) and a higher average realised oil price in the second half.

"These positive factors partly offset increased non-cash charges."

Mr Ellice-Flint said the latest results reflected increased production and lower capital costs.

"Production grew by 3%, operating and capital cost-savings of $78 million were well ahead of our $50 million target for the end of 2003. and our 2002 exploration program brought the Company new oil and gas discoveries spread across Australia, the US. Papua New Guinea and Indonesia.

"We contracted Cooper Basin gas at improved margins, and replaced 119% of our annual production."

During the year, Santos also acquired the Esenjay interests in South Texas as well as a 20% interest in the Patricia Baleen gas project offshore from Orbost in eastern Victoria, which will be Santos' first off-shore Victorian production.

Dividend

Santos Chairman. Mr Stephen Gerlach, said Directors had declared a fully franked final dividend of 15 cents per share.

"This maintains our total 2002 dividend on ordinary shares at a fully franked 30 cents per share and provides investors with a healthy dividend yield," he said.

Replaced more than produced for the first time since 1997

Annual reserve replacement in 2002 was 119%, which exceeded annual production for the first time in five years. The Company added 67 mmboe net of Proven reserves (1P) at a finding and development cost of US$6,78/boe.

Exploration performance strongest for several years

The total exploration program for 2002, which included 18 wildcat wells, cost $133 million, established a mean resource of 106 mmboe and resulted in three major discoveries. Mutineer and Exeter in the Carnarvon Basin, and Ovong in East Java.

Other discoveries were made in southern Australia. PNG and South Texas – with five of the six new US discoveries already in production.

Progress was also made in acquiring new acreage in Australia and the United States.

Exploration write-offs

Santos wrote-off $75 million ($70 million after-tax) of historical exploration expenses, mainly from drilling in New Guinea, Sumatra and the Browse Basin

Santos' Executive General Manager Finance and Accounting, Mr Peter Wasow said: "We have introduced more objective quidelines for assessing whether past exploration expenditure should be carried forward. This ensures greater transparency in the reporting of exploration assets."

Gas commercialisation delivers base for growth

During 2002, Santos signed new gas contracts for 600 petajoules of gas (gross) – the highest since 1996.

A major achievement was the signing of new 15-year contracts with AGL for Cooper Basin gas to supply eastern Australia. The revenue from these contracts and associated recovered liquids will be worth in excess of $2 billion to the Cooper Basin producers. Supply commences this year and extends through to 2016.

A Heads of Agreement was also signed to sell the entire 90 billion cubic feet of gas reserves of the Oyong gas and oil field in off-shore East Java to PT Indonesia Power.

Production optimisation performance 200% higher than 2001

Production optimisation in the Cooper Basin added about 75 terajoules (TJ) per day of gross gas capacity at 30-40% of the cost of conventional gas development projects. This rate exceeded the target of 40 TJ per day and is a 200% increase over Santos' 2001 performance.

OUTLOOK

Mr Ellice-Flint said Santos' improving exploration achievements, together with further progress in gas commercialisation, would provide the foundation for future growth for the Company.

"We have strengthened our overall portfolio during the year. During the past 12 months, we have added the potential Bayu-Undan LNG. Mutineer and Exeter oil and Oyong gas projects," he said.

"New projects like these are being fast-tracked, which will positively impact future production.

"We are also targeting other opportunities to increase near term production such as oil optimisation in the Cooper Basin and early production from small discoveries close to infrastructure.

"However, it will be a significant challenge for the Company to match its 2002 production performance over the next two vears, with 2003 and 2004 production, prior to acquisitions, likely to be around the levels achieved in 2000 and 2001. Sales volumes in 2003 are expected to be slightly down on the 2002 level.

"Santos remains focused on value over volume and will not seek to increase production to the detriment of shareholder value."

Mr Ellice-Flint said that the Company's financial performance remained subject to oil prices and exchange rates.

"For instance, in 2003 a US$1 movement in the oil price will affect Net Profit After Tax (NPAT) by A$14.5 million and a one cent change in the US dollar exchange rate will affect NPAT by A$5.6 million," he said.

Santos will maintain an active exploration program in 2003 comprising 26 wildcat wells targeting mean-risked resource potential of 90 mmboe.

Total exploration expenditure will be around $146 million in 2003 compared with $133 million in 2002 and $93 million in 2001.

FOR FURTHER INFORMATION PLEASE CONTACT:

Graeme Bethune General Manager, Business Development (08) 8218 5157 / 0419 828 617

Santos stock symbols: STO (Australian Stock Exchange), STOSY (NASDAQ ADR)

The Analyst Presentation on the Results will be available from 19 February on the Santos website www.santos.com

SANTOS 2002 FULL YEAR RESULTS

2002 FINANCIAL PERFORMANCE

Sales Volumes

2002 sales volumes increased by 1.7 mmboe to 56.8 mmboe in the year to 31 December, mainly due to increased gas production and sales in the United States and southern Australia. Oil production and sales volumes eased due to field decline

Product Sales Revenue

Sales revenues were up $18.7 million to $1,478.4 million, largely due to increased gas sales of 10.2 PJ and the stability of the average realised oil price.

Other Revenue

Other revenue from ordinary activities decreased by $32.4 million to $69.7 million primarily due to the accrual of the Moomba insurance recoveries in 2001 ($26.8 million), decreased interest revenue ($6.4 million) and lower proceeds from the sale of non-current assets ($2.9 million).

Operating Expenses

Operating expenses increased by $25.3 million to $448.3 million (or from $7.69/boe to $7.89/boe) largely reflecting increased insurance costs, the Cooper Basin production optimisation program, new production from Legendre and Scotia and higher government royalties.

Write-offs of exploration expenditure

Exploration write-offs increased by $71.5 million to $75.3 million largely as a result of the write-offs of expenditure in the Papuan, Sumatran and Browse Basins. The increase in write-offs resulted from the adoption of more objective carry forward quidelines for asset evaluation.

Depreciation, Depletion and Amortisation (DDA)

DDA was $469.1 million, an increase of $47.8 million. Depreciation expenses rose by $9.4 million to $132.2 million primarily as a result of the $184.9 million increase in fixed assets to $1,663.4 million. Depletion expenses were up by $33.8 million reflecting higher production and increases in estimated future development costs.

Earnings Before Interest Expense, Tax, Depreciation, Depletion and Amortisation (EBITDA)

EBITDA was $1,084.4 million.

Earnings Before Interest Expense and Tax

Earnings before interest expense and tax (EBIT) were down by $151.9 million to $540.0 million largely as a result of the increased depletion and exploration write-offs.

Net interest expense decreased by $17.6 million to $46.7 million as a result of lower average interest rates during the first half partially offsetting increased net debt due to the Esenjay acquisition and an increase in the level of capitalised interest.

Net interest cover remained strong at 8.1 times.

Net Profit After Income Tax Attributable To Shareholders

A net profit after tax of $322.1 million was achieved, with earnings of 51.2 cents per share compared with 72.9 cents per share in 2001.

CASH FLOW AND FINANCIAL POSITION

Cash flow from operating activities before interest expense and tax decreased by 1.2% to $1,084.6 million.

Cash flow from operating activities after interest and tax increased to $820.8 million ($716.8 million in 2001) largely due to lower taxation payments and net interest costs, and the receipt of the Moomba insurance proceeds, partially offset by increased payments to suppliers and employees.

Operating cash flow per share was $1.41 per share compared with $1.17 per share in 2001.

Dividends of $193.2 million were paid to shareholders.

The net debt to net debt plus equity ratio at the end of 2002 was 28.9% $(28.0% \text{ in } 2001).$

CAPITAL EXPENDITURE

Exploration

The total exploration program for 2002, which included 18 wildcat wells, cost $133 million and established a mean resource of 106 mmboe. Drilling activity in the second half of the year was accelerated with a total of 12 wells drilled.

A total of three oil and nine gas discoveries were made, comprising the Mutineer and Exeter oil discoveries, the Bilip oil discovery in PNG, the Maleo gas discovery in East Java, Indonesia, the Casino discovery in southern Australia, the Sardine Creek gas discovery in east Queensland and six gas discoveries in South Texas.

During 2002, the exploration portfolio was high graded with a number of exploration permits awarded in Australia.

The most significant of these were the four deep-water blocks in the Otway and Sorrel Basins in southern Australia, a new key growth area covering 18,260 square kilometres, and a new permit in the Houtman Basin in Western Australia. The Houtman Basin permit is frontier acreage and covers 82,880 square kilometres.

In the United States, Santos' base acreage position grew in 2002 through two significant transactions. The Eseniav acquisition added approximately 174 square kilometres, primarily in the prolific Frio and Wilcox trends. The Dominion Knight Project added approximately 36 square kilometres in the Woodbine trend

Santos intends to maintain an active exploration program in 2003 – including 26 wildcat wells - for a total cost of $146 million for a target mean-risked resource potential of 90 mmboe.

Santos will drill a total of three deep-water wells in the Otway Basin, four wells in the Carnaryon Basin, one well in the Gippsland Basin, 11 exploration wells in onshore Australia, two wells in Indonesia, one well in PNG and four wells in the United States.

In addition, 4,250 square kilometres of two dimensional and 2,130 square kilometres of three dimensional seismic will be acquired.

Delineation, Development and Fixed Assets

Total development, delineation and fixed assets expenditure was $627.8 million in 2002, reflecting the accelerated appraisal of exploration discoveries during the year and ongoing development of the Bayu-Undan liquids project in the Timor Sea, continued gas development activity in the Cooper Basin. eastern Queensland and the United States, and investment in new information technology platforms and production infrastructure.

Despite an active 2003 delineation, development and fixed asset program, total expenditure will ease to $585 million in 2003 largely as a result of lower delineation activity. Delineation expenditure is forecast to decline to $46 million from $90.6 million and will principally address appraisal of Possible reserves (3P), near field exploration and commercialisation of contingent resources.

BUSINESS IMPROVEMENT PROCESS

A key strategy of Santos has been the focus on lower capital and operating expenditure. Early during 2002, Santos achieved its target of a $50 million reduction in total costs by the end of 2003. Total capital and operating costs were reduced by $78 million on a like-for-like basis, $28 million better than the original target.

In 2002, operating cost reductions of $7 million and a total of $71 million in capital cost reductions were achieved, with a majority of this occurring in the Cooper Basin. Some of the areas in which savings have been made were production optimisation ($34 million), procurement ($8 million) and compressor optimisation ($5 million).

These savings allowed for the reallocation of capital towards growth businesses like exploration and rapid delineation of 2002 exploration discoveries.