SANTOS LIMITED — M&A Activity 2007

15 February 2007

ASX ANNOUNCEMENT

Attached is a revised announcement regarding the Santos proposal and replaces the announcement released earlier today.

For further information contact: Mr Richard Cottee Managing Director Queensland Gas Company Limited $(07)$ 3004 1000 Telephone: $(07)$ 3012 8411 Facsimile: Website: www.qqc.com.au

15 February 2007

ASX ANNOUNCEMENT

QGC receives improved offer from Santos

Queensland Gas Company (QGC) today received improved terms in the proposal from Santos as announced on 30 January 2007.

Details of the revised Santos offer are set out in Santos' announcement released to ASX earlier today. In summary, the Santos offer involves:

• Santos buying all QGC shares at a price of \$1.30 per share in cash:
• QGC shareholders receiving an in specie distribution of an equivalent number of shares in $\bullet$ a "new QGC" which would be listed on ASX and would own all of QGC's existing tenements other than those covering the Undulla Nose, estimated to contain approximately 8.300 PJ of original gas in place:
• Santos subscribing for a 30% shareholding in "new QGC" for: $\bullet$
• cash consideration of 20c per share, amounting to an investment of approximately \$40 $\bullet$ million:
• committing to allow "new QGC" to sell or cause Santos to buy 100PJ of gas once QGC $\bullet$ has proved up 100PJ of 2P reserves in ATP 648P:
• providing "new QGC" with access to infrastructure and other assistance;
• Santos is not in the normal course seeking Board representation, or to increase its $\bullet$ shareholding in "new QGC" beyond 30% for two years.

This new Santos' offer is superior to their proposal announced on 30 January. This follows the commencement of a review of the 30 January proposal by the Australian Competition and Consumer Commission (ACCC). The improvements fall into two areas:

• 1. "New QGC" will be entitled to sell or cause Santos to buy 100 PJ of 2P gas (once that quantity is certified at ATP 648P). This has been increased from 60 PJ and would allow "new QGC" to quickly become a significant gas producer with more than 5% share of the Queensland gas market. The arrangement would also provide the cash to develop "new QGC's" highly prospective exploration tenements.
• 1. A proposal for a gas transportation and swap agreement that would provide "new QGC" access to southern and north-western Queensland markets.

While the commercial terms of the revised Santos offer initially appears to be superior to the commercial terms of the AGL proposal, it must be noted that the Santos offer is subject to (and

cannot be accepted until it receives) approval from the ACCC. The offer is also subject to impractical requirements regarding termination of the AGL agreement.

The Santos offer is also subject to QGC immediately abiding by a 'no talk' provision. Given the uncertainty surrounding the ACCC approval. QGC believes a 'no talk' provision is impractical and unreasonable in the circumstances and therefore QGC does not consider itself to be bound by it.

At this time, QGC Directors maintain their recommendations as contained in the Explanatory Memorandum sent to shareholders on 1 February 2007. The present recommendation in respect of the AGL proposal will be reviewed if and when the ACCC announces a finding which would give QGC shareholders certainty around the Santos offer. The ACCC has stated that it expects to announce its findings on the new proposal not later than 1 March 2007.

In the interim, QGC will refer the new Santos offer to Deloitte who acted as the Independent Expert in considering the AGL offer.

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For further information contact: Mr Richard Cottee Managing Director Queensland Gas Company Limited Telephone: $(07)$ 3004 1000 $(07)$ 3012 8411 Facsimile: Website: www.qqc.com.au