Santos To Acquire Esenjay Exploration

Santos and Esenjay Exploration have entered into a definitive merger agreement under which Santos will offer to purchase for cash all of the outstanding common shares of Esenjay for US $2.84 per share, a 4.4% premium to its closing price, March 15, 2002, in a transaction valued at approximately US $80 million, including net debt and working capital of approximately US $24.2 million.

The boards of directors of both companies have approved the agreement. Certain directors and shareholders of Esenjay who own a majority of the outstanding Esenjay shares have signed agreements supporting the transaction and have agreed to tender their shares and vote in favor of any related matter, subject to certain circumstances involving the termination of the merger agreement or the tender offer. These directors and shareholders who own a majority of the outstanding Esenjay shares have also granted Santos an option to purchase their shares in the event the merger agreement and tender offer are terminated.

The acquisition is expected to substantially increase Santosí U.S. portfolio of exploration opportunities, provide an increase to reserves, boost production, increase the level of operatorship and strategically align with existing U.S. operations. The acquisition is expected to contribute: Thirty-two exploration prospects with an average working interest of 40% (approximately 80% operated), together with over 40,000 net acres of leases, in the prolific Frio, Wilcox, Yegua, and Deep Vicksburg trends and the Hackberry Embayment (an increase from 11,500 net acres). Over 3,300 square miles of 3D seismic data (of which 1,800 square miles is proprietary). Estimated proved and probable reserves of 47.3 billion cubic feet of natural gas and 1.0 million barrels of oil at year-end 2001. An additional 16 million cubic feet equivalent per day of production, at low operating costs (approximately US$0.20 per thousand cubic feet). Santos Ltdís Managing Director John Ellice-Flint said, "Santos is growing steadily in the United States, through a combination of successful exploration, production optimization and acquisitions. The acquisition is expected to provide a base for further growth and result in an increasing contribution to the Santos Ltd Group activities. The United States, with a 23 trillion cubic feet a year gas market, provides world competitive opportunities and attractive gas market fundamentals. In particular US gas margins are generally better than in Australia."

The proposed acquisition follows several gas discoveries in the onshore Texas Gulf Coast in 2000 and 2001 and the recent purchase of a range of interests and assets in the Frio trend by Santos. This acquisition would continue the re-positioning of Santosí U.S. operations to the onshore Texas Gulf Coast and is consistent with its strategy to operate assets and concentrate efforts on basins that combine moderate risk with high-reward prospects. The portfolio includes some non-core interests, that are expected to be divested in 2002.

Esenjay currently operates fields that account for approximately 80% of its net production volumes, which is commensurate with Santosí existing operating position in the United States. Santos believes that the application of its world-class fracture stimulation experience, which has been developed over many years of operation in the Australian Cooper Basin, has the potential to add additional value to these assets. This expertise has already been successfully applied to the current U.S. operated assets of Santos.

During 2000 and 2001, Santos made two significant onshore Texas wildcat exploration discoveries in the high pressure, multi-zone Frio Trend located at depths greater than 12,000 feet. This acquisition is expected to result in the addition of a number of higher impact exploration and delineation opportunities to Santosí exploration portfolio. Access to a significant seismic database and geological and geophysical assessment is expected to identify further drilling prospects.

On a proforma basis, the acquisition is expected to increase Santosí total year-end 2001 proved and probable reserves in the United States to 107 billion cubic feet of gas and 2.25 million barrels of oil and liquids for a total of 119 billion cubic feet equivalent. The total U.S. production is expected to be over 3 million barrels equivalent in 2002; a 200% increase over 2001. Production resulting from successful exploration and development of the acquired properties is expected to facilitate further rapid growth over the next three years.


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