Santos Working to Restore Gas Supplies from Moomba

Santos Limited says it plans to move by tomorrow, January 6th, into the Stage Two of its restoration of gas supplies from the Moomba processing plant in central Australia, damaged by fire last Thursday. This will see approximately 150 terajoules per day delivered into the pipeline grid from tomorrow.

The additional supplies will come from raw gas extracted from field wells around Moomba and which is able to be processed through those parts of the plant not affected by the fire.

These higher volumes will represent about 40% of the gas supplied into the Adelaide and Sydney pipeline networks from Moomba during normal demand at this time.

"The plant's output is expected to then stabilize around a 150 TJ/d level without further increases until Moomba is able to implement further stages of operation – but these will take some weeks," Santos' Managing Director, Mr. John Ellice-Flint, said today.

The Company also announced that under Stage One of the supply recovery program, processed gas stored underground at Moomba and now being fed into the system, had stabilized at 120 TJ/d.

Government investigators left the site today but Santos says it is still likely to be some days before unrestricted access to the site is possible.

Not until then will it be possible to commence the structural cleanup work at the incident site.

The Company announced yesterday initial investigations of the incident pointed towards an unforseen failure of a heat exchanger inlet nozzle as the source of the hydrocarbon release.

This equipment is in an area used to cool gas to low temperatures at which liquid gas products such as butane and propane can be extracted.

Santos expects to have a clearer picture by the end of this week of the extent of damage from the fire.

"Santos has already commenced some procurement ahead of that final damage assessment being available so as to accelerate the rehabilitation of the damaged area in the shortest possible time," Mr. Ellice-Flint said.

"Once we have a full picture, however, we will be in much better shape to determine the engineering and procurement challenges to achieve a safe return to normal operations," he said.

"The performance of our employees on site has been exceptional under some extraordinary circumstances and has been fundamental in moving quickly to restore gas supply after the emergency response period.

"The pace at which we can maximize supply will improve as access to the whole site increases."

Santos and its joint venture partners also advised earlier today of the financial impact of the incident.

Operating cash flow has also been growing strongly over past years. Santos' balance sheet remains strong, with gearing around 25%. The incident will not have any impact on the Company's 2003 results or dividend. The reduction of $35-40 million in operating cash flow expected to result from the Moomba incident, in 2004, is also unlikely to significantly change the outlook for dividends.

Further to previous ASX announcements, Santos Ltd advises the following in relation to insurance arrangements and possible financial impacts.

Santos and its joint venture partners maintain insurance for Property Damage and Business Interruption to the Moomba facility. The insurance excess (or deductible) for property damage is A$1.5 million (Santos Share) and for business interruption, insurance is available after 45 days.

The estimated financial impact to Santos, based on the full 45 day waiting period for Business Interruption cover and including payment of the excess for Property Damage is A$25-30 million net profit after tax and A$35-40 million of operating cash flow. These estimates are based on December 2003 oil prices and exchange rates.

Based on a 45 day period the total production loss would be 2.1 million barrels of oil equivalent comprising approximately 10 petajoules of sales gas and ethane, 200,000 barrels of condensate, 25,000 tons of LPG and a small quantity of oil.

Any delays in resumption of full production beyond 45 days would have a further impact on production but the lost revenue would be claimable under insurance.