JAKARTA, 15 July 2006 - Oil and gas producer Santos Ltd has been forced to downgrade the size of its Jeruk offshore Indonesian oil discovery which may now be less than half the size originally thought. Data from the third appraisal well drilled to test the reservoir has seen the height of the hydrocarbon column at Jeruk slashed to about 145 metres from the previous estimate of 379 metres.

Analysts say it is fair to assume this has cut the estimated size of the resource in half if not more. Santos says the new data means the resource will be smaller than the estimate of 170 million barrels it gave to the market in January 2005, but it is too soon to say how much smaller. There were high hopes for Jeruk when the discovery was made in late 2003 and many analysts said Santos and its joint venture partners could eventually prove up a reservoir of more than 250 million barrels.

But market watchers grew impatient for confirmation of the size of the resource as Santos struggled with the complex geology and extreme depth of the find. "There was a lot of expectation in the market and obviously that has set the situation up for a bit of disappointment," Fat Prophets resources analyst Gavin Wendt said. Santos closed down 68 cents or 5.5 per cent at $11.77, albeit in a weaker broader market.

Intersuisse energy analyst Peter Arden said he believed confidence in the initial resource estimate had been low and the delays had sparked further doubts. "At times the market thought there was nothing there," he said. "So, in a way, what they have come out with is actually positive - to be able to say `hey we really do have something' - because I think the market had pretty well given up on it and put it in the too hard basket."

The current appraisal well at Jeruk, off the coast of East Java, is the third of four the company plans to carry out to determine how much oil the field holds. Jeruk-3 has gone down nearly five kilometres where the temperature is 150 degrees celsius and pressure is 10,000 pounds per square inch. A spokeswoman for Santos said the difficult conditions have been made tougher by the multiple fractures in the volcanic rock that held the reservoir.

"We are really pushing the limits of technology," she said. Santos plans to continue flow testing the well before moving the rig off to drill other targets in East Java before returning to drill Jeruk-4 at the end of the year. Santos has a 40.5 per cent stake in Jeruk and is the project operator.

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