In a letter to the ASX

(Australian Stock Exchange)

‘’Each director stated that they intend to vote the shares they control in favour of the scheme, in the absence of a superior proposal and subject to an independent expert’s opinion that the scheme is in the best interests of Eastern Star Gas shareholders.’’

Chairman of Eastern Star Gas’ Board, John Anderson, said: “Combining with Santos offers EasternStar Gas critical balance sheet strength and exposure to the wider Eastern Australian gas market, together with strong project development experience and capability.

Eastern Star Gas has a world class resource and a high quality management team underpinning the Narrabri Gas Project. Continuing to develop and commercialise that resource independently entails a number of challenges, including funding.

While the company is confident that those challenges can be successfully met, we recommend the Santos proposal as it provides shareholders with the chance to crystallise Eastern Star Gas’ long term value now with the opportunity to continue to participate in the development of Eastern Star Gas’ assets through consideration in the form of Santos shares.”

Eastern Star Gas’ CEO, David Casey, said:

“A combination with Santos provides the Narrabri Gas Project with more options to realize its world class potential.

“Santos’ proposal recognizes Eastern Star Gas’ technical expertise and prime position in the coal seam gas industry.”

The scheme is subject to a number of conditions, including:

(i) an Independent Expert Report determining that the Scheme is in the best interest of Eastern Star Gas’s shareholders;

(ii) Eastern Star Gas shareholder and court approvals

(iii) other customary conditions that limit Eastern Star Gas’ ability to engage with third parties on a competing

proposal, although subject to fiduciary duty exceptions.

Santos Communications Co ordinator Sam Crafter told the Times: “There will be a three-month process.’’