Between August and December it traded between $6.40 and $5.80, but in January the share price went into a tailspin, falling by about a dollar in less than two months.

For some investors that must have been surprising. War clouds were gathering in the Middle East and the statements coming out of the White House were increasingly bellicose. But Santos's fortunes did not begin to turn until March 17, when war became almost inevitable. Even so, the share price only gained 52 cents - or 10 per cent - in the following two weeks.

It is not difficult to understand why - a statement out of Saudi Arabia to the effect that it would keep the world afloat with oil for the duration of the war took much of the heat out of the price of "black gold".

Within hours, the price of oil was a shade above $US28, its lowest level for the past four months. And war or no war, Santos potentially faces a few years of lacklustre earnings with the broking firm Deutsche predicting earnings to fall in the next three financial years. It predicts Santos will report a profit of $273 million this year, $261 million next year and just $196 million in 2005.

In the year ending December 31, 2002, Santos made a $392 million profit on Deutsche's figures. However, that number was soured by exploration spending write-offs of $70 million, which took the headline profit figure back to $322 million. Deutsche wrote: "The result of $392 million was in line with our expectations but at the low end of the market consensus.

"The outlook statement made by Santos indicates that, without acquisitions, production growth will stall in the short term. Our earnings forecasts bear this out. Santos will rely heavily on its exploration program to deliver medium-term growth and yield to sustain share price performance. The only alternative is acquisitions."

Santos managing director John Ellice-Flint clearly had acquisitions on his mind after the 2002 results were released. (The company is believed to have put its hand up for ExxonMobil's 21 per cent stake in the Cooper Basin oil and gas fields.)

But Mr Ellice-Flint remained upbeat about the future, despite conceding that sales in 2003 were likely to be lower than in 2002. He told the media that the latest profit number was a "solid result, reflecting the benefits of the disciplined implementation of our strategy".

But Mr Ellice-Flint knows that the market will not tolerate question marks hanging over production in the long term. Santos's exploration team will need to make some finds or the company will have to open its wallet.

Now that the Gulf war has boosted the share price, perhaps it is a good time to sell.

About the company

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Wildcard