Key points:

• Strong operating performance and global market drivers lead to higher profit
  - 2005 dividends increased to 46 cents per share; 82% total shareholder return
  - 2005 RCOP profit 2.2 cents per litre v 2.0 cents per litre in 2004
• 
  
• Profits fund investment in clean fuels, refinery efficiency projects, fuel storage terminals and retailing
  - 2005 capital expenditure $530 million v $414 million RCOP profit after tax
• 
  
• Business climate outlook for oil industry remains strong and will support Caltex strategies despite negative 1H2006 impact of Clean Fuels Project delay

Results summary	Full year ended 31 December
2005	2004*
Replacement cost of sales operating profit (RCOP)¹ result (excluding significant items):	$M	$M
- after tax	414	350
- before interest and tax	583	536
Historical cost result
(net profit after tax, including inventory gains and excluding significant items)	574	457

*2004 comparatives have been adjusted for the transition to Australian equivalents of International Financial Reporting Standards (A-IFRS).

Strong operating performance and global market drivers lead to higher profit

Caltex Australia announced today a higher profit after tax (excluding significant items) on a replacement cost of sales operating profit (RCOP) basis of $414 million for the year to 31 December 2005, compared with $350 million for the full year 2004. This equated to 2.2 cents of profit per litre of petroleum products sold.

Caltex Managing Director Dave Reeves said the higher profit in 2005 was the result of a strong operating performance by the company's refining and marketing business combined with global market drivers.

"The continued strong demand for fuels in the Asia Pacific region resulted in higher refiner margins with the Caltex Refiner Margin² averaging US$8.40 a barrel in 2005 compared with US$6.60 a barrel in 2004," Mr Reeves said.

"We were able to capture the benefit of these refiner margins because of improved throughput rates and near-record production at Caltex refineries. Despite the tight regional supply environment and record imports we maintained a secure and reliable supply of fuels to our customers.

"Caltex's marketing business made a strong contribution to earnings with new records in transport fuels sales, higher margins and volumes across all marketing channels and increased shop sales in our convenience store network.

"Petrol prices rose during the year mainly as a result of a large increase in crude oil prices. Part of the increase was due to higher margins earned by Caltex refineries which reflected tighter global supply and demand for petroleum products.

"The average price of all petroleum products sold by Caltex (including GST) increased 14.6 cents per litre. Of this increase, 13.5 cents per litre was crude oil prices and other costs, 0.9 cents per litre was higher tax (including GST) and 0.2 cents per litre was increased Caltex profit (2005: 2.2 cpl, 2004: 2.0 cpl, RCOP basis). See chart.

"Caltex has no crude oil or gas exploration or production interests."

Dividend

Caltex Chairman Dick Warburton said the Board had declared a final dividend of $84 million or 31 cents per share fully franked, adding to the interim dividend of 15 cents per share to give a total dividend of 46 cents per share fully franked (2004 total dividends: 39 cents).

"This is in line with the company's stated dividend policy of declaring ordinary dividends of 20% to 30% of the RCOP result (after tax excluding significant items) in 2005 while the company met the high capital commitments of the Clean Fuels Project," Mr Warburton said.

"From 2006, the company intends to increase the dividend pay-out ratio to a range of 40% to 60% of the RCOP result after tax excluding significant items.

"However, the declaration and the amount of any dividends are at the sole discretion of the Board and are dependent on the company's earnings, cash flow requirements, financial conditions at that time and available franking credits.

"We are pleased that the confidence of Caltex shareholders has been rewarded by higher dividends and a 78% increase in share price during 2005, opening at $10.86 and closing at $19.38. This put Caltex in the top tier of performers in the Australian share market for the third year in a row. The result provided a total shareholder return of 82%.

"There is great momentum in the business and we feel very confident that in the years ahead our strategies will achieve a further competitive edge in an external environment that, while always volatile, appears favourable."

Strong performance from refining and marketing

Mr Reeves said that the performance improvement projects at the company's refineries at Kurnell in Sydney and Lytton in Brisbane produced significant benefits in 2005 primarily by lifting utilisation and improving yields.

"Total production of 11.6 billion litres of petroleum products was the second highest on record (2004: 11.8 billion litres) with various new throughput records achieved at both refineries," he said. "Production of high value transport fuel products (petrol, diesel and jet fuel) was 10.1 billion litres (2004: 10.5 billion litres). This production was achieved despite an extensive program of planned shutdowns for routine maintenance and preparation for clean fuels production.

"In marketing, Caltex strengthened its leadership in transport fuels sales, increasing sales volume by a further 4% to 13.2 billion litres in a market that grew just over 1%. Petrol sales volumes were 3% higher supported by the venture with Woolworths. There are now over 470 jointly branded Caltex Woolworths service stations across Australia. They account for around 50% of our petrol sales.

"Diesel sales volumes were 5% higher and jet fuel volumes increased by 6%. New marketing strategies also produced growth in key markets for lubricants, premium fuels and StarCash cards. The company also made gains in consumer preference for the Caltex brand during 2005.

"Non-fuel income rose 11%, with a 5% growth in store sales consolidating Caltex's position as Australia's leading convenience store retailer with almost 30% of market share.

Profits enable capital investment in clean fuels, refinery efficiency projects, storage terminals and retailing

"In 2005, Caltex more than doubled its capital expenditure to $530 million investing in projects at the refineries and in other areas including terminal loading, storage facilities and retailing to meet customer and community expectations. This exceeded 2005 RCOP profit after tax and represents 86% of our operating cash flow.

"The fuels market is changing as increasing global demand outstrips growth in refining capacity. Australia is now importing more than 20% of its transport fuels to supply domestic demand. As Australia's largest refiner and marketer of transport fuels, Caltex is focused on increasing production of diesel and high octane petrol and strengthening its supply chain to meet the changing needs of its customers.

"By the end of 2005, a refining performance improvement program launched in 2004 had delivered significant benefits which are reflected in the increased profit. The program involves wide ranging improvement projects across both refineries that are expected to substantially add to annual profit and lift fuels production. Included in the program are ten major projects for which funding decisions will be made in 2006 and 2007.

"The most significant current project, the approximately $500 million Clean Fuels Project, is reducing air pollution from vehicle emissions through cleaner petrol and diesel. Expenditure on the project in 2005 was $302 million, including substantial additional costs to expedite the project when delays became apparent.

Business climate outlook for oil industry remains strong and will support Caltex strategies despite 1H2006 impact of Clean Fuels Project delay

"Caltex remains confident the increased quantity and quality of production from the Clean Fuels Project and refinery improvement projects will create substantial benefits in the tight supply/demand market environment for petroleum products we expect over the next few years. We do not expect growth in demand will be offset by new refining capacity additions in the region in the near to medium term.

"There has been a disappointing start-up delay and significant overrun of our original planned investment in the Clean Fuels Project primarily due to late delivery of materials and equipment and a shortage of skilled labour. The lessons we learned from the review of this project are being applied in our future capital development activities.

"Lower refinery production and increased imports of 2006-standard products and exports of non-2006-standard products due to the Clean Fuels Project delay will negatively affect the 1H2006 earnings.

"The Australian Government granted Caltex a short-term variation of the fuel standards that have applied since 1 January 2006 to allow the company to ensure certainty of supply to its customers while the plant construction and commissioning is completed. The company has committed every possible effort to minimising the delays. The benzene reduction plant at the Lytton refinery has been making 2006-standard product since the end of January. The Kurnell benzene plant is expected to be on stream in early March as is the Lytton diesel sulfur reduction plant. The Kurnell diesel plant is expected to be on stream in April. As a result of delays beyond those recognised in the original variation application, Caltex has applied to the Government for an extension of the current variation to ensure reliability of supply to customers.

"The company's performance is benefiting from our focus on the fundamentals, including our safety performance, which in 2005 was the best on record, and improving the capabilities of employees through training programs. In 2006, there will be ongoing benefits from strategies to increase the productivity of the refineries, reinforce the reliability of our supply chain and achieve sustainable growth in expanding markets."

Historical cost profit

On an historical cost profit basis (including inventory gains and excluding significant items), Caltex recorded an after tax profit of $574 million for the full year 2005 compared to $457 million for the full year 2004. This was 3.1 cents per litre of petroleum products sold (2004: 2.6 cpl). The profit includes crude oil and petroleum product inventory gains of $160 million (after tax) compared to inventory gains of $106 million (after tax) in the full year 2004.

The historical cost and RCOP results exclude a significant after tax one-off gain of approximately $21 million as a consequence of tax consolidation legislation passed in 2005. The initial legislation passed in 2004 resulted in an after tax one-off gain of $114 million in 2004.


¹The replacement cost of sales operating profit (RCOP) excludes the impact of the fall or rise in oil prices (a key external factor) and presents a clearer picture of the company's underlying business performance. It is calculated by restating the cost of sales using the replacement cost of goods sold rather than the historical cost, including the effect of revenue lags.

²The Caltex Refiner Margin (CRM) represents the difference between the cost of importing a standard Caltex basket of products to Eastern Australia and the cost of importing the crude oil required to make that product basket. The CRM calculation represents: average Singapore refiner margin + product quality premium + crude discount/(premium) + product freight - crude freight - yield loss.

Media Contact
Richard Beattie
Group Manager Corporate Affairs
Phone 02 9250 5224
Pager 02 9214 1146

Analyst contact
Frank Boys
Manager Investor Relations
Phone 02 9250 5166
Email frboys@caltex.com.au