But the Rann Government demands a guarantee that Santos will keep jobs and sponsorship deals in South Australia before it will consider lifting the cap.

Analysts agree with Santos that the company’s growth potential has been restricted by the cap, which was introduced to prevent a takeover from Alan Bond in 1978.

Rann said the cap had served South Australia well in this period but times had changed.

“There were well-founded concerns at the time about how the state’s interests in having a secure and continuous supply of gas might be compromised if control of Santos and the Cooper Basin, then the sole source of gas into South Australia, fell into the hands of such an individual,” he said.

"But South Australia today receives gas from a number of sources and is at the centre of a national gas hub.”

However, there were risks for the state in removing the cap, according to Rann. In particular, it would create the potential for an interstate or overseas takeover.

"The approach of the South Australian Government will be driven unashamedly by maximising benefits to South Australia,” Rann said.

Santos confirmed yesterday it was in discussions with the State Government, saying it was trying to address the Government’s concerns while also protecting the best interests of the company's shareholders.

Rann said his Government was seeking guarantees about securing a significant corporate presence, even in the event of a takeover of the company, and an ongoing and significant contribution by Santos to development in the state.

“This Government will not legislate to remove the cap unless we can be satisfied that this will not result in the loss of significant corporate functions,” he said.

“There could be a massive dividend for Santos in removal of the cap, but I also want to make sure that there is a genuine dividend for South Australia.”