In the first of half of last year the company posted an underlying net profit after tax of $407 million. The figure was just $305 million for the first six months of 2007.

This was driven by a range of factors, according to the company’s interim half-yearly report.

Sales revenue and earnings before interest, tax, depreciation, amortisation and exploration (EBITDAX) were lower, and production costs were higher. The company also faced higher tax payments and a one-off $95 million insurance receivable related to the Moomba explosion and fire of Janurary 2004.

“The appreciating Australian dollar and higher depreciation and depletion charges impacted negatively on profits,” said managing director John Ellice-Flint.

The currency appreciation strongly affected sales revenues, which were down by 7% to $1215 million, reflecting lower Australian dollar liquids prices caused by the appreciation of the Australian dollar against the US dollar.

“The realised oil price in Australian dollars was down by 9.7% to $A83.27 per barrel, although the price in US dollars was down by only 0.4% to $US68.19 for the period,” Santos said.

“The average realised gas price of $3.84 per gigajoule was 2.2% higher than in 2006. Realised Australian domestic gas prices increased by 7%, although this was offset by lower realised international gas sales revenue in Australian dollars.”

EBITDAX also decreased, falling by 4% to $964 million.

Production costs per barrel increased by 8% to $7.01 per barrel of oil equivalent. Santos said this was mainly due to production constraints at the Maleo gas field in Indonesia and the deferral of some Cooper Basin oil production.

Operating cashflow decreased by 16% to $538 million reflecting the Moomba payout and higher tax payments of $91 million, which were partly offset by favourable working capital movements of $107 million.

Ellice-Flint said looking forward, Santos would focus on moving into higher margin products and monetising its large contingent resource base.

“LNG will play an increasingly important role as a higher value market for our gas,” he said.

The company is a partner in Darwin LNG and in a study program for a proposed ExxonMobil-operated PNG Highlands LNG project. It also recently announced it was aiming to develop an LNG export facility based on coal seam methane in Gladstone, Queensland.

“Not only does this project give us the ability to commercialise large quantities of contingent coal seam gas resources, it also targets these resources towards a rapidly growing, high value and deep international market,” Ellice-Flint said.

“Significant progress has been made on the PNG LNG project since we kicked off the pre-front-end engineering and design studies in April this year. The joint venture is aligned behind ExxonMobil and we are on track to move to a formal FEED process by the end of this year.”

Santos’ production guidance for 2007 and 2008 is unchanged. It has forecast production of between 59 and 61MMboe, underpinned by the exploitation of Cooper Basin oil and coal seam gas in eastern Queensland.

Beyond that, the company sees moderate organic growth into the next decade, followed by a step change as projects such as Dua and Blackbird in Vietnam, Reindeer in Western Australia, Henry and Kipper in Victoria, and Gladstone LNG, PNG LNG and Darwin LNG Train 2 come on line.

Santos’ interim dividend has been maintained at 20 cents per share, fully franked. The interim dividend will be paid on 2 October 2007 to registered shareholders as at 4 September 2007, with an ex-dividend date of 29 August 2007.