The 2.2% rise in profit to $170 million is attributed to a 6.4% rise in sales revenue to $716.0 million before write-downs of non-current assets.

However, net profit after tax and write-downs declined 16.6% from $162.6 million to $135.6 million or 22.3 cents per share.

Cash flow from Santos' operating activities increased 35.6% to $421.7 million after interest and tax. Total savings in capital and operating expenditure reached $113 million, surpassing the $100 million target announced last February.

Total production costs fell by 4.1% to $131.0 million from $136.6 million in the 2002 first half. Production costs per barrel of oil equivalent (boe) fell from $4.93 to $4.89.

Santos' managing director, John Ellice-Flint said a highlight of the latest June half-year was the approval by the Timor Sea Designated Authority of the development plan for the US$1.5 billion Bayu-Undan LNG project in the Timor Sea in which Santos (10.6% interest) is the only Australian company involved. The LNG stage is due to be commissioned in 2006.

At the company's performance presentation this morning Ellice-Flint reported that good progress has been made on drilling the first of the project's 16 development wells.

Six wells have been drilled from the wellhead platform with four of them being successfully completed and tested, with excellent results.

Combined production of 730 million cubic feet a day is now considered possible from the four wells, more than the original design rate for the six wells, of 550 million cubic feet. The operator is now drilling the first well of a ten well program from the DPP location.

The initial project production rate is expected to be 200 million cubic feet of gas and twenty thousand barrels of liquids per day, ramping up to over a billion cubic feet of gas and 100 thousand barrels of liquids per day, by the fourth quarter of 2004.

Santos's share of production in 2004 is expected to be between 1 and 1.5 million barrels of oil equivalent.

Manufacture of the 500km pipeline has begun, with the first shipment scheduled for next month. Clearing and leveling of the Wickham Point site for the LNG Plant is also underway.

Santos, as operator of the Mutineer-Exeter joint venture participants, also announced today that it had short-listed two contractors for major development work on the Mutineer-Exeter oil field, discovered last year in the Carnarvon Basin, offshore Western Australia.

Preliminary analysis indicates that the Mutineer field will require approximately five production wells while the Exeter field will require two to three wells.

A final decision is expected within the next couple of months on the letting of the major contract for the floating, production, storage and offloading (FPSO) vessel for the Mutineer-Exeter field.

Santos will also embark on an extensive exploration campaign drilling 14 wildcat wells in the second half in the offshore Otway Basin, Indonesia's Kutei Basin and East Java.

Ellice-Flint also said that from here on in the key factor affecting the company's financial performance would be changes in oil prices and exchange rates.

"For the second half of the year, a US$1 movement either way in the oil price will affect Net Profit After Tax (NPAT) by A$6 million and a one cent change in the US dollar exchange rate will affect NPAT by A$3 million," he said.