The Adelaide-based major attributed the lower net profit after tax result to increased depreciation, depletion and amortisation (DD&A) expenses - as a result of higher future development costs.

In addition, costs associated with the Moonie-to-Brisbane pipeline incident ($26 million), an $8 million loss on embedded derivatives in sales contracts and a small increase in provisioning for the Sidoajo mudflow incident ($8 million) had an impact, the company said in its full-year report.

On a brighter note, Santos said 2007 production of 59.1 million barrels of oil equivalent and $2.5 billion in sales revenue were in line with earlier forecasts.

"Santos' operating performance in 2007 was sound, although the lower profit reflects industry cost pressures, which are impacting on operating expenses and expected future development costs," managing director John Ellice-Flint said.

"Historically, Santos' focus has been on the domestic Australian market, where we are the largest gas producer. Looking forward, our strategy will leverage our portfolio to the much higher prices and volumes available for our resources in Asia."

For the fourth successive year, the company also increase its year-end reserves position.

Proven (1P) reserves increased to 485MMboe, representing a 175% increase on the previous year, while proven and probable (2P) reserves lifted 178% to 879MMboe.

Contingent resources increased by 15% to more than 2.6 billion boe or over 14.5 trillion cubic feet.

Santos expects its production in 2008 is expected to be slightly lower than the 2007 result at 56-58MMboe.

"Beyond that, the company anticipates a return to growth in 2009 followed by further increases in production in 2010 and beyond as CSM production ramps up and new projects such as Henry, Kipper, Chim-Sao (formerly Blackbird) and Reindeer start up," it said.

"Looking forward to 2013-14, Santos anticipates a step change in production as the Gladstone LNG, PNG LNG and potentially Darwin expansion project come online."