Santos Ltd., Australia's third- biggest oil and gas producer, cut its full-year production forecast by as much as 6.9 percent because of the shutdown of a gas plant and the sale of a stake in coal-seam gas fields.

Output is now expected to be between 54 million and 56 million barrels of oil equivalent, down from an earlier forecast of 56 million to 58 million barrels, Adelaide-based Santos said today in a statement to the stock exchange. Second-quarter sales rose 18 percent from a year earlier to A$749 million ($718 million) as gains in energy prices outweighed a production drop.

Santos and partner Apache Corp. shut down the John Brookes field off northwestern Australia June 3 after a pipeline blast at the U.S. company's Varanus Island plant where gas from the project is processed. In May Santos agreed to sell a 40 percent stake in a coal-seam gas venture in Queensland to Malaysia's Petroliam Nasional Bhd. for $2.51 billion.

``The downgraded production outlook shouldn't be a surprise to the market because it's due to two issues that had already been flagged,'' said Mark Greenwood, an oil and gas analyst at JPMorgan Chase & Co. in Sydney. Second-quarter sales were 5 percent below JPMorgan's estimate because they were weighted more heavily than expected toward gas, which fetches lower prices than oil.

Santos dropped as much as 88 cents, or 5 percent, to A$16.70 in Sydney trading, its lowest for more than two months. The stock was at $A16.83 at 2:24 p.m. local time.

Production dropped 11 percent in the three months ended June 30 from a year earlier to 13.9 million barrels of oil equivalent because of the John Brookes shutdown and work at wells at the Mutineer-Exeter field, also off Western Australia, which started in June, Santos said.

Varanus Blast

The blast at the Varanus Island plant, which cut gas supplies to Western Australia by 30 percent, shut in production of 1.2 million barrels of oil equivalent at John Brookes.

The gas shortage also cut quarterly output at Newcrest Mining Ltd., Australia's largest gold mining company. Fourth- quarter bullion production fell 6.1 percent as the disruption in gas supplies cut output at Telfer, the company's biggest mine, Melbourne-based Newcrest said today.

Santos got an average price for its gas of A$4.01 a gigajoule in the second quarter, 4 percent higher than in the year-earlier period, while the average realized oil price was A$132.69 a barrel, up 56 percent, the company said.

First-half sales advanced 14 percent to A$1.384 billion, on production that slid 8 percent to 27.6 million barrels of oil equivalent.

Santos boosted its forecast for oil and gas royalties payable in 2008 to A$140 million to A$160 million, from an earlier guidance of A$100 million to A$110 million, because of higher-than-expected crude-oil prices.