UPDATE 1-Oil Search year profit down 32 pct on higher costs

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SYDNEY, Feb 19 (Reuters) - Australian-listed oil and gas producer Oil Search Ltd (OSH.AX: Quote, Profile, Research) reported a 32 percent decline in 2007 profit, its first fall in five years, due to higher exploration costs and tax rates.

The Papua New Guinea-based company said net profit before one-offs was $140.8 million, compared with $207.5 million a year earlier. Ten analysts had on average forecast Oil Search's net profit before one-offs to be $122.45 million, according to Reuters Estimates.

Oil Search, which is undergoing a strategic review of its business, forecast 2008 production to be between 9-9.5 million barrels of oil equivalent.

The firm said 2007 exploration costs jumped 92 percent from a year ago to $232.4 million, largely due to a relatively poor run for its drilling programme, which led to an expense of $163 million.

It plans to cut its 2008 exploration spending by between 35-40 percent from last year to $130-$140 million, focusing on activities in Papua New Guinea, Yemen and Libya.

Oil Search said a 16 percent rise in its average realised oil price to $77.78 per barrel drove its 2007 sales revenue to a record high of $719 million, offsetting the effects of a 4 percent drop in output. It produced 9.78 million barrels of oil equivalent in 2007.

Operating costs rose 17 percent on higher equipment expenses and a strong Australian dollar.

Oil Search, a partner in an Exxon Mobil (XOM.N: Quote, Profile, Research) proposed liquefied natural gas project in Papua New Guinea, said the 6.3 million tonnes a year LNG project would double its annual production to about 18 million boe.