Key points

• Strong refiner margins partly offset cost of delays to now-completed Clean Fuels Project
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• Total transport fuel sales volumes maintained and non-fuel income up in an increasingly challenging operating environment
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• Capital expenditure was $200 million in 1H06 compared with profit of $174.7
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• Dividend payout ratio lifted to 50% of 1H06 replacement cost profit - $86 million
  or 32 cents per share (1H05: 15 cents per share)
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• Caltex's profit equal to 1.8 cents per litre on average for all petroleum products

Results summary	Half year ended 30 June
2006	2005*
Replacement cost of sales operating profit (RCOP)¹ result (excluding individually material tax item in 2005):	$M	$M
- after tax	174.7	155.2*
- before interest and tax	270.0	226.4
Historical cost result
(net profit after tax, including inventory gains and excluding individually material tax item in 2005)	276.7	237.4

*The first half result for 2005 has been adjusted to reflect the Australian equivalents of International Finance Reporting Standards (A-IFRS) transition consistent with the 2005 full year financial report accounting policies.

Caltex Australia Limited announced today an after tax profit of $174.7 million on a replacement cost of sales operating profit (RCOP) basis for the first half of 2006 compared with the first half of 2005 profit of $155.2 million excluding individually material tax item.

The profit equated to approximately 1.8 cents per litre on average for all petroleum products sold. (Same period 2005: 1.7 cents per litre.)

The profit of $174.7 million was made on total sales (including refinery sales and all petroleum products) in the first half of 2006 of $11.1 billion including GST. Total excise and GST on these sales was $3.4 billion.

Caltex Managing Director Des King said the profit had been achieved as a result of strong refining margins which were partly offset by the impact of the delay in the now-completed Clean Fuels Project. Caltex's marketing business performance was maintained with stable total transport fuels sales and margins in a challenging operating environment, and higher non-fuel income. Refining and marketing improvement programs continued to deliver benefits.

"The weighted average Singapore refiner margin (WAM) was US$9.60 a barrel in the first half of 2006² (same period 2005: US$6.48 a barrel)," Mr King said. "The WAM early in 2006 was held down by negative petrol refiner margins but in the second quarter increased to its highest level in over 15 years. These margins were driven by strong demand and tight supply.

"The prices of petroleum products increased substantially in first half of 2006 compared with first half 2005 mainly as a result of the large increase in crude oil prices which increased Singapore product prices. Caltex's submission to the current Senate petrol pricing inquiry shows clearly that increased petrol prices are the result of higher international prices and the same is true of other products.

"The average price of all petroleum products sold by Caltex (including GST) increased 24.4 cents per litre in the first half of 2006 compared with the same period in the previous year. Of this increase, 21.5 cents per litre (cpl) was oil prices and costs, and 2.8 cents per litre was higher taxes (including GST). Caltex profit (RCOP basis) of 1.8 cpl was up 0.1 cpl. Caltex has no crude oil production interests.

"Caltex refining utilisation and transport fuel production during the period were in line with the first half of 2005. This was due to the operational impact on the refineries of major planned shutdowns in the first half of 2005 and Clean Fuels Project delays in 2006. The delays in completing the Clean Fuels Project resulted in lower refinery production, rescheduling of major maintenance projects, increased imports of 2006-standard products and exports of non-2006-standard products. This had an estimated impact on RCOP profit after tax in the first six months of 2006 of $80-100 million.

"In the marketing business, diesel demand has remained strong with sales up 2.4% driven by economic activity. Caltex petrol sales volume fell by just under 1% compared with the first half of 2005. Petrol sales for the first half included lower sales of premium petrol, which were 9.6% lower than in the first half of 2005.

"Non-fuel income increased 12% driven by further growth in convenience store sales and StarCard. Caltex continued to strengthen its position as Australia's leading convenience store retailer. The Caltex Woolworths venture is providing benefits from improved buying arrangements for goods sold in our convenience store network, with further benefits in the dry goods supply chain expected from the roll out of a new centralised logistics system in the second half of 2006."

Dividend

Caltex Chairman Dick Warburton said the Board had declared a dividend of $86 million or 32 cents per share. This equals a payout ratio of 50% of 1H06 replacement cost profit, consistent with Caltex's commitment to increase the payout ratio to a range of 40-60% of RCOP from 2006 onwards.

Total shareholder return (share price increase and dividend) was 23%.

Capital expenditure

Capital expenditure in first half 2006 was $200 million compared with profit of $174.7 million. Mr King said profits must be sufficient to pay for high ongoing capital expenditure for refinery upgrades and maintenance and service stations and terminals. "To put recent higher profits in historical context, from 1996 to first half 2006, Caltex capital expenditure totalled about $1,790 million, about $80 million more than total profit over the period (RCOP basis)," he said.

"The $500 million clean fuels upgrade has now been completed at both refineries. Benefits have been delivered from the Refining Performance Improvement Program (RPIP) with a number of small projects now completed, as well as the first major project, a $4 million bitumen tank, now completed and in service. Other projects are progressing well and we are on track to deliver at least $150 million EBIT on an annualised basis following the completion of the program at the end of 2008.

"To continue to ensure secure and reliable supply of fuels to customers, Caltex is undertaking a program of upgrade and expansion projects at a number of fuel storage and distribution facilities around Australia. Projects representing an investment of over $11 million were completed in the first six months of 2006 at terminals in Melbourne and central and northern Queensland with planning and design work under way on a number of further projects which, together with those already completed, will require an investment estimated to be in excess of $60 million.

Biofuels

"During the first half of 2006, progress was made in establishing reliable supplies of ethanol and biodiesel, building infrastructure and developing marketing plans for biofuels. Caltex currently sells E10 Unleaded (a 10 percent ethanol/petrol blend) at 41 sites in NSW and Queensland. Caltex will significantly expand the supply of biofuels to the market in the second half of 2006 and is committed to its targets under the Australian Government's industry action plan. Currently, E10 Unleaded is being sold at company operated sites at a 3 cents per litre discount to regular unleaded petrol and a 3 cents per litre discount is also provided at the wholesale level.

Looking ahead

"Refiner margins are expected to remain robust for the remainder of 2006 as global and regional supply remains tight. Caltex refinery production should be higher in the second half of 2006 with no major maintenance shutdowns planned. Fuel refinery utilisation has been strong over the last six weeks averaging in excess of 85%, the highest sustainable level we have seen this year.

"We have commenced work on further developing a long-term vision for Caltex. A project team is examining opportunities to expand refining operations to process a broader range of crude oils, meet the strong increase in the demand for diesel with an increase in production capacity, and increase the use of biofuels. The project team will work over the next 12 to 18 months to develop the strategy to position Caltex even better for the future."

Historical cost profit

On a historical cost profit basis (including inventory gains), Caltex recorded after tax profit of $276.7 million for the first half of 2006 compared to $237.4 million for the first half of 2005. This includes crude oil inventory gains of approximately $102.0 million after tax compared to inventory gains of $82.2 million after tax for the first half of 2005 resulting from the rise in the price of crude oil.

Other

The Australian Taxation Office has served a statutory demand on Caltex to pay an amount of $48.7 million in excise duty which would be tax deductible to Caltex. The ATO has formed the view that the excise duty should be paid in relation to certain liquid fuel by-products used in the refining process and that Caltex should have paid the excise duty on such fuel usage over the past four years. Caltex is of the strong view that the excise duty legislation does not apply to the refineries' own use of such fuels in the refining process and has instituted legal proceedings in the Federal Court against the ATO in this regard. No liability has been recognised as at 30 June 2006 as Caltex is of the view that this legislation is not applicable to this type of fuel usage. Due to a change in the excise legislation any future purported excise duty on this type of fuel usage ceased from 1 July 2006.

Debt at 30 June 2006 was $721 million reflecting the higher cost of crude oil, costs associated with the completion of the clean fuels upgrades and the higher cost of imports and exports. At the end of June, the company also carried higher than normal inventories as a result of a planned maintenance shutdown at Kurnell. It is expected that debt will fall toward target levels by year end.

Media contact
Richard Beattie
Group Manager Corporate Affairs
Phone 02 9250 5224
Pager 02 9214 1146

Analyst contact
Frank Boys
Manager Investor Relations
Phone 02 9250 5166
Email frboys@caltex.com.au



¹The replacement cost of sales operating profit (RCOP) excludes the impact of the rise or fall in oil prices (a key external factor) and presents a clearer picture of the company's underlying business performance. It is calculated by restating the cost of sales using the replacement cost of goods sold rather than the historical cost, including the effect of contract-based revenue lags.

²The Singapore refiners' margin represents the difference between the selling price of a standard Caltex basket of products and the cost of the crude oil required to make that product basket. Due to the delays in completing refinery upgrades, Caltex was unable to fully realise the available refiner margin in the first half of 2006. The margin includes 50 parts per million sulfur diesel prices for 2006, and 500ppm sulfur diesel prices in the first half of 2005.