Adds Santos comments in paragraph 4 and 14, context in paragraph 5, Santos CEO comments in paragraphs 6-7, 11

By Scott Murdoch

Aug 25 (Reuters) - Australian gas producer Santos STO.AX on Monday agreed to further extend the exclusivity period for an $18.7 billion takeover bid from a group led by Abu Dhabi National Oil Co (ADNOC), and reported a better-than-feared 22% drop in first-half profit.

Its shares rose 1% after the company extended the due diligence period to September 19 to give the consortium led by ADNOC's investment arm XRG more time to finalise a binding offer.

The consortium last week flagged it would need extra time on top of its due diligence period to seek internal approvals for a bid.

Santos said "customary protections" would be included in any negotiations to protect the company's investors if the deal is further dragged out once an agreement is signed.

It declined to give any details on those inclusions. Large corporate buyouts typically involve break fees or "ticking fees" where the buyer may have to stump up more if there are delays.

"We're pleased with the progress we've made. We've worked well with the folks from XRG over the last few weeks," Santos Chief Executive Kevin Gallagher told analysts on a conference call.

"Given that the consortium has again confirmed that it's found nothing in due diligence that would make it consider withdrawing its offer, we've agreed to extend the process deed."

Analysts said the shares would likely be supported on Monday by confirmation the deal was still progressing despite the delays.

The deadline for the exclusive talks between Santos and the consortium expired last Friday. Santos can engage with a bidder if a higher offer is made, but is prevented from talks with any parties who match the XRG offer.

The proposed offer requires approval from regulators in Australia, Papua New Guinea, and the U.S. given Santos holds assets in each of those jurisdictions.

Gallagher said Santos could not predict when regulatory approval would be finalised or when the company's shareholders could be asked to vote on the deal.

Santos reported its first-half underlying earnings fell to $508 million from $654 million a year earlier, hurt by weaker realised prices for its liquefied natural gas $(LNG)$ and oil. The result was 3% above Visible Alpha forecast consensus.

While its shares rose to A$7.81 per share on Monday, they remain more than a dollar below the consortium's proposed offer of A$8.89 apiece. The gain outpaced a 0.1% rise in the broader S&P/ASX200 .AXJO index.

Santos said oil production from its Pikka project in Alaska is now expected to begin in the first quarter of 2026, brought forward from the first half of that year.

(Reporting by John Biju in Bengaluru and Scott Murdoch in Sydney; Editing by Christian Schmollinger and Sonali Paul)

((John.Biju@thomsonreuters.com;))