Oil Search: June 2015 update

Established in Papua New Guinea (PNG) in 1929, Oil Search Ltd currently operates all PNG’s producing oilfields with 95% its assets in PNG. The company has 29% interest in 6.9 million tpy PNG LNG Project, operated by ExxonMobil. The project exported its first LNG cargoes in May 2014. The project has transformed Oil Search into a regionally significant oil and gas producer with a comprehensive exploration and appraisal programme to underpin LNG expansion in PNG. Oil Search also has exploration interests in Middle East and North Africa.

The Oil Search update in summary

Oil Search’s PNG LNG project shows that the company is performing above expectations since it has been delivered ahead of schedule and within a revised budget. PNG is now well placed to significantly expand LNG exports over the next 5 – 7 years. Furthermore, there is now potential for Oil Search to more than double its production by around 2021. The fall in oil price has caused a lower oil price environment which presents an opportunity to recalibrate cost base, improve fiscal discipline, drive efficiencies and enhance portfolio. Oil Search will undertake top quartile projects to continue to progress. Consequently, Oil Search is seemingly in good shape to grow via the above changes, with a strong balance sheet and ample liquidity to pursue growth.

Adapting to the new oil price environment

The size and speed of the fall in oil price was unexpected. However, Oil Search is in a strong position to manage whilst also having profitable production. Proposed LNG growth projects are attractive due to the current long-term oil price assumptions. An industry capital cost deflation is now taking place, which presents an opportunity to recalibrate cost structure. Thus, strategic direction remains unchanged for Oil Search. The company is focused maintaining top quartile returns to shareholders, underpinned by delivery of at least two new LNG trains in PNG.

With a focus on production optimisation/debottlenecking, the PNG LNG project is performing ahead of expectations and has, therefore, delivered a strong platform for future growth. To date, the project is a major success story since it was not only delivered ahead of expectations but also within a revised budget of US$19 billion. This operational and financial completion was achieved in February 2015. The project has exported more than 7 million t of LNG and shipped approximately 100 LNG cargoes, so far. Both trains are now consistently operating at or above the nameplate capacity of 6.9 million pty.

Focus on commercialising PNG’s undeveloped gas

The key focus for Oil Search is commercialising PNG’s undeveloped gas potential. The PNG LNG project supports growth and can deliver at least two more LNG trains, underpinned by existing undeveloped resources in NW Highlands and Gulf areas, and possibly a third train with modest drilling success. The PNG LNG expansion and Elk/Antelope development are economically attractive since there are multiple exploration opportunities, which will potentially provide backfill gas or additional trains. The potential of additional trains is a common objective for industry, communities and government. Currently, Oil Search is well positioned to play key role in ensuring optimum development outcome for all stakeholders.

LNG expansion and power MoU signed

Operator of PNG LNG and PRL 3, ExxonMobil PNG Limited, and the PNG government have signed a MoU in January 2015. This has set a roadmap for development of P’nyang, to provide long-term gas resources which would support domestic power and potential expansion of the PNG LNG project. Furthermore, a power sale agreement with PNG Power was signed in April 2015, to supply 25 MW of power for local use and planning for an appraisal well underway.

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/18062015/oil-search-june-2015-update-on-png-lng-project/