Oil Search Limited (Oil Search) has reported total operating revenue of $71.4 million for the first quarter of 2009, compared with the total operating revenue of $172.5 million in the year-ago quarter. It also reported a net cash of $481.1 million for the first quarter of 2009, compared with the net cash of $354.7 million in the year-ago quarter.
Commenting on the first quarter of 2009, managing director, Peter Botten, said:
“The first quarter of 2009 was challenging, with oil prices remaining depressed and some minor operational issues to deal with. Conditions improved towards the end of the period, with a good recovery in oil prices seen in late March/April, which, together with continued good field performance in PNG, point to a better second quarter performance. While underlying production from the PNG oil fields, particularly Kutubu, was strong, output was impacted during the quarter by an unscheduled shut-down of the Kumul loading terminal.
This reduced production, net to Oil Search, by about 240,000 barrels, most of which we expect to be recaptured later in the year. In addition, due to the timing of shipments, with a cargo completing loading in early April, oil sales were 0.47 million barrels lower than oil available for sale. Combined with a lower realized oil price, this resulted in a drop in oil sales revenue for the period. On a more positive note, the company benefited from a full quarter of revenue from both of the two new drilling rigs operating in PNG.”
“With a strong focus on cash conservation during the period, the company ended the quarter with a cash balance of $481 million, despite reduced revenues.”
Progress on the PNG LNG project
“While recent world events have impacted customers’ near term supply positions, resulting in a more cautious approach from the buyers, the offtake fundamentals for the 2013/2014 timeframe remain robust. With PNG LNG increasingly seen as a credible supply project for this time window, the project marketing team made considerable progress in the quarter. This culminated in April in the PNG LNG project reaching agreement on key terms for a Heads of Agreement with a major Asian customer for the sale of two million tonnes per annum (mmtpa) of LNG.
The agreement is awaiting final Government approval. In addition, significant progress has been made with other customers and it is expected that additional HOAs will be secured in the near term. This has given the project increased confidence that the full 6.3 mmtpa capacity will be contracted by mid-year.”
In late January 2009, more than 70 members of the international lending community, including key export credit agencies, rating agencies and key advisors and lender consultants visited PNG. The visit itinerary included project briefings, Ministerial briefings and visits to the key project sites near Port Moresby and in the Southern Highlands. The size and composition of this delegation confirmed the interest major lending institutions have in potential participation in providing financing for PNG LNG.
The delegation left with a very positive impression of PNG and in particular the commitment of the government to the successful delivery of the project. Negotiations with lenders and due diligence by their consultants has remained on schedule throughout the quarter.
The government also made significant progress on policy decisions relating to the benefits sharing agreement. A development forum between the government and all affected landowners is scheduled to commence in the last week of April 2009 in Kokopo. This will involve over 500 people, including all landowner leaders. A key milestone was reached in January 2009 with the submission of the project’s Environmental Impact Study (EIS) to the PNG Department of environment and conservation. More than six thousand pages long, the EIS sets out the potential environmental and social impacts of the project together with the planned management and mitigation measures that will be adopted by the project participants.
Front end engineering design (FEED) continued during the quarter on both the upstream and downstream components of the project. Preparatory work for early works activities also took place, with evaluation of bids for the early works construction activities completed during the quarter.”
Completion of PNG Government/IPIC transaction
“In March, the agreement announced in November 2008 between the PNG Government and International Petroleum Investment Company (IPIC), an investment company wholly owned by the Abu Dhabi Government, was competed. Under this transaction, IPIC has acquired exchangeable bonds over the PNG Government’s 17.6% shareholding in Oil Search for a principal amount of AUD1.68 billion (equivalent to AUD8.55 per share). This sum was deposited in an escrowed Government bank account with the funds to be used exclusively for the purposes of acquiring the PNG Government’s equity and funding its contribution to the capital expenditure of the PNG LNG project.
Upon conversion of the bond, IPIC will acquire PNG’s entire 17.6% equity stake in Oil Search, becoming the company’s largest shareholder.
Based on recent meetings with IPIC, IPIC has confirmed its support of Oil Search’s goals to develop the PNG LNG project and commercialize its remaining gas. We believe that having IPIC as a stable, financially capable and strategic long term shareholder will be beneficial for both the company and for all shareholders.”
ISO 14001 certification, excellent safety performance achieved:
“In addition to the submission of the environmental impact statement (EIS) for the PNG LNG project, another environmental milestone was achieved in the first quarter of 2009, with the receipt by Oil Search of ISO 14001 certification for its PNG operations. The certification audit of compliance with the international standard for environmental management systems was conducted by NATA certification systems international (NCSI) of Australia.”
“Significant work has taken place over the past few years to develop and fine tune the company’s environment management system to be compliant with ISO 14001. The formal certification is a vote of confidence in the environmental management programmes and practices of Oil Search in its operations in PNG.”
“The company’s environmental management programmes are part of an integrated health, safety, environment and security (HSES) system. As well as the ISO 14001 certification, excellent results were achieved in safety performance in 2008. The total recordable injury frequency rate (TRIFR) for 2008 was 2.04 per million hours worked.
This compares very favorably to the recently released 2008 APPEA peer group TRIFR of 6.78 and places Oil Search in the top quartile globally for safety metrics. These results provide a strong endorsement of the company’s systems. Nonetheless, Oil Search is committed to continuing to develop and mature its policies, management systems, controls and procedures to ensure it achieves its goals, which are Incident Free Operations and no lasting harm to the environment.”
Factors affecting the first half of 2009
“Based on current shipping schedules, Oil Search expects to be about 350,000 barrels underlifted at 30 June 2009. As Oil Search books revenues only after production is lifted, this would reduce reported revenues for the first half of 2009 by about $17.5 million (based on a realised oil price of $50 per barrel). We anticipate that the underlift will be unwound in the second half of the year, with production and sales largely in balance at the end of 2009. Production guidance for 2009 full year remains unchanged, at between 8 – 8.3 mmboe.”
2009 first quarter production was 1.903 million barrels of oil equivalent net to Oil Search, produced at an average rate of 20,685 barrels of oil equivalent per day. Production was impacted by a short shut down of the central processing facility and the Agogo processing facility in order to allow repairs to the Kumul loading terminal.