The company said that the forecast capital expenditure going forward from April has been reduced from $400 – $500m to between $200m and $300m
In light of the recent material decline in oil prices and global circumstances, Oil Search has undertaken a comprehensive review of its planned activities in 2020. The objective of the review has been to minimise forward expenditure and maximise liquidity, while protecting the Company’s base value and preserving the option to deliver our world class growth projects when market conditions improve.
Apart from work programmes required to ensure ongoing reliable and safe operations, all discretionary activities within the Company’s control that have not yet commenced are being suspended or deferred. Where possible, some projects that have commenced have also been suspended safely. This action will result in a material reduction in investment expenditure in 2020, from US$710 – 845 million as previously disclosed, to US$440 – 530 million. Forecast capital expenditure going forward from April has been reduced from US$400 – 500 million to between US$200 million and US$300 million.
Oil Search has also commenced a systematic review of all operating and corporate overhead costs, aimed at delivering a sustainable, material reduction in these costs without compromising the ongoing and safe production of oil, condensate and gas in PNG. Deferrals of non-essential capital projects will flow through to material reductions in direct support and operating costs. Analysis and implementation of the flow-on impact on operating costs is currently underway and revised guidance on operating costs will be provided once the associated restructuring costs have been fully quantified.
In addition to managing for the low oil price environment, Oil Search has prepared comprehensive business continuity plans and is well advanced in its preparations to adjust its work practices and exposures, to reduce the risk of disruption to reliable and safe operations from COVID-19.
Dr Keiran Wulff, Oil Search’s Managing Director said:
“The recent dramatic fall in oil prices to below US$40/bbl, due to the impact of COVID-19 on oil demand, combined with concerns about a material increase in oil production following the recent failed OPEC+ meeting on further production cuts, has led to a major drop in oil and gas company share prices. It is unclear how long these events and the consequent oil price and share market volatility will last.
While Oil Search is fortunate to have world class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty.
We have consequently implemented a halt in all discretionary spend, which will reduce capital expenditure significantly in 2020. While it is premature to forecast budgets for 2021, if lower oil prices persist, Oil Search will focus on protecting the value of our core assets and limiting any other activities. We are also well advanced in preparations to rapidly reduce our operating and corporate costs, for immediate implementation.
Since early in the year, the Company has been evaluating the potential impact of COVID-19 across our business. We have established a multi-location, cross-functional COVID-19 Task Force which has prepared business continuity and emergency response plans to manage the impact of COVID19 on our workforce, operations and workplace environments. This has included identifying business critical personnel and projects and having layered plans for implementation.
We have recently been made aware of an individual in PNG who has developed flu-like symptoms after returning from field break. This individual works for a landowner company that currently supplies services to one of our camps. In accordance with World Health Organisation advice and the Company’s protocols, the individual and his close contacts have been isolated and the relevant authorities notified. The individuals will remain in quarantine until they are fully recovered and cleared to return to work. The plans that the Company has made to minimise the impacts of Coronavirus on
the Company’s activities are now being implemented. The health and safety of our employees and contractor community remains our highest priority.
The early systematic preparation for managing the impact of COVID-19 on our business and the measures we are now implementing to minimise capital spend, operating costs and corporate expenses, will assist the Company with the financial flexibility to ride through a potentially extended period of global disruption and enhance Oil Search’s resilience in a lower oil price environment.
We are confident that these measures, combined with our balance sheet structure and liquidity, will position the Company for success despite the challenges currently facing the global energy industry.”
Source: Company Press Release