Oil Search Ltd (ASX: OSH) is a low-cost oil and LNG producer and a largest oil player of Papua New Guinea (PNG) having 29% interest in the PNG LNG Project of ExxonMobil PNG Limited. It deals in exploration, development and production of oil and gas resources. To balance its gas dominated portfolio, the group has acquired the oil interests in the Alaska North Slope in the USA.
Oil Search Ltd today announced its first quarter report for the period ending 31st March 2019. Marking a prominent step towards the development of the Papua LNG Project, a Gas Agreement was signed between the PNG Government and the PRL 15 Joint Venture in early April. It has allowed Front-End Engineering and Design (FEED) phase of the integrated downstream three-train development to commence including engineering contracting and contractor selection.
Post the completion of the Papua LNG Gas Agreement; the focus has now turned towards finalising the P’nyang Gas Agreement that is targeted to be done in the second quarter of 2019. The PNG LNG, Papua LNG and P’nyang Joint Ventures are now planning for a Final Investment Decision in 2020, which would put the proposed three-train development on track to begin deliveries of LNG in 2024.
Oil Search produced 7.25 million barrels of oil equivalent (mmboe) during the first quarter of 2019 that reflects a strong performance by the PNG LNG Project. The company produced at an average annualised rate of 8.8 MTPA in the quarter, almost 30% above nameplate capacity.
The company’s total revenue for the quarter was reported at US$398.1 million i.e. 21% below the fourth quarter of 2018, primarily due to the timing of LNG shipments and lower average realised oil and condensate prices.
A mid-term LNG sale and purchase agreement (SPA) was signed between the PNG LNG Project and Unipec Singapore Pte Ltd (Unipec) in early April as a commitment to supply approximately 0.45 MTPA of LNG for four years, beginning from April 2019. This took the total Project volumes under contract to 7.9 MTPA.
To complete the Landowner Benefits Identification (LOBID) programme for PDLs 1 and 7, the PNG Government and the PNG LNG Project partners, led by ExxonMobil, worked together during the quarter. This worked in favour of removal of landowner injunctions and the LOBID process for all outstanding licence areas are expected to be resolved shortly. The oil field optimisation programme also ramped up during the quarter with Oil Search focussing on in-field work-over and drilling campaign.
In the North West Highlands, a significant gas discovery has been made at Muruk 2 as the initial testing of the Toro reservoir confirmed the presence of gas with a similar composition tested at Muruk 1, indicating communication between the wells. Post completion of flow testing, an extended shut-in period has started to monitor pressure build-up which will help in regulating potential gas resource volumes within the field.
In February, Niu Power Ltd, an organisation of Oil Search and Kumul Petroleum completed the construction of a 58 MW gasfired power station that is located adjacent to the PNG LNG plant site and will contribute 100% of the gas supply. The sale of electricity to the Port Moresby grid and the commercial operations are expected to begin shortly after successful completion of commissioning activities in early April.
Despite the harsh Arctic environment and short winter drilling season in Alaska, the Oil Search’s inaugural appraisal drilling campaign was completed safely and efficiently. This was one of the significant achievement by the new Alaskan team as the campaign not only met but exceeded the planned expectations for subsurface data gathering, safety, environmental management, planning and drilling. Oil Search expects a material upgrade in its contingent resource estimates later this year and plans to move into the FEED phase of the Pikka Unit development in late 2019.
Oil Search ended its 2019 first quarter with liquidity of US$1.46 billion, including US$789.5 million in cash and US$671 million in undrawn corporate credit facilities. The company spent US$85.1 million on evaluation and exploration activities during the quarter.
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