Oil Search: PNG LNG Employs More Than 9,300 Workers (Papua New Guinea)

Oil Search announced results for the quarter ended 30 September 2011.

HIGHLIGHTS

• Execution of the PNG LNG Project, operated by Esso Highlands Limited, an affiliate of Exxon Mobil Corporation, continued during the third quarter of 2011. Milestones included the delivery of the last of the line pipe for the onshore pipeline and further construction progress on tanks, the process trains and the jetty at the LNG Plant site and at Komo and the Hides Gas Conditioning Plant in the Highlands. Mobilisation of the offshore pipeline contractor also commenced.

• Oil Search’s total oil and gas production for the third quarter of 2011 was 1.49 million barrels of oil equivalent (mmboe), 16% lower than second quarter production of 1.77 mmboe. The fall in output reflected a planned two week shutdown of the Central Processing Facility (CPF) and Agogo Processing Facility (APF) for the Associated Gas tie-in project, to enable oil field gas to be delivered to the LNG Project. Production has since returned to pre-shutdown levels, with output for the year expected to be towards the upper end of the forecast range of 6.2 – 6.7 mmboe.

• Total oil production for the quarter was 1.21 million barrels (mmbbls), with 1.21 mmbbls of oil sold during the quarter, at an average oil price of US$117.54 per barrel. The realised price was 4.7% below the second quarter of 2011 but 48.7% above the corresponding quarter of 2010. The Company remained unhedged during the period.

• Total operating revenue in the third quarter was US$160.2 million, 26.4% lower than 2011 second quarter revenue of US$217.8 million, primarily reflecting lower oil sales.

• Planning for one of the largest drilling programmes in the Company’s history, starting in the fourth quarter of 2011 and continuing through 2012 and into 2013, continued during the quarter.

• During the period, Hedinia 10, located in PDL 2, discovered oil in the Toro sandstone in a forelimb prospect which lies beneath the producing Hedinia oil field. Preparations are underway to complete the Hedinia 10 ST3 well as an oil producer, tied in to the existing PDL 2 surface facilities.

• At the end of September 2011, Oil Search held US$1.10 billion in cash, excluding joint venture balances, compared to US$1.22 billion at the end of June. US$1,518.2 million had been drawn down from the PNG LNG Project finance facility by the end of the period, while Oil Search‘s revolving oil facility, which had a balance of US$261.0 million at the end of September, remained undrawn.

• During the quarter, US$55.7 million was spent on exploration and evaluation activities, US$308.5 million on the PNG LNG Project and US$42.6 million on oil field development work.

Commenting on the quarter, Managing Director, Peter Botten, said:

PNG LNG Project

“The PNG LNG Project moved further into the construction phase during the quarter, with the delivery to PNG of the last of the 40,000 joints of line pipe for the 292 kilometre onshore pipeline and the start of mobilisation of the offshore pipeline contractor into the country. Continued progress was also made at the LNG Plant site near Port Moresby and in the Highlands.

The workforce continues to grow with more than 9,300 people now employed, of which some 6,600 are PNG citizens. In line with the Project’s commitments on national content, a significant component of Project spend was placed with local contractors and suppliers during the period and training of PNG nationals, in both construction skills and operation and maintenance, continued.

In August, Oil Search undertook a range of Associated Gas project works at the CPF. The existing oil field facilities need to be modified to gather associated gas produced from the oil field wells and to export this as feed gas to the LNG Plant. In addition, interface facilities are required to handle the supply of the associated gas as well as the condensate produced from the Hides Gas Conditioning Plant. The first phase of these modifications, which required a major facilities shutdown, was successfully completed with all the planned work executed within the allotted schedule. Preparations are now underway by Oil Search for the commencement of construction operations on and around the offshore terminal at Kumul, for the PL 2 Life Extension Project. This project is designed to extend the life of the offshore crude export facility, which will be utilised by the PNG LNG Project to export liquids produced by the Project, as well as for our existing crude exports.”

Production and revenue performance

“Production of oil and gas in the third quarter of 2011 was 1.49 mmboe. This was 16% lower than in the second quarter, reflecting the planned shutdown of the CPF and APF, as highlighted above. During the shutdown, the opportunity was taken to undertake essential repairs to the High Pressure (HP) compressor at Agogo. Apart from the shutdown, underlying field performance during the period was in line with expectations and production rates have now returned to pre-shutdown levels. Based on performance to date, we expect production for the full year to be towards the upper end of the 6.2 – 6.7 mmboe guidance range.

Total operating revenue for the quarter was US$160.2 million, compared to second quarter revenues of US$217.8 million. Oil sales volumes were 25% lower than the previous quarter at 1.21 mmbbls, while the realised oil price was US$117.54 per barrel, compared to US$123.28 per barrel in the second quarter. Total operating revenue for the first three quarters of 2011 was US$531.3 million, 26.9% ahead of the corresponding period in 2010.”

Gas expansion and exploration activities

“During the quarter, good progress was made on planning for the upcoming multi-well drilling programme in the Highlands. Activities included commencing well pad construction and infrastructure development for the P’nyang appraisal well and preparation for the PRL 11 Trapia exploration well (formerly Huria). It is planned that Oil Search will drill both these wells on behalf of the operator, ExxonMobil. Further seismic activities are being planned for both the PRL 11 and PDL 8 areas, as well as the completion of the 2D seismic programme over P’nyang, with the three final lines scheduled to be acquired in the fourth quarter of 2011.

Subsurface modelling of the oil fields continued during the period, to assess the gas upside potential in the associated gas fields. Oil Search’s objective is to gain alignment within the PNG LNG co-venturers on gas reserves upside in the first half of 2012.

Advances were also made in the Gulf Area. The offshore and onshore seismic acquisition programmes are now complete and interpretation is underway. The seismic is high quality and confirms our view that there are several different play types in the Gulf. The initial results are encouraging, particularly over the currently identified prospects. Initial discussions were held with a number of international companies with LNG expertise, with a view to a potential farm down of our large Gulf interests to a strategic partner in due course. These discussions are expected to continue in parallel with the seismic interpretation. We expect to have completed an initial assessment of the area’s prospectivity by the end of 2011, with drilling targeted to commence in 2012.”

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Source: Oil Search, October 25, 2011