Oil Search: PNG LNG Project 90 Pct Complete

Oil Search of Papua New Guinea announced its results for the quarter ended 30 June 2013.

Highlights:

• At the end of the second quarter of 2013, the PNG LNG Project was nearly 90% complete and the Project remains on track for first LNG sales in 2014.
• PRL 3 JV studies for the potential development of the P’nyang gas field were ongoing during the quarter, with engineering scoping work continuing.
• Production in the second quarter of 2013 was 1.63 million barrels of oil equivalent (mmboe), 4.2% higher than first quarter production of 1.56 mmboe. This took total production for the 2013 first half to 3.19 mmboe (3.26 mmboe in the first half of 2012).
• 1.64 million barrels of oil were sold during the period, which helped drive total operating revenue for the quarter to US$204.9 million (US$176.0 million in the first quarter). The average realised oil price was US$104.58 per barrel. Total operating revenue in the first half of 2013 was US$381.0 million.
• The Company’s exploration drilling programme during the quarter was very successful, with one gas and two oil discoveries. Onshore PNG, oil was found at Mananda 6, while gas was discovered offshore at Flinders 1, the first well in Oil Search’s new Gulf of Papua programme. The Taza 1 well in Kurdistan flowed oil at rates of over 1,100 barrels of oil per day from a zone including the Euphrates Formation.
• Oil Search had a cash balance of US$292.1 million at the end of June 2013. US$3,307.9 million has been drawn down from the PNG LNG project finance facility, while the Company’s US$500 million corporate facility remained undrawn.

Commenting on key 2013 second quarter activities, Managing Director, Peter Botten, said: “The highlight of the 2013 second quarter was a series of successful exploration wells, each of which, subject to successful appraisal/development, has the potential to add materially to our production base.

“In the PNG Highlands, oil was discovered in both the Toro and Digimu sandstones at the Mananda 6 well. Preparations are now underway to apply to the PNG Government for an oil field development licence in August this year. The conceptual development plan is to tie back both the existing oil field at Mananda 5 and the new Mananda 6 oil discovery to the South East

“Mananda facilities and process the oil through the Agogo Processing Facility. A development team is being formed to optimise the recoveries of oil from the several low relief fields that have now been discovered on the Mananda Ridge. The potential oil in place on this feature could be as high as 100 million barrels.

“Oil Search’s new exploration campaign offshore PNG in the Gulf of Papua, where no drilling has taken place in over a decade, has been very encouraging. During the quarter, a gas column was discovered within a thick sand with good reservoir properties at the first well, Flinders. At Hagana, the second well in the programme, a similarly thick, good quality sand, albeit water wet, was found within the primary upper objective while preliminary interpretation of logs recently acquired in the deeper secondary objective indicates this zone is gas-bearing. These results are highly significant, as the wells have not only proven the existence of the turbidite sand play at two different stratigraphic levels but also the potential for gas charge and retention, opening up a new play fairway in this area of the Gulf basin. Although the volumes at Flinders and Hagana are likely to be relatively modest, the Company has been sufficiently encouraged to take up a further well option and will drill the Kidukidu prospect once Hagana 1 is completed. These drilling results will allow the high quality 3D seismic surveys to be calibrated with hard data, assisting the prediction of the distribution of potentially gas saturated sandstone reservoirs in this area of the Gulf of Papua.

“During the quarter, a zone including the Euphrates Formation at the Taza well in Kurdistan was tested and flowed oil at good rates. Planning is now well underway for a comprehensive appraisal programme, comprising between two and four wells, scheduled to commence in the fourth quarter of 2013. The appraisal programme will help to define the Taza gross recoverable resource potential, which is currently estimated at between 250 and 500 million barrels of oil, and to establish an appropriate development plan.

“The PNG LNG Project continued to make good progress under operator Esso Highlands Limited. The PNG LNG plant site is steadily moving from the construction phase through to commissioning. Train 1 and the common process areas are being prepared for the introduction of commissioning gas and construction continues at Train 2. The LNG storage tanks have been pneumatically tested and remaining work on insulation is advancing. The Komo airfield became operational in May and the movement of heavy and sensitive equipment has commenced. With cargo deliveries ahead of schedule, construction of the Hides Gas Conditioning Plant is progressing well. Upstream, the first production well, B1, was drilled to total depth during the quarter and drilling is currently underway on the next two production wells, B2 and C2.

“Engineering scoping studies on the P’nyang gas field in PRL 3, focused on the potential use of the gas to help underpin an expansion of the PNG LNG Project, are continuing. During the quarter, additional seismic was acquired on both the P’nyang gas field (PRL 3) and Juha North gas field (PDL 9), with the data to be used to gain a better understanding of the Highlands gas resource potential and assist in potential development planning. Meanwhile, studies also continue on other Highlands exploration opportunities in close proximity to the PNG LNG Project area.

“During the quarter, ExxonMobil entered into exclusive negotiations with InterOil and Pacific LNG Group, regarding the development of PRL 15 in the PNG Gulf Province, which contains the Elk and Antelope gas fields. The discussions are focused on InterOil and Pacific LNG selling ExxonMobil sufficient gas to develop an additional LNG train at the PNG LNG Project site. We are watching the progress of these negotiations with interest, as should this gas be brought into the PNG LNG Project, it is likely that Oil Search will have an opportunity to participate in this expansion.”