Oil Search: PNG LNG Project Makes Good Progress (Papua New Guinea)

Oil Search announced results for the six months ended 30 June 2011.

Highlights

– Oil Search reports that profit after tax for the six months to 30 June 2011 was US$114.5 million, compared to US$52.9 million in the corresponding period of 2010. The 117% increase in net profit was primarily driven by a 53% increase in realised oil prices.

– During the first half of the year, good progress was made on the execution of the PNG LNG Project, operated by Esso Highlands Limited, an affiliate of ExxonMobil Corporation. Milestones included ground breaking and pouring of the first foundations at the LNG site near Port Moresby and laying and welding of sections of the onshore pipeline, which runs from the south coast of PNG to the Highlands.

– The Company’s near field exploration activities in PNG continued, with the deepening of the IDT 25 development well at Kutubu to the Koi Iange reservoir. Hydrocarbon indications were seen and there are plans to test the interval in the fourth quarter of 2011. This follows the discovery of oil at Mananda 5, which was successfully tested in early 2011.

– Shortly after the end of the period, Oil Search exercised its Option Agreement in the Taza Block (formerly K42) in the Kurdistan region of Iraq into a Production Sharing Contract. The Block contains a material exploration prospect, which will be drilled in 2012.

– At the end of June 2011, Oil Search had cash of US$1,229 million. US$1,321 million had been drawn down under the PNG LNG Project finance facility while the Company’s revolving credit facility remained undrawn.

– The Board has approved the payment of an unfranked interim dividend for 2011 of two US cents per ordinary share, payable on or around 10 October 2011. The dividend payment will be funded by a fully underwritten dividend reinvestment plan.

Commenting on the first half results, Peter Botten, Oil Search’s Managing Director, said: “Oil Search reported a sharp rise in profitability in the first half of 2011. The primary driver of this good result was the oil price, with the Company realising an average price of US$116.89 per barrel, 53% above the corresponding period of 2010. This helped lift total revenue from US$276.6 million in the first half of 2010 to US$371.1 million, despite 10% lower oil and gas sales.

Total oil and gas production in the first half was 3.56 million barrels of oil equivalent (mmboe). While 10% lower than in the first half of 2010, this was a satisfactory result, given the maturity of the PNG oil fields, with production benefiting from infield development activity and field optimisation.

As anticipated, cash operating costs (including corporate costs) increased during the half, from US$15.13 per boe in the 2010 full year to US19.24 per boe. This reflected higher labour, contractor and services costs in PNG, due to the inflationary impact of the PNG LNG Project, and the negative currency impacts from the strong Australian dollar and Kina, with costs spread over a lower production base. In addition, the first half of 2011 included the commencement of a substantial well workover programme and a number of operational maintenance activities accelerated from the second half of 2011.

Following the significant one-off downwards shift in 2010 due to the recognition of gas reserves, non-cash charges increased slightly in the first half of 2011. This was due to a less favourable mix of production from fields with higher amortisation rates and higher drilling rig utilisation, with both Oil Search rigs operating throughout the period (one rig contracted to third parties). The impact of higher non-cash costs was more than offset by lower exploration expense of US$39.0 million, compared to US$97.8 million in the first half of last year, with last year’s expense including costs associated with the Korka and Wasuma wells.

The effective tax rate of 51.8% was slightly above the PNG 50% statutory rate for oil, due to the non-deductibility of exploration expense in MENA.

The Board has approved the payment of a 2011 interim dividend of two US cents per share. The Company’s shares will commence trading ex-dividend on 9 September 2011, the record date for the dividend is 15 September 2011 and payments will be made to shareholders on or around 10 October 2011. A fully underwritten Dividend Reinvestment Plan will fund this payment.”

[mappress]
Source: Oil Search, August 23, 2011;