Oil Search: PNG LNG Project on Track

Oil Search reported that its operating revenue for the quarter ended 30 September was US$107.8 million, based on an average realised oil price of US$114.67 per barrel.

Commenting on the quarter, Managing Director, Peter Botten, said: “Progress was made on a number of our key strategic initiatives over the quarter.

Construction activities continued across the various work sites of the PNG LNG Project, with the Project remaining on target for first LNG shipments in 2014. In addition, detailed studies and engineering scoping on the P’nyang gas discovery took place. The PRL 3 Joint Venture has agreed to move forward into the pre-FEED concept selection stage, with the primary option being to utilise P’nyang as a foundation resource for Train 3. Preliminary studies on potential design concepts and costs have now commenced.

An important objective for our Gulf of Papua gas strategy was delivered shortly after the end of the quarter, with the introduction of TOTAL SA as a new partner to work with Oil Search to explore the PNG Gulf area. The transaction with TOTAL, which is subject to Government approvals, satisfies all Oil Search’s strategic objectives for the Gulf farm-down. TOTAL has extensive experience in developing major LNG projects and has similar aspirations to Oil Search in assessing and, in the event of success, developing an LNG project in the Gulf of Papua. Oil Search and TOTAL have also agreed to form a strategic partnership to look at other licences in PNG, excluding the Highlands area.

Material oil potential is presently being tested by the Taza well in Kurdistan. The well, which commenced drilling in July, has encountered oil and gas shows, indicating it is in an active hydrocarbon basin. It is expected to drill into the primary objective and reach its target depth over the next few weeks.

Further balance sheet strength and flexibility has been added with the recent conclusion of a new revolving line of credit for US$500 million with a number of commercial and investment banks. This highly competitive facility is now subject to Bank of PNG final approval. Together with existing cash balances, of US$573.2 million at the end of September, and cash flow from the oil operations, Oil Search believes it is in a strong position to fund all foreseeable expenditures up to when the major cash flows from the PNG LNG Project commence in 2014.”

PNG LNG PROJECT ACTIVITIES

2012 third quarter activities on the PNG LNG Project included the following:

• Significant progress was achieved at the LNG Plant site near Port Moresby. On Train 2, installation of the primary piperack, the air fin coolers and the heavy lift of the Cryogenic Heat Exchanger were completed. Cable pulling was ongoing on both trains, while the inner rings on both LNG tanks were nearing completion at the end of the quarter. On the marine jetty, the 2.4 kilometre jetty trestle was completed and the piperack modules were installed. The Project is currently focusing on completing all underground cables and piping before the commencement of the rainy season.

• Above water tie-in and hydro-testing of the 407 kilometre offshore pipeline took place during the period, together with completion of shallow water trenching and installation of fibre optic cable.

• Right of way clearing, pipe laying, welding and trenching along the onshore pipeline route progressed well, with work fronts moving beyond Kutubu towards the Moran area during the quarter. Pad preparation and piling commenced on the meter skid near the Central Processing Facility at Kutubu.

• Earthmoving activities at the Komo airfield were ongoing through the quarter, albeit progress was impacted by extremely wet weather. More than 800 metres of the runway had been laid by the end of the period and work has commenced on the terminal buildings. Upgrading of the road from the airfield to the Hides Gas Conditioning Plant continued.

• At the Hides Gas Conditioning Plant, the main concrete foundations for the pipeline compressors and generators were completed and the installation of the main piperack steel structure advanced. Erection of the firewater and potable water tanks also commenced.

• Drilling commenced during the quarter at Well Pad B, with Rig 702 drilling the top hole sections of the B1 and B2 production wells. Mobilisation and assembly of Rig 703 also took place during the quarter and the rig is expected to commence drilling at Well Pad C in the fourth quarter. • Oil Search-operated Associated Gas Project activities progressed, with earthworks and construction of foundations commencing at Gobe and ongoing activity on multiple workfronts at Kutubu. At Kutubu, key achievements included the new TEG C unit commencing operations and the decommissioning and demolition of the old unit. Excavation of the new TEG D foundations commenced. Performance testing of the Commissioning Gas Unit, which represents a key piece of equipment required for the commissioning of the Project, is close to completion.

• The PL 2 Life Extension Project completed work scoping for the final stage of work, which will commence during the fourth quarter weather window.

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LNG World News Staff, October 23, 2012; Image: Oil Search