PNG: Oil Search Production Rises, Sales Drop

Oil Search said its production in the third quarter of 2013 was 1.78 million barrels of oil equivalent (mmboe). This represented a 10% increase on production in the second quarter, primarily driven by strong performances from the Kutubu and Moran fields.

Sales revenue from oil, gas and refined products for the quarter was US$166.4 million, while other field revenue, comprising rig lease income and infrastructure tariffs, was US$8.8 million.

Commenting on key 2013 third quarter activities, Managing Director, Peter Botten, said:

“The third quarter was characterised by a very pleasing production performance from our core PNG oil fields and the achievement of a number of key milestones towards the delivery of the PNG LNG Project.
In early September, a major milestone was achieved when commissioning gas from Oil Search’s Kutubu field was introduced into the LNG plant near Port Moresby. This gas will be used to progressively commission the plant site utilities and process trains. In the Highlands, Antonov cargo aircraft operations into the Komo airfield were completed during the quarter and the Antonov aircraft was released. All heavy equipment has now been received and set onto foundations at the Hides Gas Conditioning Plant (HGCP). Work continued on the remaining leg of the onshore mainline pipeline between Kutubu and Hides and the pipelines linking the Hides well pads to the HGCP. In addition, drilling advanced at Hides, with three wells – B1, B2 and C2 – now drilled and cased to total depth and drilling currently underway on the C1 well and at Wellpad D.

In September, the PNG LNG Project operator, Esso Highlands Limited, confirmed that, with the Project now more than 90% complete, the estimated cost remains unchanged from the US$19 billion capital cost outlook provided in November 2012 and that the Project remains on track for first LNG deliveries in the second half of 2014. The operator has recently secured US$1.5 billion in supplemental project financing and all funding is now in place to complete the Project.

During the quarter, we continued to evaluate a range of possible sources of gas to underwrite a potential expansion of the PNG LNG Project. The operator of PRL 3, Esso PNG P’nyang Ltd, made further progress on scoping work, including resource definition, engineering, environmental and social impact studies, on the P’nyang gas field. As highlighted at the half year results, this work will continue through 2014, in preparation for the submission of a development licence application for this field in early 2015. Studies to assess a potential extension in the Juha field area also took place.

The period of exclusive negotiations between ExxonMobil and InterOil, regarding the development of PRL 15 containing the Elk/Antelope gas fields, expired in August. InterOil has recommenced a competitive bidding process for a majority share in PRL 15. We are following the sale process closely and are engaged with key players on potential development options for the gas. The Elk/Antelope resource could potentially be a source of gas for LNG expansion or could underpin a new LNG development. We continue to believe that being an owner of core gas and liquids infrastructure in PNG places Oil Search in a strong position, as new developments take place in the country.”

Oil exploration and appraisal:

“In August, we submitted a Petroleum Development Licence application covering the Mananda 5 and 6 oil discoveries to the PNG Government. Preparations to drill an appraisal well, Mananda 7, on the Mananda feature are underway, with drilling expected to commence in the fourth quarter. Planning continued for an extensive appraisal programme on the Taza oil discovery in Kurdistan, which will comprise drilling up to five wells plus the acquisition of up to 500 square kilometres of 3D seismic data. The first well in the programme, Taza 2, is also expected to spud in the fourth quarter.

The Company concluded its current exploration campaign offshore PNG in the Gulf of Papua in September. Two of the three wells drilled discovered gas (Flinders and Hagana) and while the volumes discovered to date are likely to be relatively modest, the programme has confirmed the presence of good quality reservoir sandstones in the Plio-Pleistocene section, a gas charge and the effectiveness of stratigraphic trapping in the play, as well as the de-risking capability of our high quality 3D seismic data. A comprehensive analysis of the drilling results is now underway.”

Production and revenue performance in the third quarter:

“Production from our key fields, Kutubu and Moran, was strong during the quarter, reflecting the impact of recent wells, workovers and higher facilities uptime, a direct result of the investment we have made to sustain production and improve reliability. Total oil and gas production of 1.78 mmboe was 10% higher than in the second quarter of 2013 and year to date production is 8% higher than the previous year, at 4.97 mmboe. Assuming no unforeseen events, we are on track to achieve 2013 full year production towards the upper end of our guidance range of 6.2 – 6.7 mmboe.

The Company continued to benefit from strong global oil prices during the quarter, realising an average price of US$112.36 per barrel, 7% above the second quarter price of US$104.58 per barrel. Due to the timing of liftings, oil sales were approximately 224,000 barrels less than production available for sale, leading to total operating revenue for the quarter of US$175.3 million. Crude oil inventories rose to 232,000 barrels at the end of September, worth approximately US$26 million in revenue at average realised third quarter prices.

During the quarter, we spent US$400.0 million on exploration, development and production activities, of which US$279.0 million was related to the PNG LNG Project. This spend was funded by cash, operating cash flows and draw-downs from the PNG LNG project finance and our corporate debt facilities. At the end of September 2013, the Company held US$317.6 million in cash and US$350.0 million in undrawn committed funding lines, resulting in total liquidity of US$667.6 million. We have more than sufficient cover for our remaining equity share of the PNG LNG Project development costs, estimated at approximately US$360 million. However, given our recent exploration successes and the opportunity to move into the appraisal and development phases on key discoveries such as Taza and Mananda, it may be necessary to top up our liquidity prior to receipt of cash distributions from the PNG LNG Project. The magnitude, quality and longevity of the LNG cash flows provide us with considerable flexibility to access additional shorter-term funding, should it be required, and we continue to assess these options.”

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LNG World News Staff, October 22, 2013; Image: Oil Search