Oil Search Cuts Outlook As PNG Problems Resurface

By Glenn Dyer | More Articles by Glenn Dyer

More problems for Oil Search in Papua New Guinea. Twenty months ago it was a massive earthquake in western Papua New Guinea that cut production and sales of gas (and LNG) and oil and impacted earnings for much of 2018.

After a recovery this year revenue and earnings gradually improved in comparison to 2018. But damage to a ship mooring system in August saw exports restricted as a 24% slide in revenue for the three months to September.

That, in turn, has caused the company to cut its 2019 production guidance.

At the same time Oil Search has also reduced 2019 capital spending by about 15%, due to delays in securing agreements with the PNG government so preliminary engineering work can begin on a $US13 billion plan to double the country’s liquefied natural gas exports from the PNG LNG project which is partly owned by Oil Search, Total of France, Santos and US giant, Exxon Mobil.

The damage to the mooring system in the Gulf of Papua saw Oil Search’s production for the quarter dip 10% 6.81 million barrels of oil equivalent (mmboe) – the third quarter output since 2014.

Quarterly revenue fell to $US361.1 million from $US474.9 million last year, which the company blamed on lower sales and weaker LNG and oil prices.

Oil Search said on Tuesday it now expects 2019 full year production of 27-29 million barrels of oil equivalent (mmboe), down from earlier guidance of 28-31 mmboe.

Repairs to the damaged mooring chain were completed in in the past few days and Oil Search says and normal loading operations have now resumed, with production volumes rising.

The cut in capital spending comes as Oil Search gears up for its next stage of development with a planned $US13 billion project to double LNG exports from Papua New Guinea.

The PNG LNG project was greenlighted by the government in September.

But Exxon now needs to reach an agreement with the government for the development of the P’nyang gas field before the companies can begin engineering design work for the PNG LNG expansion.

“Discussions … on the P’nyang Gas Agreement recommenced late in the third quarter, with the agreement targeted to be signed before year end,” about to retire CEO, Peter Botten said in yesterday’s release.
The partners had hoped to begin preliminary work before the end of this year and will now aim to make a final investment decision on the project’s expansion in 2020.

Oil Search shares eased 1% to $7.09.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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