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Oil Search Cuts Costs to Position Itself for Growth from 2025

August 25, 2020

Papua New Guinea - Credit/Carolyn - AdobeStock
Papua New Guinea - Credit/Carolyn - AdobeStock

Oil Search Ltd aims to start producing oil in Alaska in 2025 and expand Papua New Guinea (PNG) gas exports from 2027, after slashing costs to weather weaker oil prices in the wake of the coronavirus outbreak, its chief executive said on Tuesday.

The Australian-listed company reported an 85% plunge in half-year core profit on Tuesday and scrapped its dividend, hurt by the COVID-19 driven slump in oil prices.

After axing a third of its workforce and raising cash earlier this year, the company is now focused on cutting the break-even cost to well below $40 a barrel at its Alaskan Pikka oil project, where the company has found more oil with recent drilling.

"The last six months have been a catalyst for absolutely looking at every part of our business to be able to position us and grow our company at much lower oil prices," Keiran Wulff told Reuters in an interview after the results were released.

Oil Search aims to make a final investment decision on the Alaska project in 2021, aiming to start producing in 2025.

In PNG, Oil Search's growth projects have stalled due to tough bargaining by the government, but the pain of the oil price slump has led to a reopening of talks, Wulff said.

Wulff said he was confident the $13 billion twinned PNG LNG expansion and Papua LNG project, led by partners Exxon Mobil Corp and Total SA, will go ahead in time to meet a window of demand for new LNG forecast from 2027.

Oil Search's core profit after tax for the six months to June slumped to $24.7 million from $165.2 million a year earlier - far short of a broker consensus forecast of $61 million - as its average realized oil prices dropped 45% and LNG prices fell 15%.

Including writedowns on its PNG exploration assets, the firm slumped to a net loss of $266 million.

Investors shrugged off the result, sending Oil Search's shares up 0.7%, roughly in line with oil price gains. 

(Reporting by A K Pranav and Soumyajit Saha in Bengaluru and Sonali Paul in Melbourne; Editing by Richard Pullin and Christopher Cushing)



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