Oil Search delays PNG LNG expansion as revenue dives
Oil Search revenue sank 26pc in the second quarter after a price crash, as PNG partners put a $20bn expansion on ice.
Oil Search says its revenue dived in the second quarter despite strong LNG production after a steep fall in oil and gas prices, and major Papua New Guinea partners have put a $20bn expansion on ice due to COVID-19.
The Papua New Guinea-focused gas producer said revenue fell 26 per cent to $US266.2m from $US359.4m in the three months to June 30.
Oil and condensate prices were slashed by more than half to $US23 a barrel, from $US49 a barrel in the March quarter and $US68 a barrel for the same period a year ago. The average LNG price dipped 19 per cent to $US7.34 per million British thermal units from $US9.08mbtu in the prior quarter, as the lag from lower crude prices started to flow through to the gas market.
Production fell 1 per cent to 7.29m barrels of oil equivalent, with sales also dropping 1 per cent.
A longstanding expansion plan involving three new equal-sized LNG trains being built at the existing PNG LNG plant, to produce an extra 8m tonnes of LNG a year, has also been deferred given market conditions.
Oil Search has been working with its partners ExxonMobil and Total on the LNG expansion but gave a downbeat update on Tuesday.
“Due to COVID-19 and its impact on oil and gas prices, Total and ExxonMobil have demobilised the majority of their LNG expansion technical and commercial staff,” the company said in reference to the status of the LNG expansion.
The producers had originally targeted volumes from the LNG expansion to start flowing by late 2024.
The Sydney-based company will take a writedown of up to $US400m at its half-year results on August 25 after the oil price crash lowered the value of its PNG oil and gas licences.
The company blamed the deteriorating long-term impact of a weaker economy, the weaker outlook for oil and gas prices and unnamed other factors that could lower the value of its assets.
Some of the industry’s biggest names including Santos, Shell and BP have been forced into major writedowns in recent weeks amid the COVID-19 crisis, a slump in prices and uncertain global demand.
Oil Search was forced into a $US650m share sale in April to institutional investors to boost its balance sheet but analysts warned the LNG producer may ultimately need to raise extra cash to fund its growth plans.
In March, Oil Search slashed its spending by 40 per cent in a bid to conserve cash after warning of “unprecedented times” in markets.
“While painful, the decisions taken ensure that the company can not only withstand a prolonged period of oil price weakness but will also have the capability to optimise and deliver our world-class growth opportunities in PNG and Alaska when global economic conditions improve,” Oil Search chief executive Keiran Wulff said on Tuesday.
A strategic review, which started in February, will be presented to investors in the fourth quarter of 2020. The Oil Search boss has said it will focus on “redefining Oil Search for the future” by considering market trends, shareholder expectations and commodity market and pricing outlooks.
Shares in Oil Search closed up 3.6 per cent, at $3.12.
