Oil Search profit roiled by price slump
Oil Search has become the latest victim of the commodity’s price, with half-year profit plunging 89pc.
Oil Search has reported a profit for the half year at barely a tenth of the level seen last year as depressed market conditions took their toll.
The result reveals Oil Search as the latest ASX-listed victim of the oil price slump, as the reduced earnings came despite sales volumes rising 5 per cent to a record 15.2 million barrels of oil equivalent.
For the six months to June 30, the group reported a net profit of $US25.6 million, down 89 per cent from the corresponding result of $US227.5m last year. Realised prices for oil and condensate slumped 27 per cent and prices for its gas and LNG product tumbled 40 per cent.
The company said its revenues weakened 33 per cent to $580.8m due to the weak global crude market, in line with market expectations.
“Despite the success of the cost reduction programme, profitability was impacted by the continued slump in global oil and gas prices,” Oil Search managing director Peter Botten said.
Analysts were largely welcoming of the report, with UBS, RBC Capital Markets and Macquarie saying it came “in line” with their respective expectations.
“[It was] a very predictable first-half result from Oil Search given extensive pre-disclosure at the second-quarter report,” RBC said.
Oil Search’s total production for the six month period was 14.89 million barrels, up 4 per cent on last year and leading to a recent upgrade in its full-year production guidance to 28-30 million barrels of oil equivalent.
“The PNG LNG project continued to perform well during the first half, producing LNG at an annualised rate of approximately 7.7 MTPA, 12 per cent above the nameplate capacity of 6.9 MTPA,” Mr Botten said.
He added Oil Search was increasingly confident in the prospect of a tie-up of the PNG LNG and Papua LNG projects, two developments in which it holds a significant position.
The company had sought to accelerate the process of co-operation by launching a bid for InterOil earlier this year and while it was ultimately trumped by Exxon Mobil, the latter is seen willing to engage to ensure it reaps full benefit of its purchase.
Oil Search expects negotiations with Exxon and French oil giant Total to begin later this year on tie-up opportunities.
“There are a number of commercial models that could be used to deliver project integration,” Mr Botten said.
“Studying the various options and their relative values is a core component of Oil Search’s Strategy Refresh, a strategic review which has recently commenced in light of changes in the global oil and LNG markets as well as the bid for InterOil by ExxonMobil and its implications.
“The conclusions of the Strategy Refresh, expected to be completed in the fourth quarter of 2016, will form the basis for Oil Search to commence a constructive dialogue with our partners on the way forward.”
Mr Botten said its focus was also on expansion of its exploration activities from next year onwards as it sees oil prices stabilising.
“Subject to an ongoing recovery in oil prices, we are planning to commence a more aggressive exploration programme in late 2017, designed to drive long term growth in PNG,” he said.
“While oil prices appear to have bottomed, we are maintaining our focus on careful capital management and driving out costs, to ensure our current commitments and LNG growth opportunities can be funded without having to access additional equity capital.”
Oil Search slashed its interim dividend from 6c a share to just 1c a share this year. Analysts had projected a 4c a share interim payout.
At 11.45am (AEST), Oil Search shares traded down 0.7 per cent at $7.39, against a broader market rise of 0.8 per cent.
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