Oil Search pulls dividend after $US266m first half loss
Hefty writedowns on PNG assets have helped deliver a first hefty first half loss for Oil Search, which pulled its dividend in response.
Oil Search’s $20bn gas expansion in Papua New Guinea will be delayed by two years, reflecting stalled talks with the PNG government and its expectation that new supplies will not being required from buyers until later this decade.
The Sydney-based company has for several years been focused on pushing ahead with the expansion which will double its LNG output in order to meet an expected demand spike around 2024. However, the producer said that scenario has now changed due to this year’s oil market ructions which had damaged demand and seen major LNG investment curtailed by others in the industry.
“The impact of COVID has had an impact of a couple of years on global energy demand. Originally people were targeting a 2024 to 2026 window of demand and what you’re seeing now is the window and demand really now opens up in 2027,” Oil Search managing director Keiran Wulff told The Australian. “There’s a massive shortfall in supply post that period. At the moment because of COVID and the breakdown in discussions things have got to get ramped up again and they’ve got to agree a number of key principles. So realistically you’re not looking at the project really taking off until the latter part of next year.”
Oil Search has been banking on a major LNG expansion in PNG for its next leg of growth. But political ructions over the deal and the crude market crash have delayed talks between the companies although its senior partner ExxonMobil has now re-engaged with the government over striking a deal for P’nyang, Oil Search noted.
Oil Search withdrew its first half dividend after slumping to a $US266m loss as the oil market crash and hefty writedowns on the value of its Papua New Guinea assets hit the gas producer.
The $US266m net loss for the six month period compared with a $US162m profit a year earlier and was a worst result than a $US208m loss forecast by RBC.
Its core profit after stripping out the one-off items dived 85 per cent to $US24.7m while a dividend was scrapped for the half after a 5c a share payout last year due to its slim profit, the uncertain near-term oil price outlook and the need to keep capital amid challenging market conditions. Oil Search’s board will reassess whether to pay a dividend ahead of its annual results in February.
“The unprecedented challenges due to COVID-19, the consequent disruption to the global economy and the precipitous decline in oil prices in the first half of 2020 have been catalysts for reassessing all areas of Oil Search’s business,” Mr Wulff said.
The Sydney-based company took a pre-tax writedown of $US374.2m after the oil price crash lowered the value of its PNG oil and gas licences.
The company 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.
The planned sale of a 15 per cent stake in its Alaskan assets will resume later this year while a phased development for its Pikka oil project will target a final investment decision by the end of 2021.
Oil Search shares rose 0.7 per cent to $3.02.