Oil Search rekindles $4.1bn Alaskan Pikka oil project
Oil Search has rekindled its $US3bn Alaskan oil project after being forced to put the development on hold due to the COVID-sparked oil rout.
Oil Search has rekindled its $US3bn ($4.1bn) Alaskan oil project after being forced to put the development on hold due to the COVID-sparked oil rout, but a deferred $20bn gas expansion in Papua New Guinea may be slimmed down to avoid further delays.
A final investment decision on its Alaskan Pikka project is due late next year, while a plan to sell down 15 per cent of its 51 per cent stake has also been restarted as it targets slashing the breakeven cost by about a third to $US35 a barrel.
The Sydney-based company, best known for its PNG LNG export plant, plans to produce 80,000 barrels of oil from Pikka by 2025 in a first-phase development, though it conceded that sanctioning the facility next year would still hinge on market conditions given ongoing volatility.
“If it doesn’t make sense from a balance sheet capacity funding point of view, then we have the option to delay,” Oil Search chief financial officer Stephen Gardiner said on Thursday at the company’s annual investor day.
The planned selldown was suspended in April after crude market ructions forced the producer to launch an emergency $US700m capital raising and slash jobs.
Managing director Keiran Wulff described the year as “very humbling”, but said the producer had emerged as a leaner and more competitive operator with an open mind on additional asset sales if required.
Oil Search also boosted its proven and probable resources in Alaska’s North Slope by 33 per cent to 968 million barrels of oil, from 728 million barrels previously.
Even so, Credit Suisse said the success of its refreshed Alaskan strategy may ultimately hinge on its planned equity selldown.
“To our mind, the proof of Alaska will be in the selldown: if what Oil Search claim is true, we suggest they should have little problem selling down Alaska in 2021 for value, but we think the selldown could prove challenging,” Credit Suisse analyst Saul Kavonic said.
A grander $20bn gas expansion in PNG may also be reworked.
The plan to double LNG exports from the Pacific nation was based on deals to develop two new gas fields that would produce three new equal-sized LNG trains at the existing PNG LNG plant, where Oil Search holds a 29 per cent stake.
Total, ExxonMobil and Oil Search agreed to the first two-train part of the enlarged facility through the Papua LNG contract in September last year, with start-up now expected by 2027. However, the PNG government abandoned talks over the ExxonMobil-led P’nyang component, which was to provide the third LNG train.
Oil Search said the P’nyang gas project was close to reaching an inflection point, which could see the gas used as backfill for the PNG LNG plant, rather than the original plan of a three-train LNG expansion.
“With P’nyang the reality is the longer a decision is delayed, the more likely a decision might be made to have that as backfill to the PNG LNG project,” Mr Wulff told The Australian. “That decision hasn’t yet been made and the discussion needs to be concluded between Exxon and the government. There is still a discussion as to how to optimally develop that.”
The company has for several years been focused on pushing ahead with the expansion in order to meet an expected demand spike around 2024. However, that scenario has now changed due to the crude crash, which had damaged demand and seen major LNG investment curtailed by many suppliers in the industry.
Oil Search fell 2.4 per cent to $3.73 on Thursday.
