Oil Search seeks smoother run
Oil Search is hoping for a smoother run for commodity prices after the crude crash last year forced it to slash jobs and delay growth projects.
Oil Search is hoping for a smoother run for commodity prices after the crude crash last year forced it to slash jobs and delay growth projects.
The energy producer managed to just scrape in with a profit after being battered by lower oil and gas prices.
“Last year was a really timely reminder to people about the ups and downs of commodity prices,” Oil Search managing director Keiran Wulff told The Australian.
“There’s still a bit of uncertainty going forward about the speed of the vaccine rollout and the speed of the oil recovery.
“We may well be starting to see the beginning of that upturn. But we’ll have to wait and see.”
The Brent oil benchmark has jumped in recent days to trade above $US66 a barrel, a fourfold increase from rock bottom prices recorded nearly a year ago as the COVID-19 pandemic routed demand for the fuel.
Oil Search jumped 6.4 per cent to $4.31 on Tuesday despite only recording a modest $US22m ($27.8m) annual profit as its average LNG prices slipped by 32 per cent over the year and oil declined by 41 per cent.
Taking into account a previously advised writedown hit taken at its half-year results, net profit after tax fell to a loss of $US321m in 2019, from a $US312m profit a year prior, missing consensus of a $US299m loss.
Still, Oil Search said the leaner company was focused on delivering two big growth projects during the next few years. A final investment is due on its Pikka oil development in Alaska by the end of the year and a decision is expected in 2023 on Papua New Guinea LNG, which aims to boost PNG LNG’s 8.8 million-tonne-a-year output by a further two-thirds in 2027.
The immediate focus for Oil Search is to trim its 51 per cent share of the Pikka project and also line up its share of funding against a backdrop of the Biden administration seeking to clamp down on new Alaska oil leases.
Several banks, including Goldman Sachs and JPMorgan Chase, have ruled out providing funding to Alaskan oil projects but Oil Search said there remained plenty of willing financiers.
“Our funding requirements is a little over $US500m and we are very comfortable that there is a large pool of Australasian banks in particular that will support the project and are very keen to support Oil Search,” the company said on Tuesday. It said it planned to open talks with companies next month about selling a 15 per cent stake in its $US3bn Alaskan Pikka oil project after the project was put on hold last year when COVID-19 sparked a steep fall in demand for crude.
“We wanted conditions in America to settle down a little bit post the election and the Biden administration coming into office,” Mr Wulff said.
“We’re starting off with soft soundings in March with a broader campaign commencing April.
“The idea is for us to have indicative proposals by July-August with a view to closing off when a final investment decision is made at the end of the year.”
Oil Search’s partner, Repsol, is also reducing its stake and the two companies would consider selling a combined share to a bigger investor while also retaining the rights to pursue individual deals.
Revenue fell 32 per cent to $US1.07bn, while the final dividend declined by 89 per cent to a modest US0.5c, from 4.5c in 2019.
Unit production costs are to rise to $US10.50-$US11.50 per barrel of oil equivalent for the 2021 financial year due to scheduled maintenance for PNG LNG trains one and two.
Mr Wulff chief started the financial year by slashing nearly 600 jobs, a third of its workforce, as part of a major cost-cutting drive sparked by the oil price crash.
“The company took decisive action to ensure that we limited discretionary spend, enhanced our liquidity, right-sized the organisation and materially reduced our operating cost base and break-even for new and existing projects,” Mr Wulff said.
“We are now, however, a more focused, leaner and lower-cost resilient business in a strong position to commercialise our world class resource base and leverage the oil price upside.”
Oil Search on Monday started the engineering and design phase for Pikka as it seeks to add a new source of earnings growth from its mainstay Papua New Guinea gas business.
The first phase of the project aims to deliver 80,000 barrels of oil a day by 2025 at a break-even cost of less than $US40 a barrel including a 10 per cent return.