Oil Search : 2020 Oil Search Virtual Investor Briefing Transcript

Company: Oil Search Limited

Title: Investor Day

Date: 19 November 2020

Time: 9:00 AEDT

Start of Transcript

Ann Diamant: Good morning, everyone. My name is Ann Diamant, I'm the Senior Vice President of Investor Relations at Oil Search, and I'm delighted to welcome you to Oil Search's 2020 Investor Briefing. Some of you may have already seen from the ASX release that we made this morning, we've got a fairly full agenda this morning as we take you through our revised strategy and an update on all our activities.

I'm delighted to be joined today by Rick Lee, Oil Search's Chairman, who'll open the session, and then this will be followed by presentations from our Managing Director, Keiran Wulff; our EVP of Alaska, Bruce Dingeman, who's joining us from Anchorage, thanks Bruce for staying a bit later. Diego Fettweis, our EVP Commercial, he'll take you through our PNG activities. Beth White, who is in the newly created position of EVP Sustainability and Technology, which is increasingly a really important area for the Company. Last, but not least, Stephen Gardiner, who is our CFO, he'll take you through our capital management plans.

We'll have time for Q&A after the sessions, after the presentations. Unless you have pre-registered to call in to the teleconference, please can you submit any questions through the webcast? You can do this by clicking on the text at the bottom right-hand corner of your screen where it says submit a question. Just click on that, a text box will come up, write in your questions and then just remember to press submit.

We'll obviously try to cover off as many questions as we can during the session before we stop at 12:30, but if we don't reach your question, we'll come back to you directly and follow up later on this afternoon or in coming days. Before I hand over to the Chairman, I'd just like to draw your attention to our disclaimer. In today's presentation, we'll be making some forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to the factors which we note on both the slides but also in the releases to the ASX and the PNGX.

Now, delighted to hand over to Rick Lee to commence the presentation. Thank you.

Rick Lee: Thank you, Ann, and let me add my own welcome to everyone on the webcast, thank you very much for joining us. This morning we are outlining a refreshed ambition and clarity on our strategy for meeting that ambition. Importantly, we will outline our approach to sustainability and capital management as well as our roadmap for executing our strategy.

Before Keiran and the team explain the details of our refreshed strategy, I want to outline the insights and strategic foundations which the Board have considered in reaching the decision on Oil Search's strategic priorities. The first is reality, the energy industry is entering a new paradigm that has to be considered by any company looking to be part of the long-term energy market. The world is transitioning towards lowering carbon emissions and our industry has a very big role to play.

Following extensive reviews and analysis, it is clear that responsibly produced low-cost oil and gas will continue to play a critical role during this transition. With the recent drive to carbon neutrality in a number of countries by the middle of this century, LNG will increasingly be important as a transition fuel for baseload power as countries strive to meet their

DISCLAIMER: This transcript has been prepared by a third party for Orient Capital Pty Ltd. It may not be accurate or complete and should be verified directly with the issuer. Orient Capital Pty Ltd is not responsible for any consequences of the use you make of the information contained in this transcript, including any loss or damage you or a third party might suffer as a result of that use.

emission reduction targets necessitating a move away from coal, especially in our Asian LNG market region. We believe Oil Search is very well placed to deliver projects that assist countries to meet their emission reduction targets, while also delivering our low carbon intensity oil development project in Alaska.

This has been the subject of intense review, to optimise the development phasing to support lower costs without compromising long-term value. Our projects must be low cost and resilient to price volatility if they are to be competitive in this new paradigm.

The second and related foundation is that investor and societal expectations have fundamentally changed. Measurable action on sustainability is essential. Community betterment has been a core strength of Oil Search for many years, we are a genuine leader in our commitment and delivery of services to the communities with and within whom we work. We will broaden that commitment to also be a leader across all areas of sustainability. Beth White will go into detail on this shortly.

Fundamentally, sustainability will be at the core of our decision making. Not just ESG reporting, but measurable delivery against commitments to create a balanced Company that contributes to the long-term wellbeing of society generally.

Finally, we have learned some hard lessons this year. We have been listening to our investors and to the market. We have reviewed our past performance. We are clear we need to prioritise free cash flow generation and returns through resilient operations. We need disciplined capital management and rigorous downside planning. This is critically important to our refreshed strategy.

This year we have responded to a uniquely challenging backdrop to enhance our resilience with sustained cost improvements, and a focus on commercialising our growth at the lowest possible break evens. We have been impacted more than others by the downturn, but we have now positioned the Company first to be more resilient. Then to be ready to adjust our plans flexibly if market conditions require, and finally to be capable of delivering greater upside when market conditions turn for the better.

The strategic review is the culmination of many months of work, informed by our current position by in-depth analysis of global trends, and importantly by shareholder feedback. We have sought and incorporated independent analysis of our situation and outlook and have opened ourselves up for detailed external scrutiny.

Oil Search's updated purpose and ambition reflect our response to these strategic foundations that I am sure all of our stakeholders can relate to. We are now clear in our purpose. We will deliver low cost, high value energy that meets society's needs. We have left no stone unturned to ensure we achieve our ambition to be the preferred energy company for all stakeholders, including our shareholders, our joint venture partners and the communities and governments with whom we work, and of course our employees who are absolutely key to delivering this ambition.

The Board is confident that the new strategy drives a compelling investor proposition. It has the Board's full support. Despite being a very difficult year, we have used this as a catalyst for making the necessary changes to take us into the future with confidence and with capability.

I would like to thank every member of the Oil Search team for their hard work and extraordinary commitment and contribution during 2020, and I now introduce our Managing Director, Dr Keiran Wulff, to present the refreshed strategy.

Dr Keiran Wulff: Okay, thank you very much, Rick. Firstly, on behalf of Oil Search, I'd like to acknowledge the traditional custodians of the lands and the regions we work and operate. We acknowledge their ongoing connections to land, sea and community, and we are fully respectful of their culture.

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Well, we have a very exciting future and a proud heritage, but 2020 has been a very humbling year for the Company. It's been a time of introspection, considered yet clinical decision making and being absolutely focused for a reset for the future. This year has necessitated Oil Search taking some tough decisions at every level and challenging the way we do business going forward. We've been one of the companies most effected by the downturn, but we're also one of the most [unclear] leveraged to the upturn which will inevitably happen.

The demands on our staff this year have been enormous and they've been simply wonderful, despite all of the uncertainties our team has delivered across the business at every level, and aside from the oil price we've had a very, very strong year. Whether it be in the field maintaining our operations safely and production reliably in a COVID restricted world where many of our team are away from their families for more than four months at a time. Our PNG BU or business unit, supporting the field operations and driving efficiencies into the business whilst building new and trusted relationships with the PNG Government.

The Alaskan team driving costs down and constructing civils well below budget, that have allowed us to consider a paradigm change in the way that we develop the field and manage our CapEx to make the project in our giant Pikka oil field, resilient at low oil prices whilst maintaining our ability to drill to achieve full value. Our corporate teams overhauling our capital management approach and driving long-term costs out of the business whilst undertaking a very soul- searching transparent and critically important strategic review that will set the directions for the Company for many years.

Our sustainability team enhancing our culture and building our capability and our appeal across, and our commitment to the community as a whole and expanding it across the company has been incredibly important. But in addition, I would also very much like to acknowledge the Board's engagement and involvement this year, which has been unparalleled in the Company's history.

What you'll be seeing today is the results of an absolute team effort that has the buy-in of all of us. We are committed to delivering on our enormous potential and making this Company simply the preferred Company for all stakeholders.

Global trends. During the strategic review, the Company has considered many macro trends that are fundamentally changing the way energy companies are doing business, to be successful. We've incorporated the views of researchers, leading global specialists, advisers across all areas including climate change, energy and pricing outlooks, investor sentiment, employee motivation. We've reviewed the potential for disrupting technologies as well as having an independent view of the quality of our assets and the capability of our people to deliver on those assets.

On some external issues, many have differing views, but many say one thing in common, our industry is still critically important and has a material role to play for many years. However, the reality is that the world is changing to a lower carbon future, and energy companies need to consider any number of issues and opportunities.

COVID and its impact short and long-term on global energy and capital markets as well as general behaviours. Between 7 million to 9 million barrels have been taken out of global demand this year, relative to 2019. Whilst demand is returning strongly, especially in China and other Asian countries to return to pre-COVID levels, the reality is that returning to those levels will be totally dependent on the roll-out of the vaccine, which is now looking very much more positive.

Recently, highly respected analysts are now suggesting it may be as early as 2022 when demand reaches pre-COVID levels, which is much earlier than previously considered. The precipitous oil price drop, the near-term volatility and the uncertain energy demand outlook is a key area we all need to consider. Long-term oil prices for many majors are now centring in the $50 to $65 per barrel range. Whilst there are some calling for peak oil in this decade, the reality is that oil is embedded in our world and will take some time to unwind.

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Quality projects that are low intensity, low sulphur, close to infrastructure and demand will be well sought for, for a while yet. The role of LNG as a major transition fuel as the world moves to a lower carbon future, and the need to replace high emission greenhouse gas fossil fuels. LNG will be a key transition fuel for the planet, it not only provides a pathway to a lower carbon future, but also provides that certainty for governments around the world to develop energy policies that support economic stability and growth, as well as meeting obligations under the Paris Accord.

Investor sentiment on the role of oil and gas in tackling global climate change, challenging regional politics and trade routes and attracting funding for projects which will increasingly be challenging for those companies that do not adopt a more committed and tangible approach to sustainability. These are all paradigm changes that must be committed, and as a result the company needs to focus on delivering tangible reductions in our emissions and reducing our environmental footprint, ensuring that we have the lowest cost of supply.

Having absolutely strict capital discipline and strengthening our balance sheet through a number of different means. An ability to upscale projects subject to market conditions, and we have to be aligned with the interest of host governments and the stakeholders where we work. At Oil Search, we are incredibly fortunate to have a world class asset base with a commitment to sustained ability going forward.

As a result, whilst no doubt there are challenges ahead, we are actually very excited to be in the position to deliver our value and continue to evolve to meet society's needs long-term. Rick has outlined our new vision and purpose, and Bruce, Diego, Beth and Stephen will outline how we intend to meet the external challenges and deliver value sustainably and responsibly.

Who is Oil Search? After 91 years, I don't think I need to tell you terribly much, but what I want to talk about is what the key theme of our strategy is, and it's shown on this slide. Fundamentally, we do not need to explore for more resources. We have an existing resource-base that can deliver material value for our shareholders for many years. We've only commercialised around 25% of our existing 2C resource base. The programs we're putting in place and the alignment we're building with our joint venture partners in both core projects have the potential to nearly double our production and commercialise over 75% of our discovered 2C resource.

Based on the plans we're producing, we'll develop programs that will increase our production to over 150,000 barrels of oil equivalent per day of slow decline conventional resources later this decade, without the requirement for material sustaining capital. We have first class, challenging environment operating capability, demonstrated in PNG and more recently in Alaska where we have built a highly experienced Alaskan team who have already demonstrated leading performance and have set drilling records in that region.

As you will see, we're making serious strides in advancing those areas we can control, lowering break-even and ensuring we're positioned strongly for the future.

What have been our achievements and challenges in 2020? Well, there's been many of them. In 2020 we've made decisive steps in enhancing the resilience and stability of our business through the liquidity raise, reducing costs, cutting all discretionary expenditure, right-sizing our organisation for the future and driving performance across the business. With the support of our incredible workforce and through early and decisive action, we operated in PNG through the challenges of COVID and continue to do so without disruption and with a world class safety performance, our best in the Company's history.

In Alaska we've also had an incredibly successful field season, as you will see, with two material discoveries close to infrastructure, and most importantly we've built the construction of a road into the centre of our giant Pikka field, which will be the foundation for our phased development going forward. Whilst we were very disappointed to be in the position to have to raise capital, we felt that it was in the best interests of the shareholders, and we've learnt a serious lesson around ensuring resilience to lower oil prices.

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