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MarketScreener Homepage  >  Equities  >  Australian Stock Exchange  >  Oil Search Limited    OSH   PG0008579883

OIL SEARCH LIMITED

(OSH)
  Report
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Oil Search : Quarterly Report to 30 September 2020

10/20/2020 | 05:55pm EST

THIRD QUARTER REPORT FOR THE

PERIOD ENDED 30 SEPTEMBER 2020

20 October 2020

ASX: OSH | ADR: OISHY | PNGX: OSH

3Q 2020

2Q 2020

% CHANGE

3Q 2019

% CHANGE

Total production (mmboe)

7.30

7.29

+0.1%

6.81

+7.2%

Total sales (mmboe)

7.55

6.79

+11.2%

6.47

+16.7%

Total revenue (US$m)

189.0

266.2

-29.0%

361.1

-47.6%

HIGHLIGHTS

  • Sustained outperformance of PNG LNG, which operated at an annualised rate of 8.9 MTPA during the quarter and delivering the highest first nine months of production since the project commenced in 2014.
  • 2020 capital investment guidance lowered to US$390 - 460 million (from US$440 - 530 million), following further reductions in exploration activities and rephasing of FEED activities in Alaska.
  • Optimisation studies targeting material initial development capital reduction and lower breakeven of the Pikka Unit Development are nearing completion, with details to be provided at the Strategy Day on Thursday 19 November 2020.
  • Capital prioritisation and sustainable cost reduction programs are being actively coordinated and rolled out across the Company, consistent with the previously issued revised full year unit production costs guidance of between US$9.50 - 10.50/boe. Aside from one-off major maintenance programs planned in 2021, ongoing cost management and efficiency programs are being prepared to ensure the sustainability of the reduced cost base going forward.

COMMENTS FROM THE MANAGING DIRECTOR, DR KEIRAN WULFF:

"During the quarter, Oil Search continued to operate under strict COVIDSafe protocols while preparing the business for the ongoing impacts of the pandemic. Our field-based workforce remains within strict quarantine zones to minimise the risk of transmission across business-critical field teams. The health and safety of our staff, contractors and the communities where the Company operates remains a key priority for Oil Search. Importantly, no COVID-19 cases have been reported within our PNG operations, which highlights the successful efforts of the team and the PNG LNG operator in maintaining safe and reliable operations.

Despite the challenging environment, the Company's safety performance was outstanding across all areas of operations. The ExxonMobil-operated PNG LNG Project continued to perform well ahead of expectations, producing at record levels of 8.8 MTPA on average for the first nine months of the year. This included 6.55 mmboe from the PNG LNG Project, which produced at an annualised rate of 8.9 MTPA during the quarter. Our operated oil assets were slightly impacted by some unplanned downtime at the Kutubu Processing Facility and Agogo Production Facility and scheduled maintenance at the Gobe Production Facility. Operated production remains affected by the shut-in of the Hides Gas-to-Electricity operation following the temporary closure of the Barrick-operated Porgera Gold mine. Negotiations between the PNG Government and Barrick surrounding the restart of mining operations have reportedly recommenced.

Discussions are also ongoing between all parties on progressing LNG expansion opportunities in PNG. This coincides with a strengthening in demand and a potential improvement in the LNG price outlook, despite the COVID-19 impact on global energy and LNG demand pushing back the demand window to around 2027.

2020 THIRD QUARTER REPORT | 20 OCTOBER 2020 | Page 1

In addition to the strong production performance, the cost reduction and operational excellence programs in PNG and across the Company are now being embedded. Further work is being done on third-party spend, supply chain and operational efficiencies to ensure cost reductions are sustainable, with a focus on continuous improvement and performance. To ensure the continued focus on capital prioritisation and discipline across the Company, the formation of the oversight "Pathfinder" team is well advanced. Pathfinder will be supported by Dupont to drive optimal performance and resilience across all areas of the operations. With the substantial reorganisation undertaken by the Company in mid-year, it has been very pleasing to see the commitment to the efficiency and cost reduction programs being adopted and pursued across the business.

Despite improved oil prices during the quarter, the impact of the two-to-three month lag on LNG contract pricing and a higher portion of LNG spot sales has resulted in a 29% fall in revenue. The Company's liquidity position remained robust, with US$1.65 billion of cash and undrawn bank credit lines available at 30 September. Oil prices have since recovered from lows within the US$20/bbl range in the second quarter to above US$40 in the third quarter, which will rebase the LNG contract prices going forward. In addition, North Asian LNG spot prices have recovered materially from the lows of below US$2.00/mmBtu to above US$6.00/mmBtu currently, with demand improving as the northern hemisphere enters the winter period.

The Oil Search Alaska team, in cooperation with our key stakeholders, has continued to make excellent progress on the value and capital optimisation studies for the Pikka Unit Development, which is being redesigned as a phased development. This will deliver increased capital efficiency, a materially lower upfront capital commitment and a significant reduction in the project breakeven cost of supply. These changes will make the project resilient at lower oil prices and easier to finance, whilst ensuring the project can be expanded efficiently without compromising full value. The initial phase of development will support the funding of subsequent expansion. In support of the lower cost development plan, the summer work program was successfully completed, involving the final works on the laying of gravel infrastructure which now allows for year round access to the drill pad and facilities pad and materially reduces costs and enhances efficiencies.

A primary focus during the third quarter has centred around finalising the longer-term strategy for our business, taking into consideration the global economic and investment conditions and trends, as well as ensuring the Company is resilient to lower oil prices and well positioned to optimally take advantage of its world class assets and deliver full value when conditions allow. I look forward to presenting the outcome of the wide-ranging Strategic Review to the market at the Oil Search Strategy Day on November 19."

2020 THIRD QUARTER REPORT | 20 OCTOBER 2020 | Page 2

PRODUCTION AND SALES1

QUARTER END

YEAR TO DATE

FULL YEAR

SEPT 2020

JUN 2020

SEPT 2019

SEPT 2020

SEPT 2019

DEC 2019

PNG LNG Project ('000 boe)2

6,554

6,396

6,170

19,303

18,699

24,994

PNG oil production ('000 bbls)

681

735

302

2,061

1,234

1,571

Other production ('000 boe)3

70

155

338

598

1,008

1,382

Total production ('000 boe)4

7,305

7,286

6,810

21,963

20,941

27,947

Total sales ('000 boe)

7,546

6,786

6,471

21,206

19,865

27,785

REVENUE1

QUARTER END

YEAR TO DATE

FULL YEAR

SEPT 2020

JUN 2020

SEPT 2019

SEPT 2020

SEPT 2019

DEC 2019

LNG and gas sales (US$m)5

133.2

229.6

293.1

656.4

909.9

1,246.3

Oil and condensate sales (US$m)

50.2

28.4

58.0

136.2

196.3

295.5

Other revenue6 (US$m)

5.6

8.2

10.1

22.1

31.8

42.9

Total operating revenue (US$m)

189.0

266.2

361.1

814.6

1,138.0

1,584.8

Average realised oil and condensate

36.52

23.05

59.54

36.13

63.46

62.86

price (US$ per bbl)7

Average realised LNG and gas price

4.238

7.34

9.44

6.66

9.63

9.58

(US$ per mmBtu)

FINANCIAL DATA1

QUARTER END

YEAR TO DATE

FULL YEAR

SEPT 2020

JUN 2020

SEPT 2019

SEPT 2020

SEPT 2019

DEC 2019

Cash (US$m)

752.7

831.4

547.3

752.7

547.3

396.2

Debt (US$m)9

PNG LNG financing

2,803.5

2,803.5

3,119.3

2,803.5

3,119.3

2,939.4

Corporate facilities

300.0

360.0

470.0

300.0

470.0

440.0

Net debt (US$m)

2,350.8

2,332.1

3,042.0

2,350.8

3,042.0

2,983.2

  1. Numbers may not add due to rounding.
  2. Production net of fuel, flare, shrinkage and SE Gobe wet gas.
  3. SE Gobe gas sold to PNG LNG, Hides GTE gas and liquids.
  4. Gas and LNG volumes have been converted to barrels of oil equivalent using an Oil Search specific conversion factor of 5,100 scf = 1 boe, which represents a weighted average, based on Oil Search's reserves portfolio, using the actual calorific value of each gas volume at its point of sale. Minor variations to the conversion factors may occur over time.
  5. Includes LNG provisional price adjustment.
  6. Other revenue consists largely of rig lease income, infrastructure tariffs and electricity, refinery and naphtha sales.
  7. Average realised price for Kutubu Blend including PNG LNG condensate.
  8. Excludes LNG provisional price adjustment of US$14 million relating to seven cargoes delivered during the second quarter.
  9. Excludes lease liabilities recorded as borrowings. As at 30 September 2020, the Company's corporate facilities totalled US$1.2 billion, of which US$300 million had been drawn down and US$4.4 million had been utilised for letters of credit.

2020 THIRD QUARTER REPORT | 20 OCTOBER 2020 | Page 3

2020 THIRD QUARTER SUMMARY

Production: Total production for the third quarter of 2020 increased slightly to 7.30 million barrels of oil equivalent (mmboe). This included 6.55 mmboe from the PNG LNG Project, which produced at an annualised rate of 8.9 MTPA during the quarter, and 0.75 mmboe from Oil Search-operated assets. Oil production declined 7% to 0.68 mmbbls, while production from the Hides Gas-to-Electricity (GTE) Project remained suspended, following the cessation of mining and minerals processing at the Porgera gold mine in April 2020. Total production for the first three quarters of 2020, net to Oil Search, was 21.96 mmboe, up 5% on the same period in 2019.

Sales: Total hydrocarbon sales for the quarter were 7.55 mmboe, 11% higher than the second quarter of 2020. Total revenue generated from hydrocarbons declined 29% to US$189.0 million. The lower revenue was due to a large reduction in the average realised LNG and gas price, impacted by the two-to-three month oil price lag on LNG contract prices, a higher proportion of LNG sold on the spot market and a US$14 million negative revenue adjustment relating to the final price determinations for seven delivered ex ship (DES) cargoes delivered during the second quarter, with pricing finalised during the third quarter. Other revenue, comprising rig lease income, infrastructure tariffs, electricity, refinery and naphtha sales, fell 32% to US$5.6 million.

Pricing: The average oil and condensate price realised during the third quarter was US$36.52 per barrel, up 58% on the prior quarter. The average realised LNG and gas price fell 42% to US$4.23 per million British thermal units (mmBtu), due to the two-to-three month oil price lag, capturing the oil price weakness in April and May 2020 flowing through to LNG contract prices and an increased portion of spot market sales volumes at historically low North Asian prices.

Liquidity: At 30 September 2020, Oil Search had liquidity of US$1.65 billion, comprising US$752.7 million in cash and US$895.6 million in undrawn credit facilities. During the quarter, the Company repaid US$60.0 million under its revolving credit facilities.

LNG expansion: Discussions continued between the PRL 3 (P'nyang) operator ExxonMobil and the PNG Government with the objective of securing fair and balanced fiscal terms on the P'nyang Gas Agreement. Internal analysis carried out by Oil Search during the quarter, utilising independent data and discussions with potential customers, assessed the impact of COVID-19 on future LNG demand, resulting in a view that the supply gap anticipated for the mid-2020s has been deferred by a few years.

Pikka Unit Development, Alaska: Oil Search made significant progress in finalising the optimisation studies for the Pikka Unit Development. The Company is now focused on developing the resource through a phased approach, expected to be delivered with materially lower breakeven economics and upfront capital costs. This plan will establish a strong foundation for the development of the Pikka Unit resources and prospective nearby acreage. The Company plans to announce the full outcome of the studies and the revised development plan at the Strategy Day on November 19.

Coronavirus Update: Oil Search established a business continuity team in August, focusing on supporting the existing initiatives to mitigate key risks to personnel and maintaining operating performance through an extended period of COVID-19 related restrictions, as well as ensuring the Company continues to pursue all avenues to protect the continuity of operations. This included, in consultation with medical teams, investigating enhanced COVID-19 testing protocols to enable quarantine periods to be reduced. The PNG field workforce remains in strict quarantine zones in order to reduce any risk to Oil Search and PNG LNG's operations. In addition to the COVID-19 transmission prevention practices and procedures established during the initial response phase, Oil Search Alaskan operations have implemented a weekly COVID-19 testing protocol and mandated a negative COVID-19 test prior to personnel being approved for travel to the North Slope. These additional measures minimised the potential spread of COVID-19 and maintained the health, safety and wellbeing of the workforce during our summer works campaign on the North Slope.

2020 THIRD QUARTER REPORT | 20 OCTOBER 2020 | Page 4

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Oil Search Limited published this content on 21 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 October 2020 21:54:02 UTC


© Publicnow 2020
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Financials
Sales 2020 1 532 M 1 137 M 1 137 M
Net income 2020 -367 M -272 M -272 M
Net Debt 2020 3 335 M 2 475 M 2 475 M
P/E ratio 2020 -24,2x
Yield 2020 0,15%
Capitalization 7 771 M 5 783 M 5 767 M
EV / Sales 2020 7,25x
EV / Sales 2021 6,47x
Nbr of Employees 1 607
Free-Float 99,2%
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Mean consensus HOLD
Number of Analysts 15
Average target price 3,99 AUD
Last Close Price 3,74 AUD
Spread / Highest target 48,4%
Spread / Average Target 6,56%
Spread / Lowest Target -17,1%
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Managers
NameTitle
Kieran Wulff Managing Director & Director
Richard John Lee Chairman
Stephen W. Gardiner Chief Financial Officer
Beth White Executive VP-Sustainability & Technology
Kostas Goerge Constantinou Independent Non-Executive Director
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