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Oil Search profits surge

24th February 2015

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – A near tripling of production has resulted in ASX-listed Oil Search reporting a 72% increase in net profit after tax, despite the dismal oil price.

With the successful delivery of the Papua New Guinea liquefied natural gas (PNG LNG) project, Oil Search’s production soared by 186% during the full year ended December, to 19.27-million barrels of oil equivalent.

In addition to the completion of the PNG LNG project, Oil Search also continued with its LNG expansion work, and purchased a material stake in the Elk/Antelope gas fields, which could underwrite a second LNG project in Papua New Guinea.

Total sales for the full year increased from the 6.73-million barrels of oil equivalent reported at the end of 2013, to 17.76-million barrels of oil equivalent, generating revenue of $1.6-billion.

The increased revenue resulted in the net profit after tax increasing from $205.7-million in 2013, to $353.2-million in the period under review.

Oil Search MD Peter Botten pointed out on Tuesday that the net profit included a $129.6-million after-tax impairment charge, related to the impact of the lower oil prices on the carrying value of the company’s assets.

The declining oil prices prompted Oil Search to conduct a self-examination, which concluded that the company’s core strategy of focusing on LNG growth, remained sound.

“Clearly, if oil prices remain weak for an extended period of time, Oil Search’s cash flow available for reinvestment will be lower than previously anticipated. The forward business plan, including the 2015 budget, has therefore been restructured to ensure our priority activities are supported,” Botten said.

He noted that all discretionary operating and capital expenditure (capex) have been reviewed, and unless there was a strong business case to support activities in the current oil price environment, all expenditure had been reduced or deferred.

Overall, capex for 2015 would be reduced by about 20%, with exploration spend down 25%, and production expenditure down 20%, while corporate expenditure would also drop by 20%.

The company was also aiming to reduce its production costs by about 20%, with Oil Search launching a resourcing review to ensure that the workforce was aligned with the business priorities.

Production costs for 2015 were expected to reach between $10/bl and $12/bl of oil equivalent, while capital expenditure was estimated at between $555-million and $685-million.

For 2015, the ASX-listed company said it expected to produce between 26-million and 28-million barrels of oil equivalent.

Edited by Creamer Media Reporter

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