PERTH (miningweekly.com) – ASX-listed Oil Search has reported a 264% fall in net profits after tax for the first half of 2020, as oil prices tumbled amid the Covid-19 pandemic.

The company on Tuesday reported a net loss after tax of $266.2-million, compared with a net profit of $161.9-million in the first half of 2019, as revenues declined by 19%, from $776.9-million to $625.6-million.

Total production for the interim period was up 4%, to 14.66-million barrels of oil equivalent, while sales volumes also increased by 2%, to 13.66-million barrels of oil equivalent.

However, the average realised oil prices declined by 45% on the comparative period, while liquefied natural gas (LNG) and gas prices declined by 19%.

Oil Search reported a noncash, after-tax impairment of $260.2-million in the interim period, primarily related to its Papua New Guinea (PNG) exploration assets, along with $30.7-million of deferred tax assets.

“The unprecedented challenges due to Covid-19, the consequent disruption to the global economy and the precipitous decline in oil prices in the first half of 2020 have been catalysts for reassessing all areas of Oil Search’s business,” said MD Dr Keiran Wulff.

“Without compromising safety or operational performance, we have systematically introduced initiatives to prioritise our activities, sustainably reduce operating costs, reduce current and forward noncore spend and lower breakeven costs for our in-field development and new growth projects. These programmes will enhance the company’s ability to generate strong cash flow and to deliver our world-class oil and gas growth assets at lower oil prices.”

Wulff noted that as part of the drive to reduce operation costs, Oil Search undertook a transformational reorganisation, benchmarked against local and international peers, resulting in a leaner and more streamlined business.

“The cost-out programme, restructure and efficiency improvements within our operated assets are already reaping rewards from a production and profitability perspective, with unit operating costs 20% lower than in the first half of 2019.

“Additional opportunities are being developed to further reduce the breakeven costs of our PNG oil fields and we are embedding a culture of continuous improvement, to drive ongoing operating efficiencies, and capital discipline,” Wulff added.

“Work is well advanced in Alaska to lower the breakeven cost of the Pikka unit development and materially reduce the upfront capital expenditure, through an optimised and phased approach to the development. We are incorporating the results from this season’s very successful Mitquq and Stirrup exploration drilling programme, which have highlighted material upside and enhanced optionality within Oil Search’s Alaskan portfolio, into our longer-term Alaskan development plans.

“These initiatives have added significantly to the attractiveness of our Alaskan portfolio and we will be relaunching the partial divestment process once we have finalised the updated development plans,” Wulff said.

Looking towards the full year, Oil Search has set a production target of between 27.5-million and 29.5-million barrels of oil equivalent.