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Oil Search cuts investments

20th October 2020

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – ASX-listed Oil Search has lowered its capital investment guidance for 2020 as lower oil prices continued to prevail.

The company on Tuesday noted that capital investment for the 2020 financial year is expected to reach between $390-million and $460-million, down from the previously budgeted $440-million to $530-million, following further reductions in exploration activities and the rephrasing of front-end engineering design activities in Alaska.

Meanwhile, Oil Search has reported that production during the September quarter had remained stagnant, with 7.3-million barrels of oil equivalent produced, up slightly from the 7.29-million barrels in the June quarter.

Total sales volumes were 11.2% higher, from 6.79-million barrels to 7.55-million barrels, however, total revenue for the quarter declined by 29%, from $266.2-million to $189-million.

“During the quarter, Oil Search continued to operate under strict CovidSafe protocols while preparing the business for the ongoing impacts of the pandemic,” said MD Dr Keiran Wulff.

“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 Papua New Guinea (PNG) operations, which highlights the successful efforts of the team and the PNG liquefied natural gas (LNG) operator in maintaining safe and reliable operations.

“The ExxonMobil-operated PNG LNG project continued to perform well ahead of expectations, producing at record levels of 8.8-million tonnes a year on average for the first nine months of the year. This included 6.55-million barrels of oil equivalent from the PNG LNG project, which produced at an annualised rate of 8.9-million tonnes a year 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.”

Wulff noted that discussions were 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.

“In addition to the strong production performance, the cost reduction and operational excellence programmes 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,” Wulff said.

“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 programmes being adopted and pursued across the business.”

Meanwhile, Wulff noted that the Oil Search Alaska team, in cooperation with the company’s 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 programme 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.”

Edited by Creamer Media Reporter

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