OSH Oil Search Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--Oil Search Ltd. (OSH.AU) will step-up spending this year on exploration in Papua New Guinea and its newly bought oil fields in Alaska, even as it works with venture partners Exxon Mobil Corp. (XOM) and Total SA (TOT) on the next phase of liquefied natural gas output from its base in the southwest Pacific.

It follows a more than tripling in profit over the past year on the back of a rebound in oil and LNG prices and as Papua New Guinea's flagship PNG LNG gas-export operation continued to ramp up output.

The energy company faces another year of fairly steady production in 2018, but said Tuesday its capital spend will likely double as it accelerates growth projects, investing in exploration and evaluation in Papua New Guinea and laying the ground work for new production facilities and as it works to develop fields off Alaska.

Oil Search operates each of Papua New Guinea's producing oil fields, though these are dwarfed by output from PNG LNG, in which the company has a 29% stake. It also has interests in a number of undeveloped gas fields in Papua New Guinea, including assets operated by France's Total SA.

Oil Search, Total and Exxon have been negotiating the expansion of LNG operations in Papua New Guinea, including looking at development options that would see the company's share infrastructure to reduce costs.

Oil Search, based in the Papua New Guinea capital of Port Moresby and listed in Australia, said the companies have reached broad agreement on a development concept that will be presented to Papua New Guinea's government for its endorsement. The plans would likely see the construction of three LNG production lines with a total capacity of about 8 million tons of fuel a year, with two lines dedicated to the Total-led Papua LNG project.

Discussions with the government are expected in the coming months, and a decision on the early engineering and design phase of the expansion work is due in the second half of the year, Oil Search said.

The PNG LNG project has positioned itself as one of the world's lowest-cost producers of super-chilled natural gas, feeding into growing demand in Asia for cleaner-burning fuels.

Peter Botten, Oil Search's managing director, said a material shortfall in LNG supplies is expected to develop in the early 2020s, and his company will be targeting key markets in northeast and southeast Asia for longer-term supply agreements, which typically underpin LNG projects.

Oil Search also has plans for three appraisal wells in Papua New Guinea this year, as well as what it said would be the largest onshore seismic testing program in its history.

The company's net profit jumped to US$302.1 million in the 12 months through December from US$89.8 million in 2016, as sales were buoyed by more than 20% increases in the average price it realized for its oil, LNG and natural gas. Revenue for the year was 17% higher at US$1.45 billion, compared with US$1.24 billion in 2016.

Oil Search last year moved to broaden a narrow focus on Papua New Guinea and reliance on earnings from the flagship liquefied natural gas operation in the country, pushing into Alaska's North Slope with stakes in assets near several big producing oil fields. The US$400 million cash deal was finalized last week, and the company is set to become operator of the assets next month.

Production is forecast to be between 28.5 million and 30.5 million barrels this year, and operating costs similar to 2017 levels, while capital expenditure is set to jump to US$475 million-US$575 million from the almost US$278 million spend in 2017.

The increased spend over the year would be funded from cash flows and existing cash, and Mr. Botten said the company had undrawn corporate facilities in place it could tap.

Oil Search said it would pay a final dividend of 5.5 cents a share, for a jump in the full-year payout to 9.5 cents from 3.5 cents the year before.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

February 19, 2018 19:26 ET (00:26 GMT)

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