Oil Search : Executive Changes Webinar Transcript

Company:	Oil Search Limited
Title:	Oil Search Executive Changes Market Update
Date:	19 July 2021
Time:	12:00 pm AEST
Start of Transcript

Operator: Thank you for standing by. Welcome to the Oil Search market update. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr Rick Lee, Chairman. Please go ahead.

Rick Lee: Thank you very much. Welcome, everyone. Thanks for finding the time at such short notice to participate in this call. My name is Rick Lee and I'm the Chairman of Oil Search Limited. Joining in with me on the call are Peter Fredricson, who is now Acting Chief Executive of Oil Search and a number of other members of the Executive Leadership Team. Peter will introduce you to them in due course.

By now you will have seen the statement issued to the ASX, outlining the departure of Managing Director, Dr Keiran Wulff. The statement advises that Dr Wulff has resigned for health reasons and has been managing a medical condition which has recently deteriorated. It also states the Board entered into discussions with Dr Wulff, following the receipt of recent concerns and complaints about his behaviour.

In the view of the Board, this unacceptable behaviour was inconsistent with the standards required under the Company's Code of Conduct. Dr Wulff has acknowledged the impact his behaviour has had on others and I personally want to wish him and his family the very best for the future. For confidentiality reasons, we can't delve into the specific instances of Dr Wulff's behaviour and you will understand we are also not at liberty to outline the nature of his illness. But I want to reassure everyone that the Board and the Executive Leadership Team are in the process of dealing with any and all grievances that arise, in a manner that reflects our commitment to the Code of Conduct.

No matter which way you cut it, these are not the circumstances that I expected or hoped to be talking about with you, but when the Board became aware of this unacceptable behaviour, it had no option but to take decisive action. Oil Search has a long and proud history, built on a commitment to teamwork and respect for each other. Each and every Director stands behind the Company's Code of Conduct. These are not empty words and the Code outlines clearly what is expected from everyone in the Company, to safeguard our positive and supportive culture.

Of course, the Board recognises the stress imposed on all staff by the difficult conditions prevailing over the past year or so. There is no doubt that the period since Dr Wulff became Managing Director in February last year has been extremely challenging. It has included global lockdowns associated with the COVID-19 pandemic, a plunge in oil prices, crisis measures to protect the Company's financial position and, of course, an ongoing priority has been to establish a clear strategy which steers a path to a sustainable future for the Company, through the global energy transition now underway. I want to pay tribute to all staff who have ensured Oil Search is in a solid position, with record levels of production in PNG and our Alaskan development plans meeting milestone targets.

You will also be aware, from the statement sent to the ASX, that Peter Fredricson has agreed to become Acting Chief Executive. Peter is a veteran finance and energy sector executive without peer, headlined by a long career at the APA Pipeline company. He joined Oil Search earlier this year as Chief Financial Officer and has hit the ground running. He has formed a great rapport already with staff, including the Executive Leadership Team.

DISCLAIMER: This transcript has been prepared by a third party for Orient Capital Pty Ltd. It may not be accurate or complete and should be verified directly with the issuer. Orient Capital Pty Ltd is not responsible for any consequences of the use you make of the information contained in this transcript, including any loss or damage you or a third party might suffer as a result of that use.

The Board looks forward to working with Peter, to ensure that production projects in Papua New Guinea and development of initiatives in both PNG and Alaska remain on track and on budget. We will, of course, stay in touch with you when we appoint a permanent Managing Director and with interviews with external/internal candidates will be beginning shortly. Again, thanks for your time. I'll now hand over to Peter.

Peter Fredricson: Thanks, Rick. Good morning, everybody. I'd like to start this discussion by thanking the Board for having the confidence in me, as an Executive, to step into this role. Whilst I've only been with the Company some three and a half months, I have found it to be an exciting place to work and I've found a committed group of industry experts who are successfully working towards delivering value for Oil Search shareholders on a daily basis. I'm very privileged to have been asked to provide leadership to them all.

I'd also like to say that neither the Board nor I see this as a caretaker role. Certainly, it is an acting role, but as a Company, we have a lot of things going on and whilst in the role I will ensure that all of the priorities that we have for the Company remain front and centre for the whole team. It's a privilege to have the support of the Executive Leadership Team, all of whom are on this call.

Beth White, our Executive Vice President Sustainability and Technology; Mike Drew, our EVP General Counsel and Company Secretary; Diego Fettweis, our EVP Commercial; Bruce Dingeman, EVP Alaska; [Bart Delphos - sic Bart Lismont], EVP Operations and, I think, Leon Buskens is on leave and an apology for today. I feel privileged, together with the Board, we are all fully committed and accountable to you, our shareholders.

The Executive Team has some 150 years plus of collective experience in the oil and gas sector, incorporating roles in businesses such as ConocoPhillips, ARCO, ExxonMobil, Shell, Texaco, Woodside, Anadarko, Oil Search and others. Similarly, the Board has some 160 years plus of oil and gas experience, from companies such as BP, Texaco, Statoil, Shell, Woodside, Amoco, Oil Search and others.

As a business, we have a portfolio of partners in ExxonMobil, Total, Santos, JX, Kumul, MRDC in PNG and Repsol in North America. That is as good as it gets. Clearly, we have the expertise in and around the business to achieve the aspirations that we set out in our focus-deliver-evolve strategy in November 2020. We are committed to doing just that, going forward.

Something we will be doing in the short term is working towards simplifying our message to the market and our shareholders. We have three high-quality projects that will deliver significant growth in cash flows to our shareholders over the balance of this decade and beyond. We'll deliver on the ongoing support to PNG LNG and engage with our partners on how P'nyang supports that project longer term.

We'll work with our partners to take Papua LNG into FEED next year, with the target for FID in 2023 and first gas in 2027. We will work with our partner Repsol on achieving an appropriate funding structure for our Alaska Project, prior to committing to FID. That includes the work we are currently doing on a possible joint selldown of equity in the project, consideration of the sale of mid-stream infrastructure within the project and reviewing relevant markets for an appropriate level of debt financing to support the project.

We'll do this whilst protecting the integrity and strength of the Oil Search balance sheet. To that end we are working on a number of initiatives that we believe over the medium to longer term will enhance our access to a broader range of more liquid debt capital markets, whilst also looking to enhance - rather than just maintain - value of the equity that our shareholders retain in the business.

Above all, we will maintain our absolute focus on doing this safely and achieving our Paris-aligned sustainability targets over the longer term. We have confidence in our first-half 2021 results. We expect that they will reflect a half-year of solid production and sales in the context of what has been a COVID-19-impacted year for all business. You'll see our

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2Q report in the next week or so and that will reflect ongoing guidance that is in line with what we provided in the first quarter report in all areas, except operating costs, which will be guided to a number around $10 million higher than Q1, off the back of increased royalties and levies and transportation and fuel costs, driven by increased revenue from our sales at higher commodity prices.

All in all, we've got a strong business, with significant growth in front of us. I intend to work with the Board and wider team in continuing to deliver that growth, whist ensuring the integrity of our capital allocation, balance sheet and funding. I'm looking forward to working with the Board, the Executive Leadership Team and all of our employees in PNG, Alaska, Asia and Australia, to deliver a solid half-year result and a growing Oil Search beyond that.

As I said earlier, we've got the ELT here on the call with us. So, we'd be happy to take questions, albeit we do note that we are in blackout and we won't be able to comment on anything in respect of the operational performance of the business, other than what I've already spoken to. So, with that, I will hand back to the moderator. Thank you, all.

Operator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Mark Samter from MST. Please go ahead.

Mark Samter: (MST, Analyst) Yes, morning, everyone. I've got three questions which are all pretty intertwined, to be honest, I think it's probably best to ask to you, Rick, if I may. Yes, over the past 12, 18 months, we've had a failed CFO recruitment process. The first time around we've had a CEO appointment that the Board made that put someone in that

• using your words - behaved in a manner inconsistent with your expectations. I think it's fair to say that your shareholders have been pretty let down by your capital allocation strategy and failure to raise equity at the right time over the previous years. At what stage does the Board feel it has to take responsibility for what's happened, rather than it's always been the Executive's fault?

Rick Lee: Well, I think the Board is taking responsibility for what's happening and I think our actions in response to these behavioural issues demonstrates that. We realise we are accountable and we are determined to ensure that the Company and the Executive fulfill those obligations as we do as a Board. We are very committed to that and certainly I don't see the Board in any way not fulfilling those responsibilities.

Mark Samter: (MST, Analyst) Yes, but I guess, I mean, shareholders will probably argue that [everyone] - the Board isn't being held accountable, because they all remain in their position and continue to get paid for the job, they're paid to represent shareholders. I guess, along that same thinking, we've certainly seen globally a number of successful mergers of companies that have probably found themselves in a similar position to Oil Search. Do you think the Board needs to be more pragmatic? Are you open to working with others? Are you open to approaches and can you even tell us if there have been any approaches made?

Rick Lee: Well, we certainly don't comment on those kinds of things, but I mean, our objective, primary objective is really creating shareholder value through whatever source. So, we have absolutely no concerns about any particular initiatives that lead to that, but it will be tested against that parameter and benchmark of shareholder value. Obviously, we're very mindful of disclosure rules, so at the point where a disclose is appropriate it will be made.

Mark Samter: (MST, Analyst) Okay, thank you. I mean, I presume you would agree that at a $3.75 share price, at a $75 oil price, the market's marking you pretty harshly on that and doesn't back the Company to be able to do it. I guess, Alaska strategy, as part of that, can you confirm you are definitively saying that you think the Company can undertake the selldown and take FID before a new CEO is in place to sign off on the strategy?

Rick Lee: I think, well, Peter perhaps is best to comment on that. He made some comments to that end in his introductory presentation. So, we have our strategy, I think it's been very clearly articulated as to what our priorities are.

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We will certainly continue with those. We will keep the market properly informed about progress, as and when it comes. So, Peter, do you want to add to that comment?

Peter Fredricson: Yes, Mark, I'm not sure we've said that we can achieve an equity selldown and an FID before a new CEO is appointed. I think what we've tried to message to the market for some time now is that, before taking FID, we will have appropriate funding and that could include a selldown in equity. It could include the sale of infrastructure. We have a number of processes going and they're ongoing. Again, as they come to fruition, we'll talk to the market about them. But I think we've been clear in the fact that we won't go to FID without an appropriate structure in place.

Mark Samter: (MST, Analyst) Yes, okay, thank you.

Operator: Thank you. Your next question comes from Adam Martin from Morgan Stanley. Please go ahead.

Adam Martin: (Morgan Stanley, Analyst) Yes, good afternoon, Rick, Peter and team. Peter, perhaps a question for you. I mean, can you just provide an update where you actually are at on that Alaskan process, are you first/second round offers, just level of interest, please? Can you provide the market with a bit of an update there, please?

Peter Fredricson: No, look, we're not in a position to do that at this time. I think we'll leave that for 24 August, in the half- year results.

Adam Martin: (Morgan Stanley, Analyst) Okay. Just back on Mark's questions or partly on his question, just that timeline for a new CEO and committing to that project, I mean, what's your thoughts there? Because typically a new CEO would like to back or to push forward on a project. So, can you just talk through that, please?

Rick Lee: Well, perhaps I should pick that one up, Adam. I think, certainly in terms of the timeline for a CEO appointment, it is clear that Peter is in the position as CEO, he's Acting CEO and certainly, we don't see the current title Acting in any way changing the approach that we take to these kinds of decisions. So, we will be initiating a search for the CEO, but we obviously at this stage don't have any clear timeline in mind for that, because we have a great deal of confidence in Peter and the Leadership Team to continue the business and the strategy the way that we've articulated to the market.

So, we'll obviously keep you informed as and when there are developments on those, the CEO appointment. But at this stage the Company has very clearly articulated plans and we'll be reporting against those at the half-year results announcement.

Adam Martin: (Morgan Stanley, Analyst) Okay. Thanks, Rick, thanks, Peter. That's all from me.

Rick Lee: Okay.

Operator: Thank you. Your next question comes from Saul Kavonic from Credit Suisse. Please go ahead.

Saul Kavonic: (Credit Suisse, Analyst) Thank you, gents. A few quick questions, if I may, first directed to you, Rick. How long have the behaviour issues that you've announced today been known by the Board? Does this extend back into last year?

Rick Lee: The behavioural issues that we became alerted to through a whistle-blower statement have been known since the middle of June.

Saul Kavonic: (Credit Suisse, Analyst) Is that the middle of June this year or the middle of June 2020?

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Rick Lee: Middle of June this year we received the whistle-blower announcement report.

Saul Kavonic: (Credit Suisse, Analyst) Understood. Have there been any - had behavioural issues by the CEO had anything to do with the CFO departure last year, the interim CFO departure?

Rick Lee: No.

Saul Kavonic: (Credit Suisse, Analyst) Great, thanks. The target selldown, can you just confirm if you are still targeting selldown and FID for Alaskan second half of this year, regardless of whether permanency or appointment schedule turns [out to be]?

Peter Fredricson: Saul, I think what we've been trying to - the message we've been trying to get across in respect of FID for Alaska is that it's not targeted to a specific date. If the market has felt that that was the case in the past, it's certainly not the case today. FID for that project will be dependent on ourselves and our partners, Repsol, agreeing that we've achieved an appropriate sharing of risk with other investors, either by way of an equity selldown, or by way of a midstream infrastructure selldown and appropriate levels of funding available to see the project through to first oil. Those are the things that come first. When we get to that point, then we will consider FID at that point. But we're not constrained here by any targeted date whatsoever.

Saul Kavonic: (Credit Suisse, Analyst) Understood. A follow-up for that, Peter, if I may. Keiren was obviously known for being very passionate about Alaska and driving that through the business. Do you have the same level of passion for the Alaska project?

Peter Fredricson: I think the business has the same level of passion for the project, from the Board, through the ELT, through to people working in the business. As I said, for us, it's very much a matter of how and when we fund it to a point to go forward. That delivers very many different options to us and we'll consider those all as we go forward.

Saul Kavonic: (Credit Suisse, Analyst) Great thanks. Rick, just one final question and I'm sorry to reiterate it, it's just, it would be good - there's all kinds of rumours circulating in the market, so just to really put it to bed, just, Rick, can you confirm that you've not had any concerns regarding the CEO's behaviour raised to you prior to middle of June this year?

Rick Lee: I can confirm that we responded to a whistle-blower statement which alerted to the Board the behavioural issues. I think that was around the middle of June. We've been working hard in the period since then. We have certainly, over a long period since Keiran's appointment, we have certainly supported him in what was a pretty challenging role from day one. Our priority was to protect the Company to make the changes that were made and pursue the strategy that was articulated last November. I think through that period we had absolutely no concerns whatsoever.

Saul Kavonic: (Credit Suisse, Analyst) Right. Thank you very much, Rick. That's all from me.

Operator. Thank you. Your next question comes from Daniel Butcher from CLSA. Please go ahead.

Daniel Butcher: (CLSA, Analyst) Hi, everyone. Just had a couple of questions if that's all right and sorry to labour the point, maybe for Rick. I'm still a bit confused, to be honest. Did Keiran resign for health or was he going to be asked to leave anyway for his overbearing management style? If it was for health, why mention the latter? If it's the latter, why say he resigned?

Rick Lee: Look, he resigned on medical grounds. We can't go into detail of his medical condition for obvious reasons, but we had alerted him to the issues raised in the whistle-blower statement and entered into discussions with him and that was the result of those discussions.

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