OIL SEARCH 24 January 2017
Highlights4Q 2016 | 3Q 2016 | % change | FY 2016 | FY 2015 | % change | |
Total production (mmboe) | 7.72 | 7.63 | 1% | 30.24 | 29.25 | +3% |
Total sales (mmboe) | 7.93 | 7.49 | 6% | 30.59 | 28.76 | +6% |
Total revenue (US$m) | 345.6 | 309.5 | 12% | 1,235.9 | 1,585.7 | -22% |
Production in the fourth quarter of 2016 was 7.72 million barrels of oil equivalent (mmboe). The strong performance during the quarter took 2016 full year production to 30.24 mmboe, 3% higher than production in 2015 and marginally above the top of the 2016 guidance range, as well as being an all-time record for the Company.
Fourth quarter production net to Oil Search from the PNG LNG Project was 6.11 mmboe (26.6 bcf LNG and 0.90 mmbbl liquids), while the operated PNG oil and gas business contributed 1.62 mmboe. The PNG LNG plant continued to operate well above its nameplate capacity, reaching its highest average annualised production rate since production commenced, of approximately 8.3 MTPA, during the quarter.
Product sales in the fourth quarter were 6% higher than in the third quarter, reflecting increased production and timing of liftings. Total sales for the 2016 full year, at 30.59 mmboe, were 6% higher than in 2015 and the highest in Oil Search's history.
Total revenue for the quarter was US$345.6 million, 12% above the third quarter, due to higher liftings combined with the increase in global oil and gas prices. The average realised LNG and gas price was US$7.09/mmBtu, up 10% from the third quarter, while the average realised oil and condensate price increased 5%, to US$49.68/barrel. Total revenue for the 2016 full year was US$1.24 billion.
During the quarter, Oil Search continued discussions with key stakeholders, including ExxonMobil, Total and the PNG Government, on how to deliver cost-effective, coordinated LNG expansion synergies within PNG. Oil Search expects formal talks to take place in early 2017, contingent on the successful completion of ExxonMobil's revised offer to purchase InterOil Corporation and its entry into the PRL 15 Joint Venture.
During the quarter, the Oil Search-operated Muruk 1 exploration well in PPL 402 discovered gas in the primary target, the Early Cretaceous Toro Formation. A sidetrack, Muruk 1 ST1, is currently being drilled, to better define the structure and investigate the downdip extent of hydrocarbons. Located only 21 kilometres northwest of the nearest Hides well, Muruk is an exciting new discovery and, assuming appraisal success, is well placed to be tied into PNG LNG
Oil Search Limited
Incorporated in Papua New Guinea ARBN 055 079 868
Head office
Port Moresby Papua New Guinea
Sydney office
1 Bligh Street
Sydney NSW 2000 Australia
Mailing address
GPO Box 2442
Sydney NSW 2001 Australia
Tel: +61 2 8207 8400
Fax: +61 2 8207 8500
www.oilsearch.com
Project infrastructure to support potential LNG expansion. The well results have also reduced some of the risks of a number of prospects in this region.
Netherland Sewell and Associates, Inc (NSAI) is close to finalising its review of the Hides, Angore, Juha and Associated Gas fields. Preliminary indications are that NSAI's estimate of technically recoverable raw gas resources within these fields will increase significantly from its 2009 PNG LNG Project resource certification. Work is underway to assess the impact this would have on Oil Search's share of PNG LNG Project reserves, which, together with a revision to the Company's estimate of resources in the Elk-Antelope fields post drilling, will be reported in the Reserves and Resources Statement, due to be released in February 2017.
In December, the PRL 15 Joint Venture (Elk-Antelope fields) received the formal grant of a five- year extension to the Petroleum Retention Licence. The licence conditions provide the PNG Government and the Joint Venture with a clear pathway and timeframe for development of the fields.
During the quarter, the PRL 3 Joint Venture commenced preparatory work for the construction of the P'nyang South 2 well pad, which is targeted to be drilled in the second half of 2017.
The 2016 Strategy Refresh was successfully concluded during the quarter, with a number of key findings to be implemented in 2017.
At the end of December 2016, Oil Search held cash of US$863 million and had available facilities of US$750 million, taking total liquidity to US$1.61 billion. The Company's total debt was US$3.94 billion, all of which related to the PNG LNG Project finance facility (US$4.08 billion at the end of September 2016).
"Production in the fourth quarter of 2016 was 7.72 mmboe, one of the highest quarterly outputs ever achieved by the Company. This very pleasing result was driven primarily by the PNG LNG Project, which produced at an annualised rate of approximately 8.3 MTPA during the quarter, up from 8.1 MTPA in the third quarter and 20% higher than the nameplate capacity of 6.9 MTPA. The strong performance in the fourth quarter took Oil Search's total 2016 full year production to 30.24 mmboe, which was an all-time record for the Company and slightly above the top end of our 28 - 30 mmboe guidance range.
The high performance and reliability seen to date from all components of the PNG LNG Project infrastructure are enabling the co-venturers to derive significant additional value from the existing installed capacity and the annualised production rates currently being achieved auger well for 2017.
Our operated production also performed above expectations during 2016, reflecting continued success in actively managing these mature fields. While natural decline is expected in 2017, operated production is now anticipated to be well above the forecasts made 12 months ago.
A key highlight for the quarter was the discovery of gas by the Muruk 1 exploration well in PPL 402, operated by Oil Search in co-venture with ExxonMobil and, following its recent farm-in, Santos. The entire Toro sand interval, which was the primary objective, was gas saturated. As a result of the encouraging Toro penetration, the Joint Venture agreed to drill a sidetrack, Muruk 1 ST1, to better define the structure and investigate the downdip extent of hydrocarbons. Subject to the results of Muruk 1 ST1, which is currently at a depth of 2,856 metres and preparing to drill ahead in an 8-½" directional hole, consideration will be given to drilling an additional sidetrack while the rig is on-site, to further appraise the extent of the discovery. Given that Muruk is only 21 kilometres northwest of the nearest Hides well, it is a prime candidate to be tied into
PNG LNG Project infrastructure, to support potential LNG expansion, if appraisal activities are successful. The Muruk well result has also high-graded the structural trend immediately adjacent to the Muruk structure, highlighting the potential for further upside in the area.
Netherland Sewell and Associates, Inc (NSAI) is now close to completing a review of the Hides, Angore, Juha and Associated Gas fields. Preliminary indications show a material increase in NSAI's estimate of technically recoverable raw gas resources within these fields, when compared to their PNG LNG Project gas resources certification in 2009. Work is underway to assess how this would impact reserves (sales gas), which allows for production, shrinkage, fuel/flare and economic limit/turndown. Updated reserves will be reported in our Reserves and Resources Statement which will be released together with the 2016 full year results in February 2017. The Statement will also include our revised estimate of resources within the Elk- Antelope fields following recent drilling.
A likely upgrade in PNG LNG Project reserves, together with resources in Elk-Antelope, P'nyang and the new Muruk discovery, support Oil Search's view that there is more than sufficient discovered gas resource in PNG to supply not only the proven expanded capacity of PNG LNG Trains 1 and 2, as well as at least two, and possibly three, expansion trains. During the quarter, Oil Search continued discussions with key stakeholders, including ExxonMobil, Total and the PNG Government, on how to deliver the most cost- effective LNG expansion within PNG. We expect this to be achieved, in part, by eliminating the duplication of infrastructure, which would deliver maximum value to all participants. A key element to facilitating a cooperative and coordinated development agenda is the entry of ExxonMobil into the PRL 15 Joint Venture, through its proposed takeover of InterOil Corporation. During the quarter, ExxonMobil's bid for InterOil was stalled by an adverse ruling from the Court of Appeal of Yukon. In December, ExxonMobil announced it had made a revised offer to purchase InterOil, with InterOil shareholders scheduled to vote on the new bid on 14 February 2017. Contingent on the successful completion of this offer, Oil Search anticipates that formal talks regarding cooperation and integration of the next phase of LNG development will commence, on an accelerated basis, in early 2017.
In December, Oil Search concluded a focused refresh of the Company's strategy. This work was set against a backdrop of global macro-economic factors including continued low commodity prices, the changing LNG contracting environment, the possible LNG supply overhang and factors specific to PNG. The review explored the potential options, commercial structures and value that can be delivered by cooperation between the P'nyang and Elk-Antelope joint ventures and the PNG LNG Project, as well as a pathway to growth beyond a two-train LNG expansion, through targeted PNG onshore and offshore exploration activity and business development opportunities. A range of the key recommendations resulting from the review will be implemented through 2017 and beyond."
PRL 3 (P'nyang Field) well pad preparation underway"During the quarter, the P'nyang Joint Venture approved the construction of the P'nyang South 2 well pad. Preparatory works have commenced, with the well scheduled to be drilled in the second half of 2017. Oil Search will oversee the construction of the well pad on behalf of the venture, with main civil construction expected to commence in April 2017. The primary objective of the P'nyang South 2 well is to increase 1C resource volumes, with recertification of the field planned after drilling.
The Joint Venture continues to work closely with the Department of Petroleum and Energy and other Government agencies to progress the offer of a Petroleum Development Licence and negotiate the terms of a Gas Agreement."
PRL 15 (Elk-Antelope) licence extension granted"In December, the PRL 15 Joint Venture received the formal grant of a five-year extension of the Petroleum Retention Licence, with terms consistent with the extension application. The licence conditions provide the PNG Government and the PRL 15 Joint Venture with a clear pathway and timeframe to development of the Elk-Antelope fields.
In November, the Antelope 7 appraisal well was spudded, with the objective of providing additional definition of the western flank of the field, currently poorly defined by existing seismic data. The well reached a depth of 2,127 metres before encountering drilling difficulties in the Orubadi Formation. To date, no carbonate reservoir has been encountered in this well, which is in line with Oil Search's pre-drill expectations. A sidetrack is currently being drilled, so that this area of the field and deeper potential reservoir objectives can be fully appraised."
Exit from Taza PSC, Kurdistan"During the quarter, Oil Search relinquished its interest in the Taza PSC in the Kurdistan Region of Iraq (KRI). In line with our strategy to focus on projects that can generate the best returns to shareholders, the Company elected not to make any further investments at Taza, given the remaining uncertainties on the resource and our assessment that the discovery is not commercial at current oil prices. All operational sites have been remediated and will be returned to the landowners and the Oil Search office in Kurdistan has been closed. The relinquishment will result in the debooking of approximately 20 mmbbl of 2C oil and 6 bcf of 2C gas resources in the 2016 Reserves and Resources statement. In Yemen, completion of the sale of our interest in Block 7 to Petsec Energy Limited is targeted for early 2017. This will signal the Company's exit from the Middle East region at the present time, following a refocus onto the high returning investment opportunities available to us in PNG."
Power activities in PNG"The development of Oil Search's PNG power business continued during the quarter, with the establishment of a subsidiary, Oil Search Power Holdings Ltd, with a dedicated management team and industry specific management systems. This new entity will be responsible for managing all of Oil Search's power projects in PNG.
The Markham Valley Biomass Project, which entered FEED in the third quarter of 2016, made good progress during the quarter, including the award of an Early Contractor Involvement contract for the preparation of an EPC package for the biomass power station. Work in conjunction with PNG Power Limited (PPL) also progressed. With the support of Oil Search, PPL completed a hook-up trial in Tari which allowed collection of data related to the cost of household connections. The trial demonstrated increased service levels and improved marketing and customer installation times.
A Study Agreement was executed with Kumul Petroleum Holdings Limited in December, in which Kumul will collaborate with Oil Search across a range of potential PNG power projects, including domestic LNG. The domestic LNG concept involves accessing LNG from existing and potential expansion plants or gas for LNG from local sources, for sale to domestic and regional markets."
Oil Search Limited published this content on 24 January 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 23 January 2017 22:45:07 UTC.
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