PNG projects to continue oil giant’s success

By PATRICK TALU
PNG’s biggest oil and gas company Oil Search Ltd (OSL) has restrategised itself to continue to generate top quartile returns primarily through ongoing investment in PNG.
OSL chairman Brian Horwood told shareholders at its annual general meeting at the Crowne Plaza Hotel in Port Moresby that his board had conducted a major strategic review to develop a strategy to ensure continued business growth up to and after the PNG LNG project is commissioned.
Horwood said OSL’s investment would focus on the following areas:
* Assisting Esso Highlands with the successful delivery of the PNG LNG project;
* Maturing and finding new gas reserves in the highlands and Gulf regions, to be used for both LNG expansion and other gas development opportunities; and
* Drilling in-field and near-field oil exploration and appraisal opportunities, based on a view that substantial oil remains to be discovered.
On the financial performance, the chairman delivered the good news that OSL reported a net profit after tax of US$185.6 million last year, 39% higher than the 2009 result.
“The main drivers of this increase were higher oil prices and a one-off restatement of deferred tax balances,” Horwood told shareholders.
“There was also a continued strong focus on active cost management. This more than offset the earnings impacts of a small decline in oil and gas production, some localised cost pressures in PNG and adverse currency movements.
Operating margins remained strong, with operating cash flow 40% higher than in 2009,” he added.
The said the company’s cash flows were all reinvested in the business.
In total, US$216 million was spent on oil operations capital projects and exploration and evaluation activities, whilst US$1.14 billion was invested in the PNG LNG project.
“The LNG expenditure was funded 70% by the draw-down of project finance debt and 30% from our cash flows and retained cash.
“Despite these heavy expenditures, the company’s balance sheet remains strong, a result of prudent capital management in past years.”
Managing director Peter Botten added that at the end of March, the company had more than US$1.2 billion in cash and was well placed to fund all its future capital commitments.
“These include expenditure on both existing producing fields and the PNG LNG project, as well as on our exploration and appraisal programme, designed to drive growth by finding more oil and gas in PNG,” he said.
Botten said last year saw the start of full execution of the PNG LNG project, including financial close and the start of debt draw downs in March.
The focus of activities over the year was on:
* The mobilisation of the major engineering and construction contractors;
* Construction of core infrastructure;
* Opening up supply routes; and
* Clearing and prepa-ratory work at more than 10 sites spread from the PNG Highlands to Port Moresby.