Oil Search showed the benefits of the surge in oil prices, especially in the June quarter, with a 52% jump in revenue for the half year to a record $US466.8 million ($A478 million).
Revenue for the second quarter climbed 58.2% to $US294.2 million ($A301.28 million) from the same period in 2007. Second quarter revenues jumped more than 70% from the first quarter, a telling example of the boost oil producers received in the second quarter, when oil prices rose more than 40%.
The company said the result was driven by record average oil prices for PNG crude of US$133.63 per barrel, up 44% on the first quarter of 2008. Oil Search remained unhedged during the period.
This was after production for the three months to June 30 fell 13.4% to 2.12 million barrels of oil equivalent (mmboe) due to the sale of a package of assets in the Middle East and North Africa.
Oil Search shares dropped 6c, or 1.2%, to $4.94 before rebounding to end up 2c at $5.02.
Commenting on the second quarter results, Peter Botten, Oil Search’s Managing Director, said: “Oil production from PNG rose quarter on quarter, with continued good performance from the Kutubu and Gobe fields. Liftings of oil were higher than production during the period, with production and sales for the first half of the year broadly balanced by the end of June".
"Global oil prices continued to strengthen over the quarter and our PNG crude continued to attract a premium over the benchmark Tapis crude price.
"This resulted in new oil price records being set for the Company, with an average realised oil price in PNG of US$133.63 per barrel compared to US$76.09 in the corresponding period of 2007 and US$92.79 in the first quarter of 2008."
The company reiterated its 2008 production forecast of between 9 mmboe and 9.5 mmboe after factoring in the sale of those assets in the Middle East and North Africa (MENA) and changes to its PNG drill program.
Oil Search sold eight assets across Egypt and Yemen to private outfit Kuwait Energy Company in April for $US200 million ($A204.81 million).
The company said: "Total oil and gas production for the second quarter of 2008 was 2.12 million barrels of oil equivalent, 4% lower than in the first quarter, after accounting for the disposal of all the Company’s Middle East/North Africa producing assets from 1 May 2008. Total oil sales for the period were 2.07 million barrels, compared to oil production of 1.86 million barrels.
"Operating revenue for the reporting period increased by 71% to US$294.2 million over the first quarter. This took total revenue for the first half of 2008 to US$466.8 million, up 52% from the previous corresponding period in 2007 and a record for the Company in its 79 year history."
"A key achievement in the quarter was the decision by the PNG LNG Project participants to enter Front End Engineering and Design (FEED) in May. This followed the signing of a Gas Agreement with the PNG Government, defining the fiscal terms and legal obligations that will apply to the Project. Signing the Gas Agreement and entering FEED were very important milestones for Oil Search and work is now underway to move the Project forward towards a Final Investment Decision.
"As part of its strategy to deliver growth from gas beyond the PNG LNG Project, Oil Search is progressing a range of gas initiatives with key stakeholders to commercialise the substantial discovered PNG gas resource that is not currently dedicated to the first phase of the PNG LNG Project.
"Following the FEED announcement for PNG LNG, AGL announced its intention to divest its PNG portfolio comprising an 11.9% interest in PDL 2/PL 2 (Kutubu) and a 66.7% interest in PDL 4 (Gobe), with an approximate 3% interest in the PNG LNG Project. Based on the structure of the sale, as recently advised by AGL, Oil Search and its co-venturers have pro-rata pre-emptive rights on any sale of these interests. Along with its partners, Oil Search will consider its position when a divestment proposal is announced by AGL. This is expected in September 2008.
"The potential sale of interests in the PNG LNG Project and oil production licences will provide a market benchmark of value for these assets."
Oil Search said settlement was expected in September on the sale of those Middle East/North Africa assets to Kuwait Energy for a consideration of US$200 million plus working capital. The sale is expected to generate a post tax profit of approximately US$130 million.
"The Company has retained a range of MENA licences, all of which have material exploration upside..
"Oil Search’s cash position grew over the quarter, from US$355 million (excluding cash balances of joint venture interests) at 31 March 2008 to US$391 million at the end of June. This reflected strong operating cashflow. US$91.6 million was spent on the Company’s exploration programme, including gas commercialisation activities, during the period.
"The Company is in the process of finalising a bank group which will provide a US$400 million loan facility to replace one that will expire at the end of 2008. Funding offers have totalled more than double the amount sought, with final terms, including pricing, expected to be more competitive than the terms on the expiring facility. In addition, close to half of the facility will be provided without the requirement for political risk insurance."
