Shares in Oil Search, Papua New Guinea’s largest oil producer, finished up 4.8% in yesterday’s stronger market, despite the company revealing that earnings this year will be hit by lower oil prices
After a drop in fourth-quarter output for 2008, the company said in its December quarter production report that operating costs for the second half of 2008 would be about 10% higher than the first half due to an increased level of wellwork over.
Output during the three months to December 31 dropped by 13.2% on the corresponding quarter of 2007 to 2.148 million barrels of oil equivalent (mmboe), primarily due to the sale of the company’s Middle East assets in May.
Oil Search shares closed up 20c, or 4.8%, at $4.36.
Production for the year was 12.3% lower than the 2007 result at 8.579 million barrels of oil equivalent, with Oil Search forecasting 2009 output to be "similar” to that in 2008.
"Oil and gas production net to Oil Search for the fourth quarter of 2008 was 2.15 mmboe, 2% higher than in the third quarter, due to increased production from the Kutubu field," the company said in the report to the ASX.
"Total production for the 2008 full year was 8.58 mmboe, which was within the Company’s forecast range.
"Fourth quarter oil sales were 2.17 million barrels, compared to oil production of 1.89 million barrels, bringing sales and production available for sale for the year broadly into balance."
Operating revenue for the fourth quarter dropped by 42.2% on the previous corresponding quarter to $US137.9 million ($A209.1 million) after a fall in the oil price.
The average realised 4th quarter oil price achieved was US$58.15 per barrel, 53% lower than in the third quarter reflecting the global oil price collapse.
Sales revenue was US$130.6 million, compared to US$193.6 million in the third quarter of 2008.
Larger Australian rivals, Woodside and Santos both saw 4th quarter revenues and earnings fall as a result of the plunge in world prices.
Both however will report record revenues and close to if not their best ever profit reports.
However, Oil Search’s revenue for the full year was up almost 13% on the 2007 result due to higher oil prices earlier in 2008 at $US811.6 million.
The key to the higher sales figure was the average oil price realised for the year of US$100.11 a barrel, compared to US$77.78 a barrel in 2007.
Oil Search managing director Peter Botten said conditions in the second half of 2008 were some of the most challenging ever experienced by the energy sector.
"Looking forward to 2009, cash flow will undoubtedly be impacted by the current low oil prices and the company is in the process of reviewing budgets for 2009 and opportunities for reducing discretionary spending,” Mr Botten said in a statement.
Mr Botten said the company was in a good position to weather the economic storm, with a strong cash position, a recently completed debt facility and steady output from low cost fields in PNG.
The company said that during the quarter, the PNG LNG Project participants engaged Bechtel of the US and Chiyoda of Japan to undertake a competitive bid process for the Engineering, Procurement and Construction (EPC) of the LNG Plant and associated facilities. In December, the PNG LNG Preliminary Information Memorandum was completed and a roadshow to export credit agencies took place.
"Feedback from the roadshow was positive and confirmed that, despite the economic slowdown, significant funds remain available for well structured and high quality projects such as the PNG LNG Project. The Project remains on track for a Final Investment Decision to be made in late 2009.
"In November, the PNG Government announced that it had issued exchangeable bonds over the PNG Government’s entire 17.6% shareholding in Oil Search to International Petroleum Investment Company (IPIC), an investment company wholly owned by the Abu Dhabi Government.
"The principal amount of the bonds is A$1.68 billion, which will be used to fund the PNG Government’s equity share of capital costs for the PNG LNG Project.
"This is seen as a major positive by the Project, in that it removes a significant uncertainty in the financing process and allows the PNG Government flexibility in managing its participation with respect to landowner involvement.
"Oil Search finalised a US$435 million five year revolving credit facility with a syndicate of 16 banks in October. At the end of December, the Company had a cash position, excluding joint venture balances, of US$517.2 million, compared to US$326.5 million at the end of 2007, and no debt, placing the Company in a very strong financial position.
"US$57.8 million was spent on exploration activities (including PNG LNG FEED) and US$60.6 million on development work during the fourth quarter."
