For Oil Search, yesterday’s quarterly production report had bad and good news.
The bad was that the global recession and slump in oil prices has had a big impact on the quarterly finances of the group, aided by lower production.
That saw first-quarter sales slump 59% on lower prices.
Sales dropped to $US71.4 million in the three months ended March 31, from $US172.5 million a year earlier, Oil Search said yesterday in a statement to the ASX.
Production fell 14% to 1.9 million barrels of oil equivalent. It sold crude oil for an average of $US45.83 a barrel in the quarter, down from $US92.60 a year earlier.
Oil Search is a partner in the Exxon Mobil Corp-led $US11 billion liquefied natural gas venture in Papua New Guinea and that’s where the good news came from.
And that was the Exxon venture has reached an agreement on terms for the sale of 2 million tonnes a year of LNG to an Asian customer, its first agreed sale.
Oil Search said other sales accords are expected to be secured “in the near term".
The company said the partners in the project (which includes Santos of Australia) are aiming to give their final go-ahead for the project by year’s end.
It said the progress made in marketing the LNG amid the recession gives the partners “increased confidence” all the plant’s capacity will be contracted by mid-year,.
Oil Search fell 11c, or 2.1%, to $5.03 on the ASX yesterday, then rose 4 cents by the close to $5.18. World oil prices slumped 9% and the local market was off around 2.4%.
Oil Search CEO, Peter Botten said in the statement to the ASX that the LNG market outlook for the 2013-14 period when the PNG venture is due to start shipments remains “robust.”
Talks with financiers are on schedule.
"Preparations for the PNG LNG Project landowner benefits sharing Development Forum were well advanced at the end of the quarter, with the first Forum meeting planned to commence in the last week of April," the company told the ASX.
"In January 2009, the Environmental Impact Statement (EIS) for the PNG LNG Project was lodged with the PNG Government.
"Other aspects of the PNG LNG Project also progressed during the period, including initial due diligence by potential financiers.
"In March 2009, the PNG Government announced the completion of the issue of exchangeable bonds over the PNG Government’s 17.6% shareholding in Oil Search to International Petroleum Investment Company (IPIC).
“The Government received A$1.68 billion, which has been placed in an escrow account to be used solely for its equity share of PNG LNG Project development costs.
"In January, Oil Search received ISO 14001 certification for its PNG operations. This is a major endorsement of the Company’s environmental management system and environmental practices in PNG.
"During the quarter, Oil Search optimised its PNG exploration portfolio.
"In addition to farming-down interests in four licences, the Company farmed-in to PPL 260, adjacent to the main PNG LNG gas fields, which contains a number of multi-tcf gas prospects. It also acquired an additional interest in the Uramu offshore gas field.
"At the end of March 2009, Oil Search had a cash position, excluding joint venture balances, of US$481 million, compared to US$517 million at the end of 2008. Key cash outflows for the period included US$37.3 million spent on PNG LNG FEED, US$6.5 million on other exploration activities and US$45.6 million on development work.
"Due to the introduction of a Dividend Reinvestment Plan, the payment of the 2008 final dividend of four US cents per share has been delayed until 7 May 2009. The DRP will be underwritten, which will result in no net outflow of funds from Oil Search."
