Oil Search (OSH) has shrugged off the weak oil price and reported the highest quarterly production in its history during the second quarter to the end of June.
But that wasn’t enough to offset the impact of weaker prices on group revenues in the quarter, but despite that its production forecast for the full year was lifted by a million barrels.
But there’s a distinct feeling from yesterday’s production and exploration report for the three months to June, that the company knows the sharp fall in oil and gas prices in the past year aren’t going away quickly.
Oil Search management made it clear that despite the record production (thanks to the huge PNG LNG project), it is continuing to cut costs to meet the challenge of the weaker energy prices.
And according to yesterday’s report it seems to be having success in this area. Perhaps that’s why the shares were up 3.8% at $7.22 on the ASX yesterday.
OSH 1Y – Oil Search production up, revenue down
Gas and crude-oil production hit 7.41 million barrels of oil equivalent (mboe) in the three months to June, a rise of 7.3% on the prior quarter and up 94% on a year earlier.
The group said sales revenue for the period was down 17% quarter-on-quarter at $US391.5 million after the average price the company received for gas and liquefied natural gas fell 35% to offset a 20% recovery in the average oil and condensate price from the first three months of the year.
Revenue for the first half of 2015 was $US863.8 million, up from $US510 million in the first half of 2014, as the PNG project was being completed.
Oil Search joins rivals Santos (STO) and Woodside (WPL) in revealing the impact of lower prices on revenues.
Santos last Friday said second-quarter sales revenue fell 19% on-year to $A786 million, while Woodside reported a 47% drop in revenue for the period to US$989 million.
Oil Search forecast production for the full year of between 27 million and 29 million barrels mboe, a rise on earlier guidance of 26 million-28 million.
For the first half, Oil Search said its production costs are now expected to be lower than previously expected at between US$8 and US$10 a barrel after the company pushed some work into the second half of the year.
Managing director Peter Botten said the strong quarter was due to further production increases from PNG LNG, combined with "solid" performance from Oil Search’s operated oil fields.
“With strong production and a solid balance sheet, the company is well positioned to progress its value accretive growth projects, despite the current weak global oil and LNG price environment,” Mr Botten said in yesterday’s release.
He said that in addition to the upgrade in production guidance for the full year, production costs per barrel are now expected to be lower than previously advised because of savings on renegotiated supply contracts, lower costs for labour, transport and chemicals and favourable exchange rates.
And Oil Search is now anticipating production costs for all of 2015 will be between $US9 and $US11 per barrel, rather than US10-$US12 per barrel.
PNG LNG is now expected to produce above its stated capacity of 6.9 million tonnes a year for 2015, Mr Botten said.
