Oil Search (OSH) has joined the impairment brigade among oil and gas companies with the warning of write-downs coming in the value of a big offshore exploration play in central Asia.
Local peers such as Woodside, Santos, Beach, Drillsearch and smaller companies have already hacked billions from spending in 2015 and have plans for billions more in cuts this year. They are following the lead from industry majors such as Chevron, BP, Shell, Total and more as they battle the worst downturn in oil and gas prices and demand in a generation.
Oil Search signalled the write-off of much of its exploration assets in Kurdistan (in the books at just under $US400 million) in the wake of poor results and the slump in the global oil prices which is also forcing Oil Search to hack into its 2016 exploration and development budgets.
In its December quarter and 2015 production report, the company revealed that the oil price crunch had hit it hard, especially the impact on revenues from its share of the huge PNG LNG project.
It said the fall in oil prices saw December quarter revenue drop 10% to $US342.9 million ($A490 million) on production of 7.51 million barrels of oil equivalent, which was up slightly from the 7.42 million barrels in the September quarter.
For the year to December, total revenue was $US1.58 billion down from $1.61 billion in 2014, even though output jumped 52% to 29.2 million barrels of oil equivalent because of rising output from the PNG LNG project.
Over 2015, the average realised oil price nearly halved, to $US51.36 from $US97.79 a barrel, The price in the fourth quarter was $US42.90 a barrel, down 14% from the third quarter. Brent crude was trading at just over $US32 a barrel yesterday, having fallen sharply, then rebounded more than 5%.
Oil Search said the average realised LNG and gas price was $US8.41million per British thermal units (mmbtu), down 6% from the prior quarter, while the average realised oil and condensate price fell 14% to $US42.90 a barrel.
“While Oil Search’s production generates positive cash flow even at the current depressed oil price, the Company is presently re-assessing its 2016 work programmes and is looking for opportunities to optimise its activities, improve efficiency and further reduce its cost base,” Oil Search said.
OSH 1Y – More pain for Oil Search
The company’s long time CEO Peter Botten said in yesterday’s release that he is actively prioritising further cost cuts across the business. Details will be released when the company announces full year results on February 23.
“Given the recent further sharp decline in oil prices, we are using the information gained through the 2015 business optimisation program to actively prioritise further cost reduction opportunities across our business.
“Our overall strategy, however, remains unchanged, with a strong focus on PNG, where we have a major competitive advantage, and on our high-value growth projects,” Mr Botten said.
He said the company would generate positive cash flow even if oil prices fell to $US$20 a barrel.
The company said that for 2016, operating costs are expected to be towards the lower end of the $US145-165 million guidance range, with net financing charges expected to be between $US180-$190 million.
A $US5.5 million loss on asset disposals is expected to be realised.
The decline in the oil price has prompted a review of asset values, but the sole impairment is expected to be of its Taza exploration work in Kurdistan, Iraq, it said. That is in the books at $US399.3 million.
The shares lost ground to close at $5.99, down more than 4.5%.
Oil Search rejected the $11.6 billion takeover bid from Woodside late last year.
