Like its peers, Woodside (WPL) and Santos (STO), Oil Search (OSH) saw its first-half profit fall sharply in the face of the full impact of depressed oil and gas prices.
The company yesterday revealed that earnings fell 88% to just $US25.6 million ($33.5 million) in the six months to June 30.
That was despite near – record production. The company reported interim earnings in 2015 of $US227.5 million
The profit was marginally better than most market forecasts and came off the back of a 33% slump in sales revenue to $US580.8 million.
Oil Search declared a first-half dividend of US1c a share, down from 6 cents for the first half of 2015. The company said the payout ratio of 60% was above the policy to pay out 35-50% of core profit, meaning it has made the payout to keep shareholders happy.
Oil Search recently updated its full-year guidance, with expected output now 28 million-30 million barrels of oil equivalent.
The shares were up 0.8% at $7.41 at the close.
The company said total production in the latest half 14.9 million barrels of oil equivalent (mmboe), the second highest half-year in the Company’s history.
"The PNG LNG Project produced at an annualised rate of 7.7 MTPA during the half, significantly above the nameplate capacity of 6.9 MTPA, while the Oil Search-operated PNG oil and gas fields contributed 3.52 mmboe net to Oil Search, compared to 3.38 mmboe in the previous corresponding period,” the company said.
"While sales volumes rose 5% to 15.2 mmboe, a record for Oil Search, total revenue fell 33% to US$580.8 million, driven by materially lower realised commodity prices. Average realised oil and condensate prices fell 27% while LNG and gas prices were 40% lower than in the previous corresponding period.
"As a result, despite an 8% reduction in unit production costs to a very competitive US$8.21 per boe, reflecting the successful implementation of a range of major cost reduction initiatives, net profit after tax for the first half of 2016 fell to US$25.6 million,”Oil Search added.
Subject to an ongoing recovery in oil prices, Oil Search sad it is planning to commence a more aggressive exploration programme in late 2017, designed to drive long term growth in PNG.
"While oil prices appear to have bottomed, we are maintaining our focus on careful capital management and driving out costs, to ensure our current commitments and LNG growth opportunities can be funded without having to access additional equity capital,” CEO Peter Botten said yesterday.
"Oil Search is fortunate to be financially well placed, having production assets that generate solid cash flows at these oil and gas price levels and a strong balance sheet and liquidity.”
“As indicated in our second quarter results, 2016 full year production guidance has been upgraded to 28 – 30 mmboe, while capital costs are expected to be in the range of US$270 – 315 million, US$45 – 85 million lower than prior guidance.
"This reflects lower spend on PNG power projects, due to delays in moving into Front End Engineering and Design, as well as lower than expected capital expenditure on the PNG LNG Project. Exploration expenditure for the 2016 full year is expected to be between US$190 million and US$210 million.
"Activities will continue to be focused on the high returning opportunities available to us in PNG. Guidance for other operating costs remains unchanged at US$135 – 155 million (excluding costs associated with the InterOil bid, which will be more than covered by the net break fee of US$48 million, after a payment to Total). Guidance is subject to no major operational interruptions being experienced over the balance of the year,” CEO Peter Botten said in yesterday’s statement.
