Like Australia’s other major oil groups Woodside (WPL) and Santos (STO), Oil Search (OSH) is battling the slide in oil and gas prices and their impact on operating costs and revenues, not to mention spending and, no doubt later this year, shareholder returns.
The company told the ASX yesterday in its March quarter production report that first-quarter revenue was lower than in the final quarter of last year, as a result of weaker commodity prices and maintenance work in Papua New Guinea. That was to be expected.
But revenue in the three months through to March of US$472.3 million, almost tripled from the March quarter of 2014 after the PNG LNG joint venture with Exxon Mobil came on stream last May.
But compared with the fourth quarter of 2014, revenue fell 16% after the project was briefly shut for maintenance, and oil and LNG prices fell from November onwards.
Oil Search produced 6.91 million barrels of oil equivalent (mmboe) in the first quarter and it maintained its full-year production guidance of 26 million-to-28 mmboe.
Oil Search has flagged further cost cuts and fiscal constraint, amid a deterioration in global oil prices, as the company posted a slight decline in quarter-on-quarter production.
Oil Search shares rose 0.1% to $8.09.
OSH 1Y – Oil Search feels the pinch of lower prices
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In the three months to March 31, Oil Search produced 6.91 mmboe, a 5% decline on the December quarter.
The result is well above the production achieved in the previous corresponding quarter of 1.681 mmboe, which was before the PNG LNG Project came online and boosted Oil Search.
The decline in production was largely in line with expectations, and reflected slightly lower output at the PNG LNG plant due to scheduled maintenance.
The company reaffirmed its full-year production guidance of between 26 mmboe and 28 mmboe.
The oil and gas explorer sold 7.04 mmboe in the quarter, up slightly from 6.91 mmboe a year ago.
Oil Search managing director Peter Botton said the company has made material adjustments to its capital and operating cost budgets for 2015 (these cuts were announced in February with the 2014 full year results).
"While the company’s balance sheet and financial position are strong, in light of the decline in oil price, we believe it is prudent to remove costs from our business and reinforce fiscal discipline to enhance profitability while ensuring we have sufficient financial capacity to pursue our growth opportunities," he said today.
Mr Botten said the company had re-examined its 2014 strategic review in light of continuing weakness in global oil and gas prices in the first months of this year.
"This has confirmed that the company’s core strategies, focused on LNG growth in PNG, remain sound and have the ability to deliver superior returns to our shareholders," he said.
“While the business is not immune from the significant decline in oil prices, Oil Search remains in a resilient position, both operationally and financially,” he said in yesterday’s report.
At the end of March, Oil Search had cash on hand of $US1.067 billion and debt of $US4.332 billlion, comprised entirely of PNG LNG project finance facility debt following the repayment of $US150m drawn from its bilateral revolving credit facilities.
