Oil Search Makes Company Revenue Record for 2Q 2008

Oil Search Limited has issued an update on its second quarter production and operations for 2008.

Total oil and gas production for the second quarter of 2008 was 2.12 million barrels of oil equivalent, 4% lower than in the first quarter, after accounting for the disposal of all the Company’s Middle East/North Africa producing assets from May 1, 2008. Total oil sales for the period were 2.07 million barrels, compared to oil
production of 1.86 million barrels.

Operating revenue for the reporting period increased by 71% to US$294.2 million over the first quarter. This took total revenue for the first half of 2008 to US$466.8 million, up 52% from the previous corresponding period in 2007 and a record for the Company in its 79 year history.

The result was driven by record average oil prices for PNG crude of US$133.63 per barrel, up 44% on the first quarter of 2008. Oil Search remained unhedged during the period.

A key achievement in the quarter was the decision by the PNG LNG Project participants to enter Front End Engineering and Design (FEED) in May. This followed the signing of a Gas Agreement with the PNG Government, defining the fiscal terms and legal obligations that will apply to the Project. Signing the Gas
Agreement and entering FEED were very important milestones for Oil Search and work is now underway to move the Project forward towards a Final Investment Decision.

As part of its strategy to deliver growth from gas beyond the PNG LNG Project, Oil Search is progressing a range of gas initiatives with key stakeholders to commercialize the substantial discovered PNG gas resource that is not currently dedicated to the first phase of the PNG LNG Project.

Following the FEED announcement for PNG LNG, AGL announced its intention to divest its PNG portfolio comprising an 11.9% interest in PDL 2/PL 2 (Kutubu) and a 66.7% interest in PDL 4 (Gobe), with an approximate 3% interest in the PNG LNG Project.

Based on the structure of the sale, as recently advised by AGL, Oil Search and its co-venturers have pro-rata pre-emptive rights on any sale of these interests. Along with its partners, Oil Search will consider its position when a divestment proposal is announced by AGL. This is expected in September 2008. The potential sale of
interests in the PNG LNG Project and oil production licenses will provide a market benchmark of value for these assets.

In April, Oil Search sold a range of its Middle East/North Africa (MENA) assets to Kuwait Energy for a consideration of US$200 million plus working capital. The sale is expected to complete in the third quarter of 2008 and generate a post tax profit of approximately US$130 million. The Company has retained a range of MENA licenses, all of which have material exploration upside.

Oil Search’s cash position grew over the quarter, from US$355 million (excluding cash balances of joint venture interests) at March 31, 2008 to US$391 million at the end of June. This reflected strong operating cashflow. US$91.6 million was spent on the Company’s exploration program, including gas commercialization activities, during the period.

The Company is in the process of finalizing a bank group which will provide a US$400 million loan facility to replace one that will expire at the end of 2008. Funding offers have totalled more than double the amount sought, with final terms, including pricing, expected to be more competitive than the terms on the expiring
facility. In addition, close to half of the facility will be provided without the requirement for political risk insurance.


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