The Australian Financial Review
JOURNALIST: Angela Macdonald-Smith
DATE: 29 January 2014
PAGE: 23
Rising confidence in PNG LNG lifts Oil Search guidance
Heightened confidence about an on-time – or possibly early – start-up of production at ExxonMobil's $US19 billion ($21.7 billion) liquefied natural gas project in Papua New Guinea later this year has allowed Oil Search to boost its output guidance for 2014 by about 17 per cent.
Oil Search on Tuesday specified the volume of production it expected from PNG LNG this year, with the huge project potentially set to contribute more than half of the revised full-year output -estimate of 12 million to 15 million barrels of oil equivalent.
The PNG LNG project, which has been under construction for the past four years, is by far Oil Search's biggest venture and is set to drive an almost four-fold increase in the oil and gas producer's output between 2013 and 2015. Oil Search has also made it clear an increased dividend to shareholders is on the cards next year after initial repayments have been made to lenders to the project.
In its quarterly report, Oil Search also reported a modest beat on its 2013 output forecast, but analysts said the most important message was on the LNG project.
"The good news is the increase in guidance from PNG LNG," said Credit Suisse energy analyst Mark Samter.
"Clearly Exxon have seemingly brought forward or narrowed the window when they expect first gas to come."
Mr Samter said while problems could still arise in the start-up phase, the ¬conventional nature of PNG LNG meant start-up was more predictable than for the coal seam, gas-based LNG projects in Queensland.
He pointed to comments on Monday night from BG Group, which updated its guidance for the start of production at its $US20.4 billion Queensland Curtis LNG project to the December quarter of this year, from the second half, which some observers are regarding as a ¬three-month delay.
Oil Search shares were 1.1 per cent higher mid-afternoon on Tuesday at $8.23. Managing director Peter Botten said commissioning work to start up production at PNG LNG was "in full swing". He said successful drilling at PNG oil fields also contributed in the upgrade in the 2014 production guidance from 10 million to 13 million BOE .
For 2013 Oil Search reported output of 6.74 million BOE, up 6 per cent on the ¬previous year. It had flagged output for the year of 6.2 million to to 6.7 million BOE. Full-year sales rose 6 per cent to $US724.6 million.
December quarter production was 1.77 million BOE, generating revenues of $US210 million, up 20 per cent on the ¬September quarter.
Oil Search said it continued work in the December quarter on the potential development of the P'nyang field, which could supply a potential expansion of PNG LNG. An application for a development licence for the field is to be lodged early 2015, a move required for the ¬venture to retain its rights to the resource.
Talks also took place in the quarter on Oil Search's potential involvement in InterOil's Elk and Antelope gas fields, through its links with French oil major Total, which signed a deal in December to invest in the large deposits.
Oil Search is thought to have an understanding with Total that if Total won the deal with InterOil, it would bring the PNG player into the venture involving the PRL 15 licence that holds the two fields. Total and InterOil are planning a separate LNG project using gas from Elk and Antelope.
"Oil Search is in ongoing discussions with the key stakeholders regarding a potential involvement in the licence," Mr Botten said.