July 22, 2014
Oil Search Ltd.
PNG LNG done, Next please!
OSH’s second quarter 2014 production shows the
PNG LNG project off to a strong start
, with production
ahead of our expectations, and still-ramping up to
plateau rates which are expected to be reached in Q4.
Total production was 3.69 mmboe (MS 3.1mboe and Q1
2014 1.68 mmboe) of which LNG contributed 1.87
mmboe. Total operating revenue was US$340m (MS
$352m, Q1 2014 US$170m) with initial LNG revenues
from 5 shipments out of 7 produced, all sold on spot
markets. The realized price for oil was US$112/bbl and
we estimate LNG sales realized US$14.8 /mmbtu.
Production of LNG at plateau rates and commencement
of long-term contracts are anticipated in late 2014.
Exploration and development capex fell
to US$240m
(Q1: US$270m) as anticipated with LNG development
complete. We forecast FCF to turn positive in Q3, and
net debt levels have likely peaked at US$3.77B
(US$3.70B at the end of Q1 2014). We expect this to
drive expectations of higher pay-outs, but in our view the
balance sheet needs to be prepared if the next growth
phase is to be organically funded.
With PNG trains 1&2 complete, attention will now
shift to the next phase of growth.
There are four
avenues. (1) time-line to a third LNG train. Drilling at
Hides continues with results from 2 wells yet to come,
and plans continue for a development at P’nyang. (2)
resolution of dispute with partners in the Elk/Antelope
project. Arbitration is “ongoing” but a decision not
expected until Q1 2015. (3) Taza2 found oil in all
objectives and preparations are under way to establish
flow rates. Taza3 is expected to commence drilling in Q3.
(4) 2-well appraisal program at Elk/ Antelope is planned
to start in Q3.
(MS report attached)
