Having emerged from the ‘most challenging’ year in its 92-year history, Oil Search Ltd is now facing an escalation of COVID-19 infections in Papua New Guinea. In spite of this, shareholders at its annual general meeting were told PNG’s largest company is ‘coming through the challenges well’.

Oil Search Chairman Rick Lee

‘The events of 2020 have tested the resilience of the company like never before,’ said Chairman Rick Lee at Oil Search’s annual general meeting today.

‘In PNG, the increased rates of COVID-19 infection continue to challenge us.’

Last year, the company was forced to undergo a massive capital raising and make significant cost-cutting to weather bad business conditions caused by COVID-19 and a drop in the oil price. Lee suggested the tough decisions in 2020 had paid off.

‘However, the difference between 2020 and 2021 is striking. We have entered the year with a renewed purpose and ambition, in a stronger financial position and with the confidence that we are well advanced in adapting the Company to operating successfully in a dramatically changed energy landscape,’ Lee told shareholders.

‘Operating conditions in PNG continue to be impacted by the COVID-19 virus, with high infection rates necessitating very strict quarantining of our staff and segregation of our field activities’

While reflecting that 2020 was ‘probably the most challenging in our Company’s 92-year history,’ Managing Director Dr Kieran Wulff said the oil and gas company had ‘made material strides in building resilience, right-sizing the organisation and reducing our cost base, enhancing the well-being of our operations and staff, and setting our Company for the future,’ added Managing Director Dr Kieran Wulff.

Story continues after advertisment...

COVID-19 challenge

‘In PNG, the increased rates of COVID-19 infection continue to challenge us,’ Rick Lee told the company’s shareholders. ‘The biggest threat to our communities this year has been from COVID-19. In PNG, this threat is now a public health emergency.’

‘Progress is being made on the Total-led Papua LNG project, in which Oil Search has a 17.7 per cent interest. ‘

Managing Director, Dr Kieran Wulff, added that ‘operating conditions in PNG continue to be impacted by the COVID-19 virus, with high infection rates necessitating very strict quarantining of our staff and segregation of our field activities away from local communities.’

He noted the company’s operations remained ‘COVID free’ due to these mitigation measures.

Conservative

Oil Search’s Kieran Wulff

Faced with testing market conditions, Wulff emphasised the need to take a conservative approach in managing the company, which declared a US$0.05 (K0.175) dividend against a core net profit of just US$22 million (K77.2 million) for the 2020 financial year.

‘The recent escalation of COVID-19 rates in PNG and remaining uncertainties in global outlook highlight the importance of managing our company conservatively whilst positioning the business to deliver on our world class growth assets as soon as conditions allow,’ he said.

That conservatism is reflected in the fact that the company is currently not engaged in any exploration activity, according to Wulff.

It has also delayed scheduled maintenance at the company’s Kutubu oil field until 2022 ‘due to limitations on personnel and contracting movements’, while the timing of its PNG Biomass power project in Morobe Province ‘is being impacted by the many policy, financial and logistical challenges facing the PNG Government at present’.

Notably also, Oil Search is not expecting any revenue from its Hides Gas-to-Electricity project this year, due to the shutdown of the nearby Porgera gold mine, to which it has supplied power.

‘However, subject to final approvals, we understand the Porgera mine may start up later this year, which has the potential to contribute to our production in 2021,’ said Wulff.

Progress

While some projects are delayed, progress is being made on Total-led Papua LNG project, in which Oil Search has a 17.7 per cent interest. Wulff noted that ‘pre-FEED [Front End Engineering and Design] activities are now underway, targeting a FEED decision in 2022.’

First gas is expected in 2027.

Wulff also highlighted the company’s long-term efforts to control its debt levels and improve its balance sheet by the end of the decade. One measure being explored is at the partial sale of its interest in the Pikka gas project in Alaska, which would enable the company to finance its share of project costs.

He confirmed that the company won’t fully repay its debt for the money it borrowed to finance its 29 per cent stake in the ExxonMobil-led PNG LNG project until 2026.