LNG

Oil Search, the Australian-listed Papua New Guinea LNG shareholder with a stake in the expansion project, plans to write off up to $US400 million, mostly on exploration assets and a gas-to-power project in PNG due to the outlook for oil and gas prices.

The PNG-focused oil and gas company will record a non-cash, pre-tax charge of between $US360M ($A518 million) and $US400M ($A576M) in its half-year results that would not impact its cash earnings, according to a statement to the Australian Securities Exchange.

Oil Search said that a strategic review found that a number of assets in PNG were now of low priority either due to lower prospectivity or less than optimum project economics and as a result, would not be currently pursued.

The LNG plant, located northwest of the capital Port Moresby, produced at an annualised rate of 8.7 million tonnes per annum in the first three months of 2020, Oil Search noted in its first quarter earnings.

“Oil Search has assessed the carrying value of the company’s assets for impairment as at 30 June 2020, in accordance with the relevant accounting standards and after taking into account the potential longer-term impact of prevailing economic conditions and the outlook for oil and gas prices,” said the company.

“The impairments that are expected to be recognised largely relate to PNG exploration licences,” explained the PNG-based company whose other main assets are in Alaska.

“As part of the Strategic Review currently underway and in line with the company’s commitment to prioritising capital allocation, a number of exploration and evaluation assets in PNG have been identified as being of reduced priority due to lower prospectivity or sub-optimal economics,” explained the report signed by Oil Search Managing Director Keiran Wulff.

“As there is no current intention to pursue activities on these assets, the full value of these exploration assets is expected to be written down,” he stated.

“An immaterial impairment relating to exploration leases in Alaska, which are scheduled to be relinquished, also is anticipated,” he explained.

Oil Search has previously said it was well placed to withstand a prolonged period of oil price weakness and advance its growth projects when market conditions improve.

The company noted in its previous earnings that formal negotiations had been suspended in January 2020 on the LNG expansion between ExxonMobil, on behalf of the P'nyang co-venturers, of which it is part, and the PNG Government.

“Given the ongoing gas supply uncertainties resulting from the recent suspension of mining activities at the Porgera Project (gold mine), the carrying value of the Hides Gas-to-Electricity Project is also expected to be fully impaired,” said Wulff.

“The expected impairment expense is a non-cash item and will not impact cash earnings or cashflow,” he added.
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“The final impairment expense to be recognised is subject to the finalisation of the half-year accounts and completion of the half-year review by the company’s auditor,” stated Wulff.

The two existing LNG Trains at the PNG plant have a nameplate capacity of 6.9 MTPA, though have consistently produced more and will be the site of any future expansion.

Three new liquefaction Trains are proposed in the delayed expansion plan.

The five Trains when operational would have capacity of nearly 20 MTPA and would give PNG a more substantial role as a regional producer.

The P’nyang gas field licence, controlled by PNG LNG plant operator ExxonMobil, also includes Australian-listed Santos as well as Oil Search.

The separate Papua Gas Agreement for other feed-gas resources has already been approved and signed.

This comprises holders of the onshore PNG Elk-Antelope gas field licence, led by Total and also including shareholders in the P’nyang field lease, ExxonMobil as well as Oil Search.

Elk-Antelope onshore gas fields are covered by petroleum retention licence PRL15 and by the Papua Gas Agreement and the P’nyang onshore gas fields are in the PRL3 licence area of PNG.

Oil Search, the Papua New Guinea-focused oil and gas company listed in Australia, said its overall production increased by 5 percent, supported by a continued strong performance from the PNG LNG plant as talks continued on building three new processing Trains.

The LNG plant, located northwest of the capital Port Moresby, produced at an annualised rate of 8.7 million tonnes per annum in the first three months of 2020.

Total revenue from Oil Search’s overall operations from PNG to Alaska dropped 20 percent to US$395.4 million from US$446.7 in the previous quarter, impacted by a 13 percent fall in sales due to timing of shipments and the oil price drop.

Oil Search, headquartered in PNG and listed on the Australian Securities Exchange, said it was well placed to withstand a prolonged period of oil price weakness and advance its growth projects when market conditions improve.

The company noted that formal negotiations had been suspended in January on the LNG expansion between ExxonMobil, on behalf of the P'nyang co-venturers, of which it is part, and the PNG Government.

“Discussions have resumed with the State, aimed at reaching an agreement that is fair and balanced for all stakeholders,” said Oil Search.

“This agreement is required before the LNG expansion project can move into the front-end engineering and design phase,” it explained.

“Oil Search remains committed to progressing the three-Train integrated expansion project, a highly cost-effective development, at the appropriate time,” stated Oil Search.

The two existing LNG Trains at the plant northwest of Port Moresby have a nameplate capacity of 6.9 MTPA, though have consistently produced more and will be the site of any future expansion.

Three new liquefaction Trains are proposed in the delayed plan. The five Trains when operational would have capacity of nearly 20 MTPA and would give PNG a more substantial role as a regional producer.

The P’nyang gas field licence, controlled by PNG LNG plant operator ExxonMobil, also includes Australian-listed Santos as well as Oil Search.

The separate Papua Gas Agreement for other feed-gas resources has already been approved and signed.This comprises holders of the onshore PNG Elk-Antelope gas field licence, led by Total and also including shareholders in the P’nyang field lease, ExxonMobil as well as Oil Search.

Elk-Antelope onshore gas fields are covered by petroleum retention licence PRL15 and by the Papua Gas Agreement and the P’nyang onshore gas fields are in the PRL3 licence area of PNG.

“The first quarter of 2020 has been one of the most volatile periods in history for Oil Search and the global oil and gas industry in general,” said new Managing Director Keiran Wulff, who succeed Peter Botten.

“The company has taken swift steps to ensure that we are in the strongest position possible to weather a potentially protracted period of global disruption,” he added.

In its North American operations oil discovered at the Mitquq and Stirrup fields in Alaska, with flow rates above expectations

Australian energy company Santos has signed up for a stake in the P’nyang natural gas field in Papua New Guinea that will underpin its full participation in the PNG LNG expansion projects and allow the venture to move forward.

Papua New Guinea LNG stakeholder Oil Search posted lower first-quarter revenues as it remained focused on pushing forward the construction and expansion plans for three additional liquefaction Trains in the Oceania nation involving separate joint ventures.

The Australian-listed company with oil and gas interests in PNG and to a lesser extent Alaska said total revenue for the quarter was US$398.1 million.

Oil Search said this represented a drop of 21 percent below the fourth quarter of 2018, primarily due to the timing of LNG shipments, with three LNG cargos worth more than US$35M in revenue net to Oil Search, on the water at the end of the period compared with one cargo at the end of the previous quarter.

However, the operating revenue for the three months was still higher than the US$295M reported in the same quarter a year ago.

The company said the quarter was also marked by progress on the PNG LNG expansion as the government and its energy company partners, including LNG plant operator ExxonMobil, signed a formal Gas Agreement defining the fiscal framework for the Papua expansion project.

The PNG LNG plant, located northwest of Port Moresby, already produces more than 8 million tonnes per annum of LNG and studies have supported new LNG capacity comprising three Trains each with 2.7 MTPA of output and the upstream development of the Elk-Antelope field to provide feed-gas.

The other signatory to the agreement with the government was French major Total, the main shareholder in the Petroleum Retention Licence 15 that will underpin most of the production increase at the plant.

The agreement gives the PNG Government and landowners 22.5 percent of the project with Total holding 31.1 percent, ExxonMobil 28.7 percent and Oil Search 17.7 percent.

“Following the completion of the Papua LNG Gas Agreement, focus has now turned to finalizing the P’nyang Gas Agreement, with a targeted signing in the second quarter of 2019,” said Oil Search Managing Director Peter Botten.

“Substantial progress has also been made on other commercial agreements supporting the proposed three-train, 8 MTPA downstream development at the PNG LNG plant site,” he added.

“The Papua LNG, PNG LNG and P’nyang joint ventures are targeting a final investment decision in 2020, which would place the proposed three-Train development on track to commence deliveries of LNG in 2024,” stated Botten.

Oil Search said that all PNG LNG stakeholders were committed to meeting the global market window when significant new LNG supply is required to meet demand growth and requirements for replacement of expiring contracts.

“Oil Search’s dedicated LNG equity marketing team continues to report strong buyer appetite for LNG from the proposed new Trains, underpinned by the reliability of our operators, the proximity of PNG to North Asian markets and the high heating value and quality of LNG from PNG,” said Botten.

“Many buyers are seeking both geographic and seller diversification, which are highly favourable drivers in support of new equity LNG sellers such as Oil Search,” he added.

The company said its total quarterly production was 7.25 million barrels of oil equivalent, reflecting a continued strong performance by the PNG LNG plant, offset by lower oil field production.

The PNG LNG plant produced at an annualized rate of 8.8 MTPA during the quarter, 28 percent above nameplate capacity.

Oil Search, a shareholder in the Papua New Guinea LNG export plant and its expansion project, said that the next stage of PNG’s gas development must move forward in a timely and responsible way and be a project that is sustainable and beneficial for the nation.