Oil Search Limited (ASX:OSH) CEO and Managing Director, Peter Botten details how the energy developer’s projects will fuel the future. Lelde Smits: Oil Search is focussed on the PNG LNG Project. What is the project’s significance to Papua New Guinea and Oil Search?
Peter Botten: Oil Search Limited
(ASX:OSH) has a 29 per cent interest in the PNG LNG Project, which was very successfully commissioned in mid-2014. It’s now been on production just over 12 months and it’s had a massive impact, both on our company’s revenue, our company’s production base but also importantly, on the economy of PNG. It’s more than doubled the GDP of the economy and quadrupled our production base. And that production base will go for 30 odd years. It really does underpin our long-term value.
Lelde Smits: In the wake of the oil price plunging to six-year lows how has Oil Search responded?
Peter Botten: Of course, one of the biggest things that has impacted our business over the last 12 months, has been the drop in oil price. And that also flows through to drop in gas pricing for LNG as well. What we’re doing to manage that is obviously, like many companies, we’re looking at our capital expenditure, looking at our cash flows, reducing where necessary our capital costs and our operating costs. And really, we anticipate getting probably somewhere between 20 and 25 per cent cost reductions out of our business, over the next 12 months – a substantial reduction.
Lelde Smits: Where do you see Oil Search can grow its business?
Peter Botten: We definitely believe that our future growth is based on development of further LNG. PNG’s a major gas province and PNG LNG represents the basics of basic infrastructure, to build our business in LNG. And together with the Elk/Antelope recent discovery, which is a significant gas resource, we believe that over the next five to seven years, we’ll be able to more than double our production. Again, through the development of a third train for PNG LNG and the development of Elk/Antelope; two very competitive projects in this present oil price environment.
Lelde Smits: What will be your exploration focus over the coming 12 months?
Peter Botten: Clearly part of growth involves finding more reserves. And exploration for oil search is very, very important especially in our backyard, which is Papua New Guinea. We have acquired a number of licences over the last 12 months, and we’ll continue to build our licence base in PNG.
With the low oil price, there are a range of opportunities with companies that have stressed balance sheets, who are short of money. And we see this as a real opportunity to rebuild our exploration focus, our exploration portfolio. And we’ll continue to do that, because we see a lot of potential in PNG remaining.
We also have assets in Kurdistan and will continue to appraise the Taza discovery. That’s an oil discovery that we made two years ago and again, although that’s not quite as high priority as PNG, it still potentially remains a very valuable asset for us as a company.
Lelde Smits: What is the company’s outlook for the remainder of the year?
Peter Botten: 2014 was a transformational year for Oil Search. It really was transformational for us as a company with a delivery of PNG LNG, but also for Papua New Guinea as well. We reside there, we’re PNG’s biggest company, we’re PNG’s biggest investor. But in reality, Papua New Guinea has so much more to develop and Oil Search will be a key part of that development. In our view, the best is really yet to come with the development of further LNG, further development success in the oil, as well as further exploration. So the best is still to come.
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