PNG Places Hopes On Oil Search

If there were to be any company that could command respect and authority over Papua New Guinea's oil and gas industries and possibly its economic future, it would be the country's very own oil and gas investor, Oil Search. Oil Search is the largest single investor in Papua New Guinea, spending almost one billion kina in the country last year. Being what it is, the company is also the largest taxpayer.

More importantly, it is owned by the people of Papua New Guinea through the state's 18.25 percent equity in the company. It's also incorporated in the country.

The company's success in 2002 also speaks volume of its standing in the corporate world especially at a time when the country is going through serious economic difficulties.

It represents determination amid the current difficulties and hope for recovery and growth for the country.

Being a key element in the proposed Papua New Guinea to Queensland Gas Pipeline Project, its successful merger with the state-owned Orogen Minerals was a reassuring development. This was followed by its declaration of a US$55.2 million profit in 2002.

But nothing was more credible than its announcement to take over the oil fields of Chevron Texaco after the American petroleum giant announced its departure from the country. The company was to take over as operator of the fields last month.

The company reported a very strong result on all performance measures in 2002. The year represented a very significant achievement for the company. With the successful completion of the merger with Orogen Minerals and the growth with in the development of the Moran oil field, the company has a series of growth opportunities for the next three years.

The record profit in the company's 73-year history since its formation in 1929 was one of the highlights of the year. The US$55.2 million profit was up 213 percent on the 2001 result.

The other highlights:

• Oil production rose by over 22 percent over the 2001 levels, while oil and gas production rose by 15 percent to US$8.34 million barrels of oil equivalent.
• Gold was included in the company production for the first time, totalling 94,000 ounces. Oil Search has 25 percent equity in the Porgera gold mine.
• Earnings per share increased by 210 percent to A8.3 cents per share, operating cash-flow rose by 75 percent to US$127.9 million, representing A24.1 cents per share;
• The balance sheet was significantly strengthened during the year, with net debt declining by over US$43 million;
• The company completed a major strategic review that identified the value of its current asset base; and a range of major initiatives have already started to deliver value to the company;
• A number of viable options designed to commercialise substantial gas, reserves, including the Pipeline Project, are mixed, with some new conditional gas sales agreement signed;
• The company has commenced an on-market buy-back of up to 10 percent of its issued capital. It has also announced it will pay a final dividend for 2002 of US0.1 cent per share. This dividend represents the start of a sustainable dividend programme for future years.

The company said the successful merger with Orogen Minerals and the continued development of the Moran oil field with strong unhedged commodity prices, had transformed the company's performance in 2002 and laid the foundation for further growth.

These have resulted in the formation of a major Papua New Guinea-based company that controls over half of the key oil and gas areas in this country. This has given the new Oil Search control of exploration and development programmes as well as positioning itself for greater operational responsibilities.

"This is considered to be a key driver for long-term profitability from our PNG assets and will allow us to sustain investment that will maximise the value of our asset base," the company said in its 2002 annual report.

Chairman T J Kennedy said: Our core objective is to be one of the top 100 performers on the ASX (Australian Stock Exchange) with a four to five-year period in terms of shareholder return.

"This is a challenge for any resource company. A strategy review identified very substantial value in our assets, which, along with judicious acquisitions, can deliver the required value growth in the period." Kennedy said to deliver growth, the company has to change the way it does business in Papua New Guinea.

"A key element is for Oil Search to take greater control of its assets through operating key licences to ensure that an appropriate cost structure and investment profile is maintained to fully capture the value of discovered oil and gas," Kennedy said.

The chairman also highlighted concerns regarding the delay in the development of the PNG gas pipeline project. He said: "Although not as important to the larger Oil Search, the project has continued to frustrate us all, as progress towards development has had mixed success. The withdrawal of AGL as a primary customer was a major blow to the confidence of the project. There is no doubt that this project would have been in the development state now if it had continued with the agreement."