UPDATE: Oil Search Profit Soars; Flags Cost, Production Cuts
February 23 2009 - 7:17PM
Dow Jones News
Oil Search Ltd. (OSH.AU) Tuesday reported an expected rise in
annual profit but slashed its 2009 exploration budget to adapt to a
lower oil price environment and help it fund its share of a massive
gas export project in Papua New Guinea.
The PNG-focused oil and gas producer said it is close to signing
long-term offtake deals for the Exxon Mobil Corp.-led (XOM) PNG
liquefied natural gas project after holding discussions with
potential customers in Japan, Korea, China, Taiwan and India.
"The response from the market to the project has been
encouraging and despite the economic slow down, it is clear that a
number of buyers are willing to sign long-term offtake agreements
with the project," Oil Search said in a statement.
Negotiations on Heads of Agreement are at "an advanced stage"
and expected to be signed "in the near future", Oil Search
said.
Net profit for the year to Dec. 31 rose 128% to US$313.4 million
from US$137.2 million in 2007 and included a one-time gain from the
company's sale of its Middle Eastern and North African assets in
August.
Adjusted net profit, minus those proceeds, jumped 70% to
US$240.0 million from US$140.8 million in 2007, in line with the
US$240.4 million average forecast of five analysts polled by Dow
Jones Newswires.
Analysts see PNG LNG, of which Oil Search owns about 30%, as a
crucial plank in the company's growth strategy.
Some were expecting Oil Search to cut its dividend to provide
funding for the project's development, but it held its final
dividend steady at four U.S. cents a share, and is cutting
exploration spending heavily instead.
Oil Search forecast a reduction in exploration expenditure to
US$70 million in 2009 from US$176 million in 2008. Development
expenditure is forecast to fall to US$130 million from US$162
million.
The cost cutting will take its toll on production, with Oil
Search forecasting 2009 output at 8.0 million-8.3 million barrels
of oil equivalent, down from 8.6 million BOE in 2007.
Chief Executive Officer Peter Botten said Oil Search has over
US$530 million in cash and an undrawn line of cost effective
credit, which takes its total liquidity to close to US$1
billion.
"This strength is needed, as we remain on target to commit to
the development of the PNG LNG project, a company-maker for Oil
Search, within the next 12 months," he said.
A final investment decision is still planned for the end of this
year, Botten said.
While discretionary expenditure on exploration will be cut in
2009, Botten said "new acquisitions, especially those which are
able to underscore our medium term gas growth objectives, are
likely".
Operating revenue in 2008 rose 13% to US$814.3 million, from
US$718.8 million in 2007.
Oil Search's final dividend of four U.S cents per share was
unchanged from last year, bringing the total 2008 dividend to eight
U.S cents, unchanged from 2007.
-By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957;
ross.kelly@dowjones.com
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