UPDATE: PNG's Oil Search 1st Half Revenue Down On Lower Oil Price

Papua New Guinea-focused oil and gas producer Oil Search Ltd. (OSH.AU) Tuesday reported a 60% fall in first half revenue at a time when it is considering funding options for the development of a massive gas export project.

The Port Moresby-based company, which needs capital to help build the Exxon Mobil Corp.-led PNG LNG project, also stuck to its annual production forecast despite having to perform repair works at one of its oil fields.

Operating revenue for the six months to June 30 was US$187.9 million, down from US$466.8 million in the first half of the previous year.

The fall in revenue was largely expected, considering that Nymex crude, although bouncing in recent months, is still trading around US$64 a barrel after peaking around US$147 in July last year.

Investors won't be too concerned about Oil Search's near-term revenue performance, with most focused on the progress of PNG LNG, in which it currently holds a 34% stake.

Still, Oil Search needs cash to fund its share of the project's development and a drain on revenue may put it under pressure to sell down some of its stake or raise equity to meet its funding needs.

In the 2009 second quarter, Oil Search said it averaged a realized oil price of US$55.57 a barrel. That's 21% above the 2009 first quarter, but 59% lower than the 2008 second quarter.

Reflecting the recent oil price bounce, second quarter revenue rose to US$116.6 million from US$71.4 million in the 2009 first quarter.

The company said it had US$402.1 million cash at June 30, down from US$481.1 million at March 31. Previously, Oil Search said it has a number of levers it can pull to meet its funding needs and that it would only launch an equity raising as a last resort.

Oil Search repeated Tuesday that a number of export credit agencies are expected to provide a significant proportion of the required funds for the project's construction. Detailed discussions with commercial banks will start this month, it said.

JPMorgan analysts said May they expect Oil Search to sell down a 3% holding in PNG LNG, which they estimated could help it raise around US$500 million.

Oil Search Tuesday provided no material news on the development's progress, apart from saying that the project partners still expect to make a final investment decision by the end of 2009.

It also repeated past announcements that the project has reached commercial terms with four Asian LNG customers, underpinning its full 6.3 million metric tons per annum initial production capacity.

Oil Search's 2009 first half production fell 12% to 3.81 million barrels of oil equivalent, down from 4.33 million BOE.

The company, however, stuck to its guidance of producing 8.0 million-8.3 million barrels of oil equivalent in 2009.

First half oil and gas output was impacted by workover activity and minor repairs at one of Oil Search's fields in Papua New Guinea, but the company expects new development wells drilled in the first half to boost second half production.

Oil Search built up an oil inventory of 420,000 barrels by the end of June and said revenue from this production won't be booked until it is shipped, potentially impacting its first half profit.

The company, however, expects the inventory will be progressively sold in the second half, so there will be an "approximate balance" between full year production and sales.

By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; ross.kelly@dowjones.com

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