Oil Search’s five-year plan

Oil Search, PNG’S big­gest com­pany, is thriv­ing in dif­fi­cult con­di­tions.

Business Advantage Papua New Guinea - - Petroleum Oil Search - By David James

Oil Search’s Pa­pua New Guinea as­sets are ‘highly prof­itable’ de­spite low prices, ac­cord­ing to Man­ag­ing Di­rec­tor Peter Bot­ten. He tells Busi­ness Ad­van­tage PNG that the com­pany is fo­cus­ing on de­vel­op­ing a five-year plan for en­sur­ing sus­tain­abil­ity, man­ag­ing ex­plo­ration and work­ing with the com­mu­nity.

Bot­ten be­lieves that PNG is well si­t­u­ated to ‘weather the storm’ of a low oil and gas price en­vi­ron­ment be­cause of its prox­im­ity to Asian mar­kets and low cost base.

But he says he has closely ex­am­ined the implications of the cur­rent sit­u­a­tion.

‘Like ev­ery or­gan­i­sa­tion in the oil and gas space, we went through an ini­tial re­view of how to drive fur­ther cost ef­fi­cien­cies and pro­duc­tion up­lifts through a pe­riod of rel­a­tively low com­mod­ity pric­ing, and that is an on­go­ing re­view,’ he tells Busi­ness Ad­van­tage PNG. ‘I ac­tu­ally think cal­i­bra­tion of the oil and gas space has been very healthy for the long-term in­dus­try.’

Bot­ten is ‘not par­tic­u­larly op­ti­mistic’ about the oil price in the short term, adding that OPEC needs to ‘demon­strate solid discipline around pro­duc­tion.’ And, even if OPEC’S sup­ply is re­stricted, any ef­fect may be ‘swamped by pro­duc­tion ad­di­tions in the US,’ he adds.

‘All the in­dus­try is go­ing through a re­view of what makes money, what makes a de­cent re­turn. We are at the bot­tom end of the cost curve and are very ef­fi­cient. Our as­sets are not be­ing overly stressed and we are able to pay back our banks and main­tain a strong bal­ance sheet. That’s not the case for a range of oil com­pa­nies in Aus­tralia and in­deed around the world.’

Cycli­cal

Bot­ten says the oil and gas in­dus­try has a his­tory of be­ing cycli­cal. ‘This is one of the more rad­i­cal down­turns, but there were some in the late ‘80s and some in the early ‘90s. Back in 1997, there was a very large oil crash when oil prices were pre­dicted to go to US$5 a bar­rel. This one is un­usual for the fact that it’s driven pri­mar­ily by a tech­no­log­i­cal change [im­prove­ment in pro­cess­ing shale oil] which has led to an over­sup­ply en­vi­ron­ment; that is a lit­tle dif­fer­ent to the ones in the past.

‘But, over­all, I think it’s a cal­i­bra­tion that ac­tu­ally the in­dus­try had to have, and clearly it’s re­moved cost and ac­tu­ally makes good projects built in a very low cost en­vi­ron­ment re­ally quite at­trac­tive, as long as you can man­age your costs.

‘It con­cen­trates us on how we can run our oil busi­ness sus­tain­ably out into the fu­ture, and look at how we can max­imise oil pro­duc­tion and or­gan­ise our­selves as the oil fields ma­ture fur­ther.’

Ex­plo­ration

Bot­ten says the com­pany will con­tinue its ex­plo­ration ef­forts in the High­lands, in the Gulf of Pa­pua ‘both on­shore/ off­shore’ and in the ‘deep wa­ter off­shore to feed what the op­ti­mal LNG de­vel­op­ment sce­nar­ios might be over the next 10 years or so.’

He says this in­volves ask­ing a series of strate­gic ques­tions: ‘When do we drill wells? What type of wells will we drill? Where will they be and how would they feed into a grow­ing LNG busi­ness? Clearly, we don’t want to have dis­cov­er­ies that sit there for 15 years.’

A five-year plan has been de­vel­oped. ‘It high­lights how we want to ad­dress some of the lo­cal is­sues such as de­liv­ery of power and de­vel­op­ment of small scale LNG for lo­cal power de­vel­op­ment.

‘It also look at things like the Hela Provin­cial Health Au­thor­ity (which we’re sup­port­ing), in­fras­truc­ture sup­port, roads, schools, hospi­tals. All our in-coun­try ef­forts are de­signed not just to give back to the coun­try, but also to en­sure that we’re bring­ing our com­mu­ni­ties along with us and help­ing gov­ern­ment to do that.’ 

I AC­TU­ALLY THINK CAL­I­BRA­TION OF THE OIL AND GAS SPACE HAS BEEN VERY HEALTHY FOR THE LONG-TERM IN­DUS­TRY. Peter Bot­ten

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