Oil Search’s five-year plan

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

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