first half results

OIL SEARCH 2008 FIRST HALF RESULTS
19 August 2008

• Profit after tax for the six months to 30 June 2008, excluding
significant items, was up 184% to US$133.3 million, compared to
US$46.9 million in 2007. An after tax profit of US$131.1 million was
also made on the sale of assets, taking the total 2008 half year net
profit to US$264.4 million, a record for the Company. The result was
driven by higher oil prices, stable operating costs and a drop in the
effective tax rate.
• Operating cash flow and EBITDAX (earnings before interest, tax, noncash
items and exploration expense) were strong, increasing 48% and
64% respectively on the first half of 2007.
• Oil and gas production in the first half of 2008 was 4.34 million barrels
of oil equivalent (mmboe), 9% lower than in the corresponding period
of 2007. This primarily reflected natural field decline and the sale of
the Company’s producing MENA assets effective from 1 May 2008. Oil
production was 3.82 million barrels, with revenues based on oil sales of
3.75 million barrels.
• Revenue from operations was 53% higher than in the first half of
2007. This reflected excellent realised oil prices, with the Company’s
high quality PNG crude continuing to attract a premium over the Tapis
benchmark. Oil Search realised an average oil price of US$114.99 per
barrel in the first half of 2008, compared to US$70.69 per barrel in the
previous corresponding period.
• One of the key events to occur in the first half was the commencement
of Front End Engineering and Design (FEED) activities on the PNG LNG
Project in May. This followed the finalisation of the Joint Operating
Agreement, covering the commercial aspects of the Project, and the
Gas Agreement, outlining the fiscal terms to apply to the Project. FEED
work is now progressing well on a range of fronts, including technical,
marketing and commercial.
• During the period, a major Strategic Review was completed, with the
objective of setting the Company’s direction for the next five years. A
number of the Review’s recommendations, including the sale of a
package of non-material assets in the Middle East /North Africa (MENA)
and a corporate reorganisation, were implemented during the first half.
2
• The sale of the MENA assets realised a profit of US$132 million,
demonstrating significant value creation by Oil Search in that region.
The remaining assets in MENA are assessed to have material upside
value that will be tested by drilling over the next few years.
• Over the first half of 2008, Oil Search spent US$143 million on
exploration, evaluation and gas commercialisation and US$77 million
on development, production and corporate activities. This expenditure
was funded by the Company’s strong operating cash flows. At the end
of June 2008, Oil Search had a cash position of US$400 million and
remained debt free throughout the period.
• The Company is presently completing a highly successful refinancing of
its existing oil business, putting in place a five year facility. A very
favourable response was received from over 15 target banks, with
strong demand and attractive pricing offered, leading to an increase in
facility size from US$400 million to US$450 million. This was achieved
with a market backdrop of generally tightening credit lines.
• Following the strong result, the Board has recommended the payment
of an unchanged interim dividend, of four US cents per share, payable
on 10 October 2008.
Commenting on the results, Peter Botten, Oil Search’s Managing
Director, said:
“Oil Search’s 2008 first half profit (after tax, before significant items) of
US$133.3 million was a record for the Company. This excellent result was
driven primarily by higher oil prices: realised oil prices were up 63% on
2007 first half levels, boosting revenue for the half year to an all-time
high of US$466.7 million.
Much of the focus during the first half of the year was on the PNG LNG
Project. A number of major landmark agreements were signed during the
period, including a comprehensive Joint Operating Agreement between the
Project participants in March and the Gas Agreement with the PNG
Government in May. The completion of these agreements led to a
decision by the Project Participants to commence FEED activities in May
2008. The move into FEED represents a major step forward in
commercialising Oil Search’s large discovered gas resource base, of which
around some 60% is dedicated to the PNG LNG Project. The Government
remains strongly committed to the PNG LNG Project and has recently
agreed the Ministerial leadership and co-ordination structure to ensure the
Government deliverables for the Project are met in a timely manner. In
addition, the Government recently announced that the licences covering
the Angore field and South Hides, PRL 11 and 12 have been renewed.
Shortly after the end of the period, a Memorandum of Understanding
(MOU) was signed with the PNG Government. The MOU provides a
framework for the PNG Government and Oil Search to work together to
3
commercialise the substantial discovered PNG gas resource that is not
currently dedicated to the PNG LNG Project.
Production during the period was impacted by a number of factors,
including a planned shut-down of the Central Processing Facility for
maintenance work in the first quarter and a slower than expected rampup
of the development drilling programme. In addition, all of the
Company’s producing fields in the Middle East were disposed in the Kuwait
Energy asset sale, with production from those assets ceasing to be
recognised from 1 May 2008.
Despite continued upward pressure on the cost of services and
consumables, the Company was successful, over the period, in keeping
cash operating costs steady. As a result, the revenue gains fed straight
through to the EBITDAX level, with earnings before non-cash charges and
exploration expense increasing by 64% to US$411 million.
Depreciation, amortisation and site restoration charges were 6% higher
than in the first half of 2007. The increase largely reflected the impact of
depreciation of the Company’s two drill rigs for the full period. In
addition, there was a non-cash “time value” charge to finance costs
relating to site restoration for the first time. Exploration expense
increased by 7% on the prior first half, with the primary outlay on the NW
Paua well. The effective tax rate for the half year, excluding the impact of
the profit on the sale of the Middle East/North Africa (MENA) assets, was
51.4%. This represented a substantial reduction on the effective rate for
the first half of 2007 (63.8%) due to a considerably lower level of
exploration cost expensed in relation to the Middle East, which are non
deductible.
Oil Search generated operating cash flow of US$348 million over the six
months and at the end of June 2008 had cash in the bank of US$400
million, including cash balances of joint venture interests. The Company
expects to receive approximately US$205 million in late August, on
settlement of the sale of a range of MENA assets to Kuwait Energy. This
transaction, which was announced in April, generated a net profit of
US$132 million for Oil Search. The proceeds will bolster the Company’s
balance sheet considerably, facilitating the financing of Oil Search’s share
of the PNG LNG Project.”
4
OUTLOOK
On the outlook for the second half of 2008 and 2009, Mr Botten
said the following:
AGL Asset Sale
“A key event expected to occur in the second half of 2008 is the sale by
AGL of its PNG oil and gas portfolio. The AGL portfolio comprises interests
in PDL 2 and PDL 4 which encompass the following oil fields:
• Kutubu (PDL 2) 11.9%
• Moran Unit (PDL 2) 5.2%
• SE Mananda (PDL 2) 11.9%
• Gobe Main (PDL 4) 66.7%
• SE Gobe Unit (PDL 4) 27.3%
In addition, AGL has approximately a 3.6% entitlement in the PNG LNG
Project. The AGL portfolio does not contain the upside gas potential of the
Oil Search licence interests, as it does not cover gas fields such as Hides,
Angore and Juha, as well as other discoveries and exploration potential.
Oil Search and its Joint Venture partners have pre-emptive rights which
are pro-rata to their PDL 2 and PDL 4 licence interests (for Oil Search,
60.05% and 10.0% respectively). These rights may be used to match any
offer by a potential purchaser. AGL anticipates that bids for the licences
will be lodged in mid September, with the partners likely to be notified
shortly thereafter. Following notification of the agreed sale price, Oil
Search and its partners have 30 days in which to decide whether they
wish to exercise their pre-emption rights on either or both licences, by
matching the highest offer. The Company and its partners will consider
their respective positions once the final sale price is known.
Apart from the price, there are a range of other factors which will
influence whether Oil Search exercises its pre-emption rights, including:
• The intentions of its other partners
• Funding ability
• Implications for Oil Search’s ongoing business due to additional
capital requirements, offset by the cash flows generated by the
producing oil assets
• Impacts on the Company’s future earnings per share and cash
flow per share
From our perspective, this transaction is likely to be positive for Oil Search
shareholders. If AGL achieves a high sale price for the assets, it will be a
clear demonstration of the market value of this asset base. The ‘look
through’ valuation may lead to a re-rating of Oil Search’s share price.
Additionally, the pre-emption right could represent an excellent
opportunity to acquire a package of high quality producing oil assets, plus
5
an interest in the region’s premier LNG development, should the purchase
satisfy the Company’s investment hurdles.
The Company has an excellent knowledge of both the oil and gas
components of the sale and is therefore well situated to assess their
value. We are, however, not compelled to participate in the sale process
and will only do so if we see that the acquisition represents demonstrable
value to our shareholders. The Company has a good record of strongly
accretive and well timed acquisitions.”
PNG LNG Project
“FEED activities, which are expected to take some 13-14 months to
complete, are progressing according to plan. A strong project team has
been built up by the operator, ExxonMobil, with a number of secondments
of key personnel from Oil Search and the other joint venture participants
to the team. The quality of the project team is an indication of the high
priority that ExxonMobil is placing on this Project.
Oil Search is playing a key role in the FEED process, with a particular
focus on the delivery of gas from the oil fields and support for the
operator, ExxonMobil, on a range of in-country matters.
The key deliverables from FEED over the next year include the following:
• LNG marketing. A short list of preferred buyers has been developed
and discussions with these parties have commenced. The objective
of the LNG marketing team is to secure preliminary commitments
based on indicative terms by late 2008/early 2009 and sign firm
offtake agreements by the time of the Final Investment Decision
(FID), expected to take place in late 2009.
• Project Financing. A global roadshow has recently been completed
which has confirmed a strong level of interest from a range of
banks and export credit agencies to be involved in providing debt
funding to the Project. The Project Finance team is targeting
Financial Close by end 2009.
• Construction and procurement contracts. Work is underway with
Eos on the upstream component of the engineering and technical
aspects of the Project. EPC contracts for the downstream phase are
expected to be awarded in the third quarter of 2009.
• Benefits Sharing Agreement. Discussions between the State and
Landowners on the sharing of the many benefits that will derive
from the PNG LNG Project are due to commence shortly. On the
basis that an agreement is reached by early 2009, the Joint Venture
is considering making a significant investment in early works, such
as road construction, commencing in the first half of 2009.
6
• Licence issues. The process for securing all necessary licences and
leases and environmental approvals has commenced.
Oil Search’s share of FEED costs in the second half of 2008 and 2009 are
expected to be approximately US$110 million.”
The Final Investment Decision remains on-track for late 2009, with first
production expected in late 2013/2014.”
Other Gas Commercialisation Activities
“Following the signing of the recent MOU with the PNG Government, work
has commenced on a number of studies focused on gas aggregation and
establishing the optimal development of gas infrastructure in the
Offshore-Forelands and the Western Corridor. Other planned activities
include the finalisation of an exploration and appraisal programme of key
fields and licences and a review of potential farm-downs/acquisitions to
optimise Oil Search’s gas portfolio.
In addition, a range of potential value-adding opportunities are being
reviewed. These include LNG project optimisations such as
debottlenecking, gas and oil field management and LNG expansions.”
Production
“As highlighted in the quarterly report, Oil Search expects 2008 full year
production to be between 8.5 – 9.0 million barrels of oil equivalent
(mmboe). This follows the sale of the MENA assets, effective from 1 May
2008, which has reduced Oil Search’s 2008 production by approximately
0.5 mmboe. Production in the second half of the year is expected to be
similar to first half levels, with natural decline mitigated by the active
development drilling and well workover programme currently underway.
Specifically:
• There will be a full six months’ impact from the UDT 8 development
well at Kutubu and contributions from UDT 9 (recently completed) and
UDT 10 (drilling ahead). These development wells are expected to
more than offset natural decline from the existing producing Kutubu
wells.
• Production from Moran is expected to flatten with the commencement
of production from the Moran 14 development well, which is currently
drilling ahead.
After a number of teething problems experienced by the refurbished Rig
101 and the new Rig 103, drilling performance is improving with the
recent UDT 9 well drilled in less than half the time it took to drill UDT 8.”
7
Exploration Activity
“At the time of writing, the Cobra 1A ST3 well is drilling the primary
Hedinia sandstone objective, having intersected encouraging indications of
the presence of hydrocarbons in previous sidetracks. The results of this
well will be known in the coming week.
Following the drilling of the NW Paua and Cobra exploration wells in PNG
in the first half of the year, Oil Search’s exploration drilling focus in the
second half of 2008 will move onto the Company’s highly prospective
Middle East licences:
• Shakal, Iraq (OSH – 15%, Operator – Prime Natural Resources).
The first well to be drilled in the Shakal PSC is expected to spud in
the third quarter of 2008, on a seismically defined structure with
potential recoverable reserves of more than 100 million barrels.
• Caliph-1, Area 18, Offshore Libya (OSH – 30%, Operator
Petrobras). The Caliph-1 well, which is well defined by recently
acquired 3D seismic data, is scheduled to commence drilling in the
fourth quarter of 2008. The well will target a number of different
plays, including oil in the Eocene and Cretaceous carbonate and gas
in the Jurassic and Triassic. The Caliph structure has the potential
to contain up to 1 billion barrels of oil equivalent. Other prospects
have been identified in the licence.
In addition to drilling, seismic activities are planned in both PNG and in
Yemen in the second half of 2008.”
Oil Refinancing
“Final documentation is underway on a five year facility, secured against
the Company’s PNG oil assets, which is expected to be completed in the
next few weeks.
A very favourable response was received from the target banks, which
included those in the Company’s existing syndicate plus several new
banks. Due to this demand and the attractive pricing offered, the size of
the facility has been increased from US$400 million to US$450 million.
The pricing and other key terms offered on the new facility represent an
improvement on the existing facility, with almost half of the facility
amount to be provided without recourse to political risk insurance. The
facility will provide a component of Oil Search’s equity funding for PNG
LNG development costs and is expected to be progressively drawn down
as construction expenditure occurs.”
8
FINANCIAL SUMMARY
Six months to June
2008 2007 % change
SALES DATA
Total oil and gas production (mmboe) 4.335 4.745 -8.6
Total saleable oil production (mmbbl) 3.761 4.343 -13.4
Total oil liftings (mmbbl) 3.750 4.065 -7.7
Gas equivalent sales (mmscf) 2,723 2,100 +29.7
Realised oil price (US$/bbl) 114.99 70.69 +62.7
FINANCIAL DATA (US$m)
Total Revenue 466.7 306.2 +52.8
Net Operating Expenses (56.0) (56.4) unch
EBITDA before Exploration Expense 410.7 249.8 +64.4
Exploration Expense (70.6) (66.2) +6.6
Amortisation, depreciation & site
restoration
(68.7) (64.6) +6.3
EBIT 271.4 119.0 +128.0
Profit on sale of investments (net) 131.1 (0.6) -
Net Interest Income/(Expense) 2.9 11.1 -73.9
Profit before Tax 405.4 129.4 +213.3
Taxation Expense (140.9) (82.5) +70.8
Profit after tax before significant
items
264.4 46.9 +463.5
Significant items after tax 131.1 - -
Profit after tax after significant items 133.3 46.9 +184.1
PER SHARE DATA (US cents)
Basic EPS after significant items 23.6 4.2 +461.9
Basic EPS before significant items 11.9 4.2 +184.0
Operating Cash Flow PS 31.1 21.1 +47.2
Interim Dividend 4.0 4.0 unch
Note: Numbers may not add due to rounding.
FACTORS AFFECTING THE RESULTS
Oil production / sales
Oil Search’s oil and gas production in the first half of 2008 was 4.34
million barrels of oil equivalent, of which 89% was oil and liquids and the
balance gas. Oil production available for sale after internal usage was
9
3.76 million barrels, of which 3.75 million barrels was sold during the
period.
Realised oil prices
Oil Search realised an average oil price of US$114.99 per barrel for the
first half of 2008, compared to US$70.69 per barrel in the previous
corresponding period. Kutubu Blend, under which the Company’s crude is
marketed, continued to attract a premium to the Tapis benchmark. No
hedging was undertaken during the period.
Revenue
Total revenue from operations was US$466.7 million, 53% higher than in
the first half of 2007. Revenue was comprised as follows:
Revenue (US$ million)
Six months to June 2008 2007 % change
Sale of oil 431.1 287.5 +50.0
Sale of gas and refined products 17.6 11.0 +58.2
Drilling rig revenue 11.3 0.4 -
Other field revenue* 6.8 6.5 +5.2
Total 466.7 305.4 +52.8
* Primarily tariff income
Cash costs
Cash operating costs
(US$ million)
Six months to June 2008 2007 % change
Field costs 41.4 39.2 +5.6
Other opex 9.0 8.3 +8.4
Net corporate costs 4.1 7.0 -41.4
FX losses/(gains) 1.5 1.9 -21.0
Cash operating costs 56.0 56.4 unch
Total cash costs were largely unchanged from the previous corresponding
period. This was despite the impact of higher crude prices on fuel costs
and royalties, a strengthening of the A$ and Kina against the US$, and
cost pressures affecting the sector globally.
PNG field costs averaged US$9.24 per barrel compared to US$7.52 per
barrel in the first half of 2007, reflecting a relatively fixed cost structure
combined with lower sales volumes.
10
D, D & A
D, D & A
(US$ million)
Six months to June 2008 2007 % change
Amortisation 54.4 55.4 -0.2
Depreciation 9.2 3.4 +170.6
Site restoration 5.1 5.8 -12.1
Total 68.7 64.6 +6.3
Depreciation, amortisation and site restoration increased 6%, from
US$64.6 million to US$68.7 million. The main driver was an increase in
depreciation, with Oil Search’s two drill rigs being depreciated for the full
period for the first time. These assets generated revenue well in excess of
this cost. The negative impact of higher amortisation rates was more than
offset by lower sales volumes and a more favourable mix of production.
Exploration expense
During the first half of 2008, Oil Search spent US$142.9 million on
exploration and evaluation activities, including US$19.3 million spent on
gas commercialisation. In line with the Successful Efforts accounting
policy, all costs associated with unsuccessful drilling, seismic work, new
venture activities and other support costs related to exploration were
expensed, resulting in a charge of US$70.6 million. Of this, US$39 million
related to the unsuccessful NW Paua well in PNG and US$18.5 million
related to activities in the Middle East/North Africa that are non-deductible
for income tax purposes.
Interest Income/Expense
Interest income fell by US$5.0 million compared to the first half of 2007,
reflecting the combined impact of lower cash balances and lower US
interest rates. Financing costs increased, primarily due to the first-time
recognition of a time-value charge deriving from the Company’s future
site restoration commitments of US$2.7 million.
Taxation Expense
Tax expense of US$140.9 million was 71% higher than in the
corresponding period of 2007 due to higher operating earnings. The
effective tax rate for the period on core profit, excluding significant items,
was 51.3%. This was considerably lower than in 2007 (63.8%), due to a
reduced proportion of non-deductible losses incurred in the Middle East.
11
Operating cash flows
2008 first half operating cash flows were 48% higher than in 2007, largely
due to the higher oil price.
Cash Flow (US$ million)
Six months to June 2008 2007 % change
Net Receipts 419.3 281.5 +49.0
Net Interest income/(expense) 7.0 9.5 -26.3
Tax Paid (77.7) (55.1) +41.0
Operating Cash Flow 348.5 235.9 +47.7
Net Investing cash flow* (231.3) (186.2) +24.2
Net financing cash flow (61.1) (40.6) +50.5
Net Cash flow 56.0 9.1 +515.4
Operating Cash Flow/share (US
cents)
31.1 21.1 +47.2
Over the first half of 2008, Oil Search’s net investing cashflow included:
• Expenditure of US$127.6 million on exploration and evaluation, up
from US$113.1 million in the first half of 2007
• US$19.3 million on gas commercialisation activities including PNG
LNG Project pre-FEED expenses (US$3.5 million in 2007).
• US$85.3 million on producing and development activities (US$49.7
million in 2007)
• US$13.4 million on property, plant and equipment, including new
drilling rigs (US$22.9 million in 2006)
The Company also distributed US$44.8 million to shareholders by way of
the 2007 final dividend.
Balance Sheet
Balance Sheet (US$ million)
As at June 2008 Dec 2007 June 2007
Cash 399.6 343.6 487.0
Debt Nil Nil Nil
Equity 1,602.9 1,389.1 1,344.8
At the end of June 2008, Oil Search had no debt and US$400 million in
cash.
DIVIDENDS
The Board of Directors announced an interim dividend for 2008 of four US
cents per share, unchanged from the first half of 2007. The record date
for the dividend is 26 September 2008 and payments will be made to
Shareholders on 10 October 2008.
12
FIRST HALF 2008 PRODUCTION SUMMARY
Six month to June 2008 2007 % Difference
Oil production
Gross daily
production
(bopd)
Net to OSH
(mmbbls)
Gross daily
production
(bopd)
Net to
OSH
(mmbbls)
Gross daily
production
Net to OSH
Kutubu 13,205 1.443 13,876 1.508 -5% -4%
Moran
Moran - PDL 2 7,328 0.884 9,134 0.971 -20% -9%
Moran – PDL 5 9,029 0.749 11,163 0.822 -19% -9%
NW Moran 2,033 0.024 8 0.027 - -11%
Total Moran 18,390 1.658 20,305 1.820 -9% -9%
Gobe
Gobe Main 1,988 0.036 2,441 0.044 -19% -18%
SE Gobe 5,790 0.269 6,651 0.308 -13% -12%
Total Gobe 7,778 0.305 9,092 0.352 -14% -13%
SE Mananda 1,641 0.216 2,922 0.382 -44% -44%
Total PNG oil 41,013 3.622 46,194 4.062 -11% -11%
Nabrajah, Yemen 5,816 0.148 7,659 0.281 -24% -47%
Area A, Egypt 2,841 0.015 2,404 0.004 18% n/a
East Ras Qattara 862 0.032 0 0 n/a n/a
Total Oil 50,534 3.817 56,256 4.347 -10% -12%
Hides Liquids 360 0.065 265 0.048 +36% +35%
Gas production mmscf/d mmscf mmscf/d mmscf
Hides Sales Gas 14.96 2,723 11.60 2,100 +29% -30%
Total Oil and gas production (boepd) (mmboe) (boepd) (mmboe)
Total production 53,387 4.335 58,455 4.745 -9% -9%
Note: Numbers may not add due to rounding.
For more information regarding this report, please contact:
Mr Peter Botten, Managing Director : 02 8207 8411
or
Mr Stephen Gardiner, Acting CFO : 02 8238 8147
or
Ms Ann Diamant, Investor Relations Manager : 02 8207 8440
0407 483 128
www.oilsearch.com
OIL SEARCH LIMITED
and its subsidiaries
ARBN 55 079 868
Half yearly report
30 June 2008
APPENDIX 4D
This information should be read in conjunction with the
Financial Report for the half-year ended 30 June 2008
Results for announcement to the market
US$'000 A$'000 a US$'000 A$'000 a
Revenue from operations up 52.8% 466,691 490,962 305,402 377,692
EBITDAX b up 64.4% 410,666 432,023 249,821 308,955
EBIT e up 128.0% 271,340 285,451 119,001 147,169
Net profit after tax, before significant items up 184.1% 133,296 140,228 46,921 58,027
Net profit after tax attributable to members up 463.5% 264,415 278,166 46,921 58,027
Net operating cash flow up 47.7% 348,494 366,618 235,942 291,790
US cents A cents US cents A cents
Interim dividend paid per security c - 4 .00 TBA d 4.00 4.55 d
Basic earnings per share
(before significant items) up 184.0% 1 1.90 12.52 a 4.19 5.18 a
Net operating cash flow per share up 47.2% 31.12 32.74 a 21.14 26.14 a
a. Amounts shown have been converted from US$ to A$ at the average exchange rate for the half-year of 0.9506 (2007: 0.8086).
b. Earnings before interest, borrowing costs, income tax, depreciation, amortisation, exploration costs expensed, and profit on sale
c. No franking credits available on dividends, as Oil Search Limited is incorporated in Papua New Guinea.
d. The Australian dollar amount will be fixed at the rate of exchange applicable on the day of the record date for determining
entitlements to the interim ordinary dividend, being 26 September 2008 (2007: 28 September 2007).
e. Earnings before interest, borrowing costs, income tax, and profit on sale
30 June 2008 30 June 2007
Half-year ended Half-year ended
Half-year ended
30 June 2008 30 June 2007
Half-year ended

OIL SEARCH LIMITED
and its subsidiaries
ARBN 055 079 868
Financial Report
for the half-year ended 30 June 2008
OIL SEARCH LIMITED
and its subsidiaries
Financial Report for the half-year ended
30 June 2008
Page
Directors' report 1
Auditors' independence declaration 6
Condensed Consolidated income statement 7
Condensed Consolidated balance sheet 8
Condensed Consolidated statement of cash flows 9
Condensed Consolidated statement of changes in equity 10
Selected explanatory notes to the financial statements 11
Directors' declaration 20
Independent audit report 21
OIL SEARCH LIMITED
and its subsidiaries
Directors' report
#DIV/0!
1
The directors submit their report for the half-year ended 30 June 2008.
DIRECTORS
The names, details and shareholdings of the directors of the company in office during or since the end of
the financial half-year are:
Mr BF Horwood, B.Comm., F.A.I.C.D., F.C.P.A., (Chairman), 66 years
Mr Horwood was appointed a director on 28 May 2004 and Chairman of Oil Search on 1 June 2004.
Prior to joining Oil Search, Mr Horwood had 35 years experience with the Rio Tinto Group, having held
executive positions in Australia, the United Kingdom and Papua New Guinea. Most recently, Mr
Horwood was Managing Director, Rio Tinto-Australia. Mr Horwood was, until January 2005, the
Chairman of Energy Resources of Australia Limited and Coal and Allied Industries Limited. He has been
a member of the Business Council of Australia and a director of the Minerals Council of Australia.
Ordinary shares, fully paid: nil; Options: nil
Mr PR Botten, CBE, B.Sc. ARSM, (Managing Director), 53 years
Mr Botten was appointed Managing Director on 28 October 1994, having previously filled both
exploration and general manager roles in the company since joining in 1992. He has extensive
worldwide experience in the oil and gas business, previously holding various senior technical and
managerial positions in a number of listed and government owned organisations. Mr Botten is presently
President of the Papua New Guinea Chamber of Mines and Petroleum and is on the Executive Committee
of the Australia PNG Business Council.
Ordinary shares, fully paid: nil; Performance Rights: 1,799,091; Restricted shares: 288,045
Mr EF Ainsworth, AM, B.Comm., F.A.I.C.D., F.C.P.A., 62 years
Mr Ainsworth joined the Board in October 2002. Mr Ainsworth has extensive energy and resources
industry experience. He spent 26 years with CSR Limited ("CSR"), mainly in CSR's resources
businesses, including 7 years in CSR's Oil and Gas Division, and 5 years as Managing Director of Delhi
Petroleum Pty Ltd ("Delhi"). When CSR sold Delhi he became Managing Director and CEO of Sagasco
Holdings Limited, then the 4th largest oil and gas company listed on the ASX. In 1994 he co-founded
Potential Energy Pty Limited, an energy consulting business, and remains an executive director of that
company. Mr Ainsworth is also Chairman of Horizon Oil Ltd and a non-executive Director of Envestra
Ltd (both ASX listed companies) and, from 1 January 2006, Chairman of the unlisted Tarac Australia
Ltd. He was formerly Chairman of SA Generation Corporation (the South Australian Government owned
coal mining and electricity generating Corporation).
Ordinary shares, fully paid: nil; Options: nil
1
Liability limited by a scheme approved under Professional Standards Legislation.
18 August 2008
Dear Board Members
AUDITORS’ INDEPENDENCE DECLARATION TO OIL SEARCH LIMITED
I am pleased to provide the following declaration of independence to the directors of Oil Search
Limited.
As lead audit partner for the audit of the financial statements of Oil Search Limited for the half
year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been
no contraventions of:
(i) the auditor independence requirements of the Australian Corporations Act 2001 in
relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
J A Leotta
Partner
Chartered Accountants
The Board of Directors
Oil Search Limited
5th Floor, Pacific MMI Bldg
Champions Parade
Port Moresby
Papua New Guinea
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
OIL SEARCH LIMITED
and its subsidiaries
Directors' report
Mr G Aopi, CBE, 54 years
Mr Aopi was appointed an Executive Director in May 2006 and presently fills the position of General
Manager PNG (Papua New Guinea), a post he took up in August 1998. Mr. Aopi has substantial public
service and business experience in Papua New Guinea, having had a long and distinguished career in
government, filling a number of important positions, including Secretary for Finance and Planning and
Managing Director of Telikom PNG Ltd. He is presently Chairman of Telikom PNG and is a Director
of Steamships Trading, Bank of South Pacific and a number of other private sector and charitable
organisations in Papua New Guinea.
Ordinary shares, fully paid: 35,100; Options: nil; Performance Rights: 155,072; Restricted shares: 76,188
Mr KG Constantinou, OBE, 51 years
Mr Constantinou joined the Board in April 2002. Mr Constantinou is a prominent business figure in
Papua New Guinea, holding a number of high level public sector and private sector appointments. He is
a director of various companies, including Hebou Constructions Limited, Airways Hotel & Apartments
Limited and Lamana Hotel Limited. He is also Deputy President of the Employers Federation of Papua
New Guinea, a director of the Bank of Papua New Guinea, Chairman of the National Capital District
Physical Planning Board, Honorary Consul for Greece in Papua New Guinea and Trade Commissioner
of Solomon Islands to Papua New Guinea.
Ordinary shares, fully paid: 12,000; Options: nil
Mr R Igara, CMG, M.B.A, B.E., Grad.Dip.(International Law), 55 years
Mr Igara joined the Board in April 2002. At that time he was one of Papua New Guinea's most highly
placed civil servants and he has extensive experience in the public sector. He served as a diplomat in Fiji
and Australia and as the Secretary to the Department of Trade & Industry. He was formerly Chief
Secretary to the PNG Government, Acting Secretary for Treasury and Chairman of Mineral Resources
Development Company Limited. Mr Igara was an independent director of Orogen Minerals. He has also
held Chairmanships of other Boards, including Chairman of the Boards of PNG Investment Promotion
Authority, National Forest Authority and PNG/Halla Cement Corporation. He was a member of the
Board of the Bank of Papua New Guinea from 2001 to 2005, and a director of PNG Sustainable Energy
Ltd since 2004. In November 2002, Mr Igara was appointed as the Chief Executive Officer of PNG
Sustainable Development Program Ltd, a company which has a 52% interest in Ok Tedi Mining Ltd. On
11 March 2008, Mr Igara was appointed to the role of Executive Director of the Strategic Investment
Group within PNG Sustainable Development Program Ltd.
Ordinary shares, fully paid: 10,000; Options: nil
Mr MDE Kriewaldt, B.A., Ll.B., F.A.I.C.D., 58 years
Mr Kriewaldt joined the Board in April 2002. Mr Kriewaldt was a director of Orogen Minerals Limited
and provides advice to Allens Arthur Robinson. He is Chairman of Opera Queensland Limited,
President of the Queensland division of the Institute of Company Directors, and a director of GWA
International Limited, Suncorp Metway Limited, Campbell Brothers Limited and ImpediMed Limited.
He has previously served as a director of QDL Limited, Chairman of Suncorp Insurance and Finance,
Chairman of Infratil Australia Limited, Hooker Corporation Limited and Airtrain Citylink Ltd.
Ordinary shares, fully paid: 12,000; Options: nil
2
OIL SEARCH LIMITED
and its subsidiaries
Directors' report
Mr JL Stitt, M.A. (Hons), F.A.I.C.D., 65 years
Mr Stitt joined the Board in April 1998. He has extensive experience in the international oil and gas
business, having worked for 33 years with the Royal Dutch/Shell Group of companies including inter
alia being responsible for Shell's world wide procurement, Director of Finance for Shell Australia, and
President and CEO of Shell Japan. Mr Stitt is a former director of Woodside Petroleum Limited,
Mitsubishi Chemicals K.K. and Showa Shell Sekiyu K.K.
Ordinary shares, fully paid: 9,600; Options: nil
Mr TN Warren, B.Sc. (Hons), 59 years
Mr Warren joined the Board in May 2006. Mr. Warren has had a long and distinguished career with the
Shell Group of Companies, spanning many different areas of its business. He retired as Chairman of the
Shell companies in Australia and the Pacific Islands on 1 May 2006, after more than 35 years with the
Group. Prior to 2002, Mr Warren served as Business Director for Asia-Pacific and Australasia (2001-
2002), Director of Exploration and Production Research and Technical Services (1995-2001), General
Manager Western Division of the Shell Petroleum Development Company in Nigeria (1993-1995), and
General Manager Operations for the Shell Petroleum Development Company in Nigeria (1992-1993).
Mr Warren also held various other senior positions within the Group and was a member of Shell’s
Global Executive Committee for the Exploration and Production Business (1995-2002). Mr Warren
was previously a director of Woodside Energy Ltd and was a member of the Business Council of
Australia (2002-2006). Mr Warren is a Director of Racing Victoria and the Save The Children
International Alliance.
Ordinary shares, fully paid: nil; Options: nil
GROUP SECRETARY
Mr MG Sullivan, B.A., Ll.B., Ll.M., FCIS, 50 years
Mr Sullivan joined Oil Search in 1997 as General Counsel after an extensive period in private practice
specialising in banking and finance law. Mr Sullivan was a partner at Gadens Ridgeway before joining
Oil Search. He assumed the role of Group Secretary in 1999. Michael is admitted as a lawyer in New
South Wales and Papua New Guinea. He is a Fellow of the Chartered Institute of Secretaries and a
Public Notary in New South Wales.
Ordinary shares, fully paid: nil; Options: nil; Performance Rights: 173,228; Restricted shares: 24,148
3
OIL SEARCH LIMITED
and its subsidiaries
Directors' report
Operations
Revenue from operations for the first six months of 2008 was US$466.7 million, 53% higher than the
first half 2007 outcome of US$305.4 million. This record result reflected markedly stronger oil prices,
partially offset by lower oil sales volumes, compared to the previous corresponding period. The average
realised oil price for the first half of 2008 was US$114.99 per barrel, up US$44.30 from the price
realised in the first half of 2007. The Company was completely unhedged to oil price movements during
the period.
Total oil and gas production for the first half of 2008 was 4.27 million barrels of oil equivalent, 10%
lower than in the first half of 2007. Production was impacted by the sale of producing MENA assets
with effect from 1 May 2008, natural production decline in the mature PNG fields and a scheduled shutdown
of the main PNG processing facility in February 2008 for maintenance work. The Company's PNG
liftings matched its share of production for the six months under review. Operating expenses were
relatively flat at US$42.7 million compared to US$42.5 million in the previous corresponding period.
PNG operating costs increased in absolute terms and on a per barrel basis, reflecting the impact of the
stronger Australian dollar and PNG Kina (in which a proportion of the Company's operating costs are
denominated), the flow-on effects of record crude oil prices into fuel costs and royalty/development levy
payments and general industry cost pressures across a lower liftings base.
Exploration and evaluation costs expensed in the first half of 2008 were US$70.6 million compared to
US$66.2 million in the previous corresponding period, reflecting the expensing of the North West Paua
well in PNG and ongoing seismic and other exploration costs.
Non cash charges increased to US$77.4 million in the first half of 2008, compared to US$67.3 million in
the first half of 2007, primarily due to the unwinding of discount charge for site restoration provisions
and a full period depreciation charge on the Company's two drilling rigs for the first time.
Income tax expense increased to US$140.9 million in the first half of 2008 compared to US$82.5
million in the prior period, in line with the higher profit from operating activities. A US$132.1 million
profit on sale of MENA assets realised during the period was not subject to tax.
Operating cash flow of US$348.5 million (June 2007: US$235.8 million) was generated during the halfyear,
an increase of 47.8% on the corresponding period in 2007. At 30 June 2008 the Company held
cash of US$399.6 million (December 2007: US$343.6 million), and was debt free.
RESULTS AND REVIEW OF OPERATIONS
Financial
During the period, the economic entity made a net profit after tax of US$264.4 million (June 2007:
US$46.9 million). This included a profit after tax on the sale of Middle East/North Africa ("MENA")
assets of US$132.1 million. The net profit was after providing for income tax of US$140.9 million (June
2007: US$82.5 million).
4
OIL SEARCH LIMITED
and its subsidiaries
Directors' report
DIVIDENDS
Subsequent to balance date, the directors have approved the payment of an unfranked interim dividend
of US 4 cents per ordinary share to ordinary shareholders in respect of the half-year ended 30 June 2008.
The due date for payment is 10 October 2008 to all holders of ordinary shares on the Register of
Members on 26 September 2008. Dividends paid and declared during the period are recorded in note 8
to the financial statements.
AUDITORS' INDEPENDENCE DECLARATION
Deloitte Touche Tohmatsu's Independence Declaration is included on page 6.
ROUNDING
The majority of amounts included in this report are rounded to the nearest US$1,000 (where rounding is
applicable).
Signed in accordance with a resolution of the Directors.
..........................................................
BF HORWOOD
Chairman
..........................................................
PR BOTTEN
Managing Director
Sydney, 18 August 2008
5
Liability limited by a scheme approved under Professional Standards Legislation.
18 August 2008
Dear Board Members
AUDITORS’ INDEPENDENCE DECLARATION TO OIL SEARCH LIMITED
I am pleased to provide the following declaration of independence to the directors of Oil Search
Limited.
As lead audit partner for the audit of the financial statements of Oil Search Limited for the half
year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been
no contraventions of:
(i) the auditor independence requirements of the Australian Corporations Act 2001 in
relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
J A Leotta
Partner
Chartered Accountants
The Board of Directors
Oil Search Limited
5th Floor, Pacific MMI Bldg
Champions Parade
Port Moresby
Papua New Guinea
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
OIL SEARCH LIMITED
and its subsidiaries
Half-year ended Half-year ended
30 June 2008 30 June 2007
Note US$'000 US$'000
Revenue from operations 2 4 66,691 3 05,402
Operating expenses - producing assets (42,706) (42,484)
Amortisation - site restoration (5,106) (5,856)
Amortisation - oil and gas assets (54,405) (55,370)
Depreciation - operating assets (6,451) (1,577)
Royalties, development and mining levies (7,649) (4,988)
Costs of sales (116,317) (110,275)
Gross profit from operating activities 3 50,374 1 95,127
Other income - 8 03
Other expenses 3 (8,416) (10,725)
Profit from operating activities 3 41,958 1 85,205
Exploration costs expensed (70,618) (66,204)
Contractual adjustments to profit on sale of JV interest 4 (1,000) (677)
Profit on sale of MENA assets 4 1 32,119 -
Gain on sale of other non-current assets 8 40
Interest income 6 ,627 1 1,595
Financing costs 5 (3,768) (511)
Profit from continuing operations
before income tax 4 05,326 1 29,448
Income tax expense 6 (140,911) (82,527)
Net profit after tax 2 64,415 4 6,921
US cents US cents
Basic earnings per share 7 2 3.61 4 .19
Diluted earnings per share 7 2 3.40 4 .17
The condensed consolidated income statement should be read in conjunction with the accompanying notes.
Condensed consolidated income statement
for the half-year ended 30 June 2008
7
OIL SEARCH LIMITED
and its subsidiaries
30 June 2008 31 December 2007
Note US$'000 US$'000
Current assets
Cash 3 99,599 3 43,578
Receivables 4 03,618 2 07,461
Inventories 5 4,512 5 6,003
Other current assets 4 ,880 3 ,573
Total current assets 8 62,609 6 10,615
Non-current assets
Receivables 4 2,936 4 2,931
Exploration and evaluation assets 9 4 39,516 3 76,894
Oil and gas assets 10 5 92,998 6 33,289
Other property, plant and equipment 9 1,993 8 7,815
Deferred tax assets 8 2,032 8 1,935
Total non-current assets 1 ,249,475 1 ,222,864
Total assets 2 ,112,084 1 ,833,479
Current liabilities
Payables 1 43,660 1 61,779
Provisions 1 9,378 1 2,089
Current tax liabilities 1 22,354 4 2,345
Total current liabilities 2 85,392 2 16,213
Non-current liabilities
Provisions 1 11,880 9 9,493
Deferred tax liabilities 1 11,926 1 28,641
Total non-current liabilities 2 23,806 2 28,134
Total liabilities 5 09,198 4 44,347
Net assets 1 ,602,886 1 ,389,132
Shareholders' equity
Share capital 6 29,966 6 38,536
Reserves 12 5 ,956 3 ,280
Retained profits 9 66,964 7 47,316
Total shareholders' equity 1 ,602,886 1 ,389,132
The condensed consolidated balance sheet should be read in conjunction with the accompanying notes.
Condensed consolidated balance sheet
as at 30 June 2008
8
OIL SEARCH LIMITED
and its subsidiaries
Half-year ended Half-year ended
30 June 2008 30 June 2007
Note US$'000 US$'000 a
Cash flows from operating activities
Receipts from customers 464,472 321,713
Payments to suppliers and employees (45,246) (40,189)
Interest received 8,009 10,057
Borrowing costs paid (1,027) (511)
Income tax paid (77,714) (55,128)
Net operating cash flows 3 48,494 2 35,942
Cash flows from investing activities
Payments for property, plant and equipment (13,375) (22,844)
Payments for exploration and evaluation expenditure (146,937) (113,115)
Payments for oil and gas expenditure (85,267) (49,658)
Proceeds from sale of property, plant and equipment 8 56
Cash outflow on sale of joint venture interest - (677)
Net cash inflow on sale of MENA assets 14,237 -
Net investing cash flows (231,334) (186,238)
Cash flows from financing activities
Repurchase of employee share options (3,465) (2,070)
Purchase of treasury shares (10,707) -
Dividend paid 8 (44,767) (44,794)
Loans to and from operated joint ventures (2,200) 6,307
Net financing cash flows (61,139) (40,557)
Net increase in cash held 5 6,021 9 ,147
Cash balance at the beginning of the period 3 43,578 4 77,884
Cash balance at end of period 399,599 4 87,031
a. Restated for revised disclosure of business activities
The condensed consolidated statement of cash flows should be read in conjunction
with the accompanying notes.
Condensed consolidated statement of cash flows
for the half-year ended 30 June 2008
9
OIL SEARCH LIMITED
and its subsidiaries
Share capital Reserves
Retained
profits Total
Consolidated US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2007 638,883 2,389 699,708 1 ,340,980
Cash settlement of equity based
employee share payments ( 6,687) - - (6,687)
Employee share-based remuneration 6,287 - - 6 ,287
Net exchange differences 53 - - 5 3
Net profit after tax for the year a - - 137,195 1 37,195
Exchange differences on translation of
foreign operations b - 891 - 8 91
Dividends provided for or paid - - ( 89,587) (89,587)
Balance at 31 December 2007 638,536 3,280 747,316 1,389,132
Share capital Reserves
Retained
profits Total
Consolidated US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2008 638,536 3,280 747,316 1 ,389,132
Cash settlement of equity based
employee share payments ( 3,465) - - (3,465)
Purchase of treasury shares ( 10,707) (10,707)
Net exchange differences ( 382) - - (382)
Employee share-based remuneration 5,984 - - 5 ,984
Net profit after tax for the period a - - 264,415 2 64,415
Exchange differences on translation of
foreign operations b - 2,676 - 2 ,676
Dividends provided for or paid - - ( 44,767) (44,767)
Balance at 30 June 2008 629,966 5,956 966,964 1 ,602,886
a. Net profit after tax plus exchange differences equate to total income and expenses recognised in the period.
b. Exchange differences equate to net income and expenses recognised directly in equity.
The condensed consolidated statement of changes in equity should be read in conjunction
with the accompanying notes.
Condensed consolidated statement of changes in equity
for the half-year ended 30 June 2008
10
OIL SEARCH LIMITED
and its subsidiaries
Notes to the financial statements
for the half-year ended 30 June 2008
1 Summary of significant accounting policies
Basis of accounting
Half-year ended Half-year ended
30 June 2008 30 June 2007
US$'000 US$'000
2 Revenue from operations
Oil sales 431,195 287,538
Gas and refined product sales 17,426 11,017
Drilling rig revenue 11,268 379
Other field revenue 6,802 6,468
466,691 305,402
3 Other expenses
Salaries and employee benefits (22,739) (20,482)
Post-employment benefits (1,615) (1,561)
Employee share-based remuneration (5,984) (2,637)
Premises, and equipment - operating leases (2,197) (1,741)
Other expenses (15,620) (16,258)
Corporate cost recoveries 44,024 35,645
Net corporate expenses (4,131) (7,034)
Depreciation (2,746) (1,813)
Foreign currency losses (1,539) (1,878)
(8,416) (10,725)
The half-year financial report is a general purpose financial report prepared in accordance with the
reporting requirements of the Australian Securities Exchange Listing Rules and IAS 34: “Interim
Financial Reporting”. The half-year financial report does not include notes of the type normally
included in an annual financial report and should be read in conjunction with the 2007 annual financial
report.
The accounting policies adopted in the preparation of the half-year financial report are consistent with
those adopted and disclosed in the 2007 annual financial report.
11
OIL SEARCH LIMITED
and its subsidiaries
Notes to the financial statements
for the half-year ended 30 June 2008
Half-year ended Half-year ended
30 June 2008 30 June 2007
US$'000 US$'000
4 Significant items
Consideration on sale of MENA assets a 225,321 -
Assets and liabilities disposed (93,202) -
Net profit on sale of MENA assets 132,119 -
Contractual adjustments to profit on sale of JV interest (1,000) -
Total Significant items 131,119 -
a.
Half-year ended Half-year ended
30 June 2008 30 June 2007
US$'000 US$'000
5 Financing costs
Borrowing costs (1,027) (511)
Unwinding of discount on site restoration (2,741) -
(3,768) (511)
US$205 million consideration receivable upon completion of certain conditions precedent, expected to be fulfilled in the
near future.
12
OIL SEARCH LIMITED
and its subsidiaries
Notes to the financial statements
for the half-year ended 30 June 2008
Half-year ended Half-year ended
30 June 2008 30 June 2007
US$'000 US$'000
6 Income tax
The major components of tax expense are:
Current tax expense 157,369 9 0,699
Prior year adjustment - 2 ,390
Deferred tax expense relating to the origination
and reversal of temporary differences (16,458) (8,260)
Recognition of deferred tax assets - (2,302)
Income tax expense 140,911 8 2,527
Reconciliation between tax expense and the pre-tax net profit
multiplied by the applicable tax rate is set out below:
Pre-tax net profit 405,326 1 29,448
Tax at PNG rate for petroleum (50%) (2007: 50% ) 202,663 6 4,724
Effect of differing tax rates across tax regimes (1,957) 2 ,937
200,706 6 7,661
Tax effect of items not tax deductible or assessable:
Foreign jurisdiction losses not assessable 5,973 1 4,090
Prior year adjustment - 2 ,390
Profit on sale of MENA assets (66,058) -
Non-deductible expenditure 290 6 88
Recognition of deferred tax assets - (2,302)
Income tax expense 140,911 8 2,527
The amount of the deferred tax (benefit)/expense recognised
in the income statement in respect of each type of
temporary difference and unused tax loss:
Exploration and development (10,799) (9,270)
Provisions (5,659) 1 ,010
Deferred tax benefit (16,458) (8,260)
13
OIL SEARCH LIMITED
and its subsidiaries
Notes to the financial statements
for the half-year ended 30 June 2008
Half-year ended Half-year ended
30 June 2008 30 June 2007
US cents US cents
7 Earnings per share
Basic earnings per share (before significant items) 11.90 4 .19
Basic earnings per share (after significant items) 23.61 4 .19
Diluted earnings per share (after significant items) 23.40 4 .17
Weighted average number of ordinary shares used in
the calculation of basic earnings per share 1,119,841,193 1,119,841,193
Weighted average number of ordinary shares used in
the calculation of diluted earnings per share 1,130,011,239 1 ,126,273,394
Half-year ended Half-year ended
30 June 2008 30 June 2007
US$'000 US$'000
8 Dividends paid or proposed
Unfranked b dividends in respect of the half-year,
proposed subsequent to the reporting period:
Ordinary dividends a 44,794 44,794
Unfranked b dividends paid during the period
in respect of previous year 44,767 44,794
a.
b. As Oil Search Limited is a Papua New Guinea incorporated company, there are no franking credits
available on dividends.
On 18 August 2008, the directors declared an interim unfranked dividend in respect of the current half-year, of US 4
cents per ordinary share, to be paid to the holders of ordinary shares on 10 October 2008. The proposed dividend is
payable to all holders of ordinary shares on the Register of Members on 26 September 2008. The estimated dividend to
be paid is US$44,793,648 and has not been included as a liability in these financial statements.
Basic earnings per share have been calculated on an net profit after tax of US$264.4 million
(2007: US$46.9 million).
Diluted earnings per share have been calculated on an net profit after tax of US$264.4 million
(2007: US$46.9 million). There are 3,182,287 options (2007: 5,941,088) and 7,528,966 performance
rights (2007: 10,263,760) which are dilutive potential ordinary shares and are therefore included in the
number of shares for the calculation of diluted earnings per share.
14
OIL SEARCH LIMITED
and its subsidiaries
Notes to the financial statements
for the half-year ended 30 June 2008
Half-year ended Year ended
30 June 2008 31 December 2007
US$'000 US$'000
9 Exploration and evaluation assets
At cost 473,806 4 11,184
Less impairment (34,290) (34,290)
439,516 3 76,894
Balance at start of year 376,894 3 51,351
Reclassification - 4 ,618
Expenditure incurred during the period 142,908 2 22,391
Exploration costs expensed during the period (70,618) (163,324)
Impairment losses - (3,000)
Disposals (9,668) (4,555)
Transferred to assets in development - (3,969)
Transferred to producing assets - (26,618)
Balance at end of period 439,516 3 76,894
15
OIL SEARCH LIMITED
and its subsidiaries
Notes to the financial statements
for the half-year ended 30 June 2008
Half-year ended Year ended
30 June 2008 31 December 2007
US$'000 US$'000
10 Oil and gas assets
Assets in development
At cost - 3 3,766
Balance at start of year 33,766 -
Transferred from exploration and evaluation assets - 3 ,969
Additions 4,214 3 7,617
Disposals (37,980) (7,820)
Balance at end of period - 3 3,766
Producing assets
At cost 1,464,403 1 ,438,056
Less accumulated amortisation and impairment (871,405) (838,533)
592,998 5 99,523
Balance at start of year 599,523 6 28,356
Reclassification - (9,952)
Transferred from exploration and evaluation assets - 2 6,618
Additions 58,645 5 7,219
Disposals (14,805) -
Impairment reversals - 7 ,500
Changes in restoration obligations 9,146 1 9,577
Amortisation of site restoration (5,106) (11,345)
Amortisation (54,405) (118,450)
Balance at end of period 592,998 5 99,523
Total oil and gas assets 592,998 6 33,289
16
OIL SEARCH LIMITED
and its subsidiaries
Notes to the Financial Statements
for the half-year ended 30 June 2008
11 Segment reporting
Primary Reporting - geographical segments
US$'000 2008 2007 2008 2007 2008 2007
Revenue from operations 448,142 287,393 18,549 18,009 466,691 3 05,402
Results
Segment profit from operating
activities 329,324 183,219 8,560 316 337,884 1 83,535
Exploration costs expensed ( 52,098) ( 37,639) ( 18,520) (28,565) (70,618) (66,204)
Interest income 6,457 11,556 52 (27) 6,509 1 1,529
Financing costs ( 3,717) ( 511) ( 51) - (3,768) (511)
Segment profit/(loss) from
continuing operations before
income tax 279,966 156,625 ( 9,959) (28,276) 270,007 1 28,349
Unallocated profit from operating
activities 4,074 1 ,670
Profit on sale of MENA assets 132,119 -
Contractual adjustments to profit on sale of joint venture interests (1,000) (677)
Profit/(loss) on sale of other noncurrent
assets 8 4 0
Unallocated net interest and financing costs 118 6 6
Total profit from continuing
operations before income tax 405,326 1 29,448
Income tax expense (140,911) (82,527)
Net profit after tax 264,415 4 6,921
30 June 30 June 30 June
Middle East and
PNG North Africa Consolidated
Segment results include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items primarily comprise profit on sale of joint venture interests and related
costs, interest income and borrowing costs.
The Oil Search Group operates primarily in Papua New Guinea but also has activities in Yemen, Libya, Iraq
and Australia. Production from the designated segments is sold on commodity markets and may be sold to
other geographical segments.
17
OIL SEARCH LIMITED
and its subsidiaries
Notes to the Financial Statements
for the half-year ended 30 June 2008
11 Segment reporting (continued)
Primary Reporting - geographical segments (continued)
US$'000 2008 2007 2008 2007 2008 2007
Non-cash expenses
Amortisation - site restoration ( 5,106) ( 5,856) - - (5,106) (5,856)
Amortisation - oil and gas assets ( 48,740) ( 48,579) ( 5,665) (6,791) (54,405) (55,370)
Depreciation - operating assets ( 6,451) ( 1,577) - - (6,451) (1,577)
Depreciation - other ( 54) - ( 58) (27) (112) (27)
Unwinding of discount on site
restoration ( 2,741) - - - (2,741) -
Employee share-based remuneration ( 1,266) ( 1,100) ( 447) (268) (1,713) (1,368)
Segment non-cash expenses ( 64,358) ( 57,112) ( 6,170) (7,086) (70,528) (64,198)
Unallocated depreciation (2,634) (1,786)
Unallocated employee share-based remuneration (4,271) (1,269)
Total non-cash expenses (77,433) (67,253)
Acquisition of non-current assets
Exploration, evaluation, development
and producing assets 157,894 109,629 59,098 59,732 216,992 1 69,361
Unallocated corporate acquisitions - - - - 3,772 4 ,296
157,894 109,629 59,098 59,732 220,764 1 73,657
Secondary reporting - business segments
Consolidated
Middle East and
PNG North Africa
30 June 30 June 30 June
The Oil Search Group operates predominantly in one business, namely the exploration, development and
production of hydrocarbons. Revenue is derived from the sale of gas and liquid hydrocarbons.
18
OIL SEARCH LIMITED
and its subsidiaries
Notes to the Financial Statements
for the half-year ended 30 June 2008
Half-year ended Year ended
30 June 2008 31 December 2007
US$'000 US$'000
12 Reserves
Foreign currency translation 5,956 3 ,280
13 Subsequent events
Subsequent to balance date, the Directors declared an unfranked interim dividend of US 4 cents per
share in respect of the current half-year to the holders of ordinary shares, to be paid on 10 October
2008.
There were no other significant events after balance date.
19
OIL SEARCH LIMITED
and its subsidiaries
Directors' Declaration
#DIV/0!
In accordance with a resolution of the directors of Oil Search Limited, the directors declare that:
(a) the attached financial statements and notes thereto of the economic entity:
(i) give a true and fair view of the economic entity’s financial position as at 30 June 2008
and its performance for the half-year ended on that date; and
(ii) comply with International Financial Reporting Standards; and
(iii) the attached financial statements and notes thereto comply with the reporting
requirements of the Australian Securities Exchange Listing Rules; and
(b) in the opinion of the directors, there are reasonable grounds to believe that the company will
be able to pay its debts as and when they become due or payable.
Signed in accordance with a resolution of the directors.
On behalf of the Board of Directors
..........................................................
BF HORWOOD
Chairman
..........................................................
PR BOTTEN
Managing Director
Sydney, 18 August 2008
20
Liability limited by a scheme approved under Professional Standards Legislation.
Independent Auditor’s Report
to the members of Oil Search Limited
We have audited the accompanying financial report of Oil Search Limited (the company), which
comprises the balance sheet as at 30 June 2008, and the income statement, cash flow statement
and statement of changes in equity for the half-year ended on that date, a summary of significant
accounting policies, other explanatory notes and the directors’ declaration of the consolidated
entity comprising the company and the entities it controlled at the half-year’s end or from time
to time during the half-year as set out on pages 7 to 20.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the
financial report in accordance with IAS 34 Interim Financial Reporting. This responsibility
includes establishing and maintaining internal control relevant to the preparation and fair
presentation of the financial report that is free from material misstatement, whether due to fraud
or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with International Standards on Auditing. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial report in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Auditor’s Independence Declaration
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
In conducting our audit, we have complied with the independence requirements of the
Australian professional accounting bodies.
Auditor’s Opinion
In our opinion, the financial report of the consolidated entity gives a true and fair view of the
consolidated entity’s financial position as at 30 June 2008 and of its performance for the halfyear
ended on that date and complies with IAS 34 Interim Financial Reporting.
DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU
Suzaan Theron John A Leotta
Partner Partner
Chartered Accountants Chartered Accountants
Registered under the Accountants Act, 1996 Registered Company Auditor in Australia
Port Moresby, 18 August 2008 Sydney, 18 August 2008
O I L S E A R C H L I M I T E D
Incorporated in Papua New Guinea
ARBN 055 079 868
OIL SEARCH LIMITED
2008 Interim Dividend
Oil Search Limited will pay a final dividend of US$0.04 (four US cents) per
ordinary share on Friday, 10 October 2008.
The record date is Friday, 26 September 2008 and the ordinary shares will
trade “ex” dividend from Monday, 22 September 2008.
The dividend will be paid in PNG Kina for those shareholders domiciled in
Papua New Guinea, in GB Pounds for those shareholders that have lodged
direct credit details requesting a GB Pounds credit and in Australian
dollars for all other shareholders. The exchange rates used for converting
the United States dollar dividend into the payment currencies will be the
closing rates on the record date being Friday, 26 September 2008.
The dividend will be unfranked and no withholding tax will be deducted.
Michael Sullivan
General Counsel/Group Secretary
Monday, 18 August 2008