News: OSH UPDATE 1-Oil Search posts surprise underlying profit on cost-cutting

(Adds background, detail on Pikka project, share movement)

Feb 23 (Reuters) - Oil Search (OSH) on Tuesday posted a surprise annual core profit as the Papua New Guinea-focused oil and gas company aggressively cut costs to overcome a slump in prices and lower demand due to the pandemic.

The oil price collapse forced the company to cut jobs, raise cash and write off the value of some exploration assets. While its key growth projects in PNG were held up by wrangling with the government, it focused on the development of its $3 billion Pikka oil project in Alaska.

On Monday, Oil Search said it would begin engineering and design work for the Pikka project, which aims to start production in 2025 at 80,000 barrels per day.

The PNG-focussed explorer said core net profit after tax for the year ended Dec. 31 fell to $22.0 million, from $320.9 million a year ago. Analysts were expecting the company to post a core loss of $24.7 million, according to Refinitiv IBES.

Its shares were up as much as 5.4% to A$4.27, their biggest intraday gain since Jan. 13.

On a statutory basis, Oil Search posted a net loss after tax of $320.7 million, compared with a profit of $312.4 million.

Revenue declined 32% to $1.07 billion, even as the company reported strong annual production last month, while warning of lower output and challenging conditions in 2021.

It declared a final dividend of 0.50 U.S. cent per share, down from 4.50 U.S. cents per share it paid last year.