osh atticle

In "The Age" today - nothing new, but thought I'd post it as general background.


Oil Search warns of PNG difficulties
September 2, 2004

Page Tools
Email to a friend Printer format
Papua New Guinea is a difficult place to operate and junior oil and gas explorers should weigh the costs carefully before venturing there, Oil Search warns.

Speaking at the Good Oil conference in Fremantle, Oil Search managing director Peter Botten said the reality about PNG is that it is a relatively high-cost operating area.

"I think we've seen a number of companies come up there and punt a capital raising on one well and see that money go out on one well," Mr Botten, who is also president of the PNG Chamber of Mines and Petroleum, said.

Although Canadian company InterOil Corp has proven it can be done, Mr Botten said PNG was a tough environment in which to operate and Oil Search's strong position made it difficult for other groups to break in.

"I'm not saying it can't be done because InterOil has done it, but make sure you have a big credit card or a big lump of money," Mr Botten said.

From a market capitalisation of about $250 million eight years ago and a 10 per cent foothold in PNG's oil industry, Oil Search now has a market cap of just under $1.5 billion and controls 70 per cent of the local oil industry and 50 per cent of the gas.

The group has evolved away from an approach to exploration drilling that resembles roulette, Mr Botten said: "how many rolls of the wheel can you get before you run out of money?"

"In PNG you don't get many rolls of the wheel and unless you're very confident about where you should drill you need to be very careful," he said.

Oil Search's efforts to wrench control of its destiny away from its major partners is starting to pay off, with a record half year profit of $US60.1 million announced last week.

The interim result was a 65 per cent improvement on a year ago, driven by the acquisition of ChevronTaxaco Corp's PNG assets and strong oil prices.

Still in the pipeline are the Moran development, which is still under way, the NW Moran development, due to come onstream early in 2005, and potentially the SE Mananda field in the third quarter of 2005.