From Morgan Stanley to day
Oil Search Ltd.: P’nyang play pays
Quick Comment: Oil Search (OSH) reports positive results from the first of several wells in its 18-month gas drilling program exploring for gas to underpin PNG LNG Train 3. The P’nyang South well in the PNG highlands encountered a 184m gross gas column. The well drilled through the Digimu, P’nynang and Toro sands with a 53-metre core cut through the latter. Deeper objectives are yet to be drilled. A proper evaluation will be undertaken once the target depth is reached. This result, however, will likely extend the known gas reserves and resources at the P’nyang prospect. Other wells to follow are Trapia and Hides. Drilling will commence on Trapia following the completion of P’nyang. OSH have a multi-well program under way in PNG to grow gas resources to underpin a third LNG train. OSH claims it is their largest ever drilling campaign, to be completed over 2012 and 2013. The prospect of a third LNG train is attractive, as the current project configuration allows additional ‘bolt on’ capacity in terms of project infrastructure such as pipelines and the liquefaction plant, with substantial economies of scale expected to be realised. This is a positive early result. Participants in the P’nyang well are OSH (38.5%), Exxon Mobil affiliates (49%) and JX Nippon (12.5%). We retain our Overweight recommendation.
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