oil search expects further production growth

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Oil Search expects further production growth
5-March-2003
Papua New Guinea oil and gold company Oil Search (OSH) has posted a full year profit of $87.2 million, nearly triple last year’s $23.7 million result. The company also launched an $80 million on-market share buyback and said it expected further production growth in 2003 and 2004.

According to Multex Global Estimates, the result was slightly ahead of consensus forecasts of about $85.1 million although the range was from $62.6 million to $118.9 million.

Revenues nearly doubled to $449.3 million from $248.8 million last year although this was largely driven by the merger with Orogen Minerals sealed last April. Fully diluted earnings per share rose from 3.5c to 8.4c allowing the company to declare a US 1c per share dividend.

Oil Search said the result reflected an expanded asset base following the merger with Papua New Guinea-based Orogen Minerals and was driven by a strong production performance and higher oil and gold prices. Total production for 2002 totalled 8.31 million barrels of oil equivalent (mmboe)

“Based on continuing strong commodity prices, this should translate to continued growth in profits over this period,” chairman Trevor Kennedy said in a statement.

The company said the buyback of up to 108 million shares would be conducted through UBS Warburg and would be funded out of surplus cashflow from operations and the possible sale of mineral assets. The company has previously indicated its intention to divest its 20% stake in the Porgera gold mine to the 75% owner, Canada’s Placer Dome (PDG).

Looking forward, Oil Search surprised some analysts by predicting further production growth for the next two years, with the caveat of the fields achieving their expected performance.

“The outlook looks strong, with growth in 2003 and 2004 and additions in 2005,” said managing director Peter Botten in a presentation to analysts and media. “We expect production to grow 10-15% in 2003 to 8.4-8.8mmboe and a similar amount in 2004 to 9.2-9.8mmboe.”

SHAW Stockbroking’s head of resources John Colnan commented that the longer the oil price remains at current levels, the more profit may be expected to rise this year.

“Assuming a US$27/bbl average realised price this year together with a higher gold price and a lower PNG corporate tax rate, 2003 profits may be expected to rise significantly,” he said.

He added that the real issue for the company remained finding fresh reserves and what value could be extracted from its gas reserves in PNG.









Oil Search also indicated that it expected to make a decision on how to commercialise its gas reserves by the middle of the year, with the delayed PNG-QLD pipeline its preferred option. The consortium partners, including ExxonMobil, ChevronTexaco and Oil Search, have so far failed to sign-up customers for 100 Petajoules per annum for delivery from 2006.

“We believe by the middle of the year, when greater clarity on the PNG pipeline is available, we will be moving to commercialize our gas in some form or another - through a pipeline hopefully, and, or through other complementary exercises,” commented managing director Peter Botten.