7 7 th Annual Meeting 2 May 2 0 0 8 1 Perform ance in 2 0 0 7 - - PowerPoint PPT Presentation
O I L S E A R C H L I M I T E D 7 7 th Annual Meeting 2 May 2 0 0 8 1 Perform ance in 2 0 0 7 STRONG UNDERLYI NG OPERATI NG PERFORMANCE Total production of 9 .7 8 m m boe, just 4 % low er than in 2 0 0 6 despite PNG oil field m
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2 May 2 0 0 8
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STRONG UNDERLYI NG OPERATI NG PERFORMANCE
Total production of 9 .7 8 m m boe, just 4 % low er
than in 2 0 0 6 despite PNG oil field m aturity
Realised oil price of US$ 7 7 .7 8 / bbl,
1 6 % above 2 0 0 6
Record revenue of US$ 7 1 8 .8 m illion,
up 1 2 % on 2 0 0 6
Record EBI TDAX of US$ 5 9 8 .2 m illion,
up 1 0 % on 2 0 0 6
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Net profit after tax ( before significant item s) of
US$ 1 4 0 .8 m illion, dow n 3 2 % on 2 0 0 6 I m pacted by higher exploration expense, higher non-
cash item s and higher effective tax rate
First NPAT fall in 5 years
Final dividend for 2 0 0 7 of four US cents/ share
w as paid in March, m aking eight US cents/ share for the year ( 2 3 toea/ share) , the sam e as in 2 0 0 6
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Total Recordable I ncidents ( TRI s) 1 9 9 8 – 2 0 0 7
TRI / 1 ,0 0 0 ,0 0 0 Hours 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 4 6 8 1 0 1 2 1 4 2 0 0 7
APPEA OSH OGP
Oil Search Australian Com panies
8. 8.5 10.6 10.6 9. 9.8 10.7 10.7 5. 5.8 1. 1.7 4. 4.7 2 .4 2 .3 2. 2.05 05 12.7 12.7 9 .1 9. 9.3 7. 7.8 7. 7.0 7. 7.3 5. 5.2 6. 6.8 4. 4.0 3. 3.1 2. 2.9 9. 9.4 8. 8.2 8. 8.3
2 0 0 6 I nternational Com panies
6. 6.3
5
1 .0 0 2 .0 0 3 .0 0 4 .0 0 5 0 0 Jan-0 3 Jul-0 3 Jan-0 4 Jul-0 4 Jan-0 5 Jul-0 5 Jan-0 6 Jul-0 6 Jan-0 7 Jul-0 7 Jan-0 8
OSH ASX 2 0 0 ASX 2 0 0 Energy
July 2 0 0 3 : Acquisition of Chevron’s PNG I nterests Oct 2 0 0 4 : PNGGP enters FEED July 2 0 0 5 : Announcem ent of AGL GSA and PNGGP equity sale April 0 7 : Signs Cost Sharing Agreem ent for LNG project Aug 2 0 0 6 : APC w ithdraw s from Australian leg of PNGGP Pipeline
Share Price ( rebased to OSH) W TI
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Source: I RESS
Ranked No.5 TSR Perform er am ongst current ASX 1 0 0 for 5 year period to Dec 2 0 0 7
5 3 %
0 % 1 0 % 2 0 % 3 0 % 4 0 % 5 0 % 6 0 % 7 0 %
Fortescue Metals Paladin Energy WorleyParsons Caltex Australia Oil Search United Group Oxiana Leighton Holdings ASX Limited David Jones Computershare CSL Newcrest Mining Macquarie Airports QBE Insurance Woodside Petroleum Allco Finance Rio Tinto BHP Billiton OneSteel Sims Group Bluescope Steel Macquarie Group Orica Macquarie Communica.
CAGR
7
Revenue Operating Cash Flow Core Net Profit
US$ m
3 5 0 .8 4 1 6 .3 6 6 4 6 4 4 .5 7 1 8 .6 2 3 9 .1 3 3 0 5 5 4 .3 5 4 4 .8 5 9 8 .2 1 9 1 .3 2 7 6 .7 3 5 7 .7 3 9 9 3 2 6 .8 8 5 .7 1 0 7 .3 2 0 0 .2 2 0 7 .5 1 4 0 .8
1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 0 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7
EBI TDAX
8
Cash opex im pacted by global industry cost pressures and
resurgent Australian dollar, fuel costs
US$ 6 5 .2 m illion ( 4 0 % ) of total 2 0 0 7 exploration expense incurred
in MENA w ith no associated tax benefit. Prim ary driver of effective tax rate of 5 6 %
1 0 0 2 0 0 3 0 0 2 6 A m
t i s a t i
US$ m
2 7 2 7 ( 1 1 7 ) ( 1 1 7 ) ( 3 3 ) ( 3 3 ) ( 1 1 ) ( 1 1 ) 1 4 1 4 1 4 1 1 4 1 ( 3 7 ) ( 3 7 ) 9 7 9 7 2 0 7 2 0 7
O i l P r i c e O i l S a l e s O t h e r R e v . C a s h O p e x p r e F X E x p l . E x p . T a x 2 7
( 7 ) ( 7 )
F X I m p a c t
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US$ 3 4 4 m illion in cash at year end, no debt Current cash position of US$ 4 0 7 m illion US$ 1 0 0 m illion tranche of corporate facility expired at
year-end. Rem aining undraw n bank lines of US$ 3 1 m illion
W ork underw ay to refinance corporate facility increasing
funding com m itm ent to ~ US$ 4 0 0 m illion and group liquidity to in excess of US$ 7 0 0 m illion. Facility is for general corporate purposes but w ill be used to cover a portion of PNG LNG developm ent costs
No oil hedging currently in place
1 0
CONCLUSI ON: Existing portfolio can deliver superior TSR
Substantial unrealised value exists
w ithin Oil Search’s current asset portfolio, capable of generating superior shareholder returns over next five years and beyond
Delivery of PNG LNG alone can bring
1 5 % plus annual TSR grow th w ith upside exposure to higher oil and gas prices. PNG LNG is the key future value driver
Further value grow th can be
delivered through com m ercialisation
Value of PNG gas w ill increasingly
dom inate portfolio over tim e
Dec '0 7 Dec '0 8 Dec '0 9 Dec '1 0 Dec '1 1 Dec '1 2 Dec '1 3
“Delivering PNG LNG is the Highest Priority”
Oil & Other PNG LNG
Value
O t h e r G a s
1 1
Gas Com m ercialisation the key to grow th
Delivery of PNG LNG is highest priority Significant value can be derived from com m ercialising
rem aining gas resources
Optim ise cash generation from oil fields
PNG oil essential part of OSH’s business I nitiatives identified to enhance cash flow s
Refocus MENA
Rationalisation of MENA portfolio required to focus on
assets w ith m ore m aterial potential ( com pleted)
Close m anagem ent of cash
Financial position is strong but LNG project funding w ill
consum e large proportion of cash flow s
Discretionary spending w ill be rationed
I MPLEMENTATI ON OF 1 5 CORE STRATEGI C REVI EW RECOMMENDATI ONS HAS COMMENCED
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1 3
LNG ( Liquefied Natural Gas) is natural gas cooled to a liquid
its gaseous form , so can be m ore easily transported long distances
LNG is produced by cooling gas to below -1 6 1 ° C using a
pressurised refrigerant process. LNG is stored in special insulated tanks
LNG is transported by sea from the liquefaction plant to gas
consum ing countries, in specialist LNG tankers
W hen it arrives at its destination, the LNG is converted back to
natural gas in regasification facilities and enters the country’s gas distribution netw ork for use in pow er stations, industrial processes and com m ercial and dom estic use
LNG is priced relative to oil. The LNG price has risen sharply
dem and, particularly from the Asia Pac region
1 4
The PNG LNG Project com prises:
Upstream
infrastructure including production w ells, processing facilities and pipeline netw ork linking to the export pipeline
Gas export pipeline
from PNG Highlands to LNG plant near Port Moresby
Liquefaction plant,
export loading and support facilities located in Portion 1 5 2 near Port Moresby
1 5
Milestones reached:
− Joint Operating Agreem ent executed in March − I nitial funding interests pre-Governm ent back-in ( Oil Search
3 4 % )
− Unitisation and redeterm ination procedures agreed − Actionable finance plan agreed
m arketing of 6 .3 m m tpa, led by ExxonMobil
− Endorsed m arketing plan, Project rolled-out to buyers at
GasTech in Bangkok in March, strong interest received
− First phase capex to 2 0 1 4 of US$ 1 0 -1 1 bn ( real 2 0 0 7 prices) − Project is FEED ready
I m m inent events:
1 6
Follow ing FEED entry, focus shifts to achieving Sanction in
late 2 0 0 9 by:
Securing m arket off-take Securing debt and state equity funding Executing agreem ents on benefit sharing, environm ental plans
Oil Search w ill support operator ExxonMobil, utilising its long
in-country experience and skills. Key areas for Oil Search are:
Delivering Oil Search’s com ponent of the upstream FEED Optim ising delivery of gas to LNG Project from oil fields Supporting ExxonMobil on:
− Landow ner Benefits Sharing Agreem ent − Business Developm ent opportunities − Training and localisation − Providing in-country project m anagem ent skills
Financing:
− Coordinating key parts of the project debt finance process w ith
ExxonMobil
− Securing OSH equity funding. I ncludes refinancing and internal cost
m anagem ent
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Debt:
Joint debt financing approach, led by a Finance Com m ittee co-
OSH share of project finance around US$ 3 billion, nom inal, including
fees, capitalised interest, com pletion guarantees etc
Advisors and sponsors indicate m ore than sufficient capacity to m eet
debt requirem ent, notw ithstanding current credit crunch
Expected to take ~ 1 8 m onths to com plete
Equity:
OSH’s equity contribution expected to be US$ 1 .0 -US$ 1 .3 billion Based on current m odelling, OSH can m eet equity requirem ents from
existing cash ( US$ 4 0 7 m ) , “corporate” borrow ing from refinancing ( US$ 4 0 0 m ) and oil cash flow s betw een 2 0 0 8 – 2 0 1 3 . Cash balance enhanced by MENA sale, expected com pletion m id-2 0 0 7
W ill utilise hedging, if required, to protect cash flow and
1 8
Gas Agreem ent execution - im m inent FEED entry follow ing Gas Agreem ent Financing I nform ation Mem orandum – 4 Q 0 8 Buyer support ( HOA’s / SPA’s) – 2 0 0 8 / 0 9 EPC bids – 2 Q 0 9 Benefits Sharing Agreem ent – 1 H0 9 Environm ental approvals – 4 Q 0 9 FI D - 4 Q 0 9 Financial Close - end 0 9 / early 2 0 1 0 Target first LNG cargo - end 2 0 1 3 / early 2 0 1 4
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ACI L Tasm an Report 6 February 2 0 0 8
“Affects econom y of PNG and its balance of trade situation
profoundly”
GDP w ill m ore than double Oil & gas exports increase 4 fold Up to 7 ,5 0 0 jobs in initial phase, 2 0 % by nationals; 8 5 0 full
tim e positions, developing national w orkforce over tim e
Huge cash flow s to Governm ent – national and provincial -
and landow ners through tax, royalties, levies and equity participation
Builds initial infrastructure for national gas developm ent Creates an industrial precinct near Port Moresby Step change for PNG’s credibility internationally
2 0
2 1
Aim is to optim ise PNG oil cash generation over the next 5 years to
support PNG LNG Project funding requirem ents
Need to balance w ork program m es, production outcom es and efficiency
m easures w hile m aintaining safety perform ance and reputation as a com petent Operator
Existing oilfields are m ature ( decline rate of ~ 2 0 % ) Track record of adding reserves and value 2 0 0 8 program m e delivers 2 P resource base “plus” and is
com m ercially robust
2 0 0 9 + program m e to target increm ental reserves in excess of 2 P Significant cost pressures - initiatives underw ay The oil / gas interface creates value. Risks need to be m anaged
2 2
1 0 ,0 0 0 2 0 ,0 0 0 3 0 ,0 0 0 4 0 ,0 0 0 5 0 ,0 0 0 6 0 ,0 0 0 7 0 ,0 0 0 8 0 ,0 0 0 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
Oil Rate (bopd)
PNG Oil Actuals Base Hides GTE Fcst 2 0 0 8 Program Life of Field Hides GTE Actuals Decline Before OSL
Oil Search takeover
Added over 4 5 m m stb com pared to Chevron P5 0 Contingent Resources- LOF P5 0 2 0 0 8 Program m e Hides GTE P5 0 Base
Note: Forecasts under review
2 3
20 20 60 90 140 Approximate Net Capex (US$M) 1 sidetrack 1 well 1 sidetrack 4 wells 6 wells 2 sidetracks 9 wells 7 workovers Activities
Kutubu Moran Gobe Main SE Gobe SEM Hides GTE
1 ,0 0 0 2 ,0 0 0 3 ,0 0 0 4 ,0 0 0 5 ,0 0 0 6 ,0 0 0 7 ,0 0 0 8 ,0 0 0 9 ,0 0 0 1 0 ,0 0 0 2 0 0 8 * 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2
NET Production ( Mstb)
Note: Forecasts under review
2 4
Need to reduce capex through drilling perform ance
im provem ents, drilling cost reductions, new technologies and optim ised rig strategy
I nitiatives:
Rigorous cost control of contracts, m aterials and logistics I m provem ents in contractor perform ance culture New technology: −
Rig 1 0 3 and 1 0 4 w ith leapfrog capability
−
Hydraulic w orkover unit to provide low er cost w orkover and “increm ental” drilling capability
Rig strategy: −
Requirem ent for 2 rigs per year
−
Actively w orking w ith other Operators in PNG
−
Rig 1 0 3 and 1 0 4 preferred option:
− Efficiency gains − Standardisation benefits − Flexibility
2 5
Organisational Review :
Rem ove duplication and m inim ise support costs I m prove accountability and speed of decision
m aking
Prom ote ongoing localisation
Contractor Managem ent:
Continue to rationalise contractor base to few er
longer term contracts
W ork Program m e:
Continue rigorous discipline to ensure w ork is
lim ited to that w hich is essential for production, reliability and reputation
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2 7
PNG LNG Project delivery is Oil Search’s core grow th
driver and w ill be m aterial, w orld class organic source
PNG LNG Project also sets the stage for additional
gas-based grow th opportunities. OSH seeking to:
I ncrease contractible gas for threshold developm ents Plan infrastructure for gas hubs and corridors Capture high value m arket opportunities in parallel w ith
further resource definition
Match available supply to gas m arket opportunities
New opportunities need to be considered in a
fram ew ork of being m aterial for a US$ 5 bn+ com pany
Disciplined approach on prioritising opportunities and
2 8
Angore Barikew a Uram u Pandora Juha P’nyang Kim u I ehi
Elk
Hides Flinders PPL2 3 4
Elevala Douglas
PNG has substantial discovered gas resources
Gas for PNG LNG Project
Hides, Juha, Angore, Kutubu,
Moran, Gobe
Presently 9 .5 tcf certified 2 P Approx 3 tcf Oil Search share about 6 0 % of OSH’s
discovered gas resources
Com pany has ~ 2 tcf of
discovered gas outside PNG LNG
PNG has a further est. 3 -4
tcf of discovered gas resources spread across m any fields and ow ners
Geographic and com pany
m any consolidation
2 9
additional m ajor grow th controlled by Oil Search:
5 hubs identified along developm ent corridor
−Eastern Forelands −W estern Corridor ( Stage 1 and Stage 2 ) −Northern Hub −Offshore Gulf of Papua
3 0
Highest value use for gas is from PNG LNG Project
expansion and/ or developing other LNG plants:
Significant field, pipeline and plant synergies can
potentially be obtained
How ever, dom estic gas com m ercialisation opportunities
can offer attractive returns and potentially earlier delivery
Focus for OSH:
Bring the reserves together by acquiring/ consolidating
interests in key fields on com m ercial term s to align interests
Undertake further exploration & appraisal
− Barikew a, other Eastern Corridor fields − 3 D seism ic and drilling – Offshore Corridor − Kim u, Elevala, Douglas, other W estern Corridor fields
Align w ith Governm ent & others on infrastructure and
dom estic gas developm ent needs
3 1
3 2
Portfolio optim isation across all exploration
assets Sale of MENA assets to Kuw ait Energy recently
announced for US$ 2 0 0 m illion & W C
Allow s OSH to re-focus on MENA assets that have
m aterial potential im pact on
Farm dow n of exploration exposures in PNG Acquisition of new areas linked to regional strategy
and m ateriality
− PNG - increasing focus on gas build com plem ented w ith
near facility oil exploration and occasional “paradigm changers”
− New Business - few er but m ore m aterial positions in
proven petroleum system s and stronger “entrepreneurial trading” approach to m anage costs
Single exploration budget pool allocated on
basis of value and strategic im pact on OSH Com petition for capital
3 3
Build on existing gas portfolio ( already
Oil exploration
High grade rem aining prospects in close proxim ity to
infrastructure
Consider deeper Jurassic plays Farm dow n high equity oil exploration
Frontier “paradigm changers”
I n the past, PNG exploration focused on few plays Potential to open up new areas w ith selective, albeit
high risk, drilling
− Large hinterland structures reliant on younger
reservoirs
− Offshore fans and toe thrusts − Foreland extensional fault blocks
Current w ells: NW Paua, Cobra ( drilling) ,
W asum a ( 1 Q0 9 )
3 4
Rem aining portfolio provides m aterial opportunities eg
Libya Area 1 8 , Yem en Blocks 3 & 7 , Kurdistan
Pre-drill POS can be reduced to > 2 0 % through
technology or quality of acreage
Continue to seek m aterial opportunities in w orld class
petroleum system s
Manageable above ground risk w ith very large potential,
e.g. Kurdistan
New plays w ith large, albeit higher risk upside & ability to
farm dow n exposure e.g. Tunisia deep gas plays
Actively m aintain and build on core regional relationships
Key strategic advantage of OSH is ability to operate at a
local level
Manageable budget yet m aterial opportunities
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3 6
Execution of Gas Agreem ent im m inent FEED-ready. Com m encem ent of FEED activities
expected soon
I n next 1 8 m onths:
Secure m arket off-take Secure debt and state equity funding Reach agreem ents on benefits sharing
FI D late 2 0 0 9 First LNG cargoes late 2 0 1 3 / early 2 0 1 4 Expected production contribution, net to OSH of
1 8 m m boe, 3 0 year Project life
A com pany-changer
3 7
m ateriality, risk and early developm ent
w ith governm ent
leadership
3 8
Oil fields continue to generate strong cash flow s,
to be utilised for PNG LNG Project
Life of Field studies have identified ongoing
curve for next 3 - 4 years
Developm ent drilling delays in PNG have
deferred production from new w ells, forecasts under review
Sale of MENA producing assets ( Nabrajah, Egypt
Area ‘A’ and East Ras Qattara) w ill reduce 2 0 0 8 and 2 0 0 9 production by 0 .4 and 0 .6 m m bbl respectively
3 9
2 0 0 8 exploration program m e reduced but focus
approx US$ 1 2 0 m illion
Greater focus on portfolio m anagem ent and
trading in both PNG and MENA
I ncreased internal com petition for funding − Allocation on value and strategic basis − Approx US$ 1 0 0 m total exploration budget
per year for 2 0 0 9 onw ards
I ncreasing focus on: − PNG gas exploration − Material new plays in proven hydrocarbon
system s
4 0
assets is sufficient to deliver superior value to shareholders over the next 5 years
4 1