Oil Search reassures on PNG licence risks
Oil Search chairman Rick Lee has sought to reassure investors about the company's title over a key gas licence in Papua New Guinea and future opportunities for expansion amid heightened nervousness fuelled by the government's move to take back a gold mine from Barrick Gold.
The decision last month by the government led by James Marape not to renew the licence for the Porgera mine was described as "tantamount to nationalisation without due process" by Barrick. It has fuelled concerns about the expired licence over the P'nyang gas field, where development has already stalled due to a dispute with the government on fiscal terms for a $20 billion LNG expansion.
Mr Lee told shareholders at the online-only annual meeting that Oil Search had "no reason to believe" that a new licence would not be granted for the P'nyang field. The PRL3 licence, which expired last year, remains in effect while government authorities consider the application by the ExxonMobil-led joint venture to replace it.
"With respect to our assets we were very pleased at the Prime Minister's recent assurance that the PNG govt will continue to support the advancement of major resource projects in the country, including Papua LNG and P'nyang," Mr Lee added, referring to Oil Search's two biggest growth projects.
All Oil Search's growth investments are on hold in any case after the collapse in crude oil prices in March which is expected to be long-lasting and which triggered a $1.16 billion equity raising by the oil and gas producer last month. The retail part of the share sale was completed on Friday, raising $80 million, with just less than half of shareholders taking up their entitlement to buy new shares at a discounted price of $2.10.
Shares in Oil Search plunged 7.2 per cent on Friday to close at $2.83 as heavy selling gripped the broader market, which fell 5 per cent.
Chief executive Keiran Wulff said Oil Search still remains "absolutely committed to the LNG expansion, as well as to the Pikka oil project in Alaska, which has also been delayed.
He said further informal discussions had taken place with the PNG government since the formal negotiations collapsed at the end of January "to seek a fair and balanced outcome".
Some shareholders remain concerned about Oil Search's financial strength to weather the oil price slump even after the equity raising. But Mr Lee said the board's expectation was that the balance sheet was now robust and it would be "some time" before growth projects came back onto the table, requiring additional funding, either through potential asset sales, bank funding or equity.