Oil Search reviews year plan
IN light of the recent material decline in oil prices and global circumstances, Oil Search Ltd has undertaken a comprehensive review of its planned activities for this year.
According to the company’s capital and operating expenditure reductions and balance sheet update released yesterday, the objective of the review has been to minimise forward expenditure and maximise liquidity, while protecting the company’s base value and preserving the option to deliver its world-class growth projects when market conditions improve.
Managing director Dr Keiran Wulff said the recent dramatic fall in oil prices to below US$40/bbl (K103.47/oilfield barrel) due to the impact of coronavirus (Covid-19) on oil demand combined with concerns about a material increase in oil production following the recent failed Organisation of the Petroleum Exporting Countries (Opec) meeting on further production cuts has led to a major drop in oil and gas company share prices.
“It is unclear how long these events and the consequent oil price and share market volatility will last,” he said.
“While Oil Search is fortunate to have world-class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty.”
Dr Wulff said apart from work programmes required to ensure ongoing reliable and safe operations, all discretionary activities within the company’s control that have not yet commenced are being suspended or deferred.
“Where possible, some projects that have commenced have also been suspended safely,” he said.
“This action will result in a material reduction in investment expenditure in 2020, from US$710-845 million (K2.42bil to K2.88bil) as previously disclosed to US$440-530 million (K1.5bil to K1.81bil).
“Forecast capital expenditure going forward from April has been reduced from US$400-500 million (K1.36bil to K1.7bil) to between US$200 million (K683mil) and US$300 million (K1.02bil).
Oil Search has also commenced a systematic review of all operating and corporate overhead costs, aimed at delivering a sustainable, material reduction in these costs without compromising the ongoing and safe production of oil, condensate and gas in PNG.” he said.
“Deferrals of non-essential capital projects will flow through to material reductions in direct support and operating costs.
“Analysis and implementation of the flow-on impact on operating costs is currently underway and revised guidance on operating costs will be provided once the associated restructuring costs have been fully quantified.
“In addition to managing for the low oil price environment, Oil Search has prepared comprehensive business continuity plans and is well advanced in its preparations to adjust its work practices and exposures, to reduce the risk of disruption to reliable and safe operations from Covid-19.”