Oil Search shares rise sharply as K435 million profit announced

Oil Search shares rose sharply by 2.7% or 16c yesterday to A$6.71 (K15.344) after the company announced after tax profit had risen 9% to US$202.5 million (K435 million) last year with total revenue up 26% to US$732.9 million (K1.57 billion).

Despite rising from a recent low of A$6.39 on Feb 16, in the wake of a US$33.2 million revenue impairment report because of an exploration write off in Iran’s Kurdistan region, the shares are still lower than the A$6.81 it hit following the Jan 24  release of the company’s December quarterly report.

If the impairment charge, which cannot be written off against PNG corporate tax, was excluded the underlying net profit would have risen by an impressive 64% to US$235.7 million.

The PNG government was a major beneficiary of the big increase in Oil Search profits with corporate tax paid last year rising to US$237.4 million (K509.4 million), up from US$91.6 million (K196.6 million) in 2010.

The profit report, which came with a string of positive announcements, could see the share price rise again to a peak of A$7 a share, which was reached early last year.

Oil Search has enjoyed a steady gain since trading at less than A$1 in 2003, hitting A$4 in 2006 and trading between A$4.50 and A$7 a share since then.

Among the positive news announced by Oil Search managing director Peter Botten were:

·         The PNG LNG Project, in which Oil Search has a 29% stake, remains on track for first export in 2014;

·         The LNG consortium will be able to decide on feasibility of LNG plant expansion from current gas fields by late this year or early next year;

·         Oil Search will undertake record spending in PNG this year with an estimated in-country budget of US$2.2 billion on projects related to the LNG project and the company’s largest ever exploration and appraisal programme;

·         Despite planned shutdowns connected with the PNG LNG Project, oil production this year was forecast to remain at the current level of 6.2 million to 6.7 million barrels oil equivalent with next year’s production at similar levels due to successful development, appraisal and exploration drilling;

·          At the Taza license area in Iraq’s Kurdistan, Oil Search will spud a wildcat well in the middle of this year, targeting a prospect that could hold up to one billion barrels in place.

 Botten said construction work would progress this year on various elements of the PNG LNG project, including work at the LNG plant site, mechanical completion of the onshore and offshore gas pipeline, completion of the Komo airfield near Hides and completion of associated gas plant and modification programs at the oilfields and refurbishment of the Kumul crude export terminal.

He said drilling had commenced on the P’nyang South-1 well.

It will be followed by the Trapia exploration well with drilling at Hides expected to start in the middle of this year.

Assessment of a likely increase in reserves at Hides and prospective discoveries at P’nyang South and Trapia will enable ExxonMobil, the LNG operator, to decide by late this year or early 2013 whether there are adequate gas reserves to proceed with construction of a third train, and possibly fourth, train at the LNG plant site near Port Moresby.