Oil Search profit falls on higher exploration spending, shutdowns

Dow Jones Newswires

Oil Search Ltd, the Australian partner of ExxonMobil Corp.  in a major gas-export project in Papua New Guinea, Tuesday booked a 13% fall in annual net profit after it more than doubled spending on exploration and suffered several shutdowns at its oil facilities.

Net profit for the year to De. 31 fell to US$175.8 million from US$202.5 million a year earlier. The result beat the US$161 million average of six analysts' forecasts compiled by Dow Jones Newswires.

Oil Search's production was affected by the shutdown of the Kumul Marine Terminal in Papua New Guinea in late July after an oil sheen was spotted on the surface of the water. The company checked the facility, which has since reopened, but was unable to find the source of the oil leak.

In a statement, the Sydney-based company said the shutdown of the Kumul terminal had led to 400,000 barrels of oil equivalent being deferred, although overall production of 6.38 million barrels of oil equivalent for the year as a whole was within its guidance range.

Oil Search said it spent US$144.0 million on exploring for new reserves of oil and natural gas in the year, up from US$60.6 million in 2011. In addition to its operations in Papua New Guinea, the company has assets in Iraqi Kurdistan and Yemen and last month began drilling in Tunisia.

Oil Search is betting on Asian demand for clean-burning fuels to remain strong as it transforms itself from an oil producer into a company that generates a larger proportion of its revenues and earnings from natural gas. It owns 29% of the PNG LNG project in Papua New Guinea, which aims to produce 6.9 million metric tons of liquefied natural gas a year.

Oil Search said PNG LNG was 75% complete at the end of last year and remains on track to deliver its first cargo of liquefied natural gas to customers in China, Taiwan and Japan in 2014. Construction costs for PNG LNG jumped by about 20% to US$19 billion in late November because of foreign exchange fluctuations, landowner disputes and torrential rain.

"As previously indicated, the capital cost increase is expected to be funded 70% by debt and 30% by equity. Discussions are currently underway to secure the US$1.5 billion of supplemental debt that is provided for under the existing project finance agreement, to fund the 70% debt component," managing director Peter Botten said in a statement.

Oil Search said it expects to produce between 6.2 million and 6.7 million barrels of oil equivalent in the current fiscal year. It forecast capital expenditure this year in a range of US$1.93 billion to US$2.1 billion, up from US$1.86 billion in 2012.