Capex Data
Oil Search expects to spend US$130 - 140 million on exploration and evaluation activities during 2008, comprising US$70 million in PNG and the balance in the Middle East/North Africa region. This represents a 35-40% reduction on 2007’s exploration spend. In addition, approximately US$180 million will be spent on development activities, with Kutubu and Moran development wells and remaining costs associated with rig purchases being the key areas of expenditure. A positive decision on FEED would result in a further US$75 million being spent on LNG FEED and other gas commercialisation activities. These expenditures will be funded from our cash position and cash flow from operations. The Company also has access to a US$42 million undrawn revolving facility, with a refinancing expected to be completed in the first half of 2008.
Future Plans
2008 is expected to be a pivotal year for Oil Search. A positive decision to enter FEED will mark the start of a major long term growth path, while the Strategic Review will set new objectives and establish programmes to deliver maximum shareholder value in the short/medium term, prior to the commencement of gas cash flows. Oil Search are entering 2008 in good financial shape, with a strong underlying oil production business and, as at the end of January 2008, some US$410 million of cash in the bank.
Production Outlook
Oil Search’s net production in 2008 is subject to the results and timing of the development drilling programme and is currently expected to be in the range 9.0 – 9.5 mmboe. During 2008, Oil Search expects to drill five development wells and undertake five work-overs on Kutubu/Usano and three development wells and one work-over on the Moran field. This should result in production from these fields gradually increasing over the year, as the wells are progressively brought on-stream. This is expected to offset declining production from the Gobe and SE Mananda fields, with total gross PNG production anticipated to be approximately the same or a little lower than in 2007. The production contribution from the Middle East is expected to be a little lower than last year, but any exploration success represents potential upside to this outlook. The ‘Life of Field’ studies undertaken during the Strategic Review have highlighted that there are material volumes still remaining in the PNG oil fields and this work will form the basis for establishing a focused programme of future well and work-over activities.
Exploration Outlook
A number of high potential exploration prospects will be tested during 2008. Three oil exploration wells are planned in PNG, of which two – NW Paua and Cobra – are currently underway. The third, Wasuma, is scheduled for late 2008/early 2009. All of these wells are relatively close to infrastructure and have the potential to add significant value to Oil Search. Subject to the finalisation of licence renewals and rig availability, one gas exploration/appraisal well (Barikewa), may also be drilled towards the end of the year.
The Middle East exploration programme during 2008 will include extensive seismic in Blocks 3 and 7 in Yemen and Oil Search’s first well in Block 18 offshore Libya, all of which are highly prospective areas.