Oil Search

Capex

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.

Production

2007 total oil and gas production was 9.8 million barrels of oil equivalent (mmboe) compared to 10.2 mmboe in 2006. Despite limited development drilling activity during the year and an extended shut-in at NW Moran, gross daily production from the PNG oil assets was only 6% lower than in 2006, a good result for this mature asset set, reflecting the continued success of Oil Search’s active field management programme.

Total oil and gas production in 2006 was 10.2 million barrels of oil equivalent, 16% below 2005 levels, with 2006 production impacted by the sale of a range of field interests to AGL, which reduced Oil Search's share of 2006 production by approximately 2.5 million barrels. 2006 benefited from first production from the SE Mananda field and a full year's contribution from Nabrajah, albeit both at lower than anticipated levels. In addition, the Moran field performed well, with almost a full year's production from the NW Moran Extended Production Test. Contributions from Kutubu and the Gobe fields were lower than in 2005 due to natural field decline and production interruptions.

Reserves

As at 31 December 2007, the Company had 1P reserves of 52.6 million barrels of oil equivalent and 2P reserves of 73.5 million barrels of oil equivalent. The Company also had 952.0 million barrels of oil equivalent, comprising gas and associated liquids, in its resource inventory, taking the Company’s total 2P oil and gas reserves plus gas and associated liquids resources to 1,025.5 million barrels of oil equivalent.

As at 31 December 2006, the Company had 1P reserves of 61.4 million barrels of oil equivalent, and 2P reserves of 81.7 million barrels of oil equivalent. The Company also had 941.5 million barrels of oil equivalent, comprising gas and associated liquids, in its resource inventory, taking the Company's total 2P oil and gas reserves plus gas and associated liquids resources to 1,023.2 million barrels of oil equivalent.

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