Highlights
Oil Search’s Net Profit after Tax (NAPT) for the year December 2006 was US$412.0 million, including a net profit of US$258.4 million relating to the sale of licence interests to AGL.
The core Net Profit After Tax, excluding significant items, was US$207.5 million, up 4% on the 2005 result, a record for the Company in its 77 year history.
Based on the core Net Profit After Tax, earnings per share rose 3% to US 18.5 cents per share, whilst cashflow per share was 11% higher at US 35.6 cents per share.
The result was achieved despite lower production, following the sale of producing assets to AGL. 2006 oil and gas production was 10.2 million barrels of oil equivalent (mmboe) compared to 12.2 mmboe in 2005, with approximately 2.5 mmboe sold to AGL. Gross daily production from the PNG oil assets rose by 5% in 2006 versus 2005, the third successive year production has increased from these mature fields, demonstrating further production potential and close field management.
The Company generated total operating revenue of US$644.5 million, based on oil sales of 9.2 million barrels (10.8 million barrels in 2005). The impact of lower production was largely offset by a higher average oil price of US$67.22 per barrel (up 16% on 2005).
At the end of December 2006, the Company had cash reserves of US$477.9 million, compared to US$212.2 million at the beginning of the year. The substantial improvement in the Company’s balance sheet reflected strong cash flows from operations, combined with a US$379 million payment from AGL for assets sold in early 2006. Following receipt of the AGL sale proceeds, Oil Search paid down outstanding debt and has since remained debt free.
The Board has approved the payment of a US four cents final dividend for the 2006 financial year. Together with the interim dividend of US four cents per share, paid to shareholders in October 2006, the total dividend for the year is US eight cents per share. This represents a 14% increase on the 2005 total dividend payment of US seven cents per share. The final dividend for 2006 will be paid on 22 March 2007.
Production and sales
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.
Exploration
Towards the end of 2006, Oil Search embarked on an extensive drilling programme (the largest programme in its history). Eleven exploration/appraisal wells commenced drilling in 2006, (two wells in PNG, five in Yemen, three in Egypt and one in Kurdistan) with six wells still underway at year end. Initial results from the programme, which will see the drilling of a further 24 oil and gas exploration/appraisal wells over the next 18 months, have been very encouraging, with the discovery of oil in four wells in Egypt (Shahd and Ghard in the East Ras Qattara Block and Kareem Nubia and Yusr Nubia in Area “A”), and significant encouragement in the well in Kurdistan. These successes support the company’s view that this programme has the potential to add to the short and medium term production base of the Company, delivering considerable value and growth in the Middle East area of operations.
2007 Exploration Activity
During 2007, Oil Search expects to drill up to nine exploration/appraisal wells in PNG.
Activity will include:
• The completion of Juha 5 and the drilling of Juha 4, designed to prove up and add gas reserves
• Four further gas appraisal wells
• Three oil exploration wells
To support this programme, two new specialist heli-transportable drilling rigs are being acquired, one of which is scheduled to be delivered into PNG in the third quarter of 2007 to assist with the 2007 programme and the other in early 2008. In addition, a refurbished Rig 2 is scheduled to be back in operation in mid-2007. An extensive seismic programme, both onshore and offshore PNG, is also planned for the year. In the Middle East and North Africa, a further six exploration wells in Yemen, five in Egypt and a possible follow-up well to Bina Bawi in Iraq are planned to be drilled over the balance of 2007. All rigs are contracted for this substantial drilling programme.
2007 Expenditures
Oil Search expects to spend approximately US$190 million on exploration activities during 2007, comprising US$120 million in PNG and the balance in the Middle East/North Africa region. This is considerably higher than has been spent in the past and reflects the fact that a range of high potential exploration targets, capable of adding significant value to Oil Search, have now reached maturity. In addition, approximately US$120 million will be spent on development and appraisal activities, with Kutubu development wells and the development of Area ‘A’ in Egypt the key areas of expenditure, and approximately US$65 million on the purchase of the two new PNG rigs.
These expenditures will be funded from the company’s cash position, which currently stands at over US$500 million, and cash flow from operations. In addition, the Company also has access to a US$184 million undrawn revolving facility.