0805 Oil Search Asian roadshow PRINT · 4 Profile ¬Established in Papua New Guinea (PNG) in 1929...
Transcript of 0805 Oil Search Asian roadshow PRINT · 4 Profile ¬Established in Papua New Guinea (PNG) in 1929...
1
Oil Search Asian
Roadshow
May 2008
O I L S E A R C H L I M I T E D
2
Oil SearchLocation Map
2
3
Operating Environment
4
Profile
Established in Papua New Guinea (PNG) in 1929
Operates all of PNG’s producing oil and gas fields. Current gross production ~46,000 boepd, net share ~24,000 boepd
As operator, responsible for generating 22% of PNG’s export revenue and 16% of its GDP in 2007
PNG’s largest investor and taxpayer
PNG Government is largest shareholder at 17.6%
950 mmboe undeveloped gas and liquids resource. ~60% of resource is dedicated to PNG LNG, proposed world scale LNG project, remainder still to be commercialised
Range of material exploration interests in PNG and Middle East/North Africa
5
Share Price Out-Performance
0
1.00
2.00
3.00
4.00
5.00
Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
OSH ASX 200 ASX 200 Energy
July 2003: Acquisition of Chevron’s PNG Interests
Oct 2004 : PNGGP enters FEED
July 2005: Announcement of AGL GSA and PNGGP equity sale
April 07: Signs Cost Sharing Agreement for LNG project
Aug 2006 : APC withdraws from Australian leg of PNGGP Pipeline
Sh
are
Pri
ce (
reb
ase
d t
o O
SH
)
WTI
6.00
6
Total Shareholder Returns (TSR)
Source: Merrill LynchSource: IRESS
Ranked No.5 TSR Performer amongst current ASX 100 for 5 year period to Dec 2007 (53%pa on an annualised basis)
53%
0%
10%
20%
30%
40%
50%
60%
70%
Fort
escu
e M
etal
s
Pal
adin
Ener
gy
Worley
Pars
ons
Cal
tex
Aust
ralia
Oil
Sea
rch
United
Gro
up
Oxi
ana
Leig
hto
n H
old
ings
ASX L
imited
Dav
id J
ones
Com
pute
rshar
e
CSL
New
cres
t M
inin
g
Mac
quar
ie A
irport
s
QBE I
nsu
rance
Woodsi
de
Pet
role
um
Allc
oFi
nan
ce
Rio
Tin
to
BH
P B
illiton
OneS
teel
Sim
s G
roup
Blu
esco
pe
Ste
el
Mac
quar
ie G
roup
Orica
Mac
quar
ie C
om
munic
a.
CA
GR
7
World Class Safety Performance
Total Recordable Incidents (TRIs) 1998 – 2007
TR
I /
1,0
00
,00
0 H
ou
rs
1998 1999 2000 2001 2002 2003 2004 20050
2
4
6
8
10
12
14
2007
APPEAOSH OGP
Oil Search
Australian Companies
8.5
10.69.8 10.7
5.8
1.7
4.7
2.4 2.32.05
12.7
9.1 9.37.8
7.0 7.3
5.2
6.8
4.0 3.12.9
9.4
8.2
8.3
2006
International Companies
6.3
8
Setting a New Course
Strategic Review recently completedHighlighted value potential and actions required to transform Company value
Review has set strategy for next five years:Continue to deliver top quartile returns
Transform Company by making it a significant LNG producer
Provide the fundamentals for continued organic growth through second phase gas development, material exploration success
Further build financial strength
OSH has the fundamentals to continue to deliver superior returns to shareholders
9
Key Conclusions of Review
Existing portfolio can deliver superior TSRSubstantial unrealised value exists within Oil Search’s current asset portfolio, capable of generating superior shareholder returns over next five years and beyond
Delivery of PNG LNG alone can deliver 15% plus annual TSR growth
Further value growth can be delivered through commercialisation of other gas resources.
Value of PNG gas will increasingly dominate the portfolio over time
Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13
“Delivering PNG LNG is the Highest Priority”
Oil & Other
PNG LNG
Other Gas
Valu
e
10
Gas Commercialisation the Key to GrowthPNG LNG will dominate
A robust economic project ranking well relative to other possible developments
ExxonMobil led, with strong alignment and commitment
OSH’s experience in operating in PNG will add value
Significant value can also be derived from remaining undedicated discovered gas resource
Key Conclusions of Review
11
Optimise Cash Generation from Oil FieldsPNG oil is essential part of Oil Search’s business -provides cash flow required to fund LNG development
Easy wins from PNG oil fields have largely been captured,
but Life of Field studies have shown that substantial upside potential still remains
Target – to maintain gross PNG production at between 40,000 – 50,000 bopd until 2011
A number of initiatives have been identified to enhance cash flow generation progressively from 2008 and beyond
Key Conclusions of Review
12
Re-focus MENAOil Search successfully built up diversified, value accretive portfolio in MENA, but some assets were sub-material
Recommendation to refocus on assets with material value potential relative to growing value of gas portfolio
Recent sale of assets to Kuwait Energy delivered value and further cash to support other growth initiatives
Remaining MENA portfolio and equity levels to be pro-actively managed on an on-going basis
Key Conclusions of Review
13
Exploration an Important Contributor to Growth
Independent review of portfolio highlights potential for material oil and gas contribution
PNG Highlands potential will be tested. Offshore areas have material gas potential
MENA portfolio management concentrating on material prospects
Strong competition for capital with comprehensive ranking process
Programme of active licence equity management to optimise equity, risk and capital expenses. A trading mentality
Key Conclusions of Review
14
Management of Cash to Fund LNGFinancial position is strong (net cash of $320 million post recent tax payment)
Funding of PNG LNG capex (OSH share ~US$3bn) will consume large proportion of operating cash flow over next 5 years, impacting availability of funds for other activities
Discretionary expenditure will require close management
Hedging and other levers available
Active capital prioritisation across portfolio of opportunities
Key Conclusions of Review
15
OtherStakeholder Management
OSH can add value and mitigate risk by active stakeholder management in PNG−Government and bureaucracy
−Partnership with Government instrumentalities
−Landowner and community management
These relationships are especially important in delivering gas commercialisation
Organisation to optimise strategy delivery
Organisation being modified to align to specific strategy initiatives - “Fit for Purpose”
Key Conclusions of Review
16
Delivery of Strategy
Focus is now on delivery of Strategy
Achieve superior value growth performance versus peer group over the next five years by:
Ensuring a positive Final Investment decision for the PNG LNG Project
Optimising PNG operating performances to sustain production and cash flows up to, and beyond, first gas
Post asset sale, actively managing the remaining MENA portfolio
Positioning OSH with material growth opportunities post LNG Project FID - delivery of second phase gas developments and material exploration
17
PNG LNG Project
A CompanyTransformer
18
Primary focus - PNG LNG
PNG LNG Project is Oil Search’s primary focus
This development will represent PNG’s cornerstone gas development and will underpin Oil Search’s production and profits for 30+ years
PNG LNG will commercialise over 500 mmboe of Oil Search’s 2P gas resources
Initial development will add ~ 18 mmboe to annual net production, more than tripling current production
19
PNG LNG Project
The PNG LNG Project will comprise:
Upstream infrastructure including production wells, processing facilities and pipeline network linking to the export pipeline
Gas export pipeline from PNG Highlands to LNG plant near Port Moresby
Liquefaction plant, export loading and support facilities located in Portion 152 near Port Moresby
20
The Environment is right for LNG
Burgeoning demand for LNG from Asia Pacific region, as well as globally
Tight supply: demand equation. Large number of potential new projects in the region, only a few will reach commerciality in 2013/14 window
Supply conditions, combined with environmental factors, have resulted in rising LNG prices
Strong and increasing market interest for participation
AGL sale a window to project value
New corporate developments at premium prices (BG & Origin, QGC)
21
Asia-Pacific LNG Markets are Robust
Regional market fundamentals are robust
Steady expansion from existing markets (Japan, Korea, Taiwan)
Growth from emerging markets of India & China and new markets such as Singapore, Thailand
Some of the growth likely to be filled by roll-overs etc but significant non-contracted volume
A number of “Possible”projects looking to fill remaining demand gap
Not all projects will proceed
Early commitment important
Source: WoodMac
0
50
100
150
200
250
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
mmtpa
GSPA HOA MOU
Option Rollover Demand
Market opportunity
22
LNG Pricing
Source: FACTS Global Energy
0
5
10
15
20LNG ($/mmbtu)
10 20 30 40 50 60 70JCC ($/b)
80 90 100
Traditional Contracting
Crude Oil Parity
NWS Recent Contracting
23
Recent AsiaPac LNG deals
Sept 07 - Woodside to Petrochina, 2 - 3 mmtpa, 15 - 20 years, key terms with supply ex Browse
Sept 07 - Shell to Petrochina, 1 mmtpa, 20 years, binding HOA ex Gorgon
Nov 07 - Woodside to CPC, 2 - 3 mmtpa, 15 - 20 years, key terms ex Browse
April 08 - Shell/Qatar Gas IIII to Petrochina, 3 mmtpa, 25 years from 2011, SPA
April 08 - Qatar Gas II to CNOOC, 2 mmtpa, 25 years from 2009
Pricing confidential but Qatari contracts thought to be at crude oil parity, other contracts considered to be at small (3 – 5 cents) discount to parity
24
PNG’s Competitive Advantage
Large number of potential new projects in this region (NW Australia, CSM) “Screening economics indicate the PNG LNG Project is robust…and stacks up favourably against other projects in the region” WoodMac/Deutsche Bank, March 2008Quality and location of resource makes PNG very competitive in project line up for a 2013 – 2014 start up. Advantages include:
Fully aligned Joint VentureSubstantial conventional, certified gas reserve base, high liquids content, minimal impuritiesOnshore, with existing infrastructure base (Kutubu & liquids pipeline)Excellent location for Asian marketsCompetitive labour costs relative to AustraliaFavourable fiscal regime with strong Government support
25
PNG LNG Project -Milestones Reached
Commercial alignment (JOA) amongst the Project OwnersJoint Operating Agreement executed in March
Initial funding interests pre-Government back-in (Oil Search 34%)
Unitisation and redetermination procedures agreed
Actionable finance plan agreed
Marketing Representative Agreement signed for joint marketing of 6.3 mmtpa, led by ExxonMobil
Endorsed marketing plan, Project rolled-out to buyers at GasTech in Bangkok in March, strong interest received
Pre-FEED work and updated capital costs complete with first phase capex (2008 – 2014) expected to be between US$10 – 11bn (real 2007)
PROJECT IS FEED-READY
26
PNG LNG Capex Estimate
ExxonMobil historically has delivered projects on time and on budget First phase capex (2008 – 2014) expected to be between US$10 –11bn (real 2007)Subsequent capex is several years out (additional Hides drilling, Juha development and potential LPG extraction if required) Juha timing depends on Hides and Angore outcomes and performance Further updates to capex estimates from EPC bidsFurther optimisation will occur during dual FEED
Source: ExxonMobil Analyst Briefing 5th March, 2008.
EM Project Execution Performance
Actual vs. Funded (%)
25
Average 2003-07 2007
50
75
100
125
0
Cost Schedule
27
Project Interest Determination
Methodology agreed for Project Interest determination
Initial Project Interests will be established at FID, taking into account FEED work and actual LNG revenue streams
Periodic re-determination and equalisation processes established
Government has the right to back-in (22.5%) to Hides, Angore and Juha licences
Resulting State participation in PNG LNG Project post back-in, approximately 19%
1.2%
1.8%
3.6%
17.7%
34.1%
41.6%
Share of FEED costs
MRDC / State
Nippon
AGL
Santos
Oil Search
ExxonMobil
JV Partners Oil Search PNG LNG Interest
26%
28%
30%
32%
34%
36%
FEED Interest
PNG LNG Interest
OSH expected post Government back-in final project interest
28
Delivering PNG LNG
Imminent events:Execution of Gas Agreement (Prime Minister announced agreement of fiscal terms in last week of April)Commencement of FEED
FEED deliverables:Securing market off-take (2008/09)Securing debt and state equity funding (IM 4Q08, Financial Close end 09/early 2010)Award of EPC contracts (2009)Executing agreements on benefit sharing (1H09), environmental plans (3Q09)Final Investment Decision (end 2009)
Target first LNG cargo - end 2013/early 2014
29
Oil Search’s Role
Oil Search will support operator ExxonMobil utilising its long in-country experience and skills. Key areas for Oil Search are:
Delivering Oil Search’s component of the upstream FEEDOptimising delivery of gas to LNG Project from oil fieldsSupporting ExxonMobil on:− Landowner Benefits Sharing Agreement− Business Development opportunities− Training and localisation− Providing in-country project management skills
Financing:− Coordinating key parts of the project debt finance process
with ExxonMobil − Securing OSH equity funding. Includes refinancing and
internal cost management
Government and landowner relationships
30
PNG LNG Financing
Debt:Joint debt financing approach, led by a Finance Committee co-ordinated by ExxonMobil. Soc Gen appointed financial advisor. OSH share of project finance around US$3 billion, nominal, including fees, capitalised interest, completion guarantees etc
Equity: OSH’s equity contribution expected to be US$1.0-US$1.3 billionBased on current modelling (using conservative oil prices), OSH can meet equity requirements without coming to the market. Funded from existing cash (US$320m), MENA sale proceeds (US$200m), corporate borrowing from refinancing (US$400m) and oil cash flows between 2008 – 2013.
Will utilise hedging, if required, to protect cash flow and optimise borrowings
31
LNG Project Schedule
2007
FEED Program &EPC Contracting
PNG GovernmentApprovals
Benefits SharingAgreement
Project Financing& Marketing
Detailed EngineeringDesign & Procurement
Construction /Commissioning
2008 2009 2010 2011 2012 2013 2014
Pre-FEED
FirstCargoLNG
*Schedule is Indicative only
Train 1 Train 2
FIDIM Close
Gas Agreement
Entry
Environmental, Benefits Sharing
EPC bids
HOA’s / SPA’s
32
Economic Importance of PNG LNG
ACIL Tasman Report 6 February 2008“Affects economy of PNG and its balance of trade situation profoundly”GDP will more than double (K8.65bn (2006) to K18.2bn average during production phase)Oil & Gas exports increase 4 fold (Average LNG and liquids value estimated K11.4bn/yr)Up to 7,500 jobs in initial phase, 20% by nationals; 850 full time positions, developing national workforce over timeHuge cash flows to Government – national and provincial - and landowners through tax, royalties, levies and equity participation (direct cash payments of US$31.7bn / K114bn to PNG Gov’nt / Landowners over 30 yearsMultiplier effects additional
33
PNG Oil Operations
34
Oil Operations – Providing Cash for Growth
Since Oil Search took over operatorship of PNG oil fields in 2003, fields have produced ~45 mmbbl in excess of previous operator’s expectations and field life extended
Aim is to optimise PNG oil cash generation over the next 5 years to support PNG LNG Project funding requirements
Existing oilfields are mature (decline rate of 15-20%) but with appropriate investment, expect to mitigate decline curve for 2-3 more years
PNG production is highly profitable, but there are cost pressures - initiatives underway to address
Need to balance work programmes, production outcomes and efficiency measures while maintaining safety performance and reputation as a competent Operator
35
PNG Fields
36
2008 PNG Development Focus Areas
Usano:4 development wells
Kutubu:4 workovers
Agogo:2 workovers
Moran:2 development wells
& 1 workover
37
PNG Gross Oil Production
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Oil
Rat
e (b
op
d)
PNG Oil Actuals Base Hides GTE Fcst 2008 Program Life of Field Hides GTE Actuals Decline Before OSL
Oil Searchtakeover
operatorship
Added over45mmstbcompared
to Chevron
P50ContingentResources-
LOF
P50 2008Programme
HidesGTE
P50Base
Note: Forecasts under review
38
PNG Net Production (Life Of Field)
20206090140Approximate Net Capex (US$M)
1 sidetrack
1 well
1 sidetrack
4 wells6 wells
2 sidetracks
6 wells
7 workovers
Activities
Kutubu
Moran
Gobe Main
SE Gobe
SEM
Hides GTE
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2008* 2009 2010 2011 2012
NET P
rod
uct
ion
(M
stb
)
Note: Forecasts under review
39
Cost Control - Capex
Need to reduce capex through drilling performance improvements, drilling cost reductions, new technologies and optimised rig strategyInitiatives:
Rigorous cost control of contracts, materials and logisticsImprovements in contractor performance cultureNew technology:− Rig 103 and 104 with leapfrog capability− Hydraulic workover unit to provide lower cost workover
and “incremental” drilling capabilityRig strategy:− Requirement for 2 rigs per year− Actively working with other Operators in PNG− Rig 103 and 104 preferred option:
− Efficiency gains − Standardisation benefits− Flexibility
40
Cost control - Opex
Cost inflation of 9 –10%, higher in specific areas
Focus areas for cost reduction:
Organisational changes
Rationalisation of Contractor base
Work programmes focussed on production optimisation and reliability
Highly competitive cost base
PNG Controllable Costs / Barrel
0
1
2
3
4
5
6
7
8
US
$/
bb
l
OtherMarine
TelecommunicationsCatering Services
Services & FeesFuels, Chemicals,Materials & Supplies
Transportation
Labour
41
Additional Growth
Opportunities
42
Gas Growth Opportunities
PNG LNG Project sets the stage for additional gas-based growth opportunities. OSH seeking to:
Increase contractible gas for threshold developmentsPlan infrastructure for gas hubs and corridorsCapture high value market opportunities in parallel with further resource definitionMatch available supply to gas market opportunities
New opportunities need to be considered in a framework of being material for a US$5bn+ company
43
Gas Resources
PNG has substantial discovered undedicated
gas resources
Company has ~2 tcf of discovered gas outside PNG LNGPNG has a further est. 3-4 tcf of discovered gas resources spread across many fields and owners
Angore
Barikewa
Uramu
Pandora
Juha
P’nyang
KimuIehi Elk
Hides
Flinders
PPL234
Elevala
Douglas
ForelandShelf
OffshoreHub
WesternCorridorStage I
OffshoreHub
EasternHub
NorthernHub
WesternCorridorStage II Central
Foldbelt
44
Gas Growth Opportunities
Highest value use for gas is for PNG LNG Project debottlenecking (+10-15% above nameplate capacity), expansion and/or developing other LNG plants:
Significant field, pipeline and plant synergies can potentially be obtained
Domestic gas commercialisation opportunities can also offer attractive returns and potentially earlier delivery
Petrochemicals – methanol/DMEHides Gas To Electricity for Porgera
Power generation and other smaller projects catering to the needs of local communities & industry
45
Delivering Gas Growth
Focus for OSH:Build on existing gas portfolio by acquiring/ consolidating interests in key fields Undertake further exploration & appraisal in 5 hubs:−Eastern Forelands (eg Barikewa)−Western Corridor (Stage 1 and Stage 2 - Kimu, Elevala,
Douglas)−Northern Hub−Offshore Gulf of Papua
Seismic & studies 2008Active drilling 2009+Align with Government & others on infrastructure and domestic gas development needs
46
Exploration
47
PNG Exploration
Portfolio optimisationData room being prepared for farm down of some exploration exposures in PNG
Seeking to build on gas portfolio (already outlined)Oil exploration
High grade remaining prospects in close proximity to infrastructureConsider deeper Jurassic plays
Frontier “paradigm changers”In the past, PNG exploration focused on few playsPotential to open up new areas with selective, albeit high risk, drilling− Large hinterland structures reliant on younger reservoirs− Offshore fans and toe thrusts− Foreland extensional fault blocks
Current wells: NW Paua, Cobra (drilling), Wasuma (1Q09)
48
PNG Exploration
NW Paua
Cobra
Wasuma
49
APFMoro
SE Mananda
Moran
Paua
LakeKutubu
Agogo
NW PAUA
PDL2
PPL233
PPL219
PDL5
10km
PPL219
PPL219
PDL6
Highly prospective structure adjacent to MoranStacked Toro and Digimu reservoirsMean recoverable reserves 30 - 90 mmstb with upside potential of >100 mmstbChance of success 1 in 6Constrained by Paua 1X well (1996) and seismic acquired in 2005Oil Search operating on behalf of EssoCurrently preparing to drill ahead to primary objective
NW Paua
47.5%Esso Highlands
52.5Oil Search
WI %PPL 233
50
COBRA
PPL219
PPL190
PDL4
PDL4PDL3
10km
Gobe Main
SE Gobe Wasuma
Near-field exploration opportunity adjacent to the SE Gobe oil fieldCobra 1a will test the Iagifu sandstone in a seismically defined footwall anticline (‘Sub-thrust Play’)Mean recoverable reserves 40 mmstb, upside to 75 mmstbChance of success 1 in 6Success at Cobra will open up a significant new play fairwayCobra 1a spudded March 2008
NW SE
Cobra
26.5Murray Petroleum
10.9Cue PNG Ltd
62.6Oil Search
WI %PPL 190
Cobra
SE Gobe
51
Near field exploration opportunity adjacent to the SE Gobe oil fieldIagifu sandstone primary objective -proven reservoir at GobeSeismically defined structure - one of the last un-drilled ‘simple’Hangingwall anticlines within the main Foldbelt trendMean recoverable reserves 35 mmstb with upside potential to 100 mmstbChance of success 1 in 5Well site construction commenced. Drilling scheduled for Q408 – 1Q09
Wasuma
COBRA
PPL219
PPL190
PDL4
PDL4PDL3
10km
Gobe Main
SE Gobe Wasuma
SE GobeWasuma
NESW
8.75%Merlin Petroleum
91.25Oil Search
WI %PPL219
52
MENA Exploration
Sale of MENA assets to Kuwait Energy recently announced for US$200 million & WC
Allows OSH to re-focus on MENA assets that have potential to make a material contribution eg Libya Area 18, Yemen Blocks 3 & 7, Kurdistan
Pre-drill POS can be reduced to >20% through technology or quality of acreage
Continue to seek material opportunities in world class petroleum systems
Actively maintain and build on core regional relationships
Key strategic advantage of OSH is ability to operate at a local level
Manageable budget yet material opportunities
53
MENA Exploration
Sana’a Office
Dubai Office
Block 3
Block 7
Tajerouine
Le Kef
Area 18
Bina Bawi
Kurdistan
54
Area 18 is located in Pelagian Basin, offshore LibyaPelagian Basin contains 11% (7 bn boe) of Libya’s total recoverable reserves, considered under-exploredArea 18 is located on trend to productive Pelagian Basin fields Exploration targets:
Two proven and productive plays – the Eocene and Cretaceous carbonate oil plays Unproven clastic gas play in the Jurassic and Triassic section. This play is productive in the Sirte basin to the southeast
Caliph Prospect defined by recently acquired 3D seismic data and will target all three playsOther prospects and leads in the permit are defined on 2D seismic
Area 18 – Offshore Libya
70Petrobras(Operator)
30Oil Search
WI %Area 18
55
Caliph Prospect
Eocene-Cretaceous carbonate play is a combination structural-stratigraphic trap. Operator estimate of potential recoverable oil reserves - +250 mmbbl in Eocene, +180 mmbbl in CretaceousJurassic-Triassic clastic play is a tilted fault block trap. Operator estimate of potential recoverable gas reserves - +300 mmboe in Jurassic, +750 mmboe in Triassic
EocenePlayCretaceousPlay
Jurassic-TriassicPlay
56
FinancialOverview
57
Financial Performance 2003 - 2007
Revenue OperatingCash Flow
CoreNet Profit
US$m
350.8
416.3
664 644.5
718.6
239.1
330
554.3 544.8598.2
191.3
276.7
357.7
399
326.8
85.7
107.3
200.2 207.5
140.8
0
100
200
300
400
500
600
700
800
2003 2004 2005 2006 2007
EBITDAX
58
Performance in 2007
Total production of 9.78 mmboe, just 4% lower than in 2006 despite PNG oil field maturity
Realised oil price of US$77.78/bbl, 16% above 2006
Record revenue of US$718.8 million,up 12% on 2006
Record EBITDAX of US$598.2 million, up 10% on 2006
Net profit after tax (before significant items) of US$140.8 million, down 32% on 2006
Impacted by higher exploration expense, higher non-cash items and higher effective tax rate
First NPAT fall in 5 years
Final dividend for 2007 of four US cents/share was paid in March, making eight US cents/share for the year (23 toea/share), the same as in 2006
59
2007 Core Profit Drivers
Cash opex impacted by global industry cost pressures and resurgent Australian dollar, fuel costsUS$65.2 million (40%) of total 2007 exploration expense incurredin MENA with no associated tax benefit. Primary driver of effective tax rate of 56%
0
100
200
300
2006
Amor
tisat
ion
US$m
2727
(117)(117)
(33)(33)
(11)(11)
1414
141141
(37)(37)
9797
207207
Oil Pric
e
Oil Sa
les
Other
Rev
.
Cash
Opex
pre
FX
Expl
. Exp
.Ta
x
2007
(7)(7)
FX Im
pact
60
Treasury Review
US$344 million in cash at year end, no debt
Current cash position of US$320 million (post tax payment)
Work underway to refinance corporate facility increasing funding commitment to ~US$400 million and group liquidity to in excess of US$900 million (after receipt of MENA sale proceeds)
No oil hedging currently in place
61
Oil Refinance
Targeting US$400m 5 year revolving facilityBorrowing base facility marketed on a club basis (not underwritten), targeting strong group of relationship banks established over past 20 years. Facility should be largely insulated from current “credit crunch”, avoids current pressure points (corporate lending, underwriting positions and “new” customers)Facility is for general corporate purposes but key objective will be to utilise to cover a portion of PNG LNG development costs
62
Outlook
63
Oil SearchThe Next 5 Years
The Company at a cross roads Potential to multiply value by delivering PNG LNG and other Gas Opportunities
Three distinct phases over the next 5 yearsPhase I – PNG LNG to FID 2008-09Cash conservation, positioningPhase II – PNG LNG construction 2010-13Cash consumption, progressive deliveryPhase III – First Gas and Beyond 2013-The legacy asset arrives
Shifting focus of priorities over period
64
The Immediate Focus
Phase I – PNG LNG to FID 2008-2009Support for Operator
Oil Search specific value delivery
−Oil operations synergies, oil fields gas FEED
−Government and landowner management
−Financing
−Reorganisation to deliver
Positioning for further growth
−Other gas developments, lay the foundations
−Measured exploration, with active trading
Cash conservation – Strong competition for capital
65
The Medium Term
Phase II – PNG LNG Construction 2010-2013Massive impact on PNG
Oil Search specific value delivery−Oil fields gas construction
−Manage stakeholders/landowners
−Mitigate impacts on oil business
Further growth−Mature other gas options for 2013 delivery
−Measured exploration – some value delivery
−Prepare for legacy asset contribution –A New Direction?
Major Cash Consumption
66
The Long Term
Phase III – First Gas and Beyond 2013 –Further growth opportunities
−Debottlenecking
−New train development
−Other gas developments off new infrastructure
Major cash generation – Legacy Asset Delivery –A New Oil Search
67
The Focus in 2008-2009
Reorganising management and teams for specific value delivery
PNG LNG Delivery Group− JV support
−Oil operations synergies and interface
−Associated gas FEED and construction
− In-country landowner management
PNG LNG Financing Group−Debt and equity financing co-ordination
Gas New Business Group−Concentrate on new gas developments
Corporate reorganisation to “Fit for Purpose” Group based on new priorities
68
Summary
Latent value in existing portfolio of assets is sufficient to deliver superior value to shareholders over the next 5 years
Opportunities are well defined
Challenges can be managed
Company is well positioned to deliver
69
O I L S E A R C H L I M I T E D