Discussion on LNG expansion ongoing, says Oil Search

  • Oct 21, 2020
  • The National

DISCUSSIONS are ongoing between all parties on progressing LNG expansion opportunities in PNG, Oil Search Limited managing director Keiran Wulff says.

“This coincides with a strengthening in demand and a potential improvement in the LNG price outlook, despite the Covid-19 impact on global energy and LNG demand pushing back the demand window to around 2027,” Wulff said in its third quarterly report 2020.

Discussions continued between the P’nyang operator ExxonMobil and the Government with the objective of securing fair and balanced fiscal terms on the P’nyang Gas Agreement.

“Internal analysis carried out by Oil Search during the quarter, utilising independent data and discussions with potential customers, assessed the impact of the Covid-19 on future LNG demand, resulting in a view that the supply gap anticipated for the mid-2020s has been deferred by a few years,” he said.

Wulff said in addition to the strong production performance, the cost reduction and operational excellence programmes in PNG and across the company were now being embedded.

“Further work is being done on third-party spend, supply chain and operational efficiencies to ensure cost reductions are sustainable, with a focus on continuous improvement and performance.”

He said despite improved oil prices during the quarter, the impact of the two-to-three month lag on LNG contract pricing and a higher portion of LNG spot sales had resulted in a 29 per cent fall in revenue.

“The company’s liquidity position remained robust, with US$1.65 billion (K5.77b) of cash and undrawn bank credit lines available as of Sept 30,” Wulff said.

“Oil prices have since recovered from lows within the US$20 (K68)/barrel range in the second quarter to above US$40 (K136) in the third quarter, which will rebase the LNG contract prices going forward,” he said.

“In addition, North Asian LNG spot prices have recovered materially from the lows of below US$2/mmBtu (million british thermal units) to above US$6/mmBtu.”