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Oil Search profit falls 89pc on energy price slide

Nicholas Grove  |  23 Aug 2016Text size  Decrease  Increase  |  

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The PNG-based oil and gas producer posts an 89 per cent fall in half-year net profit and an 83 per cent reduction in the dividend after falling energy prices bite.


Oil Search's (ASX: OSH) net profit for the first half of 2016 fell 89 per cent from the same period in 2015 to US$25.6 million, after cost-cutting initiatives were unable to offset significant falls in commodity prices.

Sales volumes rose 5 per cent to a record 15.2 million barrels of oil equivalent (mmboe) but total revenue fell 33 per cent to US$580.8 million, driven by a 27 per cent fall in oil and condensate prices, and a 40 per cent fall in LNG and gas prices.

Operating cash flows were down 54 per cent to US$239.2 million, the Papua New Guinea-based oil and gas producer said in a statement to the ASX on Tuesday.

Oil Search declared a 2016 half-year unfranked dividend of 1 US cent a share, compared to 6 US
cents a share in the first half of 2015.

The dividend will be paid on 27 September 2016 to shareholders on record as of 7 September 2016.

"Despite the success of the cost-reduction programme, profitability was impacted by the continued slump in global oil and gas prices," Oil Search managing director Peter Botten said.

"In addition, the effective tax rate was materially higher, up from 28 per cent in the first half of 2015 to 47 per cent, due to a number of one-off non-deductible costs, including those related to the InterOil bid."

In May, Oil Search agreed to take over InterOil Corporation from energy giant Total SA, a deal which Morningstar senior equities analyst Mark Taylor described as "a good deal" with strong strategic rationale.

But in July, Oil Search was notified by InterOil--whose assets include Asia's largest undeveloped gas field, Elk-Antelope--that it had received a superior proposal from ExxonMobil.

After careful consideration, Oil Search said it decided not to submit a revised offer for InterOil.

But assuming ExxonMobil is successful in acquiring InterOil, Botten said Oil Search looks forward to commencing discussions regarding a "cooperative development agenda" with both Total and ExxonMobil later this year.

While oil prices appear to have bottomed, Botten said Oil Search will remain focused on careful capital management and driving out costs in the second half of 2016, to ensure commitments and opportunities can be funded without having to access additional equity capital.

He also reaffirmed recently upgraded 2016 full-year production guidance of 28 to 30 mmboe.

Capital costs are expected to be in the range of US$270 million to US$315 million, down US$45 million to US$85 million on prior guidance due to lower spending on PNG power projects as a result of delays in moving into front end engineering and design, as well as lower-than-expected capital expenditure on the PNG LNG Project.

Exploration expenditure for the 2016 full year is expected to be between US$190 million and US$210 million, Botten said, while guidance for other operating costs remains unchanged at US$135 to US$155 million, excluding costs associated with the InterOil bid.

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Nicholas Grove is a Morningstar journalist.

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