PNG Oil and Gas The Journey Continues Brisbane Mining Club Briefing August 2015

Transcription

1 PNG Oil and Gas The Journey Continues Brisbane Mining Club Briefing August 2015 Oil Search Limited ARBN ASX: OSH POMSoX: OSH US ADR: OISHY

2 DISCLAIMER While every effort is made to provide accurate and complete information, Oil Search Limited does not warrant that the information in this presentation is free from errors or omissions or is suitable for its intended use. Subject to any terms implied by law which cannot be excluded, Oil Search Limited accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in information in this presentation. All information in this presentation is subject to change without notice. This presentation also contains forward-looking statements which are subject to particular risks associated with the oil and gas industry. Oil Search Limited believes there are reasonable grounds for the expectations on which the statements are based. However actual outcomes could differ materially due to a range of factors including oil and gas prices, demand for oil, currency fluctuations, drilling results, field performance, the timing of well work-overs and field development, reserves depletion, progress on gas commercialisation and fiscal and other government issues and approvals. 2

3 Summary» Oil Search - PNG company with 86 years of operations in country Largest investor in country Operates all producing oil fields, supplies 20% of gas to PNG LNG, manages liquids exports Interests in PNG LNG Project and Elk/Antelope Fields Extensive discovered resource to commercialise Large active exploration portfolio» Successful delivery of PNG LNG is transformational for PNG and Oil Search: Demonstrates PNG s ability to successfully manage complex logistics, social and financial challenges 3

4 Oil Search licence interests, PNG P nyang Juha Juha North PPL260 PNG LNG Project Gas Fields Papua New Guinea Proposed Juha Facility Hides Gas Conditioning Plant & Komo Airfield Kutubu Hides Angore Moran Agogo Gobe Main PNG LNG Project Facilities Non PNG LNG Gas/Oil Fields Hides Kutubu OSH Operated OSH Interest Oil Pipeline Oil Facility Port Moresby Oil Field Kimu SE Gobe Barikewa Elk/Antelope Gas Pipeline Gas Facility Gas Field Condensate Pipeline Uramu Hagana Flinders LNG Plant 4

5 Core strategies have delivered steady long-term share price appreciation PNG has delivered Share Price (A$) Strategic Review Manage transition to PNG LNG Project PNG LNG FID 2010 Strategic Review PNG LNG production and sales commence PRL 15 acquisition 10 year TSR to 31 Mar 2015 to 31 Dec 2014 OSH 246% 404% Median ASX 200 Energy Nameplate operating capacity reached at PNG LNG plant 103% 147% Median ASX % 62% 2014 Strategic Review 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 5

6 What Has Happened in the Last 12 Months Crude Oil Front Month price Crude Oil - Front Month Price US$/bbl Jan-13 Apr-13 Jul-13 Source: Bloomberg, OSH analysis Oct-13 Jan-14 WTI Apr-14 Jul-14 Brent Oct-14 Jan-15 Apr-15 Jul-15 Large and rapid decline in oil prices since mid 2014, demand rebound helping» IEA predicting global demand of 1.6mm b/d in 2015, a 5 year high» Strong refinery runs and margins globally in 1H 2015» Crude prices slipping back towards year lows driven by poor fundamentals, Iran and China concerns 6

7 Global Oil Supply Demand Outlook Global Oil Supply / Demand and Inventory Outlook Mm b/d Mm b/d Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: IEA Oil Market Report, August 2015 Implied Stock Change (RHS) Supply Demand Supply Growth is expected to slow, though inventories remain at record levels» Capex reduction and rig cuts impacting production» Supply growth slowing in USA and other Non-Opec; global supply forecast to decline slightly throughout 2016» Market appears oversupplied into 2016, inventories will take months to come down 7

8 OPEC not cutting production creating structural change Mm b/d OPEC Crude Production vs call on OPEC $140 $120 $100 $80 $60 US$/bbl 28 $40 27 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q $20 Source: OSH Analysis using OPEC Monthly report data OPEC output Call on OPEC Average Brent price OPEC is no longer the swing producer:» Historically OPEC has balanced the oil market, by cutting production in response to demand events» OPEC has been losing market share to higher cost producers such as US shale» OPEC has clearly signalled it will now compete for market share and will accept lower prices for up to 4 years 8

9 Drilling is only part of the story Why Lower for Longer? 4,000 3,600 3,200 Global Rig Count Saudi Rig Count 123 2,800 2, ,000 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15» Large drop as investment pulled 2,400 US Rig Count ,000 1, , Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15» Signs of a rebound» Significant investment to increase production Source: Baker Hughes, 7 th August 2015 Source: : Baker Hughes 7 th August 2015, includes oil and gas rotary rigs 9

10 Falling oil prices are impacting LNG prices and markets Mmtpa Medium to Long term LNG Volumes for Asian Delivery vs Benchmark Prices Birth of US LNG Brent falls below $100/bl $/mmbtu UPDATED Grassroots LNG projects will stall. Costs are simply too high Dr. Fesharaki, Feb 2015 HH linked Hybrid Oil Linked Brent parity (RHS) Asian Spot LNG* (RHS) Henry Hub (RHS) Source: FACTS Global Energy, *Argus Northeast Asia (ANEA) LNG spot price» Falling oil prices have already seen LNG spot, medium and long term contracts stall, with buyers expecting LNG prices to fall.» Many proposed greenfield LNG projects are not economic at $50/bbl without reductions in capital costs.» LNG from PNG may find reduced competition for customers when it begins marketing 10

11 Outlook: The Experts all have Views» Significant divergence of opinion on the outlook These are the experts» US drilling rates slowing but can return quickly many uncompleted wells» Saudi producing block remain firm on market share» High cost projects adjusting but will continue» Other supplier overhang (Libya, Iran etc.)» Geopolitics impact relatively minor» Lower for Longer pervasive in Management thinking US$/bbl (Real) Consultant Forecast Brent Oil Price Forecasts to 2025 Broker Forecast (High and Low) Broker Consensus (Aug 15) Broker Consensus (July 14) Brent Forward Curve (18 Aug 15) Source: FACTS Global Energy, Wood Mackenzie, Various Brokers, OSH analysis 11

12 Adapting to the new oil price environment cont.» Plan for the worst, hope for the best» 2015 capex and opex reduced, actively engaging with contractors to reduce costs further, by targeted 15 25%» Business Optimisation Programme initiated. Strategic, measured and reasoned approach to improve work efficiencies and build value, without compromising safety and long-term sustainability PNG Oil and Gas production costs Exploration and evaluation spend 2015 Spending Cuts ~20% ~25% Production capital ~20% Corporate capital ~40%» Looking to high-grade PNG portfolio to further support strategic initiatives» Focus is to maintain top quartile returns to shareholders, underpinned by delivery of at least two new LNG trains in PNG 12

13 Oil Search Limited ARBN

14 PNG LNG Project performing ahead of expectations, has delivered strong platform for future growth» PNG LNG Project a major success story: Delivered ahead of expectations and within revised US$19bn budget Operational and financial completion achieved in February 2015 To date, Project has produced more than 6 million tonnes of LNG and delivered ~100 LNG cargoes» Both trains now consistently operating at or above nameplate capacity of 6.9 MTPA» Focus on production optimisation/debottlenecking» Project has delivered major infrastructure, Government and landowner support, Tier 1 LNG customers, financier confidence Images courtesy ExxonMobil 14

15 LNG from PNG has competitive advantages» Conventional LNG projects with no new technology utilised in development» Substantial reserves base with high heating value, suitable for Asian reticulation network» High liquids, enhancing economics» Onshore location with existing infrastructure base from oil and LNG developments» Located close to growing Asian LNG markets» Stable fiscal regime with strong Government support» Aligned Joint Ventures. Highly respected Operators able to deliver and operate major projects, augmented by OSH s 86 years of in-country experience» Provide attractive returns and robust to product price movements Image courtesy ExxonMobil 15 15

16 Key focus for OSH is commercialising PNG s undeveloped gas» PNG LNG Project has delivered strong platform for growth» PNG can deliver at least two more LNG trains underpinned by existing undeveloped resources in NW Highlands and Gulf areas and third train with modest drilling success» PNG LNG expansion and Elk/Antelope development are economically attractive» Active appraisal and exploration programme, with multiple exploration opportunities to potentially provide gas for expansion, additional trains and industrial development» Delivery of near-term additional trains is common objective for industry, communities and Government 16

17 Global LNG demand forecast to nearly double over next decade Global Gas Demand by Region and Supply Type Source: ExxonMobil, The Outlook for Energy, Dec

18 A New Supply Balance is coming Global LNG Contracted Supply and Demand balance Global Demand Papua New Guinea mmtpa Others Russia Indonesia USA Nigeria Malaysia Australia - Qatar Source: Wood Mackenzie, Q LNG demand slides for 1H results 18

19 LNG industry undergoing fundamental change» Competition in Asia from North American suppliers» Moving towards a global market» Contracting changes» Project structures becoming more flexible» Changed participants-no longer the exclusive domain of the majors In Australia:» Project cost structures challenging» Capital efficiency» Impacts on local gas pricing 19

20 LNG projects from PNG are competitive versus Australian and global alternatives 20 LNG project break-even comparison 15 US$/mmbtu FOB Source: Wood Mackenzie, full-life breakeven, 12% discount rate, Shipping costs are to Japan Shipping» PNG LNG well placed compared to recently commissioned Australian projects» Debottlenecking at PNG LNG offers opportunity to further improve economics» Train 3 at PNG LNG, and Papua LNG 1 or 2 train options highly competitive versus global LNG project alternatives 20

21 NW Hub: LNG expansion and power MoU signed Papua New Guinea Hides Kutubu P nyang Port Moresby Juha Hides PRL 3 WI % ExxonMobil affiliates (operator Esso PNG P nyang Ltd) 49.0 Oil Search 38.5 JX Nippon 12.5» ExxonMobil PNG Limited (as operator of PNG LNG and PRL 3) and PNG Government signed MoU in Jan 2015» Sets roadmap for development of P nyang to provide long-term gas resources to support domestic power and potential PNG LNG Project expansion» Power sale agreement with PNG Power, to supply 25MW of power for local use, signed in April 2015» P nyang 2C contingent resource could increase materially» Appraisal drilling to take place in

22 Gulf Hub: PRL 15 (Elk/Antelope) appraisal» Potential second world-scale LNG development in PNG» Comprehensive appraisal programme underway, with initial results encouraging Antelope 5 Papua New Guinea Hides Kutubu Port Moresby Antelope 6 Antelope 4 Antelope South PRL 15 WI % Total 40.1 InterOil 36.5 Oil Search 22.8 Minorities 0.5 Antelope 4: Located ~1 km south of Antelope 2. Well presently suspended sidetrack well underway using Rig 103 Antelope 5: Located ~1.8 km west of Antelope 2. Initial test completed in April. Additional testing, with pressure monitoring in Antelope 1, underway Antelope 6: Located in eastern part of field. Well site preparation underway» Aim to complete resource evaluation, select broad development concept and move into pre-feed in 2015: Preliminary discussions on project financing, marketing and environmental and social mapping activities underway 22

23 Antelope 5 initial well test completed in April Photos courtesy of InterOil 23

24 Oil Search exploration: Revitalising acreage and drilling programmes» Following 2014 Strategic Review work, further detailed technical and commercial analysis of PNG undertaken: Potential PNG resource base* Core areas identified, ranked and commercialisation options studied Review of costs and technology to drive costs down 1.9 Producing Fields» Yet-to-find potential of ~7 bnboe* (60% of PNG s total resource base): 92% gas (40 tcf) Bn boe 2.9 Discovered Undeveloped Resources 8% oil (550 mmbbl)» Systematic short/long term appraisal and exploration programme planned. OSH s 18 month programme targeting ~9 tcf unrisked* (~1.9 tcf risked), with 5+ year programme targeting >5 bnboe: Building gas resource for LNG expansion and additional trains, leveraging existing gas infrastructure Continued parallel stream targeting near-field, conventional oil as well as new plays and regions with material upside» OSH developing portfolio depth, with clear commercialisation options mmboe 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Exploration Yet to Find Potential resource base distribution YTF Discovered NW Foldbelt Aure Foldbelt Gulf of Papua DW Central Foldbelt Western Foreland Interior Foldbelt Eastern Foreland Frontal Foldbelt * Gross volumes at P50 reserves, contingent resources, prospective resources. OSH 2015 analysis 24

25 2H15/16 PNG exploration/appraisal programme targeting >9 tcf unrisked gas resources PRL 3 P nyang reserves evaluation P nyang 4* PPL 269 Strickland 1* Well 2* PPL 402 (Muruk 1)* PRL 15 Antelope 4 ST1 Antelope 6* Antelope South*» Planned 2H15/16 programme targeting ~9 tcf unrisked (gross) or ~1.9 tcf risked: NW & Central Foldbelt ~5 tcf unrisked, 1 tcf risked Forelands and Gulf ~1.5 tcf unrisked, 0.6 tcf risked Aure Foldbelt ~2.5 tcf unrisked, 0.3 tcf risked» Drilling to include: Hides reserves evaluation PRL 8 Kimu North 1* PRL 9 Barikewa 3*, Barikewa 4* PRL 10 Uramu 2* PPL 339 Kalangar 1* Well 2* Three exploration wells (two in PPL 269*, one in PPL 402*) plus one appraisal (P nyang 4*) in NW Highlands Three exploration wells (two in PPL 339*, Antelope South*) plus two appraisal (Antelope 4 ST1, Antelope 6*) in Gulf region Appraisal/exploration on Kimu, Barikewa and Uramu gas fields to support potential integrated development up to 5 wells * Subject to JV approval 25

26 Contributing to long-term sustainability in PNG some essentials» Landowners and community expectations will not change with oil price halving» Requirement of efficient benefits distribution with transparency» Partnership between State and Private Sector has never been more important» Focus areas: Provision of competitively priced, reliable power Port Moresby Highlands and Ramu Grids Platform for industry development Small scale LNG/CNG for resource projects and remote communities Partnerships on infrastructure development Partnerships on health programmes Capacity development 26

27 Summary» PNG LNG Project delivered ahead of schedule and within revised budget, performing above expectations» PNG well placed to significantly expand LNG exports over next 5-7 years» Potential for OSH to more than double production by 2021/22» Significant remaining exploration potential» Lower oil price environment represents opportunity to recalibrate cost base, improve fiscal discipline, drive efficiencies and enhance portfolio» Top quartile projects will do very well» OSH in great shape to grow through these changes, with strong balance sheet and ample liquidity to pursue growth. Present liquidity exceeds US$1.5bn 27