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Oil Search to push on w. Pikka construction without 3rd partner if needed
Although Oil Search prefers to bring in another partner before sanctioning Pikka development at the end of 2021, it is not a requirement for moving ahead with construction of the North Slope oil field, a company official told Petroleum News after being asked whether moving forward with Pikka phase 1 construction later this year was contingent on securing a third partner.
In answer to an email to her and Oil Search Managing Director Keiran Wulff, Amy Burnett, U.S. media and communications manager, told Petroleum News on Jan. 27: “As previously announced, we do intend to launch a formal divestment process following FEED entry, with plans to complete it prior to FID. Our preference continues to be a pre-FID sell down to ensure we have an aligned joint venture as we go into construction. We are open to delaying sell-down if our commercial terms are not met.” (FEED stands for front-end engineering and design and FID means final investment decision.)
The joint venture Burnett refers to is with Repsol E&P USA. Oil Search has an agreement with the Spanish major that ensures it remains operator for the companies’ shared assets on the North Slope. Currently Oil Search maintains 51% and Repsol 49% of their assets. The sell-down could change those ratios, but because of their agreement Oil Search will retain operatorship.
Fourth quarter reportThere was nothing new about its Alaska operations in Oil Search’s fourth quarter report released Jan. 27.
The company indicated it expects to commit within weeks to start FEED work on the Pikka project, which is Oil Search’s only major investment planned for this year as its proposed LNG expansion in Papua New Guinea remains stalled.
Wulff was quoted as saying the company is “ready to enter” FEED “in early 2021” at Pikka.
“Strong alignment has been achieved with our partner, Repsol, for the phased development program which is now targeting first oil in 2025 at 80,000 barrels of oil per day from a single well pad. Initial development costs have more than halved and the breakeven cost of supply under US$40 a barrel makes the project resilient to lower oil prices,” he said.
“Our resource position also continued to improve, with independently certified Alaska 2C contingent resources at 967.9 mmbbl (gross), representing a 94% increase since asset acquisition. Most of this upgrade was due to our discoveries earlier in 2020 at Mitquq and Stirrup, which reinforced the potential for an additional stand-alone development in our core Alaska development area,” Wulff said.
Elsewhere in the report the company said, “results to date support the potential development of Mitquq as a satellite to Pikka and Stirrup as a potential stand-alone development. Further appraisal drilling of the Mitquq and Stirrup trends will be required to confirm the full size and extent of these discoveries.”
Oil Search previously said a sell-down process will start this quarter to bring in a third partner, effectively spreading risk and reducing each participant’s capital outlay - a common practice for North Slope developments.
“In Alaska, we hope to see a sell-down in equity, although market conditions remain challenging,” Bernstein analyst Neil Beveridge was reported as saying after Oil Search’s fourth quarter report was released.
Company-wide Oil Search showed a 37% increase in revenue from third quarter to US$259.5 million largely due to higher LNG prices.
Year-end revenue dropped 32% to US$1.074 billion due to particularly weak oil and LNG prices earlier in 2020.
Regarding spending in Alaska, Oil Search posted fourth quarter US$61.4 million year to date and US$145.2 million exploration and evaluation expenditure.
Pikka unit development expenditure year to date was US$99.6 million.
“We expect that 2021 will continue to be another challenging year and the company is absolutely focused on maintaining the operational discipline that resulted in excellent results in 2020 despite the difficult conditions,” Wulff said.