Oil Search reports strong second quarter; liquidity rises to $1.67B
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Oil Search released strong second quarter results on July 21, with operated oil production up 14% to 7.29 million barrels of oil equivalent since first quarter, at the highest level since the 2018 Papua New Guinea Highlands earthquake.
Revenue was down 26% between the first and second quarters because the average price of oil in the first half of the year dropped 53%.
But following decisive steps taken in March to reduce 2020 capital expenditure by approximately 40%, Oil Search further strengthened its balance sheet in April by raising approximately $700 million through an equity issue.
The company also reduced its debt during second quarter, the culmination of all these actions resulting in increased total liquidity by the end of June to $1.67 billion - $831.4 million in cash and $835.6 million in undrawn credit facilities.
The mixed bag of second quarter results follows unpresented disruptions to the global oil and gas industry, caused by the coronavirus pandemic.
Alaska spend drops by $80MThe 40% reduction in capital expenditure totaled $270-$315 million, with Alaska representing only about $80 million of that, Anchorage-based Amy Burnett, Oil Search’s manager of U.S. media and communications, told Petroleum News July 27.
“The majority of our investment budget for the year was allocated to the winter exploration and construction programs,” she said. “In addition to construction work to finish the winter gravel project, summer work will include some hydrology studies and standard post-season surveying and cleanup activities to ensure there is no damage or litter remaining from the winter program.”
No more North Slope exploration wells are planned until market conditions improve, Oil Search said.
Upgraded resource potentialAdding to the company’s good news, was the completion of a “very successful” two-well (plus sidetrack) winter exploration season on Alaska’s North Slope in second quarter, which Oil Search said, “upgraded resource potential” close to the proposed central processing facilities for the Pikka unit development.
The well drilled close to those facilities was Mitquq 1 with the Mitquq 1 ST1, which is 5.6 miles east. The well encountered a net pay zone of 172 feet with a gas cap of 29 feet in the Nanushuk formation. On test, it flowed at a stabilized rate of 1,730 barrels of oil per day from a single stimulated zone.
Oil Search said high quality oil in a deeper Alpine reservoir at Mitquq was also discovered but not tested.
The Stirrup 1 exploration well, approximately 7.5 miles west of the 2017 Horseshoe 1 discovery well and 22 miles southwest of the proposed Pikka development, encountered an oil column in the Nanushuk reservoir with net pay of 75 feet. On test, Stirrup 1 flowed at a stabilized rate of 3,520 bopd from a single stimulated zone.
Stirrup is a direct analogue to the Horseshoe 1 Nanushuk discovery and as such the company has said it could underpin a possible standalone Horseshoe development. Or, it could represent a low cost tie-back option to Pikka.
Flow tests in both wells included a cleanup, flow period and a pressure buildup prior to the final test to assess well deliverability.
“These results have materially upgraded the ultimate prospectivity and optionality of our Alaskan portfolio and are being integrated into asset appraisal and development plans,” Oil Search Managing Director Keiran Wulff said July 21. “Value engineering and optimization studies, aimed at reducing upfront capital expenditure and ensuring that the Pikka development is cost competitive and commercially viable in a lower price environment, are progressing well.”
Oil Search, he said, is now focusing on “completing the Strategic Review, which will help redefine our long-term strategy,” taking into account market developments, shareholder expectations and revised commodity price forecasts.
“Our aims are to simplify and de-risk existing operations, maintain balance sheet strength, prioritize capital expenditure and develop clear pathways to maximize shareholder value. We look forward to updating the market on the outcome of the review in the fourth quarter of 2020,” Wulff said.
- KAY CASHMAN