Oil Search Reduces Spending Amid Price War
Papua New Guinea’s Oil Search Limited faces serious trouble following the announcement that it plans to cut spending by 40 per cent. The news emerged after the company failed to stop a massive sell-off in its shares amid investors’ concerns of Oil Search’s ability to handle its massive debt burden. More recently, the company has been hit by a series of bad news both from the internal and external fronts. The disruptions in the oil and gas industry witnessed prices of oil crashing while the company also embarks on the suspension of ongoing projects it had planned to undertake.
Specifically, the Sydney producer who is recovering from a 50 per cent plummet in its share price since 06th March. This was prior to the oil price plunge after a price war emerged between Russia and Saudi Arabia where it witnessed its share price skydiving more than 70 per cent since January 2020. Under his new leadership, chief executive Keiran Wulff has called off a sale of its Alaskan oil project.
Despite the suspension, talks with relevant parties regarding the planned sale of a 15 per cent stake in its Alaskan assets are ongoing. However, works on developing an early production system at its Pikka oil outlet has been placed on hold. Presently, spending for the year would likely be reduced to US$440 million from US$710- $845 million previously forecasted.
Prices of crude oil have slumped to a four-year low below US$30 a barrel, further adding pressure on energy companies. Even as Oil Search possesses world-class assets, the unforeseen times will see the firm adopting immediate and decisive measures to position itself for a potentially extended period of uncertainty and lower oil prices. A second initiative where Mr Wulff embarked on was to cancel plans that his predecessor Peter Botten had in mind. The project involved a slimmed-down LNG expansion in Papua New Guinea.
The PNG government had called off negotiations over P’nyang in late January following complaints that a deal would leave the country with little financial resources. Consequently, Oil Search has now decided to shift its focus on bigger expansion plans, while considering that both of its larger partners including ExxonMobil and Total have expressed their support to reboot talks with the local government. Specifically, Total, who oversees the Papua aspect, said in February that it was ready to wait up to 12 months to come to an agreement.
2020 has proved to be a challenging year for Oil Search. In its half-year report for the period ending 31 December 2019, the company reported net profit after tax declining by 8 per cent to that of $US312m. This was relative to the previous period of US$341.2 million while missing expectations of $US340 million. However, the firm has attributed to the losses to be due to a combination of lower oil and LNG prices which dropped 11 and 5 per cent respectively. Consequently, the firm has declared a dividend of US9.5 cents, a significant 10 per cent lower than that of 2018's.
By Caroline Wong
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