Oil Search Slashes Jobs, Rolls Out Structural Changes | KOSEC

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Oil Search Slashes Jobs, Rolls Out Structural Changes

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC - Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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Papua New Guinea’s PNG company, Oil Search Limited, has today, released a series of structural changes it expects to undertake. The announcement follows a comprehensive and systematic review of both of its cost structure and organisation. Therefore, the primary purpose of the review aims to enable the firm to gain an accurate picture of the firm’s financial position and capabilities to weather a period of prolonged uncertainty. More importantly, the upcoming changes will allow Oil Search to capitalise on operating efficiently and to seize promising opportunities when they arise.

Foremost, there has been a 25 per cent reduction in the size of Oil Search’s full-time employees comprising of staff and long-term contractors. As of 14 March 2020, the firm employed 1,649 staff. Presently, this figure sits at 1,222 employees. Oil Search further expects 137 employees to leave their current roles by the end of this year, bringing the total reduction to that of 34 per cent. Yet, it is not the end of the world for outgoing employees. Oil Search has put in place a variety of programmes for outgoing staff to allow them to acquire new skills and transit towards new opportunities.

The reorganisation has also resulted in additional changes. This includes the increased female representation in the workforce from 25 per cent to that of 28 per cent. More broadly speaking, the shift will also result in more women taking up roles within the executive management team. However, the changes also represent the reduction of expatriate roles from 10 to 7 per cent of the overall workforce.

More importantly, the improvements undertaken will not go unnoticed. This is because of the formation of a dedicated corporate performance team, known as Pathfinder. The team aims to track changes and introduce feasible capital prioritisation across the firm. Pathfinder’s key responsibilities also include the monitoring of expenses incurred through third-party programmes and tapping on technology to consolidate data and identify ways to bring down cost.

Meanwhile, all divisions within the firm are closely reviewing capital and developmental projects. Doing so will allow the firm to identify appropriate and feasible times to work on projects. For instance, Oil Search is considering a staggered approach for projects it oversees. This will, therefore, bring down breakeven costs for each initiative. While details regarding this strategy are incomplete, there will be complete information available when the Strategic Review wraps up in the second half of 2020.

Based on current initiatives, Oil Search forecasts 2020 production costs to come in at US$10.50/boe ( before one-off restructuring costs). This is relative to the previous production cost guidance of US$11-$12/boe. However, Oil Search expects to yield greater savings when current initiatives approach the final stages of development. Nevertheless, investors can look forward to the confirmed guidance surrounding one-off restructuring costs in the firm’s 2020 Second Quarter Report when it is released on 21 July 2020.

By Caroline Wong 

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