On the cusp Oil Search Update June 2 0 0 9 1 On the Cusp Oil - - PDF document

1

On the cusp

Oil Search Update

June 2 0 0 9

O I L S E A R C H L I M I T E D

2

On the Cusp

Oil Search and its partners are on the cusp of com m itting

to the w orld scale PNG LNG Project, a thirty year plus legacy project:

Aim ing for Final I nvestm ent Decision by end 2 0 0 9 , w ith

first LNG in late 2 0 1 3 / early 2 0 1 4 . Strong m om entum building

W ith ~ 3 0 % interest, PNG LNG w ill result in OSH booking

~ 5 8 0 m m boe reserves ( cf 6 7 m m boe now ) and w ill triple production and Com pany profitability. Positively im pacts

• il field values

W ill facilitate com m ercialisation of other discovered gas

– econom ics of additional LNG train/ s extrem ely strong

Share price significantly discounts oil assets plus

assessed PNG LNG value ( underscored by AGL & I PI C transactions in late 2 0 0 8 ) and reflects no value for further gas developm ents or discovery of additional reserves

3

Oil Search Location Map

4

Strong 5 Year Share Price Perform ance

Jan 0 4 Jul 0 4 Jan 0 5 Jul 0 5 Jan 0 6 Jul 0 6 Jan 0 7 Jul 0 7 Jan 0 8 Jul 0 8

Share price ( rebased to OSH)

0 .0 0 1 .0 0 2 .0 0 3 .0 0 4 .0 0 5 .0 0 6 .0 0 7 .0 0

Oil Search W oodside Santos ASX 1 0 0 W TI oil

Jan 0 9

OSH has delivered consistent top quartile perform ance. TSR for five years to end 2 0 0 8 of 3 9 6 % , 7 th out of ASX 1 0 0

5

Financial Perform ance

US$ m 1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 0 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8

8 5 .7 1 0 7 .3 2 0 0 .2 2 0 7 .5 1 4 0 .8 2 4 0 .0

9 0 0

3 5 0 .8 4 1 6 .3 6 6 4 6 4 4 .5 7 1 8 .6 8 1 4 .3 2 3 9 .1 3 3 0 5 5 4 .3 5 4 4 .8 5 9 8 .2 6 9 8 .0 1 9 1 .3 2 7 6 .7 3 5 7 .7 3 9 9 3 2 6 .8 5 0 7 .4

EBI TDAX Revenue Operating Cash Flow Core Net Profit

Share price underpinned by positive financial perform ance

6

Balance Sheet Prepared for Major I nvestm ent

US$ 4 6 2 m illion in cash at the end of April 0 9

( including US$ 6 m illion share of JV cash balances) , no debt

Cash invested w ith highly rated bank

counterparties

Am ortising revolving facility established in

October 0 8 w ith a syndicate of 1 6 banks. Achieved im proved pricing and term s despite global financial crisis. Current facility size US$ 4 0 6 m illion, undraw n

No oil hedging undertaken in 2 0 0 8 or currently

in place

7

W orld Class Safety Perform ance

Total Recordable I ncidents ( TRI s) 1 9 9 8 – 2 0 0 8

TRI / 1 ,0 0 0 ,0 0 0 Hours 2 4 6 8 1 0 1 2 1 4 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 7 Oil Search 2 0 0 6 Australian Com panies ( APPEA) 2 0 0 8

6. 6.8 4. 4.0 3. 3.1 2. 2.9 8. 8.3 2. 2.7 8. 8.5 10 10.6 .6 9. 9.8 10 10.7 .7 5. 5.8 1. 1.7 4. 4.7 2 .4 2 .3 1 2. 2.05 2. 2.04

I nternational Com panies ( OGP)

12 12.7 .7 9 .1 9. 9.3 7. 7.8 7. 7.0 7. 7.3 5. 5.2 9. 9.4 8. 8.2 6. 6.3 6. 6.8

8

Strategic Priorities

Continue to add significant shareholder

value through:

Developm ent of PNG LNG Project Delivery of further grow th through

additional LNG trains and other gas based developm ents

Optim isation of value and operational

synergies betw een existing oil operations and new LNG developm ent

Measured exploration in PNG and MENA and

continued optim isation of PNG gas portfolio

9

Strategic Priorities

Previous strategic

review s have been instrum ental in adding shareholder value and achieving sustained top quartile perform ance

2 0 0 9 Strategy Update

now taking place w ith three tim e horizons:

1 0

Strategic Priorities

6 – 1 2 m onths: PNG LNG delivery

Definition of w hat w e can do to ensure delivery Optim al financing Corporate and operating structure

FI D to first gas production

Support construction operations and financing Definition of further grow th options

− Developm ent of 3 rd LNG train − Other LNG train and gas developm ent options − Exploration

Oil and gas integration options Partner alignm ents Positioning organisation for legacy cashflow

Post first gas

Options for further grow th and return expectations A New Oil Search

1 1

PNG LNG Project

Platform for Major Grow th

1 2

PNG LNG Project

Kopi Kutubu & Agogo Gobe Hides & Angore Juha Port Moresby 7 5 km

3 1 0 km 3 2 ” gas onshore pipeline Juha Production facility 2 5 0 m m scfd 9 6 0 m m scfd Hides Gas Conditioning Plant 6 5 km 1 4 ” gas line & 8 ” liquids line 1 1 0 km 8 ” condensate line

~ 4 0 0 km 3 4 ”

subsea gas line LNG Facility Existing 2 7 0 km 2 0 ” crude pipeline

Kum ul

1 3

PNG LNG Project Status

Project m om entum continues to build tow ards year end FI D

FEED activities on track, early w orks decision im m inent Markets being confirm ed Financing negotiations and due diligence on schedule Um brella Benefits Sharing Agreem ent ( BSA) signed Other legislation and approvals on track Meeting Milestones Building Mom entum Progress on All Fronts

1 4

Project Status - Marketing

PNG LNG seen as quality project, m oving ahead, w ith

high probability of delivery in 2 0 1 3 / 1 4 tim efram e:

Quality, conventional proven resource Excellent operator, ExxonMobil, augm ented by Oil Search

w ith local know ledge

Aligned Joint Venture and supportive Governm ent

Key term s of HOA agreed w ith m ajor Asian buyer for 2

m m tpa

Aw aiting buyer’s Governm ent approvals Detailed term s being negotiated w ith a num ber of other

potential buyers, m ore than enough dem and to cover initial production

Confident of confirm ing 6 .3 m m tpa offtake

through HOAs around m id-year

1 5

LNG contract pricing

Source: FACTS GLOBAL ENERGY, Feb 2009

Analysis of Recent Contracts to Japan, Korea and China ( DES)

* Contractual price will likely be renegotiated.

2 4 6 8 1 0 1 2 1 4 1 6 1 8

10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

JCC ($/bbl)

Gorgon to Japan (HOA)* Oct 05 – Mar 06 NWS-T1-3 (Bilateral Renewals) Mar – May 06 NWS Renewal Price Apr – May 06 Pluto to Japan (Estimated) Aug 07 Average Australia to PetroChina (Estimated) Sep 07 Bontang (Renewals) Mar 08 Shell (QG) to PetroChina Apr 08 RasGas to KOGAS (from 2007) Dec 06 Crude Oil Parity

Source: FACTS GLOBAL ENERGY, FEB 2 0 0 9

1 6

Source: FACTS GLOBAL ENERGY, Feb 2009

Asian LNG Markets Outlook

Dem and soft in the short term , but not im pacting 2 0 1 3 / 1 4

• fftake

Conservative approach by custom ers, w ith flight to quality

2 0 4 0 6 0 8 0 1 0 0 1 2 0

2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 2 2 0 1 5 2 0 2 0

LNG Uncontracted Dem and ( m m tpa)

Other New Markets I ndia China Taiw an Korea Japan

Source: FACTS GLOBAL ENERGY, FEB 2 0 0 9

1 7

Project Status – FEED & Contracting

FEED activities targeting com pletion end 3 Q0 9 :

Upstream contracting bids due early 3 Q0 9 Dow nstream EPC bids due m id 3 Q0 9 . Com petition

betw een Chiyoda ( APCI ) and Bechtel ( Phillips Cascade)

Signs of dow nw ard pressure on costs, particularly steel

and equipm ent

I nflationary cycle broken, w ith costs m ore

predictable

Recent BSA paves w ay for ‘early w orks’ decision:

Early w orks com prises sizeable investm ent in

upgrade/ construction of infrastructure, enabling full scale construction to com m ence early 2 0 1 0

W ould represent a m ajor vote of confidence in

the Project by participants if approved

Early w orks contracts ready to be aw arded

1 8

CAPEX for LNG Projects

Source: FACTS GLOBAL ENERGY, Feb 2009

2 0 0 4 0 0 6 0 0 8 0 0 1 ,0 0 0 1 ,2 0 0 1 ,4 0 0 1 ,6 0 0 1 ,8 0 0 US$ / tonne

Cost Escalation Projects in operation Projects under construction Projects planned ( pending FI D)

2 0 0 0 2 0 0 1 - 2 0 0 6 1 9 9 6 - 1 9 9 9 1 9 9 1 - 1 9 9 5 1 9 8 6 - 1 9 9 0 1 9 8 0 - 1 9 8 5 1 9 7 1 - 1 9 8 0 1 9 6 5 - 1 9 7 0 2 0 0 3 2 0 0 5 2 0 0 4 - 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 0 9 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 3 2 0 1 3 - 2 0 1 4 2 0 1 4 2 0 1 5 - 2 0 1 6 2 0 1 4 2 0 1 5 2 0 1 4 - 2 0 1 5 2 0 1 4 Qatar (Qatargas II ) Yemen LNG Indonesia (Tangguh LNG) Peru LNG Algeria (Skikda Rebuilt) Australia (Pluto) Angola LNG Australia (Gladstone) Australia (Ichthys) PNG LNG Nigeria (Brass LNG) Iran ( Pars LNG) Iran (Persian LNG) Australia (Browse) Australia (NWS, T5) Equatorial Guinea Egypt (Damietta) Egypt (Idku) Qatar (RasGas T3 & T4) Trinidad (Atlantic LNG, T4) Oman LNG Indonesia (Tangguh LNG) Indonesia (Donggi LNG) Algeria (Gassi Touil)

Startup

1 9

Project Status – Benefits Sharing

Um brella Benefits Sharing Agreem ent ( BSA) signed in

May – landm ark event for the Project, m ajor dem ocratic process w ith > 2 ,0 0 0 stakeholders involved

BSA is agreem ent betw een Governm ent and landow ners

• n how certain benefits are distributed

Equity ow nership Developm ent levies Royalties

Detailed sharing arrangem ents to be determ ined

follow ing licence-based developm ent forum s

Focus now on aw ard of new Production Developm ent

Licences ( PDLs)

Other discussions include:

Local Business Developm ent and spin off

• pportunities

Training and skills developm ent Past prom ises by Governm ent

2 0

Project Status - Financing

Estim ated capital costs of PNG LNG:

US$ 1 0 - 1 1 billion real, US$ 1 1 - 1 2 .5 billion nom inal

( includes FEED expenditure) , plus US$ 4 billion nom inal of financing costs, early operating costs and debt service reserve account. Update on costs expected end 3 Q0 9

Expect to fund 7 0 % project finance ( joint financing led

by ExxonMobil) , 3 0 % equity

Standard project finance facility. Detailed negotiations of

financing Term Sheet taking place w ith Export Credit Agencies ( ECAs) follow ing positive site visits and good feedback from due diligence process

Prelim inary com m itm ents and final term s from ECAs for

project finance expected late 3 Q0 9 , follow ing definition

• f LNG purchasers and capex

Cornerstone of financing expected to be ECAs,

w ith balance com ing from banks and potentially partner co-lending and bond m arkets

2 1

Project Status – Financing cont

Post Govt back-in, Oil Search Project interest ~ 3 0 %

Share of joint financing ~ US$ 3 .4 bn Equity requirem ent at FI D ~ US$ 1 .2 bn

Standard project finance facility w ith parent com pany

guarantee during construction, becom ing non-recourse at com pletion

OSH has no ratings-related funding driver or requirem ent

from lenders to raise funding to support guarantee

W ith > US$ 4 6 0 m illion in cash and undraw n facility of

US$ 4 0 6 m illion at April 0 9 plus future cash flow s, OSH in good position to m eet equity requirem ents

Position w ill be reassessed w hen capex and financing

term s are know n

2 2

PNG LNG Milestones

2 0 1 0 2 0 1 2 2 0 1 4 2 0 1 1 2 0 1 3 2 Q 0 9 3 Q 0 9 4 Q 0 9 1 Q 0 9

Com m ence Early W orks* BSA Receive EPC bids Finalise Capex Receive offers

• f project finance

Com m ence construction First LNG sales Final I nvestm ent Decision Sign HOAs

* Contingent on HOA & BSA

2 3

PNG LNG Project – On Track

PNG LNG progressing very w ell Early w orks decision im m inent Schedule unchanged, targeting Final

I nvestm ent Decision late 2 0 0 9 , LNG sales 2 0 1 3 / 1 4

Seen as one of only a few projects in region

m oving to FI D this year

Entering favourable and m ore predictable cost

environm ent

Financiers strongly supportive and w orking to

tim etable

Um brella BSA signed, highlighting

strong support from the PNG Governm ent and Landow ners for Project

2 4

Com m ercialisation

• f Other Gas

2 5

Positioning for LNG Expansion

• PNG LNG infrastructure w ill have capacity to accom m odate

further LNG train at m inim al investm ent

• By leveraging off PNG LNG infrastructure, 3 rd train LNG

econom ics are very strong. 4 th train w ould require further investm ent but synergies exist

• Num ber of potential sources of gas:

Northern PNG LNG train

− Gas from Hides, Juha North ( PRL 2 ) and P’nyang ( PRL 3 ) − JV partners in PRL 2 & 3 – XOM, OSH and NOEX

Alternative additional LNG train

− Aggregate gas from Forelands/ Offshore

• Focus for 2 0 0 9 is on de-risking gas fields/ prospects through

seism ic, further gas portfolio m anagem ent and JV alignm ent

• Other gas com m ercialisation opportunities also being pursued

Petrochem ical studies w ith I tochu and MGC Dom Gas studies w ith Governm ent

2 6

Location of Oil & Gas Resources

OSH Operated Licence OSH Interest Licence Petroleum Development Licence Petroleum Retention Licence Licence Application Oil Field Gas Field Oil & Gas Field Prospect Oil Pipeline Proposed Gas Pipeline

Mananda Attic

Kum ul Term inal

Angore Juha Hides Moran Agogo Kutubu Gobe Main

Flinders Barikew a Deep Huria Hedinia FW Lead 7 W asum a Gobe Deep Hides FW Pasca B

Barikew a Uram u P’nyang Kim u Juha North SE Gobe Pandora

1 4 2 °E 9 °S 7 °S 1 4 5 °E

5 0 km

2 7

Oil Operations and Exploration

2 8

Hides

PNG Producing Oil & Gas Fields

OSH Operated Licence OSH Interest Licence Petroleum Development Licence Petroleum Retention Licence Licence Application Oil Field Gas Field Oil & Gas Field Oil Pipeline

1 4 2 °E 9 °S 7 °S 1 4 5 °E

5 0 km

Kum ul Term inal

Moran Agogo Kutubu Gobe Main SE Gobe SE Mananda

2 9

Providing Cash for Grow th

Since Oil Search took over operatorship of PNG oil fields

in 2 0 0 3 , fields have produced ~ 5 0 m m bbl in excess of previous operator’s expectations and field life extended

Aim is to optim ise PNG oil cash generation over the next

5 years to support PNG LNG Project funding requirem ents

Existing oilfields are m ature ( base decline rate of 1 5 -

2 0 % ) but w ith appropriate investm ent, expect to continue to m itigate base decline curve

PNG production is highly profitable ( net oilfield costs,

excluding tariffs, are under US$ 1 0 / bbl) .

I ncreased focus on m anaging facilities sites, costs and

im proving capital efficiency

Detailed review of operating synergies betw een oil and

LNG underw ay

3 0

PNG Gross Oil Production

Oil Rate ( bopd)

1 0 ,0 0 0 2 0 ,0 0 0 3 0 ,0 0 0 4 0 ,0 0 0 5 0 ,0 0 0 6 0 ,0 0 0 7 0 ,0 0 0 8 0 ,0 0 0 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 4 – 2 0 0 8

Devt capex = $ 7 .9 1 / bbl, Opex = $ 9 .8 2 / bbl

Pre-OSH Decline

3 1

Net Production

Net Production ( m m boe)

2 4 6 8 1 0 1 2 1 4 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 F

Kutubu Moran Gobe Main SE Gobe SEM Hides GTE MENA

Production outlook for 2 00 9 of 8 .0 – 8 .3 m m boe

3 2

2 0 0 9 Exploration

Focus on high value PNG gas and low

cost MENA com m itm ents

PNG: De-risk gas prospects through

seism ic prior to exploration/ appraisal drilling

− 2 D seism ic in Highlands and offshore

Portfolio optim isation

− Farm -dow n to NOEX, Gedd

acquisition, farm -in to PPL2 6 0

W asum a w ell in PPL 2 1 9 ( drilling

likely to extend into 2 0 1 0 )

MENA: Shakal w ell in Kurdistan Caliph w ell in Libya ( spudded) 1 w ell each in Blocks 3 and 7 , Yem en W ithdraw al from Bina Baw i

3 3

1 4 2 °E 9 °S 7 °S 1 4 5 °E

5 0 km

PNG Exploration

Fold Belt

2009/10 Wasuma oil test with sub-thrust test 2 0 1 0 -1 2 Offshore Program m e 2010 Flinders gas test 2010/11 PPL234 gas test Cobra sub-thrust success 2011/12 Distal Foldbelt Oil Play 2010/12 Follow-up Sub thrust leads adjacent to Gobe, Hedinia and Hides. Technical/Seismic work in 2009 OSH Operated Licence OSH Interest Licence Petroleum Development Licence Petroleum Retention Licence Licence Application Oil Field Gas Field Oil & Gas Field Prospect (Oil/Gas) Oil Pipeline Proposed Gas Pipeline

Kum ul Term inal

3 4

MENA Exploration

Sana’a Office Dubai Office

Block 3 drilling ‘0 9 Block 7 drilling ‘0 9 Tajerouine Le Kef Area 1 8 , Libya Caliph w ell ( drilling) Bina Baw i Shakal 1 underw ay

3 5

Capital Managem ent Measures

I n light of recent oil price falls, Oil Search has

com m enced im plem enting prudent capital m anagem ent strategies

Focus is to ensure funding is available for areas of

highest value creation:

First priority is to fund Com pany’s share of PNG LNG

Project

Second priority is to fund exploration/ activities that

progress third LNG train expansion, alternative gas developm ent am bitions

Manage developm ent drilling and w orkover program m e to

ensure cash flow s for PNG LNG, gas expansion

Dynam ic environm ent, capital requirem ents im pacted by:

Oil price ( as alw ays) Capital cost of PNG LNG ( w ill be know n in 3 Q0 9 ) PNG LNG financing term s and costs ( know n in 3 Q0 9 ) Production outcom es ( relatively stable)

3 6

Capital Managem ent Measures cont.

Starting from a solid base w ith a strong balance sheet Active capital m anagem ent program m e underw ay:

Controlling discretionary spend in production, exploration

and corporate

Cost control/ cutting m easures I ntroduced underw ritten DRP

Recognise need for flexibility and pro-active

m anagem ent as inputs and param eters change

Many other levers to deliver capital requirem ents of PNG

LNG, including hedging, asset sales, capital raisings etc

Any capital m anagem ent initiative actioned w ill be

selected to ensure m axim isation of shareholder value Oil Search in a strong position to m anage these variables

3 7

Sum m ary

3 8

OSH’s key business priority is delivering the PNG LNG Project

1 . Deliver PNG LNG Project 2 . Project Build, Positioning for Grow th

3 . Project Com pletion, Delivering Grow th

2 0 0 9 2 0 1 0 - 2 0 1 3 2 0 1 4 +

1 0 ,0 0 0 2 0 ,0 0 0 3 0 ,0 0 0 4 0 ,0 0 0 5 0 ,0 0 0 6 0 ,0 0 0

Oil Production ( bopd)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

LNG Liquids LNG Gas PNG Developm ent

3 9

Sum m ary

Oil Search is in an excellent position for further

grow th PNG LNG m oving forw ard, prem ier Asia Pac

greenfields project, w ith all essential pieces com ing together

Strong balance sheet and liquidity to m eet LNG

• bligations but proactive m anagem ent required

Focus increasing on LNG train expansions, other

secondary gas grow th. Requires m easured exploration and appraisal, new business activities and alignm ent of JVs

Core oil production rem ains robust. Operations

review to identify and deliver oil and gas synergies

4 0

O I L S E A R C H L I M I T E D