Oil Search is a key partner in the next wave of gas projects in Papua New Guinea but has faced a tough past 12 months. Business Advantage PNG speaks with Managing Director Dr Keiran Wulff on the company’s future in PNG and the rich potential of its gas reserves.

The Hides is one of the seven fields associated to the PNG LNG project. Credit: Oil Search

BAPNG: What are Oil Search’s priorities currently?

Dr Keiran Wulff: The future in PNG for the next while is all about commercialising the country’s huge gas resources. But first of all, PNG oil production will still be a material contributor to the PNG economy.

Our oil fields have been producing for a long period of time and we have probably produced 80 per cent of the recoverable oil that was originally in these structures.

The key for us is to identify what remaining opportunities, near the fields, can be tested over the course of the next two or three years to extend the field life of our producing oil assets.

A second focus is to get our cost price down. Operating in PNG is an expensive business – significantly higher than other areas on a competitive basis.

BAPNG: How are things progressing with the LNG projects Oil Search is involved with in PNG?

Oil Search’s Dr Kieran Wulff.

Wulff: The PNG LNG project has continued to produce incredibly well in 2020, at approximately 8.8 million tonnes per annum.

The world is very different than it was a few years ago, when the original concepts for Papua LNG were considered. Energy demand has been volatile and obviously energy prices have fallen drastically. Recently, the situation has stabilised with the rise in the oil price, signing of the Fiscal Stability agreement for Papua LNG and the licence extension offer for PRL 15. The Papua LNG Joint Venture is now fully aligned with the PNG Government and can look to progress the project to FEED in 2022.

BAPNG: What are the major hurdles to cross to get to a final investment decision on the Papua LNG project?

Wulff: It’s three different areas. First of all, before we start creating too much expectation, we need to make sure that there’s a market for the gas. Discussions with potential buyers really stopped as a result of COVID-19. So, the joint venture needs to go out [and] ascertain whether there’s a market for the gas.

We’ve now agreed the Fiscal Stability Agreements with the PNG Government, which allows the Joint Venture to begin negotiations on commercial agreements that need to be finalised for sharing facilities with the ExxonMobil-led PNG LNG project.

The third area is the technical work that needs to be undertaken to determine the optimum tie-in arrangement for bringing Papua LNG into the PNG LNG facilities just outside of Port Moresby.

These activities are important ahead of a FEED decision in 2022.

‘The reality is that Oil Search has been very successful in exploration, and we’ve got a very good resource base, both in PNG, and in Alaska.’

BAPNG: What about the P’nyang gas project, which is now uncoupled from Papua LNG?

Wulff: P’nyang gas is also an important resource and ExxonMobil will be having discussions with the PNG Government in light of the changing global situation to determine if it is best to tie P’nyang gas to PNG LNG trains 1 and 2 or if it should be a separate project. That will need to be agreed by ExxonMobil and the PNG Government.

BAPNG: What are future commercial opportunities for PNG’s gas?

Wulff: From around 2027, there is divergence in supply and demand. PNG gas is ideally placed to enter the market and is close to the Northern Asian markets. You don’t have an issue with going through any geopolitically sensitive areas, like the Straits of Hormuz or the Panama Canal. And the cost of transportation from PNG to the markets is very good. PNG is consequently very competitive to get into that market window.

BAPNG: You’ve announced significant cutbacks to your exploration programs in PNG …

Wulff: The reality is that Oil Search has been very successful in exploration, and we’ve got a very good resource base, both in PNG, and in Alaska. So our focus is on commercialising the gas, not necessarily needing to find any more. Having said that, we do have some good high quality and low risk opportunities in and around the oil field facilities themselves and we’ll be presenting those to the Joint Venture next year with a view for drilling those, over the next few years, to maintain oil production.

BAPNG: How do you view the global move to greener energy – how much is that a challenge to a company like Oil Search?

Wulff: Gas will be a major base load energy provider for governments around the world, as they target a net zero [emissions standard] by the middle of this century. In China, for example, 65 per cent of energy generated comes from coal, and yet they have set themselves a net zero target by 2060. Japan and South Korea have both set zero emission targets by 2050. And some of these countries have also targeted a non-nuclear future as well. Consequently, gas has a material and important role in the energy transition.

‘We’re looking at making Oil Search a leader when it comes to sustainability.’

Our focus on community has set us apart, not just in PNG, but in Alaska as well. Sustainability incorporates community, climate change, environment, and economic sustainability.

We’re looking at making Oil Search a leader when it comes to sustainability, which includes our commitment to community development, climate, environment, and de-carbonisation and offset.

In PNG, we’ve already planted four million trees in the PNG Biomass project, which is targeting 20 million trees. That project alone, over its life, will offset four million tonnes of CO2. It also creates 500 jobs directly and a further 2,500 jobs indirectly.

BAPNG: What do you see as PNG’s competitive advantage when it comes to gas?

Wulff: PNG is ideally located, relative to the growth markets in Northern Asia. It’s got a very supportive government, and the PNG LNG project has been very successful for both the Joint Venture and for the government. It demonstrates the ability to undertake major projects in PNG.

PNG gas also has high heating value, so it’s good for power generation, especially in Japan. A lot of the markets supplied from the North West Shelf and other sources – those contracts are starting to expire or [will need to] be renewed by the middle of this decade. PNG is very well-placed to replace those markets.

Frankly, we’re excited by the future of PNG being a major contributor to the supply of high-quality gas, and to help facilitate the energy transition to cleaner fuel. It creates a real opportunity for the company.

BAPNG: Oil Search’s share price has fallen significantly in the past year. What’s your message to your shareholders?

Wulff: We’ve had a very loyal group of shareholders. Oil Search is a company leveraged to oil prices. We’re most leveraged to the oil price going up, and so as a result of that, we have been hit a lot worse than others. But we’ve now positioned the company to take advantage of the inevitable price return by reducing costs and positioning ourselves to deliver our growth projects, which are genuinely world-class.

I think we owe our shareholders a lot for their support. It’s not been an easy year at all. But, frankly, we are now incredibly well-placed and our share price certainly does not reflect the value of the company.