Oil Search sets 2020 production guidance at 27.5 mil-29.5 mil boe

Australia-listed Oil Search hit its recently-lowered production guidance at 27.9 million barrels of oil equivalent for 2019 and set its 2020 target at 27.5-29.5 million boe, the company said Tuesday in its fourth quarter report.

Papua New Guinea's biggest company cut its 2019 production guidance to 27 million-29 million boe earlier this year from 28 million-31 million boe as a result of reduced run rates at PNG LNG project in August and September, due to damage to a mooring chain at the offshore liquids loading facility.

Total oil and gas production for the fourth quarter was 7.01 million boe, 3% higher from July-September quarter. Volumes from the Kutubu and Moran fields were gradually restored over the quarter, following completion of repairs to the loading facility in October, Oil Search managing director Peter Botten said.

RBC Capital Markets analyst Ben Wilson said in a research note that the company's 2019 results and 2020 guidance were lower than expected. RBC expected 2019 production to reach 28.2 million boe and had forecast 2020 target at 30.9 million boe. RBC forecast Q4 production at 7.03 million boe.

"Q4 2019 liquids production was lower than our forecast due to the ongoing mooring buoy issue in the quarter which has now been resolved. The lower liquids production and sales contributed to lower forecast sales revenue in conjunction with slightly lower LNG received pricing despite a sales volume beat driven by higher LNG sales from inventory," Wilson said.

The company's total LNG and gas production in Q4 was 30.4 MMscf, up from 29,096 MMscf quarter on quarter, Oil Search said.

Botten said average realized oil and condensate price for 2019 was $62.86/b, 11% lower than 2018, while average 2019 LNG and gas prices fell 5% on the year to $9.58/MMBtu.

Oil Search's 2020 production guidance involves the PNG LNG project producing 108-110 Bcf of LNG and 2.9 million-3.2 million barrels of liquids.

"The PNG LNG Project continues to perform strongly and despite planned major turbine maintenance work to one train in the second quarter, volumes are expected to be similar to 2019 levels. Maintenance work on the turbine on the second train is scheduled for 2021," Oil Search said.

Oil Search noted that an agreement between the P'nyang (PRL 3) joint venture and the Papua New Guinea government on the terms for the P'nyang Gas field's development were not reached by the end of 2019 as targeted. It said that negotiations recommenced in early January and are ongoing.

The deals will enable the expansion of the Papua LNG project, which is planned to have three 2.7 million mt/year capacity LNG trains. The project is a joint venture between Oil Search, operator Total, and ExxonMobil.

"Key commercial agreements and pre-FEED activities for the three-train integrated development are all largely complete and, subject to the completion of the P'nyang Gas Agreement, the joint venture participants are ready to progress the three-train LNG expansion into the FEED phase," the company said.

The company continued discussions with potential LNG customers in Asia during the quarter, but does not expect to make any major progress until the joint ventures related to the expansion project enter FEED phase, it said.