On the cusp Oil Search Update

O I L S E A R C H L I M I T E DOn the cusp Oil Search UpdateJune 20091On the CuspOil Search and its partners are on the cusp of committing to the world scale PNG LNG Project, a thirty year plus legacy project: Aiming for Final Investment Decision by end 2009, with first LNG in late 2013/early 2014. Strong momentum buildingWith ~ 30% interest, PNG LNG will result in OSH booking ~ 580 mmboe reserves (cf 67 mmboe now) and will triple production and Company profitability. Positively impacts oil field valuesWill facilitate commercialisation of other discovered gas – economics of additional LNG train/s extremely strongShare price significantly discounts oil assets plus assessed PNG LNG value (underscored by AGL & IPIC transactions in late 2008) and reflects no value for further gas developments or discovery of additional reserves2Oil Search Location Map3Strong 5 Year Share Price PerformanceOSH has delivered consistent top quartile performance.TSR for five years to end 2008 of 396%, 7th out of ASX 1007.00 Share price (rebased to OSH)6.00Oil Search5.004.003.00WoodsideSantos2.00WTI oil 1.00ASX 1000.00Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 094Financial PerformanceShare price underpinned by positive financial performance900US$m800814.3700EBITDAX718.6664644.5698.0600554.3598.2544.8500RevenueOperating507.4Cash Flow416.3400399357.7350.8330300326.8239.1276.7200200.2207.5240.0191.3107.3140.810085.7CoreNet Profit02003200420052006200720085Balance Sheet Prepared for Major InvestmentUS$462 million in cash at the end of April 09 (including US$6 million share of JV cash balances), no debtCash invested with highly rated bank counterparties Amortising revolving facility established in October 08 with a syndicate of 16 banks. Achieved improved pricing and terms despite global financial crisis. Current facility size US$406 million, undrawnNo oil hedging undertaken in 2008 or currently in place6World Class Safety PerformanceTotal Recordable Incidents (TRIs) 1998 – 20081412.712Australian Companies 10.6(APPEA)9.810.7109.48.38.59.19.387.88.27.07.36.86.36.865.85.24.7International Companies4(OGP)4.03.12.9TRI / 1,000,000 Hours2.72Oil Search1.72.42.042.312.050 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20087Strategic PrioritiesContinue to add significant shareholder value through:Development of PNG LNG ProjectDelivery of further growth through additional LNG trains and other gas based developmentsOptimisation of value and operational synergies between existing oil operations and new LNG developmentMeasured exploration in PNG and MENA and continued optimisation of PNG gas portfolio8Strategic PrioritiesPrevious strategic reviews have been instrumental in adding shareholder value and achieving sustained top quartile performance2009 Strategy Update now taking place with three time horizons:9Strategic Priorities6 – 12 months: PNG LNG deliveryDefinition of what we can do to ensure deliveryOptimal financingCorporate and operating structureFID to first gas productionSupport construction operations and financingDefinition of further growth options− Development of 3rd LNG train − Other LNG train and gas development options− ExplorationOil and gas integration optionsPartner alignmentsPositioning organisation for legacy cashflowPost first gasOptions for further growth and return expectationsA New Oil Search10PNG LNG ProjectPlatform for Major Growth11PNG LNG ProjectJuha Production Juhafacility 250 mmscfdHides & 960 mmscfd Hides Gas Conditioning PlantAngore110km 8”Kutubu & Agogo65 km 14” gas condensate lineline & 8”liquids lineGobeExisting 270km 20” crude pipeline310 km 32”gas onshore pipelineKopiKumul~400km 34”subsea gas lineLNG Facility75kmPort Moresby12PNG LNG Project StatusProject momentum continues to build towards year end FIDFEED activities on track, early works decision imminentMarkets being confirmedFinancing negotiations and due diligence on scheduleUmbrella Benefits Sharing Agreement (BSA) signed Other legislation and approvals on track Meeting MilestonesBuilding MomentumProgress on All Fronts13Project Status - MarketingPNG LNG seen as quality project, moving ahead, with high probability of delivery in 2013/14 timeframe:Quality, conventional proven resourceExcellent operator, ExxonMobil, augmented by Oil Search with local knowledgeAligned Joint Venture and supportive GovernmentKey terms of HOA agreed with major Asian buyer for 2 mmtpaAwaiting buyer’s Government approvals Detailed terms being negotiated with a number of other potential buyers, more than enough demand to cover initial production Confident of confirming 6.3 mmtpa offtake through HOAs around mid-year 14LNG contract pricing Analysis of Recent Contracts to Japan, Korea and China (DES)18Crude Oil ParityRasGas to KOGAS(from 2007)16Dec 06Shell (QG) to PetroChina14Apr 08Bontang(Renewals)Mar 0812Average Australia to PetroChina (Estimated) Sep 0710Pluto to Japan (Estimated)Aug 0786Gorgon to Japan (HOA)*4Oct 05 – Mar 06NWSNWS-T1-3Renewal Price (Bilateral Renewals)Apr – May 06Mar – May 06* Contractual price will likely be renegotiated.2101520253035404550556065707580859095100JCC ($/bbl)15Source: FACTS GLOBAL ENERGY, FEB 2009Source: FACTS GLOBAL ENERGY, Feb 2009Asian LNG Markets OutlookLNG Uncontracted Demand (mmtpa)120 100 OtherNew Markets India80 ChinaTaiwan60 Korea40 Japan20 2007 2008 2009 2010 2012 2015 2020 Source: FACTS GLOBAL ENERGY, Feb 2009Source: FACTS GLOBAL ENERGY, FEB 2009Demand soft in the short term, but not impacting 2013/14 offtakeConservative approach by customers, with flight to quality16Project Status – FEED & ContractingFEED activities targeting completion end 3Q09:Upstream contracting bids due early 3Q09Downstream EPC bids due mid 3Q09. Competition between Chiyoda (APCI) and Bechtel (Phillips Cascade)Signs of downward pressure on costs, particularly steel and equipmentInflationary cycle broken, with costs more predictableRecent BSA paves way for ‘early works’ decision:Early works comprises sizeable investment in upgrade/construction of infrastructure, enabling full scale construction to commence early 2010 Would represent a major vote of confidence in the Project by participants if approvedEarly works contracts ready to be awarded17CAPEX for LNG ProjectsUS$/tonne1,800Ir1,600Projects in operationAan (Cost EscalationIndouNAstProjects under constructionilgeIrgerraPnan ( Pliarerei1,400Projects planned (pending FID)ia (sia (Gasssi (aAABBa (DonuanAurstroass r LlAstsgeruraw LNN1,200strasiggiliaPNGeLG)iTliaa (raA)NG)o (Gla (IcuGIndoliangoIndoSLN LNGAi)kik (Pl)h1,000uQatTrinla LG)stdsthndluyEquatorraaeattsidQaliarYsioNo) (QateadaR)Gneae800ta (m (Tb) (Ner (uiEgAWSiarn LNanEgPealltlRyggguhtgguh)aasGas Gyp, T5naru600pt (DtiusG Lt (Idku)cineI)I )Oman L LNaLNNLNGmaTG,G)3ie400 & Ttt T4aN4))G)200020002001-20061996-19991991-19951986-19901980-19851971-19801965-1970200320052004-20052006 2007 2008 2009 2009 2009 2010 2011 2011 2012 2013 20132013-201420142015-2016201420152014-20152014StartupSource: FACTS GLOBAL ENERGY, Feb 200918Project Status – Benefits SharingUmbrella Benefits Sharing Agreement (BSA) signed in May – landmark event for the Project, major democratic process with >2,000 stakeholders involvedBSA is agreement between Government and landowners on how certain benefits are distributedEquity ownershipDevelopment leviesRoyalties Detailed sharing arrangements to be determined following licence-based development forumsFocus now on award of new Production Development Licences (PDLs) Other discussions include:Local Business Development and spin off opportunitiesTraining and skills developmentPast promises by Government19Project Status - FinancingEstimated capital costs of PNG LNG:US$10 - 11 billion real, US$11 - 12.5 billion nominal (includes FEED expenditure), plus US$4 billion nominal of financing costs, early operating costs and debt service reserve account. Update on costs expected end 3Q09Expect to fund 70% project finance (joint financing led by ExxonMobil), 30% equity Standard project finance facility. Detailed negotiations of financing Term Sheet taking place with Export Credit Agencies (ECAs) following positive site visits and good feedback from due diligence process Preliminary commitments and final terms from ECAs for project finance expected late 3Q09, following definition of LNG purchasers and capexCornerstone of financing expected to be ECAs, with balance coming from banks and potentially partner co-lending and bond markets20