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View Annual Report WISDOM Inspires CELEBRATING 90 YEARS ANNUA L REPORT 2019 WISDOM Inspires 10 2019 HIGHLIGHTS 12 LETTER FROM THE CHAIRMAN 14 UPDATE FROM THE MANAGING DIRECTOR 19 MESSAGE FROM THE MANAGING DIRECTOR DESIGNATE 20 FINANCIAL OVERVIEW 22 PRODUCTION 30 GAS DEVELOPMENT 36 PNG EXPLORATION AND APPRAISAL 40 ALASKA NORTH SLOPE 48 STABLE OPERATING ENVIRONMENT 54 ORGANISATIONAL CAPABILITY TO DELIVER 60 RESERVES AND RESOURCES STATEMENT 70 LICENCE INTERESTS 72 CORPORATE GOVERNANCE 76 CONSOLIDATED FINANCIAL REPORT 157 SHAREHOLDER INFORMATION 160 TEN YEAR SUMMARY 164 CORPORATE DIRECTORY OPPORTUNITY With a history of more than 90 years in Papua New Guinea, Oil Search has developed a deep understanding of the people, culture and environment of this remarkable country. It is this understanding that leads to wisdom. The wisdom to pioneer exploration and development activities and drive the social and economic advancement of a nation. It is this wisdom that enabled us to recognise the significant development opportunities on the Alaskan North Slope, where we seek to replicate our proven model and maximise stakeholder value. OPPORTUNITY Inspires INNOVATION Our proven ability to operate in the remote and challenging terrain of the PNG Highlands, where strong logistical skills are vital, has been a key factor behind our success. This expertise is now being applied in the arctic conditions of the Alaskan North Slope, with a highly successful inaugural drilling programme completed in 2019. To further strengthen these capabilities, in 2019, Oil Search formed the Technology and Value Assurance Group to drive innovation and the adoption of new technologies, which will be incorporated into our major new developments in PNG and Alaska. INNOVATION Inspires PROGRESS Knowledge acquired over the past 90 years has enabled us to progress the best opportunities Papua New Guinea has to offer, positioning us as the country’s most active explorer and largest investor. From the first gas discoveries in the 1930s to the development of the PNG LNG Project, the nation’s largest infrastructure development, Oil Search has always been at the forefront of progressing opportunities that drive stakeholder value. Our Alaskan acquisition provides Oil Search with a leading position in an exciting new oil play, which is expected to revitalise the oil industry in Alaska. PROGRESS Inspires RESPONSIBILITY Oil Search has an unwavering commitment to being a responsible development partner, creating shared value for all stakeholders and delivering positive social and development outcomes. Operating in some of the most remote and environmentally sensitive regions in the world, we are committed to minimising environmental impacts. Through our ongoing social development programmes and initiatives, we seek to improve the lives of people in the areas in which we operate. We believe this is vital for maintaining operating stability and ensuring the Company’s long‑term success. In 2019, we were honoured to be recognised in Strive Philanthropy’s GivingLarge Report, as a corporate leader for our socio‑economic contributions to PNG. RESPONSIBILITY Inspires WHO WE ARE Oil Search 90 years wise With world-class projects, major growth potential in PNG and Alaska and a highly prospective exploration portfolio, supported by a dedicated workforce that will rise to any challenge - our future is bright. WISDOM Inspires PROGRESS 2019 HIGHLIGHTS AVERAGE REALISED OIL AVERAGE REALISED 1 PRODUCTION AND CONDENSATE PRICE LNG AND GAS PRICE CORE PROFIT (MMBOE) (US$ PER BARREL) (US$ PER MMBTU) (US$ MILLION) 359.9 30.2 30.3 341.2 29.3 10.06 312.4 70.65 302.1 9.44 9.58 27.9 62.86 55.68 7.67 51.36 106.7 25.2 45.04 6.36 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 TOTAL RECORDABLE OPERATING CASH FLOW LIQUIDITY DIVIDEND PER SHARE INCIDENT RATE (US$ MILLION) (US$ MILLION) (US CENTS) (PER MILLION 1,865 HOURS WORKED) 953 10.5 10.0 9.5 1.91 1.93 9.5 855 844 1,658 1,612 752 1,501 1.70 1,152 1.58 1.53 555 3.5 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 1 Core profit (net profit after tax before significant items) is a non‑IFRS measure that is presented to provide a more meaningful understanding of the performance of Oil Search’s operations. The non‑IFRS financial information is derived from the financial statements which have been subject to audit by the group’s auditor. 10 OPEN TO SEE MORE 2019 HIGHLIGHTS PNG LNG PRODUCED MID TERM SPA SIGNED 8.5 MT GROSS WITH UNIPEC Highest annual production Total contracted volumes since Project start‑up for the PNG LNG Project now approximatley 7.9 MTPA 111 PNG LNG LANDMARK GAS CARGOES DELIVERED AGREEMENT 100 LNG sold under contract, Signed for the Papua 11 on spot market LNG Project SUCCESSFUL WORKOVER >200 KM OF SOCIO-ECONOMIC AND INFILL DRILLING IN PNG SEISMIC ACQUIRED CORPORATE LEADER Will help offset oil field Over Onshore Gulf and Eastern Recognised in Strive Philanthropy’s natural decline Foldbelt regions of PNG 2019 GivingLarge report as a leader for our contributions to PNG FIRST ALASKAN DRILLING 46% UPGRADE IN PIKKA ARMSTRONG ENERGY/ PROGRAMME UNIT RESOURCES GMT OPTION EXERCISED Completed within budget 728 mmbbl of gross 2C Doubled interest in the Pikka with no recordable injuries contingent oil resources booked Unit, Horseshoe area and (371 mmbbl net) surrounding lease areas WISDOM Inspires PERSPECTIVE LETTER FROM THE CHAIRMAN RICHARD LEE Dear Shareholders, 2019 was a mixed year for Oil Search. Unit Development. In addition, we candidates, the Board unanimously Major strides forward were made strengthened alignment with our selected Dr Keiran Wulff to lead the in Alaska and the PNG LNG Project partner Repsol, secured a key Land Use Company through its next phase of produced at record levels. However, Agreement with the local community growth. Keiran has more than 30 years progress of our world‑class LNG representative, obtained re‑zoning of international oil and gas experience, expansion in PNG stalled, while approvals required to start construction including 20 years at Oil Search, with a operated oil production continued and doubled our interests in key leases deep involvement in PNG. He presided to be challenged. through the exercise of the Armstrong over our operations in the Middle East, Energy/GMT option. In January 2020, led the acquisition of Chevron’s PNG Total production for the year was we commenced FEED activities for the assets in 2003 and, most recently, 27.9 mmboe, 11% higher than 2018. Pikka Unit Development. The Company pioneered our entry into the Alaskan This was driven by an excellent is targeting first oil through an early North Slope, building a world‑class performance from the PNG LNG production system in 2022, with team in Anchorage. Project, partially offset by downtime the full field development expected following damage to the offshore onstream in 2025. The Board is confident that Keiran liquids loading buoy and delays in fully has the skills, experience and values reinstating oil field production following The Company has undergone major required to lead the Company through the 2018 earthquake. Weaker realised organisational changes in the past year. the current challenges and deliver oil and LNG prices, combined with In June, we completed an organisational further success in both PNG and Alaska. higher production costs, resulted in redesign, to equip the Company with the One of his first tasks in 2020 will be a net profit after tax of US$312 million, right talent, experience and resources to drive a Company‑wide strategic 8% lower than in 2018. The Company to deliver our growth ambitions in PNG review, which will focus on Oil Search’s declared a total dividend of 9.5 US cents and Alaska. This included the formation long‑term vision and strategic focus, per share, representing a dividend of PNG and Alaskan business units, while recognising that the global energy payout ratio of 46%. to provide greater autonomy to these market is evolving. A major component regions, as well as a new Technology of the review will be on how to position In PNG, several major milestones were and Value Assurance group, to drive Oil Search for both the challenges and achieved for the integrated three‑train innovation and strengthen our project new opportunities that energy transition LNG expansion projects. However, execution capabilities. will bring, while retaining the Company’s progress towards a FEED decision vision to generate top quartile returns for was delayed, with ExxonMobil and the After 25 years as Oil Search’s Managing shareholders and ensuring sustainable PNG Government unable to reach an Director, Mr Peter Botten retired on and responsible operations. acceptable outcome on the P’nyang 25 February 2020. Under Peter’s Gas Agreement. Formal negotiations leadership, we have grown into a I would like to thank our employees were suspended in January 2020. leading oil and gas company, with for their dedication, our shareholders While disappointing, we and our world‑class production, an extensive for their continued support and partners remain committed to reaching exploration portfolio and major growth my fellow Board members for their an equitable solution with the State, potential. Just as important, Peter is counsel and guidance through another given that the integrated three‑train a passionate believer in companies challenging year. Finally, I would like development represents by far the most giving back to the communities to congratulate Peter on an outstanding efficient way to develop the P’nyang field in which they work and delivering career and look forward to working and the Papua LNG Project, creating social and economic change. He closely with Keiran on the next phase substantial value for all stakeholders.
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