|Full-year results (US$ millions)
|Net (Loss) / Profit After Tax (NPAT)
|Free cash flow
|Final Dividend (US cents per share)
Oil Search has delivered full year production of 29.0 mmboe and the strongest safety performance since assuming operatorship in 2003. The financial results reflect significantly lower realised hydrocarbon prices in 2020 compared to 2019, and this resulted in a full-year net loss of US$320.7 million, including a post-tax impairment charge of US$260.2 million that had been recognised in the interim financial results. Core net profit after tax (NPAT) excluding impairment and other significant non-recurring items was US$22.0 million.
Commenting on the 2020 full-year results, Managing Director Dr. Keiran Wulff said:
"Oil Search emerged from 2020 stronger and more resilient as a result of its response to the Covid-19 pandemic, demand collapse and oil price downturn. Despite the material challenges, Oil Search achieved three important records for the year. The first is the strongest safety performance in PNG since becoming operator of the PNG oil fields in 2003, with a Total Recordable Incident Rate of 0.78 per million hours worked, and no Tier 1 process safety events. The second is the strongest production reliability from our operations in PNG since the 2018 earthquake and, lastly, the delivery of record annual production from the PNG LNG project.
The Company took decisive action to ensure that we limited discretionary spend, enhanced our liquidity, rightsized the organisation and materially reduced our operating cost base and breakeven for new and existing projects. We also undertook a major strategic review to prioritise activities and capital spend for a low carbon future. This resulted in streamlining our portfolio and incurring a non-recurring, post-tax impairment charge of US$260.2 million. We are now, however, a more focused, leaner and lower cost resilient business in a strong position to commercialise our world class resource base and leverage the oil price upside.
We will continue to focus on maximising operating cash flow and delivering on our material growth projects which will be underpinned by resilient operations and disciplined capital management. We have established a dedicated
transformation team to embed a high performance culture across the business."
"The Board has approved the payment of a final unfranked dividend of 0.5 US cents per share. This represents a dividend payout ratio of 47% of full year core NPAT, which is in line with the Board's dividend policy range, to return between 35% and 50% of core NPAT to shareholders."
"As part of executing our capital management plan that is focused on delivering a more resilient balance sheet, we have entered into oil price hedges to reduce the Company's downside exposure to oil prices over the balance of 2021. We have locked in a floor price of US$55 per barrel covering nine million barrels of oil equivalent production over the period from May to December 2021, via the purchase of put options at a pre-tax cost of under US$30 million. With this hedge arrangement, we have not limited our exposure to further oil price appreciation. We will continue to consider the merits of a longer-term hedging strategy as we approach investment decisions for our major growth projects."
Progressing Papua LNG - Fiscal Stability Agreement and alignment of key stakeholders
"Significant progress was made in advancing our developments in 2020 and that momentum has accelerated in 2021. We have worked constructively with our PNG stakeholders which culminated in signing the Fiscal Stability Agreement for the Papua LNG project with the Independent State of Papua New Guinea earlier this month. In addition, the Papua LNG joint venture has been offered a second five-year extension of its Petroleum Retention Licence (PRL 15), to progress the project to the Final Investment Decision (FID). This is a clear demonstration of the increasing alignment between the PNG Government and the Papua LNG joint venture. It marks a significant milestone for the project as the Papua LNG Operator, Total, targets entering the Front-End Engineering and Design (FEED) phase in 2022. We are excited for the opportunities and benefits the project will bring to all stakeholders, including the people of PNG, and the Papua LNG project development schedule is targeting the delivery of LNG volumes into the market window when additional supply is forecast to be required."
Pikka project enters FEED
"Our Alaska asset delivered further exploration success and a material resource upgrade in 2020, contributing to a 94% increase to the 2C contingent resource base since acquisition. We are aligned with our working interest partner on the phased development concept for the Pikka project and were pleased to announce that the joint venture has approved FEED entry. We are targeting first oil production for Pikka Phase 1 in 2025 at 80,000 bopd from a single well pad. In 2020, we redesigned the development plan to halve the initial development costs for Pikka and lower the breakeven cost of supply to under US$40 per barrel, inclusive of a 10% return. Partner alignment, resilient economics and a world-class project management team make us confident that the Pikka Project will be ready for FID towards the end of this year."
"Underpinning all our activities is a strategic focus that was developed in 2020, which culminated in a renewed purpose and ambition to be the preferred energy company for all stakeholders. This was shared at our market briefing in November, along with our plans to deliver full value to our shareholders and enhance our commitment to sustainability across the business whilst also ensuring we adapt to the rapidly changing economic and social environment.
Oil Search has long been recognised as a leader in community engagement and betterment. With our new corporate strategy - Focus, Deliver, Evolve - we will strive to lead by example in all areas of sustainability and value. In November we announced our plan to deliver a more than 30% reduction in our operated greenhouse gas emissions intensity by 2030. Today we are announcing a commitment to go one step further by aiming to become a net zero energy company by 2050. Our initiatives to achieve this will require more work, and so Beth White, our EVP of Sustainability and Technology will lead an energy transition review this year to develop a plan which will deliver tangible and achievable results to reach this shared societal goal.
Whilst we are encouraged by the recovery in the oil price over the last few months, particularly given our strong cash flow and earnings leverage to higher prices, the Company remains focused on maintaining discipline in both our capital management and in cost control across our operations. Oil Search is consequently increasingly well positioned to manage through periods of uncertainty and deliver our projects in 2021 and beyond."
- Achieved highest compressor uptime for operated facilities since 2018 earthquake
- Strongest safety performance since becoming operator in 2003, PNG BU operated assets TRIR of 0.78 per million hours worked
- Northwest Moran wells back online ahead of schedule adding gross production of ~2,500 bopd
- Highest utilisation of LNG plant capacity globally in 2020 (PNG LNG >25% above nameplate)1
- Record annual production at PNG LNG, throughput rate of 8.8 MTPA (gross)
Papua LNG Fiscal Stability Agreement and PRL 15 licence extension
- Increasing alignment between the PNG Government and the PRL15 Joint Venture
- Fiscal Stability Agreement and PRL 15 licence extension set clear path for project development
- Papua LNG Operator, Total, targeting FEED entry in 2022
Pikka project enters FEED
- Joint venture approved FEED entry, targeting FID in fourth quarter 2021
- Independent certification of 2C resources at 967.9 mmbbl (gross); 94% increase since acquisition
- Initial development costs more than halved, with breakeven cost of supply <US$40/bbl, inclusive of a 10% return
Strategy implementation progressing
- Continuing to deliver strategic milestones laid out in November
- Ambition to be a net zero energy Company by 2050
- Commitment to reduce operated GHG intensity by more than 30% by 2030