RISING
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A N N U A L R E P O R T 2 0 1 8
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2018 Highlights
Letter from the Chairman
Update from the Managing Director
Financial Overview
Production
Gas Development
PNG Exploration and Appraisal
Alaska North Slope
Stable Operating Environment
Organisational Capability to Deliver
Reserves and Resources
Licence Interests
Corporate Governance
Financial Statements
Shareholder Information
Ten Year Summary
Corporate Directory
WHATEVER
THE ENVIRONMENT
W H E N N A T U R A L D I S A S T E R S S T R I K E
W E D E L I V E R
M A S S I V E E A R T H Q U A K E
I N P N G H I G H L A N D S
I M P A C T S C O M M U N I T I E S
A N D O P E R A T I O N S
On 26 February 2018, a 7.5 magnitude
earthquake, the largest in nearly 100 years,
struck the PNG Highlands, causing much loss
of life and damage within our local communities
and resulting in the shut-in of all our production.
In the immediate aftermath of the earthquake,
Oil Search focused on three separate
workstreams – providing relief to impacted
communities, restoring our operated production
and ensuring that ‘business as usual’ activities,
including new LNG developments, continued.
As one of the few organisations able to deliver
rapid, on-the-ground assistance, Oil Search
provided nearly 80% of all First Responder aid
to local communities. Despite many challenges,
we brought our first operated production back
onstream within four weeks of the earthquake.
The PNG LNG Project operator, ExxonMobil,
used the opportunity while operations were
shut-down to undertake debottlenecking and
maintenance activities. Consequently, in the
second half of 2018, the Project achieved
the highest half-yearly production rate since
it came onstream in 2014.
Oil Search coordinated the delivery of emergency supplies and
provided medical treatment for villages devastated by the PNG
Highlands earthquake.
A L I G N M E N T R E A C H E D
O N N E W L N G
D E V E L O P M E N T S I N P N G
During 2018, broad alignment was reached
by Oil Search and its key joint venture partners
on the preferred downstream concept for
new LNG capacity in PNG. This comprises
the construction of three 2.7 MTPA LNG trains
at the PNG LNG plant site, two underpinned
by the Elk-Antelope fields (Papua LNG Project)
and one by the PNG LNG Project fields and
P’nyang field. In November, the Papua LNG
Project participants signed a Memorandum
of Understanding with the PNG Government,
which will form the basis for a Gas Agreement
that equitably and appropriately allocates
benefits and returns from the Papua LNG
development among stakeholders. Broad
agreement was also reached on commercial
terms for the Papua LNG Project to access
the PNG LNG plant site. Once finalised,
these agreements, together with the P’nyang
Gas Agreement, will allow an aligned
entry into the FEED phase of the three-train
development, which is well positioned to
deliver high quality, cost-competitive LNG into
the rapidly-growing Asian LNG market.
The proposed development of new LNG capacity in PNG
includes the construction of three 2.7 MTPA LNG trains on
the existing PNG LNG plant site.
W H E N O P P O R T U N I T I E S A R I S E
W E PA R T N E R
W H E N W E E X P L O R E
W E A R E I N N OVAT I V E
M A J O R D R I L L I N G
A N D S E I S M I C
P R O G R A M M E C O M P L E T E D
Oil Search was the largest investor in oil and gas
exploration in PNG in 2018, utilising our proven
skills in exploring in extremely challenging,
jungle-covered terrain requiring heli-support
and complex logistics. We drilled two operated
gas appraisal wells, Kimu 2 and Barikewa 3,
in the Forelands region, both of which were
successful. In the PNG Highlands, we drilled the
successful P’nyang South 2 well and commenced
drilling Muruk 2, both on behalf of ExxonMobil.
In addition, we undertook two major 2D seismic
programmes, in the Onshore Gulf, on behalf
of ExxonMobil and Total, and in the Gobe
area. The data acquired will help mature leads
and prospects located near infrastructure for
potential future drilling. With an estimated 30
tcf of potential gas resource yet to be found,
we continue to be at the forefront of testing new
and proven plays in PNG.
The Company’s exploration activities take place in some of
the most remote and rugged terrain in PNG, requiring helicopter
support to transport equipment and supplies.
A C Q U I S I T I O N O F
H I G H Q U A L I T Y O I L
A S S E T S I N A L A S K A
In early 2018, we completed the acquisition
and became operator of a range of leases on
the Alaska North Slope in the US, including
a major, undeveloped conventional onshore
oil discovery. During the year, we built a
multi-disciplinary, highly experienced,
Anchorage-based team with material North
Slope and international expertise. We also
engaged with key stakeholder groups, to
develop a greater understanding of the major
issues and opportunities in Alaska. At the
beginning of 2019, we expanded significantly
our lease position on the North Slope,
positioning the Company for long-term growth.
Utilising the skills developed over many years
in PNG, of operating in remote and challenging
areas where logistics is critical, in late December
we commenced drilling the first of two appraisal
wells in the Pikka Unit, with the second
spudding in early January. Subject to the results
and regulatory approvals, we anticipate
entering the FEED phase of this exciting new
oil development in 2019.
The acquisition of oil assets on the Alaska North Slope
complements Oil Search’s existing high-quality PNG gas assets.
W H E N W E A C Q U I R E
W E A R E S T R AT E G I C
W H E R E V E R W E O P E R A T E
W E A R E
R E S P O N S I B L E
10
C O M M I T T E D T O
M A I N T A I N I N G A S T A B L E
O P E R A T I N G E N V I R O N M E N T
Oil Search has a range of initiatives and
programmes reflecting its commitment to
operating in a responsible way. As well as
our response to the February earthquake,
during the year we were a founding partner
in the Bel isi PNG initiative, an innovative
project where businesses work together
collaboratively to address gender-based
violence in PNG. We also continued to
support the PNG Government to progress the
distribution of PNG LNG Project benefits to
communities. In line with our commitment to
transparency, we were one of the first ASX-listed
energy companies to release a TCFD-aligned
Climate Change Resilience Report, which
demonstrated the resilience of our portfolio in
a range of decarbonisation scenarios. In Alaska,
following consultation by Oil Search with
local communities, the Final Environmental
Impact Statement for the proposed Pikka
Unit development was issued, highlighting
our willingness to engage and respond
to community expectations.
Oil Search’s long-standing commitment to developing
and maintaining genuine relationships has been key
to the Company’s ongoing success.
2 0 1 8
H I G H L I G H T S
In 2018, Oil Search delivered a net profit after tax of US$341.2m, 13% higher
than in 2017. This was a commendable result in light of the temporary shut-in
of production following the PNG Highlands earthquake in February 2018.
35
30
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PRODUCTION
(MMBOE)
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OPERATING CASH FLOW
(US$ MILLION)
120
100
80
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2000
1500
1000
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18
AVERAGE REALISED OIL
AND CONDENSATE PRICE
(US$ PER BARREL)
2
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LIQUIDITY
(US$ MILLION)
15
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AVERAGE REALISED LNG
AND GAS PRICE
(US$ PER MMBTU)
0
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3
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18
DIVIDEND PER SHARE
(US CENTS)
500
400
300
200
100
0
2.5
2.0
1.5
1.0
0.5
0.0
8
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2
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18
CORE PROFIT1
(US$ MILLION)
7
9
.
1
14
1
9
.
1
15
3
5
.
1
16
3
9
.
1
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1
18
TOTAL RECORDABLE
INCIDENT RATE
(PER MILLION HOURS WORKED)
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 independent auditor.
12
OPEN TO SEE MORE 2018 HIGHLI GHTS
13%
NET PROFIT AFTER TAX
Benefitted from higher realised
oil and gas prices
15%
RESERVES AND RESOURCES
2P + 2C oil and gas Reserves
and Resources at highest level
in Company history
TWO
MID-TERM SPAs SIGNED
7.5 MTPA contracted under
PNG LNG Project
> US$5 million
In cash and kind donated
to earthquake relief
ROBUST BALANCE SHEET
Liquidity of US$1.5 billion
at end 2018
~30 MMBBL
(NET)
Material upside in
oil fields identified
1st
CLIMATE CHANGE
RESILIENCE REPORT
Released in March 2018
> 380 km
SEISMIC ACQUIRED
Over Onshore Gulf and
Forelands regions of PNG
8.8 MTPA
PNG LNG PROJECT
Highest half-year production
rate since start-up
ALASKA NORTH SLOPE
Completed purchase of
exciting portfolio of oil assets
SIX
APPRAISAL WELLS DRILLED
Four in PNG, two in Alaska
L E T T E R F R O M T H E C H A I R M A N
R I C H A R D L E E
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
Dear Shareholders,
2018 was an unprecedented year for
Oil Search.
In February, the PNG Highlands was
devastated by a severe earthquake,
which resulted in the temporary shut-in
of all production and tragically, the loss
of many lives within our surrounding
communities. In the unfolding crisis,
we prioritised ensuring the safety
of our people, the protection of the
environment and the integrity of our
facilities. Due to the efforts of many, we
were able to resume safe and reliable
operations within a month of the
earthquake, with zero incidents and no
loss of hydrocarbon containment. In
addition, as one of the few organisations
in PNG able to provide rapid
on-the-ground assistance, Oil Search
provided much needed food, water
and medical supplies to impacted
communities as part of our US$5
million contribution to support relief
efforts. One year after the earthquake,
the Company, in partnership with the
Oil Search Foundation, continues to
support the long-term recovery of
local communities.
Despite the major interruption to our
operations, Oil Search delivered a net
profit of US$341 million, 13% higher
than in the previous year, and generated
a healthy operating cash flow of
US$855 million, buoyed by stronger
oil and LNG prices. The Company
declared a total dividend for 2018 of
10.5 US cents per share, 11% higher than
in 2017, representing a dividend payout
at the upper end of the Board’s stated
dividend payment range of between
35% and 50% of core net profit after tax.
Oil Search’s activities continued to
be guided by our vision to generate
top quartile returns for shareholders
through excellence in socially
responsible oil and gas exploration
and production. During the year,
significant progress was made on
the world class Papua LNG and PNG
LNG/P’nyang development projects in
PNG and we completed the acquisition
of an exciting portfolio of oil assets
on the North Slope of Alaska. These
high quality growth projects have the
potential to double the Company’s
annual production by the middle of
the next decade, delivering significant
value to shareholders as well as
governments and local communities
in PNG and Alaska. As highlighted in
the 2018 Climate Change Resilience
Report, Oil Search’s current and growth
assets are highly robust and would
continue to generate positive returns
to shareholders under a range of
decarbonisation scenarios, including a
2°C pathway.
There were several changes to the
Oil Search Board in 2018. Gerea Aopi
resigned as Executive Director, after
12 years of dedicated service. The
Company continues to benefit from
Gerea’s extensive experience and
relationships in PNG in his current role
as PNG Country Chairman. Following
an extensive international search, we
welcomed Ms Susan Cunningham and
Dr Bakheet Al Katheeri as non-Executive
Directors to the Board. Susan and
Bakheet’s considerable oil and gas
experience complement the Board’s
skills and will be particularly valuable
as we work to deliver LNG expansion
in PNG and unlock the value from our
assets on the Alaska North Slope.
During the year, we increased the
number of Independent Members on
our Board committees from three PNG
citizens to six. The new appointees
will gain considerable governance
experience and deepen the pool of
PNG talent while contributing to the
effective functioning of the relevant
Board committees with their local
knowledge and well-established in-
country networks.
A management reorganisation
has commenced, to equip the
Company with the talent, experience,
accountabilities and reporting lines
capable of delivering our operational
and growth ambitions. As part of
this, the Board is well advanced on
succession planning and the search
for, and assessment of, leadership
talent. This includes a structured plan
15
to manage the succession of your
Managing Director, Peter Botten,
who has led Oil Search for more than
25 years. Peter has committed to
guiding the Company through to the
final investment decisions for each of
our LNG developments, ensuring a
smooth transition to new leadership.
His deep commitment to PNG and
focus on improving social development
in-country will continue to support the
Company through his role as Chairman
of the Oil Search Foundation. The Board
will keep shareholders fully informed as
the succession process progresses.
In closing, I would like to recognise and
thank all Oil Search employees for their
outstanding resilience and dedication
during what was a very challenging
year. Through strong leadership, the
Company maintained its focus on
operational excellence, safety and
sustainability, while also progressing its
growth ambitions in PNG and Alaska. I
would like to congratulate Peter for his
award of the Companion of the Order
of Australia, reflecting his commitment
to PNG spanning almost 30 years.
Thanks also go to my Board colleagues
for their support and guidance through
a period that tested every fibre of the
Company’s capacity. Finally, I must
acknowledge the long-standing
support of our shareholders, who
have played an important role in Oil
Search’s remarkable growth story.
As the Company enters its 90th year
since incorporation in PNG, it has
never been in a better position to
continue to provide attractive returns
to shareholders into the next decade.
Thank you.
Richard Lee, AM
CHAIRMAN
U P D A T E F R O M T H E M A N A G I N G D I R E C T O R
P E T E R B O T T E N
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
During 2018, Oil Search experienced
one of the most challenging years in
the Company’s long history. The first
half was dominated by the 7.5
magnitude earthquake which struck
the PNG Highlands on 26 February.
This resulted in the temporary shutdown
of all operated production and the PNG
LNG Project and brought devastation
to surrounding communities and
infrastructure. It really is a miracle that
none of our staff or contractors were
seriously hurt during this event and the
many aftershocks.
In the days following the earthquake, we
were forced to evacuate approximately
750 staff and contractors from our 24
operating sites across earthquake-
devastated areas of the Highlands.
However, many of our people stayed
at, or returned to site, to shut down our
facilities safely, address the challenges
of re-establishing water, power
and sanitation facilities to our camp
infrastructure and to ensure the earliest
possible return to safe, sustainable and
reliable operations. We also played a
critical first responder role within our
local communities, which sustained
widespread damage including the
destruction of houses, gardens, roads,
bridges, schools and health facilities.
The United Nations estimates that we
delivered approximately 80% of total
food supplies to affected areas in the first
four weeks following the earthquake.
Our employees and contractors showed
excellent courage and professionalism
and went well beyond the call of duty,
performing tasks outside their normal
roles to protect our people, environment
and facilities. I would like to thank them
all sincerely for their efforts.
Following an intense period of
hard work, operated production
recommenced in April, initially from
the Kutubu field, while the PNG
LNG Project resumed production
in May. Due to maintenance and
other works undertaken on the PNG
LNG Project during the period of
downtime, the PNG LNG Project
delivered a record half year annualised
production rate of 8.8 MTPA, almost
Oil Search delivered approximately 80% of total food supplies to impacted communities
in the first four weeks following the earthquake.
30% above nameplate capacity. The
strong performance at the PNG LNG
Project is expected to be sustainable,
underpinned by the Project’s strong
reserves position, which was upgraded
following recertification of the Project
fields in 2016. Our operated production
continues to ramp up as the remaining
facilities that were impacted by the
earthquake are returned to service.
Despite a 17% decline in production
for the year, Oil Search delivered a
net profit of $341 million, 13% higher
than the prior year. Stronger global oil
and gas prices more than offset lower
production and higher production costs
relating to earthquake remediation (net
of insurance recoveries). The Company
also maintained a very tight discipline on
capital management, ending the year
with a strong balance sheet and liquidity
of approximately US$1.5 billion, after
repaying PNG LNG project finance debt,
paying dividends, completing the Alaska
North Slope acquisition and investing
in an active exploration and appraisal
programme in both PNG and Alaska.
OPERATIONAL AND
PROCESS SAFETY
The safety of our people and
contractors is paramount in everything
we do as a Company. In 2018, the Total
Recordable Incident Rate per million
work hours fell from 1.93 in 2017, to 1.58
in 2018. While we continue to strive for
17
zero injuries, the downward trend in
TRIR was a pleasing result, particularly
considering the devastating Highlands
earthquake. While the production
facilities withstood the tremors well
and there was no loss of hydrocarbon
containment at any of our operated
facilities or at the PNG LNG Project,
lessons learnt from the impact of the
earthquake on our camps and other
infrastructure are now being built into
our reconstruction efforts.
Our Lost Time Injury Frequency Rate per
million work hours and process safety
events performance improved, despite
the earthquake and recovery efforts
and many challenging work activities
conducted during the year. This
included two extensive heli-supported
seismic acquisition programmes, drilling
at Muruk 2 at an altitude of 2,331 metres
and the commencement of Alaskan ice
road construction.
Disappointingly, the Company’s High
Potential (HiPo) incident frequency rate
(events with the potential to result in
serious injury or fatal consequences)
rose from 0.68 in 2017 to 1.11 in 2018.
Detailed investigation and analysis
took place into all these incidents
and associated corrective action
and prevention programmes were
developed, with workshops on safety
leadership, planning, risk management
and HSE management of contractors
planned for 2019.
U P D A T E F R O M T H E M A N A G I N G D I R E C T O R
P E T E R B O T T E N
STRONG GROWTH IN RESERVES
AND RESOURCES POSITION
A highlight for the year was the strong
growth in the Company’s proved and
probable reserves (2P) and contingent
resources (2C), with 2P and 2C oil and
condensate more than doubling, to 253.5
mmbbl, and 2P and 2C gas increasing
by 6.3%, to 6.7 tcf. The additions to 2C
oil and gas reflected the booking of
127.5 mmbbl of Alaska Pikka Unit oil for
the first time and the successful P’nyang
South 2 ST1 and Kimu 2 appraisal wells
drilled during the year. Importantly, it is
likely that a significant portion of the 2C
resource increase will be converted to
reserves over the next two years, as we
proceed to final investment decisions on
the development of three new LNG trains
in PNG and the Pikka Unit. Oil Search’s
strong resources position provides an
excellent platform for these projects and
supports our ability to provide top-tier
long-term returns to our shareholders.
PAPUA LNG AND PNG LNG
EXPANSION APPROACHING
FEED ENTRY
As is the case with many large-scale,
complex projects, bringing together
all the strands of the proposed
development of three new LNG trains
in PNG has taken a little longer than we
hoped and expected. However, steady
progress was made during 2018 with
the integrated development, which
will result in a close to doubling of LNG
capacity in PNG, expected to advance
to the FEED phase in 2019.
Early in 2018, broad alignment was
reached by Oil Search and its key joint
venture partners on the preferred
downstream development concept.
This comprises the construction of
three LNG trains with total capacity
of approximately 8 MTPA located at,
and integrated with, the existing PNG
LNG plant. Two trains will be supplied
by gas from the Elk-Antelope fields
(Papua LNG) and one train will be
underpinned initially by the PNG LNG
Project fields and subsequently by the
P’nyang field. All three trains will be
operated by ExxonMobil, on behalf
ExxonMobil’s Andrew Barry and Oil Search Managing Director Peter Botten signing the MOU, November 2018.
of the Papua LNG, PNG LNG and
P’nyang joint ventures. Downstream
pre-FEED technical work and upstream
pre-FEED studies on the Elk-Antelope
fields are both close to completion,
while upstream work supporting the
PNG LNG/P’nyang train, including the
Associated Gas Expansion project, is
also progressing well.
In November, a Memorandum of
Understanding (MoU) was signed
between the Papua LNG joint venture
and the PNG Government at the
Asia Pacific Economic Cooperation
meetings held in Port Moresby. The
MoU details fiscal arrangements and
other key terms, including a Domestic
Market Obligation, that will apply to
the Papua LNG Project. This is now
being translated into a fully-termed
Gas Agreement, which is on track to
be finalised by the end of March 2019.
We believe that the terms agreed result
in an equitable and appropriate split of
Project value between the developers
and the State. The P’nyang Gas
Agreement is expected to be signed
shortly thereafter.
The conclusion of the Gas Agreements,
together with commercial agreements
supporting integration, including PNG
LNG site and facilities access, will clear
the way for an aligned FEED entry
in 2019.
In preparation for marketing our equity
share of LNG from the Papua LNG
Project, in early 2018 we established
a highly experienced LNG marketing
team based in Tokyo. Engagement with
18
potential buyers has been encouraging,
with positive feedback received from
high quality LNG customers who are
seeking source and seller diversification.
The Papua LNG and PNG LNG/P’nyang
joint ventures are targeting first LNG
deliveries commencing in 2024, when
significant additional supply will be
required in Asia to meet both new
demand and expiring contracts. Buyers
are attracted by PNG LNG’s strong track
record and reputation for the reliable
supply of high heating value gas and
our highly credentialed global LNG
operators, as well as Oil Search’s ability
to offer point-to-point LNG deliveries
from PNG.
EXPLORATION AND APPRAISAL
IN PNG
Despite some delays to the programme
due to the Highlands earthquake,
2018 was a year of high exploration
and appraisal activity. During the
year, we drilled two Forelands gas
appraisal wells, both of which were
successful, completed the P’nyang
South 2 ST1 well in the Highlands,
which resulted in a major upgrade in
2C resources, and commenced drilling
the Muruk 2 well, with positive early
results. The gas resources discovered
by these wells are expected to help
underwrite the Company’s near and
medium-term growth and provide field
phasing optionality.
The Company also acquired
approximately 380 kilometres of
seismic data, one of the largest seismic
programmes ever undertaken in PNG,
and expanded its exploration portfolio
through a farm-in to four prospective
licences adjacent to Elk-Antelope. With
an unrivalled acreage position in PNG,
which the Company estimates to hold
approximately 30 tcf of unrisked gas
yet-to-be-found, we are well positioned
to supply future LNG trains and provide
high-value backfill gas.
PNG OIL FIELD OPPORTUNITIES
In the PNG oil fields, we identified
several attractive well and workover
opportunities, primarily in Kutubu,
Moran, Usano and the Agogo
and Hedinia Forelimbs, which can
potentially extend the oil production
plateau until first gas is produced from
LNG expansion. These opportunities,
which will be progressively matured
and implemented over the 2019-2024
period, could add, in aggregate,
approximately 30 mmbbl of highly
value-accretive oil to Oil Search. The
oil field optimisation programme has
recently commenced with a workover in
the Kutubu field, which will be followed
by two workovers in Moran, with drilling
at Moran and Usano planned for the
second half of 2019.
MOMENTUM BUILDING IN ALASKA
Since completing the acquisition of
world class assets on the Alaska North
Slope in February 2018, we have made
substantial progress in unlocking
value from the initial acquisition and
positioning the Company for a long and
successful future in Alaska.
Over the year, we have built a highly
experienced team in Anchorage, with
currently more than 100 employees
and several contractors, with diverse
backgrounds in the global and local
Alaskan oil industry, supporting the
operations. Comprehensive planning
for the 2018/19 drilling programme
began in March, when we assumed
operatorship of the assets. We
secured two highly reliable rigs, built
40 kilometres of ice-roads and three
bridges, which were completed ahead
of schedule, and commenced drilling
the Pikka B well in late December,
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
followed by the Pikka C well in January
2019. We have been encouraged by
the early results out of the appraisal
campaign, with Pikka B intersecting the
thickest Nanushuk reservoir section
seen in the field to date. Both wells have
been side-tracked and will be tested
to establish flow rates, the volume,
thickness and quality of the Nanushuk
reservoir and to assist with the selection
of the well design that will be used in
the proposed Pikka Unit development.
Positive results from these two wells
could add up to 250 mmbbl to our
current 500 mmbbl 2C gross resource.
Since arriving on the North Slope, we
have leveraged our strong stakeholder
engagement experience gained in PNG
to build our Alaskan relationships and
have had constructive discussions with
the State, our joint venture partners,
ConocoPhillips (the adjacent major
operator in our region) and local
indigenous populations.
In November 2018, we received
the Final Environmental Impact
Statement for the proposed Pikka Unit
Development and expect the Record of
Decision in the first half of 2019. We are
targeting FEED entry in 2019 and first
production in 2023.
Everything we have seen on the
Alaska North Slope to date has been
encouraging. In early 2019, we built on
our existing acreage position through
the acquisition of interests in leases
covering more than 215,000 gross
acres, which have been identified as
highly prospective for oil, underwriting
our long-term growth in Alaska.
The optimisation of our interests,
through the opportunity to exercise the
Armstrong US$450 million option to
double our interests in the key Alaskan
assets and potentially divest part of the
interest to a third party, is progressing
well. We have had very constructive
engagement with several interested
parties regarding the opportunity and
have been encouraged by the level
and quality of interest in these world
class assets.
COMMITMENT TO OPERATING
IN A RESPONSIBLE WAY
Maintaining a stable operating
environment is critical to our long-term
success in PNG and now also in Alaska.
One year after the 7.5 magnitude
earthquake that devastated the PNG
Highlands, Oil Search in partnership
with the Oil Search Foundation,
continues to provide long-term recovery
assistance to impacted communities
in the areas of infrastructure and public
health. As already mentioned, Oil
Search played a critical first responder
role, offering its Moro logistical base as
an important hub for aid distribution.
The Company also contributed
approximately US$5 million in cash and
kind to support disaster relief efforts,
in addition to generous contributions
from our staff in both Australia and
Substantial progress has been made in unlocking value from the Alaska acquisition and positioning
Oil Search for a long and successful future.
19
U P D A T E F R O M T H E M A N A G I N G D I R E C T O R
P E T E R B O T T E N
process as an opportunity to consult
with local communities, to better
understand and ensure their comments
related to culture, access, subsistence
and environment were heard, respected
and addressed. We continue to build
relationships with all stakeholders on
the North Slope, with the focus on
securing stakeholder alignment on
the forward exploration, appraisal and
development programme.
CLIMATE CHANGE
In March 2018, Oil Search released its
inaugural Climate Change Resilience
Report in accordance with the Financial
Stability Board’s Task Force on
Climate-related Financial Disclosures.
Comprehensive climate scenario
analysis indicated that the Company’s
current and growth assets in PNG and
Alaska are resilient under a range of
scenarios, including a 2°C pathway. The
Report also demonstrated that there
is a low risk of the Company’s assets
being stranded in a carbon-constrained
world. Pleasingly, our findings were
confirmed in July 2018 by Carbon
Tracker, which ranked Oil Search in the
top quartile of 72 of the largest oil and
gas companies globally for resilience
to climate change risk. During the
year, we also began a Physical Climate
Change Scenario and Risk Assessment
to understand and quantify direct and
indirect physical risks of climate change
on our assets, supply chains and project
area communities.
HUMAN RIGHTS
During the year, the Company
commenced a comprehensive update
of its Human Rights Impact Assessment
in readiness for the introduction of the
Modern Slavery Act in Australia and to
include the Alaska business. In March
2019, we will release a Preliminary
Modern Slavery Statement providing an
overview of our planned approach to
contribute to global efforts to eliminate
modern slavery.
APEC Haus, Port Moresby.
PNG. The Company’s relief efforts were
recognised through the receipt of the
2018 Platts Global Energy Award for
Corporate Social Responsibility and the
PNG Chamber of Mines and Petroleum
Outstanding Humanitarian Initiative
Award at the end of 2018.
During the year, we supported the Oil
Search Foundation in its launch of Bel
isi PNG, an innovative public-private
partnership to address family and sexual
violence in PNG. Bel isi PNG provides
employees with case management
and safe house services and provides
business leaders with tools to
support change in the workplace and
community. We also developed new
partnerships focused on engaging
the PNG youth, particularly in the
Highlands area, where more than
50% of the total population is under
20 years of age. Given our significant
operational presence in the Highlands,
engagement with young people in
this area is a critical part of our future
long-term success.
A 58 MW gas-fired power station,
constructed by NiuPower Ltd,
owned 50:50 by Oil Search and
Kumul Petroleum, located next to the
PNG LNG plant site, is expected to
commence operations in March 2019.
This power station, which will provide
the lowest cost source of power and
a much cleaner alternative to heavy
oil and diesel, is expected to supply
approximately 75% of the Port Moresby
electricity grid. Our participation in
power projects such as this is in line
with the PNG Government’s strategic
priority to deliver competitively
priced power to more than 70% of the
population by 2030.
We continue to support the PNG
Government on the distribution of
benefits owed to the PNG LNG Project
landowner beneficiaries. During 2018,
significant progress was made on
resolving outstanding issues related
to the identification and verification
of beneficiaries.
In 2018, PNG hosted, for the first time,
the Asia Pacific Economic Cooperation
(APEC) meetings, which put the country
on the world stage. The completion of
APEC Haus, under the Government’s
National Infrastructure Tax Credit
Scheme, provided a world class
conference venue for the APEC Economic
Leaders’ Meeting, showcasing PNG’s
unique culture to the world. Oil Search
took an active role at the APEC Summit,
addressing the region’s most influential
leaders on how responsible investors can
thrive by bringing communities along the
development pathway. We believe the
various APEC events and announcements
during 2018 have provided a platform for
a number of country changing initiatives.
In Alaska, we started to lay the
foundations for long term relationships
and partnerships. We used the
Environmental Impact Statement
20
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
OUTLOOK FOR 2019
In the 25 years that I have led Oil Search,
I believe that our prospects to deliver
superior returns to shareholders, in a
socially responsible way, have never
been better. The projects that are
currently progressing will double our
current production by the middle of the
next decade. This is not production for
production’s sake. These developments
have the potential to provide attractive
returns to shareholders in a responsible
and moral way, meeting our social
objectives in harmony with our climate
management undertakings.
In January 2019, I was honoured to
receive the Companion of the Order
of Australia for service to Australia-
PNG relations, PNG business and
community. I believe this award
is for everyone at Oil Search. My
longstanding belief has been that
companies cannot operate in isolation
from society if they are to generate
goodwill, maintain a moral compass
and create shared value between
community and business. This belief is
embedded within Oil Search’s vision
and culture to generate top quartile
returns for shareholders through
excellence in socially responsible oil
and gas exploration and production. I
personally, and Oil Search corporately,
remain as committed as ever to
continuing to set the standard for
private sector contributions to
sustainable development and
improving the lives of local communities
where we operate. There is a
compelling moral and business case
to play an active role partnering with
communities, Governments and
other stakeholders for the social and
economic development of the countries
in which we work. We will continue to
do this as part of our core strategies.
Peter Botten, CBE AC
MANAGING DIRECTOR
2 0 1 9
F O C U S A R E A S
Our key focus areas for 2019 include the following:
1. Safety and environment. We will work on continuing to
improve the Company’s focus on personal and process
safety, reducing environmental incidents and targeting
improvement across all metrics.
2. Return to pre-earthquake production levels. Oil field
activity will focus on returning the remaining facilities
impacted by the earthquake to service, ensuring
safe and reliable operations, maximising facility
uptime and operational efficiency and optimising
production through integrated reservoir, well and
facility management. Strong performance by the
PNG LNG Project, at rates averaging 8.5 MTPA, is
expected to continue, excluding rate reductions for
planned maintenance.
3. Development of new LNG capacity in PNG. Following
the signing of the MoU between the PRL 15 joint venture
and PNG Government in November 2018, we aim
to finalise the fully-termed PRL 15 Gas Agreement by
the end of March 2019. The PRL 3 Gas Agreement for
PNG LNG expansion is expected to be signed shortly
thereafter, allowing an aligned FEED entry for the three-
train LNG development in 2019.
4. PNG oil field opportunities. In 2019, Oil Search plans
to drill two wells and undertake three workovers as part
21
of a multi-year in-field workover and drilling campaign
to mitigate the decline from the mature oil fields.
5. PNG exploration and appraisal activities. In the PNG
Highlands, we plan to complete drilling and testing the
Muruk 2 well, which will help delineate the potential
gas resource volumes in the Muruk field.
6. Alaska North Slope. We will complete drilling and
testing of the Pikka B and C appraisal wells, which could
potentially result in up to 250 mmbbl of gross resource
additions to the Pikka Unit, and move into FEED on the
Pikka development. In addition, we will optimise the
value of the Armstrong option.
7. Stakeholder engagement. We will enhance
stakeholder management in PNG and Alaska through
ongoing communication and collaboration with key
stakeholders, including our joint venture partners, the
Government and local communities.
8. Maintaining a stable operating environment. We will
continue to implement social programmes, in PNG
and in Alaska, that have a positive impact on the
communities in which we operate.
F I N A N C I A L O V E R V I E W
F I N A N C I A L OV E R V I E W
In 2018, Oil Search delivered a 13% increase in net profit and a healthy US$855 million in
operating cash flow, a solid result given the major PNG Highlands earthquake in February.
At year end, the Company held liquidity of US$1.5 billion, after investing US$715 million in
exploration and evaluation activities, including the US$415 million acquisition of petroleum
interests on the Alaska North Slope. Together with ongoing strong operating cash flows,
this liquidity position supports the Company’s financial capacity to fund its major growth
projects in PNG and Alaska, as well as debt servicing and dividend payments over the
period from 2019 to first production from those projects.
FINANCIAL PERFORMANCE
Oil Search reported a 2018 net profit
after tax of US341.2 million, 13%
higher than the 2017 net profit of
US$302.1 million.
The Company benefitted from stronger
global energy prices, with the average
realised oil and condensate price rising
27% to US$70.65/bbl and the average
realised LNG and gas price 31% higher,
at US$10.06/mmBtu. This more than
offset the 17% reduction in product
sales volumes due to the earthquake,
resulting in a 6% increase in total
revenue, to US$1,535.8 million.
Production costs on a per barrel of oil
equivalent (boe) basis increased from
US$8.67 per boe in 2017, to US$11.52
per boe in 2018. This reflected the
Company’s largely fixed cost base
spread over lower production,
combined with earthquake recovery
costs, net of insurance recoveries, and
higher maintenance activities to take
advantage of production facilities being
shut-in post the earthquake. Other
operating costs, including selling and
distribution costs, royalties and levies,
corporate and other expenses totalled
US$145.4 million, broadly in line with
the previous year.
Unit depreciation and amortisation
charges increased 4% to US$12.40
per boe, reflecting a larger proportion
of higher unit rate amortisation from
PNG LNG Project production in the
Company’s product mix for the year.
The Company expensed US$66.7
million of exploration costs in 2018,
primarily related to seismic acquisition
in PNG and Alaska as well as
geological, geophysical and general
and administration activities. Net
finance charges totalled US$209.9
million, 8% higher than 2017 levels,
largely reflecting higher US interest
rates that applied to the PNG LNG
project financing.
The effective tax rate for 2018 was
32.8%, compared with 31.5% in
the prior year.
CASH FLOWS
Despite lower production volumes
resulting from the earthquake, the
Company generated a healthy
operating cash flow of US$854.6
million, 1% higher than in 2017, buoyed
by stronger realised oil and LNG prices.
Capital expenditure increased by 201%
to US$835.4 million, predominantly
driven by the expansion of the
22
13%
N E T P R O F I T A F T E R TA X
US$1.5BN
L I Q U I D I T Y
10.5 US CENTS
TOTA L D I V I D E N D
P E R S H A R E
Company’s growth portfolio and
an active exploration and appraisal
campaign, which resulted in total
exploration and evaluation expenditure
of US$715 million. This included:
The acquisition of a high quality oil
portfolio on the Alaska North Slope.
The farm-in to exploration licences
in the onshore Gulf of Papua.
Drilling/preparations to drill four
appraisal wells in PNG and two
in Alaska.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
The acquisition of 380 kilometres
of seismic in PNG.
Pre-FEED activities for proposed
LNG developments in PNG.
In addition, the Company commenced
the implementation of a new group-
wide enterprise resource planning
(ERP) system.
LIQUIDITY AND
CAPITAL MANAGEMENT
While 2018 was one of the most
challenging years in the Company’s
history, Oil Search finished the year in a
robust financial position, with liquidity
of US$1.5 billion and only a modest
increase in net debt.
The Company successfully refinanced
and increased its committed bilateral
corporate facilities from US$250
million to US$300 million, with the
expiry extended to December 2023.
Together with the existing US$600
million syndicated facility expiring in
June 2022, the Company had US$900
million in undrawn credit facilities and
US$601 million in cash at year end.
Operating cash flow of US$855 million
was used to repay US$322 million in
PNG LNG project finance debt, fund
US$114 million in dividends, complete
the Alaska North Slope acquisition
and invest in an active exploration
and appraisal programme in PNG and
Alaska. At the end of 2018, net debt
totalled US$2.7 billion, only slightly
above a year prior.
FUNDING FOR
GROWTH PRIORITIES
Based on the Company’s oil price
outlook, liquidity of US$1.5 billion
and ongoing operating cash flows,
Oil Search expects that it will have
sufficient financial capacity to fund:
to reduce uncommitted exploration
capital expenditure and/or reactivate
the Company’s dividend reinvestment
plan, which was introduced during
the construction phase of the PNG
LNG Project.
While Oil Search remains comfortable
with its liquidity and balance sheet
position, it continues to closely
monitor its funding capacity, including
across a range of oil price and capital
expenditure profiles, to ensure the
Company will be able to fund its growth
priorities and committed expenditures
from operating cash flows, existing cash
and debt facilities.
The Company’s equity contribution
for its major growth projects:
DIVIDEND
Papua LNG
PNG LNG expansion
Pikka Unit development.
Scheduled debt repayments.
Future dividends in accordance with
the Company’s dividend policy.
The Company also has a number
of levers at its discretion, providing
additional balance sheet flexibility
should the oil price fall materially below
current levels. These include the ability
A 2018 final unfranked dividend of 8.5
US cents per share was declared, taking
the total unfranked dividend for 2018,
including the 2.0 US cent per share
interim dividend, to 10.5 US cents per
share. This represents a dividend payout
ratio of 47%, at the upper end of the
Company’s policy to pay out between
35-50% of net profit after tax.
2 0 1 9
F O C U S A R E A S
During 2019, Oil Search’s key financial objectives are as follows:
Finalise project financing approaches for Papua LNG
and PNG LNG expansion with the Company’s joint
venture partners and commence engagement with
prospective lenders on the agreed financing plans.
Develop a suitable financing plan for the development
of the Pikka Unit in Alaska.
Continue to actively manage costs to maximise
profitability and operating cash flows.
Drive value from the Company’s investment in a new
ERP system.
2323
P R O D U C T I O N
In 2018, Oil Search produced 25.2 million barrels of oil equivalent (mmboe). This compared
to production of 30.3 mmboe in 2017, reflecting the shut-in of operated production
and the PNG LNG Project following the 7.5 magnitude earthquake that struck the PNG
Highlands in February 2018. The Company’s operating facilities and PNG LNG infrastructure
withstood the earthquake well, with no loss of hydrocarbon containment. After coming
back online in April, production from the PNG LNG Project recovered strongly, reaching
an annualised production rate of 8.8 million tonnes per annum (MTPA) in the second half,
the highest half year rate achieved since the Project came onstream in 2014. Production
from the Company’s operated oil and gas assets has been progressively restored, with
further improvements expected as remedial work continues through the first half of
2019. Several development opportunities have also been identified in the Company’s
operated oil fields in PNG with the potential to add 30 mmbbl to Oil Search, as well as slow
the production decline from its mature oil fields.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
PNG LNG PROJECT
PNG LNG Project production
The PNG LNG Project contributed 22.1
mmboe net to Oil Search production in
2018, comprising 19.1 mmboe of LNG
and 3.0 mmboe of liquids (condensate
and naphtha).
Gross LNG production for the year was
7.4 MT, only 11% below 2017, a strong
result given the production shut-in
following the earthquake in February.
Production returned to pre-earthquake
levels within a month of coming
back online, reflecting the world-
class design and construction of the
Project infrastructure, which enabled
it to withstand the earthquake and the
numerous aftershocks without any loss
of oil or gas containment.
During the period when operations
were shut down, planned modifications
to the Hides Gas Conditioning Plant and
maintenance work on the LNG trains
were brought forward. These activities,
together with high operating reliability
across all Project infrastructure, resulted
in record production levels, with an
average annualised rate of 8.8 MTPA
achieved in the second half of 2018,
almost 30% above nameplate capacity.
Elevated production rates have
been achieved with little additional
F I V E Y E A R S W I T H O U T LO ST
T I M E I N C I D E N T
In August 2018, the PNG LNG
plant site celebrated five years
(equivalent to 13 million work hours)
without a lost time incident.
expenditure, delivering significant
incremental value to the Project’s joint
venture partners, the PNG Government
and local landowners. Sustainable
production rates of 8.5 – 9.0 MTPA,
before normal levels of downtime, are
underpinned by the Project’s strong
reserves position, which was upgraded
PNG LNG PROJECT ANNUALISED PRODUCTION RATE (MTPA)
Nameplate capacity (6.9 MTPA)
materially following independent
recertification of the PNG LNG Project
fields in 2016.
Solid demand for PNG LNG
Project gas
Since commencing LNG exports
in 2014, the PNG LNG Project has
established a reputation as a reliable
exporter of high heating value LNG,
a specification well suited to Asian
gas reticulation networks. The Project
also offers geographical diversity and
shorter shipping turnaround times
compared to other sources of LNG
supply for Asian customers. This has
resulted in strong demand for the
Project’s uncommitted production,
which has increased significantly since
the Project commenced operations in
2014, with 1.5 MT sold on a spot basis
in 2018.
In 2018, the Project entered into two
mid-term LNG sale and purchase
agreements (SPAs) with PetroChina
and BP, totalling 0.9 MTPA over five
years from 2018 to 2023. These SPAs
PNG LNG PROJECT
PARTICIPANTS
ExxonMobil (operator)
Oil Search
%
Interest
33.2
29.0
Kumul Petroleum (PNG Government)
16.8
Santos
JX Nippon
MRDC (PNG Landowners)
PNG LNG
Contracted Volumes (MTPA)
PNG LNG
Contracted Volumes (MTPA)
13.5
4.7
2.8
7
.
6
3
.
7
6
.
7
8
.
7
2
.
8
2
.
8
5
.
8
1
.
6
8
.
8
2H14
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
With the exception of the first half of 2018, which was impacted by the PNG Highlands
earthquake, the PNG LNG Project has consistently performed above nameplate capacity.
8
7
6
5
4
3
2
1
0
2018
2023
25
Tranche3
BP
PetroChina
JERA
Osaka Gas
Sinopec
CPC
2034
10
8
6
4
2
0
P R O D U C T I O N
P R O D U C T I O N
OIL AND GAS ASSETS IN PRODUCTION
PNG OIL AND GAS PRODUCTION
Artist Impression (not-to-scale)
Artist Impression not-to-scale
HGCP
HGCP
1,700m
1700m
CPF
CPF
910m
910m
APF
APF
800m
800m
Hides Gas
Conditioning Plant
(HGCP)
Agogo
Processing
Facility
(APF)
Central
Processing
Facility
(CPF)
Gobe
Processing
Facility
(GPF)
FACILITY
FACILITY
GAS PIPELINE
GAS PIPELINE
OIL PIPELINE
OIL PIPELINE
ALTITUDINAL CROSS SECTION
OIL AND GAS FIELD
ALTITUDINAL CROSS SECTION
P N G L N G P R O J E C T
SA L E S I N 2 0 1 8
99
L N G C A R G O E S S O L D
83 under contract,
16 on spot market
15
KU T U B U B L E N D
C A R G O E S S O L D
Comprising operated oil production
and Project condensate
10
N A P H T H A C A R G O E S S O L D
In November 2018, the PNG LNG Project celebrated the sale of its 450th LNG cargo
since coming onstream in 2014.
26
Papua New Guinea
Papua New Guinea
B I S M A R C K S E A
B I S M A R C K S E A
S O L O M O N S E A
S O L O M O N S E A
T O R R E S S T R A I T
T O R R E S S T R A I T
G U L F O F P A P U A
G U L F O F P A P U A
C O R A L S E A
C O R A L S E A
GPF
GPF
550m
550m
Kumul Marine Terminal
KMT
Sea level
Sea level
PNG LNG plant site
PNG LNG plant site
Sea level
Sea level
Gobe
Gobe
Processing
Processing
Facility
Facility
(GPF)
(GPF)
Kumul Marine
Kumul Marine
Terminal
Terminal
(KMT)
PNG LNG plant site
PNG LNG plant site
Landfall
Landfall
407km
407km
add to the 6.6 MTPA committed under
long-term contracts to JERA and Osaka
Gas (Japan), Sinopec (China) and CPC
(Taiwan), taking total contracted volumes
to approximately 7.5 MTPA. ExxonMobil,
on behalf of the PNG LNG Project
participants, is continuing to negotiate
the sale of a further mid-term tranche of
0.45 MTPA. Oil Search believes the PNG
LNG Project now has an appropriate
mix of long-term contracts, mid-term
contracts and sales on the spot market.
Oil Search-operated PNG LNG
Project activities
In 2018, the Oil Search-operated
Associated Gas (Kutubu and Gobe Main)
and SE Gobe fields delivered gas to the
PNG LNG Project at an average rate of
119.5 million standard cubic feet per day
(mmscf/day), representing approximately
12% of the total gas delivered to the
LNG plant.
The Oil Search-operated condensate
handling facilities at the Central
Processing Facility (CPF), liquids export
pipeline and Kumul Marine Terminal
handled 9.2 mmbbl (25,293 bbl/d) of
condensate from the PNG LNG Project.
Following the February earthquake, Oil
Search prioritised the recommencement
of gas supply from the oil fields and
ensured that the integral parts of the
Project infrastructure were ready to
receive, store and export PNG LNG
liquids ahead of the recommencement
of gas production from the Hides Gas
Conditioning Plant.
PNG LNG development activities
Construction of the pipeline and surface
facilities to tie the Angore field into the
PNG LNG processing facilities was
temporarily halted in early 2018 due to
political and inter-tribal issues. While
tie-in work at the HGCP was completed,
activities in the Angore field area remain
suspended until community tensions
27
in the area subside. The joint venture
partners continue to encourage all
parties to work together, to ensure issues
are worked through in a peaceful and
constructive manner.
PNG LNG Project benefits distribution
In 2018, despite the interruption from
the earthquake, the PNG Department
of Petroleum focused on resuming the
landowner identification process and
made significant progress in completing
phase one, involving the mapping,
identification and vetting of various clans.
Phase two will involve a process of ‘no-
objection’ to ensure landowners agree
with the clan vetting process carried
out in phase one. Once complete, the
Government will work towards opening
bank accounts so payments to vetted
beneficiaries can be facilitated. Oil
Search continues to provide support
to the PNG LNG operator and the
Government to complete this process.
P R O D U C T I O N
PNG Power
In 2018, NiuPower Ltd, which is
owned 50:50 by Oil Search and
Kumul Petroleum, commenced the
construction of a 58 MW gas fired
power station, capable of supplying
approximately 75% of the average load
of the Port Moresby electricity grid.
The power station is located adjacent
to the PNG LNG plant site, which will
contribute 100% of the gas supply.
Construction of the power station was
completed in February 2019, with
commissioning activities currently
underway ahead of first supply expected
in March 2019. The power station aims
to provide the lowest cost power in Port
Moresby, with gas representing a cleaner
fuel for power generation than other
hydrocarbon sources such as heavy
oil and diesel, significantly reducing
environmentally harmful sulphur and
greenhouse gas emissions.
PNG OPERATED OIL AND
GAS PRODUCTION
In 2018, Oil Search-operated
production totalled 3.13 mmboe,
produced at a gross average rate of
8,589 boepd. This was 47% lower
than in 2017, with the decline driven
by the shut-in of operations due to
the February earthquake. Production
progressively ramped up over the
balance of the year as remedial work
took place and flow lines in remote
locations were restored, enabling
wells to be brought back online and
production to be reinstated. This work
is expected to be completed in the
third quarter of 2019. Net crude oil
production was 1.99 mmbbl, with the
Kutubu and Moran fields together
contributing 97% of total oil produced.
The Hides Gas-to-Electricity Project
contributed 0.87 mmboe while SE
Gobe sales to the PNG LNG Project
were 0.27 mmboe.
Progressive recovery in production
following February 2018 earthquake
Production from the Kutubu complex
oil fields declined by 38% during
the year, reflecting the impact of the
Highlands earthquake in February.
Production recommenced in late March
and rates continued to ramp up over
the remainder of the year, as flow lines
damaged during the earthquake were
repaired and more wells brought online.
Production from the Agogo and Moran
fields resumed in the third quarter,
though the amount of oil and gas
that could be processed was limited
by damage to the high-pressure
compression systems at the Agogo
Processing Facility, which were offline
at the end of the year. The compression
58 MW gas fired power station expected to supply approximately 75%
of Port Moresby’s electricity needs.
28
systems were repaired and brought
online in early February 2019.
Oil production from the Gobe Main
and SE Gobe fields declined 26%
and 38%, respectively. The Gobe oil
fields returned to production in late
April after earthquake repairs were
completed and a planned shutdown
for maintenance executed. At SE Gobe,
oil and gas production rates remained
impacted by damage to flow lines
and key wells which remained offline
due to the earthquake. The SE Gobe
field contributed at a rate of 17 mmscf/
day (gross) to the PNG LNG Project
during the year.
The Hides Gas-to-Electricity Project
produced 4.0 bcf of gas and 83,000
barrels of liquids, 32% and 29% lower,
respectively, than 2017 levels.
Remedial work on the Company’s
operated fields remains ongoing to
reinstate production to pre-earthquake
levels. This is expected to continue
through the first half of 2019.
Associated Gas Expansion
(AGX) opportunity
During 2018, work progressed on
the Associated Gas Expansion (AGX)
Project. The objective of the project
is to increase the capacity of the Oil
Search-operated CPF and APF to allow
an acceleration in the volume of gas
delivered from the Kutubu, Agogo
and Moran fields to the PNG LNG
Project. This represents a source of
cost-effective gas that can front-end
supply to the proposed new PNG LNG/
P’nyang LNG train for a number of years
prior to developing the P’nyang field,
optimising the capital spend profile.
The project successfully passed through
the concept screening phase, with work
now taking place on the selection of the
development concept.
Numerous concepts were reviewed
to assist in understanding the value
of AGX to Oil Search and other
stakeholders, with studies also taking
place collaboratively with the PNG LNG
operator on assessing the opportunity
and how to manage risks. Several
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
R I S I N G TO T H E C H A L L E N G E
– E A R T H Q UA K E R E COV E RY
FO R O P E R AT E D ASS E TS
Evacuated approximately
750 employees and contractors
in the first two days after
the earthquake.
Integrity checks conducted
across all facilities, pipelines
and infrastructure – no loss of
hydrocarbon containment.
Workload split between three
teams: relief efforts, remediation
and restoration of operated
facilities and business as usual.
Relief and recovery
activities undertaken with no
incidents incurred.
studies were completed to increase
the Company’s understanding of its
operated fields and assets. In addition,
engagement commenced with
the Conservation and Environment
Protection Authority and the
Department of Petroleum regarding
approval requirements.
The Company is aiming to reach
agreement on the preferred
development concept in the second
quarter of 2019 to enable a decision
on Front-End Engineering and Design
entry in mid-2019.
PNG oil field opportunities
During 2018, the Company carried out
a major analysis on how to optimise
production from its mature and declining
oil fields in PNG. A range of new drilling
and workover opportunities were
identified for implementation over
the 2019 to 2024 period, prior to first
production from the next three LNG
trains. Subject to final investment review
and capital prioritisation, if successful,
these opportunities have the potential to
mitigate the production decline from the
mature oil fields over the next five years
and add approximately 30 million barrels
to Oil Search’s oil reserves on a risked
basis. The programme commenced with
workover activity at Kutubu in the first
MORAN 4, 9
MORAN X, O, Q, P
AGOGO
MORAN
SE MANANDA
AGOGO FORELIMB
Lake Kutubu
IDT 21
KUTUBU
USANO
OIL FIELD
OIL PIPELINE
GAS FIELD
GAS PIPELINE
UDT S, H
HEDINIA FORELIMB
SE HEDINIA
0
5
10
15
20km
PNG oil field opportunities have been identified with the potential to add
approximately 30 mmbbl to Oil Search.
29
PPL 378PPL 378PPL 287PDL 5PDL 6PDL 2 P R O D U C T I O N
KUTUBU
MORAN
GOBE MAIN
SE GOBE
(PDL 2)
(PDL 2 AND PDL 5)
(PDL 4)
(PDL 3 AND PDL 4)
60%
14.5%
–
18.7%
–
–
6.8%
100%
49.5%
26.8%
–
8.3%
–
11.3%
4.1%
100%
10%
14.5%
–
73.5%
–
–
2.0%
100%
22.3%
7.7%
7.5%
39.1%
18.8%
–
4.6%
100%
OPERATED OIL AND GAS FIELD PARTNERS*
% INTERESTS
Oil Search
ExxonMobil
Barracuda Limited (Santos)
Merlin Petroleum Company (JX Nippon)
Southern Highlands Petroleum Co (JX Nippon)
PNG Government
Landowner interests
*Numbers may not add due to rounding
2018 PRODUCTION SUMMARY1
Year to 31 December
GAS PRODUCTION
PNG LNG Project LNG2
PNG LNG Gas to Power 3
Hides GTE gas production 4
SE Gobe gas to PNG LNG 5
2018
2017
% Change
mmscf
Net to OSH
mmscf
96,826
674
4,000
1,400
106,266
665
5,843
3,265
Total Gas
102,899
116,038
OIL AND LIQUIDS PRODUCTION
mmbbl
mmbbl
Kutubu
Moran
Gobe Main
SE Gobe
Total Oil
PNG LNG Project liquids
Hides GTE liquids4
Total liquids
TOTAL PRODUCTION6
1.63
0.31
0.02
0.04
1.99
2.95
0.08
5.03
2.63
1.27
0.02
0.06
3.97
3.47
0.12
7.56
mmboe
25.21
mmboe
30.31
1. Numbers may not add due to rounding.
2. Production net of fuel, flare, shrinkage and SE Gobe wet gas.
3. Gas to power had previously been accounted for as losses within the PNG LNG Plant.
4. Hides GTE production is reported on a 100% basis for gas and associated liquids purchased by the Hides
GTE Project Participant (Oil Search 100%) for processing and sale to the Porgera power station. Sales gas
volumes are inclusive of approximately 2% unrecovered process gas.
5. SE Gobe wet gas reported at inlet to plant, inclusive of fuel, flare and naphtha.
6. Gas and LNG volumes have been converted to barrels of oil equivalent using an Oil Search specific
conversion factor of 5,100 scf = 1 boe which represents a weighted average based on Oil Search’s
reserves portfolio, using the actual calorific value of each gas volume at its point of sale. Minor variations to
the conversion factors may occur over time.
30
-9
+1
-32
-57
-11
-38
-76
-26
-38
-50
-15
-29
-33
-17
quarter of 2019 and will be followed by
workover and drilling activity at Moran
and further drilling at Kutubu later in
the year. Additional opportunities are
currently being assessed for technical
and commercial feasibility and could
contribute to drilling and workover
schedules as early as 2020.
Process safety
Process safety at Oil Search is focused
on managing the hydrocarbon loss-of-
containment hazards that are associated
with drilling and production activities.
In 2018, the Company achieved a safe
and sustainable return to service after
the earthquake. This required the initial
shut-in of all facilities, followed by
detailed inspection, assessment and
fit-for-service testing for wells, pipelines
and production facilities before the
assets were brought back online.
Despite the significant potential
impact of the earthquake, no Tier 1
process safety events (PSEs) occurred.
There were three Tier 2 PSEs, none of
which were related to the earthquake.
During the year, the Company
introduced measures such as third-party
well control audits, process alarm
management and training and
competency assurance, to continually
improve process safety-related
systems and reduce risks related to
major hazards.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
I M P R OV E D SA F E T Y
P E R FO R M A N C E
Oil Search’s Total Recordable Incident
Rate (TRIR) (recordable incidents per
million hours worked) decreased by 18%,
from 1.93 in 2017 to 1.58 in 2018.
While the Company strives for zero
injuries, the downward trend was
pleasing given the devastating February
2018 PNG Highlands earthquake. Thanks
to the consistent use of safety processes
and procedures, the Company’s
earthquake recovery and response was
completed with zero recordable injuries.
2 0 1 9
F O C U S A R E A S
Improve the focus on personal and process
safety, reduce environmental incidents and target
improvements in all metrics.
Target risk reduction projects across all facilities
and undertake integrity and maintenance work
programmes on the Oil Search-operated liquid
export system.
Complete remedial work required to fully restore
operated production to pre-earthquake levels.
Continue to provide long-term recovery assistance to
communities impacted by the earthquake.
Enter into a mid-term SPA for the sale of the final
mid-term tranche of 0.45 MTPA, taking total contracted
PNG LNG Project volumes to approximately 7.9 MTPA.
Achieve community alignment to allow work to restart
Oil Search’s 2019 full year production is anticipated to be in
the range of 28.0 – 31.5 mmboe, as follows:
2019 PRODUCTION GUIDANCE1
Oil Search-operated PNG oil and gas (mmboe)2,3
4.0 – 5.5
PNG LNG Project:
LNG (bcf)
Power (bcf)
Liquids (mmbbl)
Total PNG LNG Project (mmboe)2
106 – 113
0.7 – 1.4
3.1 – 3.6
24 – 26
TOTAL PRODUCTION (mmboe)
28.0 – 31.5
on the Angore development.
1. Numbers may not add due to rounding.
Select the preferred development concept for the AGX
opportunity and enter FEED.
Undertake workover and drilling activity at Kutubu
and Moran to optimise operated production from
the PNG oil fields.
2. Gas volumes have been converted to barrels of oil equivalent using
an Oil Search specific conversion factor of 5,100 scf = 1 boe, which
represents a weighted average, based on Oil Search’s reserves
portfolio, using the actual calorific value of each gas volume at its
point of sale.
3.
Includes SE Gobe gas sales.
31
31
G A S D E V E L O P M E N T
During 2018, significant progress was made towards the development of additional LNG
capacity in PNG, underpinned by gas resources from the Elk-Antelope fields (PRL 15) in
the Onshore Gulf and the PNG LNG Project and P’nyang fields (PRL 3) in the North-West
Highlands. Broad alignment was reached on the preferred downstream development
concept, which comprises three trains with a total capacity of 8 MTPA, to be located at, and
integrated with, the existing PNG LNG plant. Discussions on commercial arrangements to
enable the integration of the Papua LNG Project (Elk-Antelope) with PNG LNG, pre-Front
End and Engineering Design (FEED) downstream studies, upstream pre-FEED work on
Elk-Antelope, project financing and LNG marketing also progressed. In November,
a Memorandum of Understanding between the PNG Government and the PRL 15 joint
venture was signed, outlining the key terms and conditions of the PRL 15 Gas Agreement.
The Gas Agreement is targeted to be finalised by the end of March 2019, with a PRL 3 Gas
Agreement expected to be completed shortly thereafter, allowing aligned FEED entry
decisions to be made on the three LNG trains and the Papua upstream development in 2019.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
SOURCE OF GAS FOR NEW LNG CAPACITY
P’NYANG
MURUK
HIDES
JUHA
HIDES GAS CONDITIONING PLANT
ANGORE
MORAN
AGOGO
KUTUBU
AGOGO PROCESSING FACILITY
CENTRAL PROCESSING FACILITY
GOBE MAIN
SE GOBE
GOBE PROCESSING FACILITY
KIMU
BARIKEWA
B I S M A R C K S E A
Papua New Guinea
ELK-ANTELOPE
SOLOMON SEA
LEGEND
EXISTING GAS FIELDS
EXISTING GAS AND OIL FIELDS
FACILITIES
GAS PIPELINE
CONDENSATE PIPELINE
OIL PIPELINE
PROPOSED PIPELINE
URAMU
KUMUL MARINE
TERMINAL
SOURCES OF GAS FOR NEW LNG TRAINS
POTENTIAL SOURCES OF GAS FOR NEW LNG TRAINS
GULF OF PAPUA
MATERIAL PROGRESS MADE
ON DEVELOPMENT OF NEW
TORRES STRAIT
LNG CAPACITY
In early 2018, Oil Search and its joint
venture partners, ExxonMobil and
Total, reached broad alignment on
the preferred downstream concept
for the development of new LNG
capacity. This followed the completion
in late 2017 of engineering studies
on potential development options to
process the gas resources from the
Elk-Antelope fields and P’nyang field.
The proposed development concept
comprises the construction of three
LNG trains, with total capacity of
approximately 8 MTPA, located on the
existing PNG LNG plant site. Two of the
trains will be dedicated to the Papua
LNG Project, supplied with gas from
the Elk-Antelope fields in PRL 15, and
one train will be underpinned initially
by gas from the existing PNG LNG
Project fields and subsequently from the
P’nyang field in PRL 3. This represents
the most efficient means of expanding
LNG capacity in PNG, providing for
redundancy across trains, commercial
flexibility and the incorporation of the
latest technology. Significant capital
and operating cost savings can be
achieved from sharing infrastructure
and construction synergies across both
projects, benefiting all stakeholders.
CORAL SEA
During the year, the commercial
arrangements supporting the
downstream integration of the Papua
LNG Project with the PNG LNG
Project, including those related to
site and facility access, were broadly
agreed. Pre-FEED downstream studies,
including engineering work on the
design, process and layout optimisation
of the three-train development, from
the gas inlet to the LNG loading arm,
continued in parallel.
In addition, the Total-led PRL 15 joint
venture undertook pre-FEED work
on the upstream development of the
Elk-Antelope fields. The upstream
infrastructure for Papua LNG is
expected to include:
33
PNG LNG PLANT
PORT MORESBY
One Antelope well-pad, with up to
seven wells.
One Elk well-pad with one well.
One produced water
reinjection well.
Multiphase gathering system.
Central Processing Facility and
related infrastructure, including acid
gas removal unit.
Export pipelines (gas and
condensate), comprising 60
kilometres onshore and 260
kilometres offshore.
The PNG LNG, PRL 15 and PRL 3 joint
venture parties met regularly through
the year to discuss contracting
strategies, project financing and the
remaining agreements required to
enable integration of the projects.
In the second quarter of 2018, the
PNG Government established a State
Negotiation Team (SNT) to negotiate
gas agreements, including fiscal
arrangements and other key terms and
G A S D E V E L O P M E N T
conditions, that will apply to the PRL 15
and PRL 3 developments. In November,
a Memorandum of Understanding
(MoU) was signed between the PRL 15
joint venture and the PNG Government,
providing the framework for the PRL 15
Gas Agreement and a timeline for the
finalisation of negotiations. This was
a major milestone for the Papua LNG
Project, with all parties committed to
concluding the PRL 15 Gas Agreement,
which will include fiscal terms, a
Domestic Market Obligation, National
Content and other key terms, before the
end of March 2019.
Discussions also continued between
the PRL 3 joint venture and the SNT.
The PRL 3 (P’nyang) Gas Agreement is
expected to be finalised shortly after
the PRL 15 Gas Agreement, enabling
aligned FEED entry decisions to be
made on the proposed three train
development to be taken shortly
afterwards. The current timeline places
the development on track to reach a
Final Investment Decision in 2020 and
first gas deliveries in 2024.
In preparation for moving into the
FEED phase, ExxonMobil is making
preparations for FEED contracting for
the downstream infrastructure, while
the operator of Papua LNG, Total, is
finalising the contracting strategy for
the upstream facilities and pipeline to
the PNG LNG plant site.
EQUITY MARKETING OF
EXPANSION LNG
In early 2018, Oil Search established
a representative office in Tokyo,
staffed with a highly experienced LNG
team, to support its marketing team
in selling its equity share of LNG from
the Papua LNG Project. Engagement
with potential LNG buyers in key Asian
markets has been positive, supported
by PNG’s established reputation as
a reliable producer of high heating
value LNG, and the experience of its
global LNG operators, ExxonMobil
and Total. Potential buyers have also
been attracted by Oil Search’s unique
offering, as a seller of point-to-point
LNG from PNG, providing greater
certainty of LNG specification.
EQUITY PARTICIPANTS1
PRL 15 (ELK-ANTELOPE)
Oil Search
ExxonMobil
Total
TOTAL
PRL 3 (P’NYANG)
Oil Search
ExxonMobil
22.8%
40.1%
37.1%
100.0%
38.5%
49.0%
Merlin Petroleum Company (JX Nippon) 12.5%
TOTAL
100.0%
1. Gross interests, pre-Government and
landowner back-in.
PROPOSED CONFIGURATION AT PNG LNG PLANT SITE
LNG EXPORT
CONDENSATE/ NAPHTHA EXPORT
LNG
LNG
LNG
LIQUIDS
LIQUIDS
Existing PNG LNG facilities
Proposed new infrastructure
i
l
F
e
d
C
o
n
d
e
n
s
a
t
e
Gas
ELK-ANTELOPE
ELK-ANTELOPE
I
1
N
A
R
T
I
2
N
A
R
T
I
3
N
A
R
T
I
4
N
A
R
T
I
5
N
A
R
T
PNG LNG
Gas
P’NYANG
PNG LNG Onshore Boundary
34
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
CO M P E T I T I V E A DVA N TAG E S
O F L N G F R O M P N G
Globally competitive production
costs, supported by cooperative
brownfield expansion.
High heating value gas, suitable
for Asian reticulation networks.
Geographic proximity to key Asian
LNG markets, offering shorter
shipping turnaround times.
Source of geographic and seller
diversification for LNG buyers.
Highly experienced global LNG
operators, ExxonMobil and
Total, augmented by Oil Search’s
90 years of in-country expertise.
The PNG LNG Project has provided PNG with the reputation of being a reliable
producer of high heating value LNG.
LNG DEVELOPMENT TIMETABLE, 2019-2024
2019
GAS AGREEMENTS
PNG LNG ACCESS
AGREEMENTS
JV OPERATING
& INTEGRATION
AGREEMENTS
COMPLETE
PRE-FEED
LNG OFFTAKE
NEGOTIATIONS
COMMENCE
FEED
Papua LNG
Downstream
Expansion
Supporting
Projects
LICENCING AND
APPROVALS
EARLY WORKS
TENDERING
EARLY WORKS:
Clearing, early
camps, roads
COMPLETE FEED:
Final cost and
schedule
Construction
tendering
PROJECT
FINANCING
ACTIVITIES
LNG SPAS
CONSTRUCTION:
Complete
infrastructure
Complete site
clearing
Construction
camps
FIDs
Papua LNG
Site civils
PNG LNG
Downstream
AGX
Plant and pipeline
construction
Drilling new wells
Tie-ins and testing
Commissioning
READY FOR START-
UP, INTRODUCTION
OF HYDROCARBONS
P’NYANG FID
2024
FIRST LNG
SHIPMENTS
NOTE:
1. FEED: Front-End Engineering and Design.
2. FID: Final Investment Decision.
35
RECERTIFICATION OF
P’NYANG FIELD
In early 2018, an independent
recertification of the P’nyang field’s
resources was undertaken, incorporating
the results of the successful P’nyang
South 2 ST1 appraisal well, which
proved up an extension to the south-
east, as well as additional seismic and
core data. This resulted in the tripling of
the certified gross 1C gas resource to 3.5
tcf and an increase in 2C gas resource to
4.4 tcf. This is very similar to Oil Search’s
2C gas resource estimate of 4.5 tcf for
the P’nyang field at the end of 2018.
Combined with gas resources in the
Elk-Antelope fields in PRL 15, there
ADDITIONAL LNG CAPACITY
UNDERPINNED BY STRONG
RESOURCE POSITION
SOURCES OF GAS FOR
LNG EXPANSION
Elk-Antelope
(OSH 2017 estimate)
1C
2C
5.2
6.7
P’nyang (NSAI 2018)
3.5
4.4
TOTAL
>8
~11
G A S D E V E L O P M E N T
is approximately 11 tcf of certified
undeveloped 2C gas resource, more
than sufficient to underpin the 8
MTPA of proposed additional LNG
capacity. Importantly, there is more
than 8 tcf of 1C resource, which will
greatly assist marketing activities within
each venture.
LNG MARKET OUTLOOK
In 2018, global LNG demand increased
by 6% year-on-year, reaching a total
of 320 MT. China accounted for more
than half of global growth, reflecting
the Chinese Government’s mandated
switch from coal to gas-fired boilers,
together with new import facilities.
This resulted in a 41% increase in
Chinese LNG demand, to 54.8 MT,
making China the world’s second
largest LNG importer after Japan,
which imported 82 MT in 2018. South
Korean imports increased 15% to
44.5 MT due to nuclear outages and
a similar Government directive to use
gas instead of coal and nuclear energy.
Indian imports also reached record
levels as new contracts continued to
ramp up, while neighbouring Pakistan’s
GLOBAL LNG SUPPLY AND DEMAND
imports grew with the commissioning
of a second Floating Storage and
Regasification Unit (FSRU).
Seven new liquefaction trains in
Australia, Cameroon (FLNG), Russia
and the United States commenced
production in 2018. These, and other
trains under construction, will ensure
additional LNG supply is available
through to the early 2020s, exceeding
expected global demand. However,
most industry experts forecast that
there will be a material supply shortfall
from 2022/23 onwards, with global
LNG demand expected to grow at
4.5% per annum over the period
to 2030. This is driven by China’s
continued move to displace coal with
gas in the residential, commercial and
industrial sectors to alleviate air quality
issues and South Korea and Taiwan’s
prioritisation of gas and renewable
generation over coal and nuclear.
Future demand will also be influenced
by stricter emission standards leading
to additional utilisation of gas in heavy
trucking and marine transport, while the
construction of gas pipelines, storage
and regasification infrastructure across
Demand (Jan 2018)
Demand (Jan 2019)
Operating
Under Construction
In operation
Under construction
Supply Shortfall
550
500
450
400
350
300
250
200
T
M
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
NOTE: Data interpreted from IHS Markit.
36
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
China, India and other developing
Asian nations will facilitate greater
market penetration.
Based on this strong demand growth
outlook, as well as approximately
65 MTPA of expiring contracts from
Japan, South Korea and Taiwan out
to the mid-2020s, it is estimated that
approximately 120 MTPA of new LNG
capacity will be required by 2030. In
2018, 21 MTPA of new LNG capacity
was sanctioned, more than double 2016
Japan
and 2017 levels, and it is expected that
significant additional capacity will be
committed in the next few years to meet
further demand growth.
Commitment to LNG expansion
in PNG is expected to be made in
2020, with the sanctioning of three
additional trains. With its high heating
value gas, globally competitive cost
base and geographic proximity to key
Asian markets, Oil Search believes
that new LNG supply from PNG is well
South Korea
positioned. While not all of the many
competing LNG projects proposed will
progress, Oil Search, its joint venture
partners and the PNG Government
remain focused on developing
the next three LNG trains in PNG in a
timely manner.
Taiwan
Other
ASIAN CONTRACT EXPIRATIONS
Other
Taiwan
South Korea
Japan
T
M
100
80
60
40
20
0
NOTE: Data interpreted from IHS Markit.
2020
2025
2030
2 0 1 9
F O C U S A R E A S
Finalise and execute the PRL 15 (Papua LNG) and
PRL 3 (P’nyang) Gas Agreements between the
PNG Government and the PRL 15 and PRL 3 joint
ventures, as well as the other commercial and financial
agreements required for FEED entry.
Enter FEED for the three train LNG development
at the PNG LNG plant site and the required upstream
supply projects,including the Papua LNG upstream
development and AGX.
Progress further early project definition for the
P’nyang upstream development.
Commence early works for the Papua LNG
upstream development.
Commence PNG LNG reserves recertification and
PRL 15 resource certification to support marketing
and financing.
Undertake formal negotiations with potential LNG
buyers on Oil Search’s equity share of LNG from
the Papua LNG Project.
37
37
P N G E X P LO R AT I O N
A N D A P P R A I S A L
Oil Search was the most active explorer in PNG in 2018. During the year,
the Company undertook drilling operations on four appraisal wells in PNG, two in the
Forelands region in Oil Search-operated licences and two on behalf of ExxonMobil in the
North-West Highlands. The Company also farmed into four highly prospective licences in
the Onshore Gulf and completed one of the largest onshore helicopter-supported seismic
programmes in PNG in its history. With an unrivalled acreage position in PNG, which Oil Search
estimates to hold 30 trillion cubic feet (tcf) of unrisked gas yet-to-be found, the Company’s
exploration strategy remains focused on gamechanger prospects in PNG’s key gas hubs and
maximising joint venture alignment to optimise further LNG development in PNG.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
OIL SEARCH’S EXPLORATION PORTFOLIO IN PNG HAS MULTI-TCF POTENTIAL
PDL 9 - Muruk 2ST1
NW HIGHLANDS
HIDES GAS CONDITIONING PLANT
AGOGO PROCESSING FACILITY
CENTRAL PROCESSING FACILITY
GOBE PROCESSING FACILITY
PDL 4 -
Gobe Footwall
PRL 10 - Uramu 2
B I S M A R C K S E A
GULF/FORELANDS
LEGEND
FACILITIES
GAS PIPELINE
CONDENSATE PIPELINE
OIL PIPELINE
NATIONAL CAPITAL
OSH OPERATED
OSH INTEREST
KUMUL MARINE
TERMINAL
S O L O M O N S E A
Papua New Guinea
T O R R E S S T R A I T
OFFSHORE PAPUAN GULF
SHALLOW AND DEEP WATER
PNG LNG PLANT
PORT MORESBY
G U L F O F P A P U A
C O R A L S E A
PNG EXPLORATION
PORTFOLIO UPDATE
Since 2016, Oil Search has significantly
expanded its acreage position in PNG,
focusing on four key areas – the North-
West Highlands, Onshore Gulf/
Forelands, Shallow Water Offshore
Gulf and Deepwater Offshore Gulf -
which the Company believes are the
most prospective for hydrocarbons,
particularly gas. Oil Search
estimates that its current acreage
holds approximately 30 tcf of gross
unrisked gas yet to be found.
Most of the prospects and leads are
contained in reservoirs and traps that
are already proven hydrocarbon plays
and are located close to existing or
planned infrastructure, increasing
the likelihood that a discovery will be
commercially viable. The majority are
also in acreage held by Oil Search
and its LNG joint venture partners,
ensuring greater alignment on future
development decisions. Several multi-tcf
prospects that potentially could support
an additional LNG train have been
identified in the Company’s acreage.
Given the requirement for gas to backfill
existing and planned LNG capacity, even
modest discoveries, of less than 500
bcf, could be commercially attractive
developments and could be used to
optimise the sequence of gas field
development in PNG.
While PNG is largely a gas province,
there is also oil potential, primarily
in areas adjacent to the existing oil
fields operated by Oil Search, where
even small volumes are likely to be
commercial. Some of the large gas
features also may contain material
volumes of condensate.
During 2018, Oil Search, together
with its joint venture partners, worked
on maturing and de-risking its
39
M O ST AC T I V E E X P LO R E R
I N P N G I N 2 0 1 8 :
Undertook drilling operations on
four appraisal wells.
Farmed into four licences.
Acquired 380 kilometres
of seismic data.
prospect inventory, through seismic
acquisition and technical studies, and
on developing a long-term evaluation
and drilling programme. Based on
the current exploration portfolio, Oil
Search plans to drill approximately
two exploration and/or appraisal
wells per year over the next five years,
commencing in the second half of 2019,
to support the Company’s long-term
growth objectives.
P N G E X P L O R A T I O N A N D A P P R A I S A L
Muruk 2, located 2,331 metres (7,648 feet) above sea level in the NW Highlands of PNG, commenced drilling in November 2018.
EXPLORATION ACTIVITIES
North-West (NW) Highlands
During the year, preparations to
drill the Muruk 2 appraisal well in
PDL 9 (Oil Search – 24.4%), which
were temporarily interrupted by the
Highlands earthquake, were completed
and drilling commenced in November
2018 by Oil Search, on behalf of
the operator, ExxonMobil.
The well penetrated the target Toro
reservoir in January 2019. A number
of cores were cut in the reservoir and
the well was subsequently deepened.
An extensive logging programme
was conducted which confirmed the
presence of hydrocarbons. The forward
plan is to conduct an extended well test
over the Toro reservoir interval.
Located approximately 11 kilometres
north-west of the Muruk 1 gas discovery
well, the Muruk 2 results will help
constrain the potential resource volumes
in the field by defining the extent of the
gas bearing structure and determining
the gas:water contact. Given its
proximity to existing infrastructure at
Hides, with the nearest producing well
only 20 kilometres away, Muruk could
provide a valuable source of gas either
for an additional LNG train or as backfill
gas for the PNG LNG Project.
A 2D seismic programme covering
approximately 100 kilometres over
Muruk and an adjacent prospect,
which was interrupted by the 2018
earthquake, is being planned for
acquisition in late 2019/early 2020. This
will supplement seismic data acquired
in this region in 2017 and help mature
prospects identified along the Hides-
P’nyang trend for potential future
drilling. Due to the proximity of these
prospects to existing and planned
infrastructure, they offer optionality for
sourcing gas to support the PNG LNG
Project or further LNG development.
40
As discussed on page 36, the P’nyang
South 2 ST1 appraisal well in PRL 3 (Oil
Search – 38.5%) was also drilled by
Oil Search, on behalf of the operator,
ExxonMobil, and reached total depth
in early January 2018. The well, which
encountered gas in good-quality Toro
and Digimu sands, confirmed the
extension of the P’nyang field to the
south-east. A recertification of the field’s
gas resources by Netherland, Sewell
& Associates, Inc. (NSAI) took place
in early 2018, utilising results from this
well and other new data, resulting in
a material increase in NSAI estimates
for both 1C and 2C gross resources,
to 3.5 tcf and 4.4 tcf, respectively. The
newly certified 2C resource estimate is
similar to Oil Search’s gross 2C resource
estimate of 4.5 tcf (see Reserves and
Resources section on pages 62-69 for
further detail).
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
GULF AND FORELANDS
In 2018, significant exploration and
appraisal activity took place in the
Gulf and Forelands regions of PNG.
These areas were not impacted by
the earthquake and activity continued
without interruption.
In the Forelands, the Company drilled
two appraisal wells, Kimu 2 in PRL 8
(Oil Search – 60.7%, operator) and
Barikewa 3 in PRL 9 (Oil Search – 45.1%,
operator). Both wells successfully
intersected gas in their target reservoirs,
with excellent reservoir quality
observed. Following the successful
Kimu 2 appraisal well, an additional
186.7 bcf (net) of 2C gas has been
assigned to the Kimu field. Evaluation
of the data from both wells, including
cores, logs and well test data and an
update on the subsurface interpretation
continues and is expected to be
completed in early 2019. This will assist
in delineating the resource base of
these fields and the optimal route for
potential commercialisation.
the field could be tied into existing
infrastructure and assist with extending
field life.
In the Onshore Gulf, the Company
completed the acquisition of a 25%
interest in four highly prospective
licences, PPLs 474, 475 and 476 and PRL
39, located adjacent to the Elk-Antelope
fields in PRL 15 (Oil Search – 22.835%)
from ExxonMobil. The acquisition has
enhanced the Company’s exploration
acreage in PNG and increased joint
venture alignment in the highly
prospective Onshore Gulf hub.
The Company is also evaluating
drilling a well into the Gobe Footwall,
commencing in the second half of 2019.
The prospect, over which seismic was
successfully acquired in late 2018, is
immediately west of the Gobe Main
field and can be drilled from an existing
Gobe pad. In the event of success,
OFFSHORE PAPUAN GULF
Following encouraging results in 2017
from the reprocessing of existing 3D
seismic data over the Shallow Water
Gulf licences, in 2018, Oil Search
completed further seismic reprocessing
to establish the acreage’s prospectivity.
The Company also completed the
acquisition of a gravity gradiometry
and magnetics survey over these
licences. Together, this information
will help identify targets for potential
future drilling.
Studies also took place on the Uramu
discovery in PRL 10 (Oil Search – 100%,
operator) in the Shallow Water Offshore
Gulf, to ascertain its viability for
appraisal drilling.
Kimu 2, PRL 8, PNG Forelands.
41
P N G E X P L O R A T I O N A N D A P P R A I S A L
In the Deepwater Gulf, evaluation
of 2D seismic data continued and
identified prospects were risked,
ranked and prioritised. Acquisition of
3D seismic is planned in early 2020 to
mature prospects further, subject to
joint venture approval. As a result of
this assessment, the Company farmed
into an additional deepwater block,
PPL 569, operated by ExxonMobil
during the year.
Oil Search believes there are material and
potentially multi-tcf gas structures in the
Offshore Papuan Gulf. Given its proximity
to infrastructure, any discoveries could be
tied into the existing PNG LNG plant site
for development.
SEISMIC DATA ACQUISITION
In 2018, Oil Search successfully
acquired approximately 380
kilometres of 2D seismic over the
Onshore Gulf and Forelands regions
of PNG, one of the largest onshore
helicopter-supported seismic
programmes in PNG in the Company’s
history.
In the Onshore Gulf, the Company
completed the first phase of a 2D
seismic programme, comprising 330
kilometres over PPLs 474 and 475
and PRL 39 on behalf of the operator,
ExxonMobil, and over Total-operated
PRL 15. Based on positive results from
preliminary processing of this data, in
late 2018, the Company commenced
a second phase, comprising
approximately a 250-kilometre seismic
programme which is expected to
complete by mid-2019. Data from these
surveys will help to mature identified
leads and prospects located near
planned Papua LNG infrastructure for
potential future drilling.
A 50-kilometre seismic programme over
PDL 4 and PRL 14 was also completed
in the Forelands. Seismic data will help
the Company assess the potential of the
Gobe Footwall exploration prospect
for potential drilling in the second half
of 2019 and further constrain the Iehi
gas discovery.
O N S H O R E G U L F S E I S M I C
P R O G R A M M E – S N A P S H OT
330 kilometres of 2D
seismic acquired.
Helicopter-supported in tropical
jungle terrain.
1 million hand-cut treads nailed
down for bridging.
11 months to complete.
At peak:
750 people in the field
32 field crews/camps
Six helicopters.
42
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
F I R ST A L L- F E M A L E
G E O S C I E N T I ST T E A M
I N T H E F I E L D
In 2018, the Company’s first all-
female geoscientist team completed
a field trip to the seismic operations
being undertaken in Gobe, located
in the PNG Forelands. Participants
came from Oil Search’s Port Moresby
and Sydney offices.
2 0 1 9
F O C U S A R E A S
Complete the Muruk 2 appraisal well and, together
with partners, undertake prioritised exploration
and appraisal activities in PNG, to support high
value growth.
Complete the second phase of a 2D seismic
programme, comprising approximately 250 kilometres
in the Onshore Gulf.
Complete evaluation of well results from the Kimu 2
and Barikewa 3 wells and progress commercialisation
studies for these gas resources.
Evaluate the Gobe Footwall exploration prospect for
potential drilling in the second half of 2019.
Use recently acquired seismic data to determine
appropriate drilling locations for exploration wells in
the Onshore Gulf and Highlands in 2020-21.
Continue to mature the offshore exploration portfolio,
to determine preferred locations for future wells.
43
43
A L A S K A N O R T H S LO P E
In February 2018, Oil Search completed the acquisition of world class oil assets in Alaska.
The Company is using the knowledge, skills and experience gained in PNG, including how it
operates in remote and challenging regions and its cooperative and collaborative approach
to stakeholder engagement, to add value to its operations in Alaska. Over the course of
the year, significant progress was made to advance this strategic addition to the Oil Search
portfolio. The Company commenced a two-well appraisal drilling programme in the Pikka
Unit within the Nanushuk oil play, the results of which will help finalise the scope of the Pikka
Unit development. In addition, a world class team based in Anchorage was recruited,
with the experience and capacity to lead the development of the Pikka Unit and maximise
value from the Alaska business. Over the year, the Company built strong relationships with
its partners, local communities and governments and materially expanded its acreage
position. Preparations also advanced for the potential exercise of Oil Search’s option to
increase its ownership interests in the Alaskan assets and undertake a partial divestment,
to optimise the Company’s interests.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
OIL SEARCH’S ALASKA NORTH SLOPE LEASE POSITION
PIKKA NORTH
THETIS
PIKKA UNIT
HARRISON BAY
ALPINE
PIKKA SOUTH
PIKKA B
NUIQSUT
WILLOW
MILNE
POINT
PIKKA C
KUPARUK RIVER
PIKKA
EAST
B E A U F O R T S E A
PRUDHOE BAY
PRUDHOE
BAY
DEADHORSE
POINT THOMSON
ATLAS A
ATLAS
B
ANTIGUA
HORSESHOE
GRIZZLY
NORTH
KACHEMACH
GRIZZLY
ALASKA
CANADA
GUBIK
T
R
A
N
S
-
A
L
A
S
K
A
P
I
P
E
L
I
N
E
HUE
SHALE
EAST OF HUE
LEGEND
SETTLEMENT
EXPLORATION
PIKKA DEVELOPMENT UNIT
NEW LEASES IN JV
WITH ARMSTRONG ENERGY
OTHER NEW LEASES
OIL FIELD
OIL PIPELINE
0
5
10 miles
0
10
km20
ENTRY INTO AN ESTABLISHED OIL
PROVINCE, WITH SIGNIFICANT
RESOURCE UPSIDE
In February 2018, Oil Search’s US$400
million acquisition of interests on the
Alaska North Slope was approved by
the Committee on Foreign Investment
in the US and the purchase was
completed. The Company assumed
operatorship of the assets in March
2018. This marked the Company’s
entry into a well-established, prolific
oil province, positioning Oil Search at
the forefront of the development of the
Nanushuk play in the Pikka Unit, one of
the largest conventional oil discoveries
in the US in more than 30 years.
Assets acquired include a 25.5%
interest in the Pikka Unit and adjacent
exploration acreage and a 37.5%
interest in the Horseshoe Block, as well
as a 25.5% interest in other exploration
acreage. The acquisition also included
an option, exercisable at Oil Search’s
discretion until 30 June 2019, to
double its interest in these assets for
US$450 million.
The Alaska acquisition was made based
on an estimated gross resource of
approximately 500 million barrels in the
Nanushuk oil play and neighbouring
reservoirs associated with the Pikka
Unit. Additional upside potential has
been identified in the continuation of
the Nanushuk play into the Horseshoe
block to the south of the Pikka Unit.
Oil Search’s joint venture partners,
Armstrong Energy and Repsol, estimate
that ultimate recoverable volumes
could be more than one billion barrels.
Some of this upside will be tested in the
2018/19 appraisal drilling programme,
which, if successful, could add up to
250 mmbbl (gross) to 2C resources.
45
ST R AT E G I C R AT I O N A L E
FO R ACQ U I S I T I O N
Oil Search’s Alaska North Slope
acquisition reflects the Company’s
strategy to pursue, in a disciplined
and measured way, material high-
returning liquids opportunities.
The assets complement the Company’s
existing high-quality PNG gas assets,
creating a more balanced portfolio
that is less exposed to one commodity
and one country.
With significant growth opportunities,
the Alaskan assets have the potential to
become, over time, a material business
for Oil Search, of a similar scale to
the Company’s PNG operations.
Alaska
A L A S K A N O R T H S L O P E
A L A S K A N O R T H S L O P E
O I L S E A R C H ’ S A L AS KA
N O R T H S LO P E T E A M
>28%
of the leadership team
are women
~75%
of the team
are Alaskan residents
STAKEHOLDER ENGAGEMENT
During 2018, significant engagement
took place with local community groups
and companies, other operators, the
Federal and State governments and
regulatory agencies. This was focused
on building long-term relationships,
developing a greater understanding
of the major issues and opportunities
in Alaska and maximising cooperation
and alignment on the forward
exploration, appraisal and development
programme. As in PNG, Oil Search
believes that ongoing, transparent,
two-way communication is essential to
delivering its long-term plans in Alaska.
The Company is committed to ensuring
local communities retain access to lands
that promote subsistence lifestyles
while operating safely and in an
environmentally responsible manner.
The Pikka Unit boundary is located 11
kilometres from Nuiqsut, a community
of primarily Alaskan Native residents
with a strong culture and a subsistence
lifestyle. During the year, Oil Search
worked closely with Nuiqsut and
nearby Utqiagvik, as well as other
Alaska North Slope communities and
organisations, to identify opportunities
for the Company to deliver its proposed
Pikka Unit development in a mutually
beneficial way that creates lasting value.
Oil Search’s operations have already
created direct and indirect jobs in the
area and are having a positive effect on
the local economy.
Oil Search has brought its cooperative and collaborative approach to
stakeholder engagement to the Alaska North Slope.
46
M AT E R I A L VA LU E U P L I F T
S I N C E ACQ U I S I T I O N
Since acquiring the Alaskan assets, the
Company has benefitted from a material
uplift in value, driven by:
An increase in global oil prices (from
mid-US$40/bbl in mid-2017 when
the acquisition price was agreed).
The reduction in the US Federal
corporate tax rate from 35% to 21%.
Positive results from regional drilling
conducted by ConocoPhillips
adjacent to the Pikka Unit during its
2017/18 drilling campaign.
BUILDING CAPABILITY
Since assuming operatorship in March
2018, the Company has built a highly
experienced, multi-disciplinary team
based in Anchorage. The group now
comprises nearly 100 employees and
several contract workers with extensive
North Slope experience and outstanding
subsurface, drilling, operations,
development and commercial expertise
in the global oil industry.
2018/19 APPRAISAL
DRILLING PROGRAMME
Extensive planning and preparations
took place during the year for the
2018/19 two-well appraisal programme
on the Pikka Unit. The objective of the
wells, Pikka B and Pikka C, which both
comprise a vertical hole and a side-track
allowing four reservoir penetrations, is to
confirm the presence, volume, thickness
and quality of the Nanushuk reservoir at
the Pikka B and C locations. In addition,
testing will confirm the oil quality and
well deliverability, which will feed into
the selection of the well design that will
be used in the Pikka Unit development.
In November 2018, construction of ice
roads began, allowing the mobilisation
of rigs to site. Drilling commenced on
the Pikka B appraisal well, ahead of
schedule, in late December. In early
January 2019, the well penetrated
the target Nanushuk formation and
encountered hydrocarbons, in line
with pre-drill expectations, and 146
metres (480 feet) of cores were cut.
Preliminary interpretation of cores has
indicated a hydrocarbon-saturated, high
porosity sand, with the thickest gross
reservoir section ever intercepted in the
Nanushuk. The well was subsequently
side-tracked and drilled to a depth
of 2,621 metres (8,600 feet) and an
additional 91 metres (300 feet) of
cores were acquired, which were also
hydrocarbon-saturated. At the beginning
of March 2019, the side-track was being
tested to establish flow rates and gather
other reservoir data at this location.
The Pikka C appraisal well commenced
drilling in late January 2019 and reached
a depth of 1,601 metres (5,253 feet), in
the target Nanushuk Formation in late
February. Reservoir data was acquired in
the main hole and a horizontal side-track
was subsequently kicked off. The
side-track drilled a lateral section in the
reservoir to a total depth of 2,772 metres
(9,093 feet). The forward plan is to
stimulate and flow-test the well. Results of
Pikka C, which has been designed to be
a development-type well, will assist in the
selection of the well design to be used in
the proposed Pikka Unit development.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
-
PIKKA C
PIKKA UNIT
PIKKA B
LEGEND
OIL SEARCH 2018/19
APPRAISAL PROGRAMME WELLS
DRILLED WELLS (2012 - 2017)
PIKKA UNIT
NANUSHUK RESERVOIR
0
0
1
2
3 miles
3
6km
NUIQSUT
If successful, the Pikka B and Pikka C appraisal wells could potentially add up to 250 mmbbl (gross)
to current 2C resources of 500 mmbbl in the Nanushuk and satellite fields.
Pikka B well, located on the Alaska North Slope.
47
A L A S K A N O R T H S L O P E
Oil Search expects that, if successful,
these wells could result in the migration
of up to 250 mmbbl of oil resources
(gross) from the 3C to 2C category,
adding to the current estimate of total
2C resources in the Nanushuk and
satellite fields of 500 mmbbl. The results
will help define the final configuration of
the Pikka Unit development.
by Oil Search with local communities,
to better understand and ensure
feedback related to culture, access,
subsistence and environment were
heard, respected and addressed. In
addition, significant analysis of potential
environmental impacts and proposed
avoidance and minimisation measures
were incorporated into the design.
ENVIRONMENTAL PERMITTING
WELL ADVANCED
In November 2018, the Final
Environmental Impact Statement
(FEIS) for the proposed Pikka Unit
development was issued by the US
Army Corps of Engineers (USACE). In
the FEIS, the USACE recommended
that the Pikka Unit be developed under
the plan proposed by Oil Search. The
FEIS, which took nearly four years to
achieve, was a significant milestone for
the project and followed consultation
The proposed development concept
also took into account the results from
studies to optimise the development
concept. This included cooperation
with adjacent operators, reducing
well numbers and therefore drilling
costs by applying proven drilling
and completions technologies,
reviewing contracting strategies,
reducing the project footprint and
assessing the scope for early works.
The Record of Decision is expected
to be granted by the USACE late in
the first quarter of 2019.
Ice roads enable essential equipment and supplies, including drill rigs, to be mobilised to site during winter.
The roads melt in spring, leaving minimal impact on the sensitive tundra.
48
PIKKA UNIT DEVELOPMENT
Initial concept select evaluations on
the proposed Pikka Unit facilities
took place during 2018. Subject to
updated resource estimates based on
the results of the Pikka B and C wells,
the most likely development concept
is a standalone 120,000 bopd central
processing facility, with production
from three drill sites. Wells will be
drilled in producer/injector pairs.
Further facility processing studies
are currently underway to confirm
the optimal configuration.
FEED entry is targeted for mid-2019
and a final investment decision is
expected to take place in 2020.
Construction of the initial Pikka Unit
development is planned to commence
in early 2020 and take place over three
winter construction seasons, with first
production expected in late 2023.
EXPANSION OF
ACREAGE POSITION
Through the 2018 Alaska lease round,
Oil Search acquired interests in, and
became operator of, leases covering
more than 17,000 acres east of the Pikka
Unit through pre-existing commercial
agreements with Repsol. The Company
was also successful in directly
acquiring leases covering 3,575 acres
immediately adjacent to the northern
boundary of the Pikka Unit.
In addition, in early 2019, through an
arrangement with Armstrong Energy,
the Company acquired a 50% interest in,
and operatorship of, 120 leases covering
approximately 195,200 gross acres in the
eastern area of the Alaska North Slope.
This area was identified in a regional
study, conducted jointly by Oil Search
and Armstrong Energy Corporation
in 2018, as being highly prospective
for oil within two separate plays. The
leases cover the entire prospective trend
identified by the study.
These new leases add to the Company’s
exploration prospect inventory and
are part of the Company’s measured
growth strategy, targeting high quality,
highly prospective, material value
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
Oil Search hosted a PNG delegation on the Alaska North Slope in January 2019.
opportunities, which will position
the Company for a long-term future
in Alaska.
POTENTIAL OPTION EXERCISE
AND DIVESTMENT
During the year, Oil Search continued
to prepare for the potential exercise of
the US$450 million option to double
its interests in the Pikka Unit and
Horseshoe Block and then to undertake
a partial sell-down to a potential partner
or partners through a competitive sale
process. The Company has received
multiple unsolicited inquiries from
well-respected oil industry participants,
demonstrating strong interest
in these assets.
The potential option exercise and
divestment process provides an
opportunity for Oil Search to optimise
its interest in its Alaskan portfolio.
2 0 1 9
F O C U S A R E A S
Complete drilling and testing of the Pikka B and C wells.
Continue to engage actively with the community of
Enter the FEED phase of the Pikka Unit development.
Start preparations for the initial Pikka Unit development
construction, targeted to commence in early 2020.
Prepare for the 2019/20 exploration drilling season and
acquire seismic in selected North Slope lease areas.
Nuiqsut and the North Slope Borough, with a focus on
understanding and resolving any concerns related to
culture, subsistence and the environment.
Exercise the US$450 million option to double
the Company’s interests in the Pikka Unit and Horseshoe
area and divest part of this interest to a third party/
parties, to optimise the Alaskan portfolio.
49
49
S TA B L E O P E R AT I N G
E N V I R O N M E N T
Oil Search’s Social Responsibility Strategy provides a holistic, strategic framework
for the Company’s social and environmental activities. It plays a key role in promoting
a stable operating environment in the areas where Oil Search is active and in
supporting the Company’s Business Strategy, strategic objectives and vision.
Each year, the Company aims for continuous improvement towards achieving its stated
2020 sustainability goals. In 2018, by engaging stakeholders effectively and working
strategically with the PNG Government, the Oil Search Foundation (OSF) and other
partners, the Company continued to deliver on its key objectives while rising to several
challenges, including the devastating earthquake in PNG.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
AN ONGOING COMMITMENT
TO STRATEGIC SUSTAINABLE
DEVELOPMENT
Shared value creation is a powerful
way to achieve social and economic
development outcomes and achieve Oil
Search’s strategic objective to maintain
a stable operating environment. The
Company’s strategic local partnerships
play an important role in its success while
strengthening relationships, sharing
knowledge and expertise, providing
practical solutions to development
challenges and broadening the
Company’s reach.
During 2018, Oil Search collaborated
with multiple partners to address
business and social development
challenges in PNG.
Health services
Oil Search, in partnership with the Oil
Search Foundation (OSF), is active in
providing, and supporting the delivery of,
health services in remote and rural areas of
PNG. The Company works closely with the
PNG National and Provincial government
agencies to strengthen the provision
of health services and improve health
outcomes for the people of these regions.
GOALS TO 2020
2018 PROGRESS
MAKING LIVES BETTER
We aspire to set the standard for
private sector contributions to
sustainable development.
Invested US$451 million in total socio-economic contributions in PNG.
Donated more than US$5 million in cash and kind to support earthquake disaster relief efforts.
Together with OSF, formed Bel isi PNG, an innovative public-private partnership to address
family and sexual violence in PNG.
Launched Wok Bung Wantaim, a strategic health service delivery partnership with the PNG
Government, the Australian Department of Foreign Affairs and Trade and other donors.
Supported 1,930 outreach patrols and clinics to deliver over 366,700 vaccinations.
Helped improve tuberculosis (TB) diagnostics, reducing the risk of drug-resistant TB with 250
people completing TB treatment.
Funded an induction course equipping librarians to teach basic early childhood literacy skills.
Sponsored 105 students to attend tertiary institutions in PNG.
Delivered APEC Haus, a world class venue for the Asia-Pacific Economic Cooperation (APEC)
Summit which was hosted by PNG.
Launched the Champions of Change initiative, awarding 18 small grants for community projects.
Signed PNG’s first public-private partnership on climate resilience with the Climate Change and
Development Authority (CCDA).
Progressed the development of a local business strategy that aims to maximise the value and
opportunities for local suppliers in Alaska.
BEING PROUD OF WHAT WE DO
AND HOW WE DO IT
We seek to adopt industry best practice
to manage material social responsibility
issues and exceed stakeholder expectations
for governance, environmental and social
performance wherever we can.
Published inaugural Climate Change Resilience Report.
Ranked in top quartile of Carbon Tracker’s climate-resilient companies.
Incorporated a measure in the corporate short-term incentive for the application of a carbon
price in investment decisions, achieving 100% compliance.
Recorded zero significant spills attributable to Oil Search and third-party contractors.
Total Recordable Incident Rate decreased from 1.93 in 2017 to 1.58 in 2018.
Human Rights Impact Assessment updated to consider modern slavery in more detail and to
include Alaskan activities.
Reviewed grievance management system.
Completed six consecutive years with no major ISO 14001 environmental non-conformances.
51
S T A B L E O P E R A T I N G E N V I R O N M E N T
Dr Graham Low from the Oil Search Foundation attending to a mother who has just given birth at the Hela Provincial Hospital in Tari.
In Hela Province, the OSF continued
to support Hela Provincial Hospital
by providing medical equipment
and funding for doctors as well
as management functions. The
Hospital is now one of the three
highest-performing health facilities
in PNG. In a remote part of Southern
Highlands Province, a new waiting
house was also built, providing
accommodation and facilities for a
greater number of women to have
supervised deliveries. In Gulf Province,
OSF worked with the Southern
Highlands and Gulf Province health
teams to improve diagnostics for TB,
with the aim of increasing treatment
completion rates targeted at reducing
the risk of drug-resistant TB and the
number of resulting deaths.
In May, OSF partnered with the
Australian Department of Foreign Affairs
and Trade, the PNG Government and
other donors on Wok Bung Wantaim
(“Working in Partnership”). This initiative
aims to improve health funding,
planning and service delivery in Hela
and Southern Highlands Provinces.
By working closely with local and
District partners and Provincial
Health Authorities, OSF continued to
facilitate extended outreach patrols
and mobile health clinics for some
of PNG’s remotest areas, providing
access to services for approximately
65,000 people. More than 366,700
vaccinations were delivered by 1,930
OSF-supported outreach patrols
and clinics and a total of 250 people
completed TB treatment courses, a 27%
increase on 2017.
Education and leadership
Improving literacy and access to quality
education is a sustainable development
priority for the PNG Government and
Oil Search. Working with OSF, the
Company delivers programmes in areas
around its operations that improve
education and literacy outcomes.
During the year, work began to rebuild
two OSF literacy libraries in Tari that
were significantly damaged by the
earthquake and subsequent tribal
fighting. These two libraries, plus a new
library in Kikori, are due for completion
in 2019. The Foundation also funded
an induction course for librarians to
increase the capacity for teaching basic
early childhood literacy skills.
52
OSF’s new scholarship programme,
which will contribute to the
development of effective and ethical
PNG leaders, was launched in 2018.
The programme helped 14 students
successfully complete their academic
year in medicine, nursing and business
studies. In addition, 105 students were
sponsored to attend tertiary institutions
and 13 teachers upgraded their primary
education qualifications from certificate
to diploma level.
Enterprise development
Focusing on local content creates jobs,
promotes enterprise development and
accelerates the transfer of skills and
technologies. During 2018, Oil Search
progressed the development of a local
business strategy that aims to maximise
the value and opportunities for local
suppliers in Alaska. These include
investing in supplier development,
procuring supplies and services locally
and hiring and training local workers.
Infrastructure
In 2018, Oil Search contributed to
socio-economic development in
PNG through the PNG Government’s
Infrastructure Tax Credit Scheme
(ITCS) and National Infrastructure Tax
Credit Scheme (NITCS), supporting
hospital and school upgrades and
national projects. Unfortunately, project
delivery timelines were impacted
by the devastating earthquake,
community unrest and local clan
disputes. Some projects were also put
on hold pending the formal findings
of the PNG Government’s review of
ITCS legislation, to which Oil Search
made submissions.
As part of the NITCS, Oil Search project
managed and delivered APEC Haus, a
world class venue for the APEC Summit,
which was hosted by PNG in 2018.
Following the completion of APEC,
the building has been designated to
become a museum and conference
centre that highlights PNG culture.
With access to power still a significant
developmental issue, the PNG Biomass
project advanced during the year,
including obtaining an environmental
permit. NiuPower, a joint venture
owned by Oil Search and Kumul, also
progressed construction of the 58 MW
gas-fired Port Moresby power station.
Located adjacent to the PNG LNG
plant site, the power station will have
the capacity to deliver approximately
75% of the average daily load of the
Port Moresby grid and is expected
to produce the cheapest power in
Port Moresby.
Women’s empowerment
Oil Search works collaboratively
with OSF to implement women’s
protection and empowerment
initiatives. In September 2018, OSF
and its partners launched Bel isi PNG
(“Peaceful PNG” in Pidgin), which uses
an innovative multi-sector model to
provide case management services and
emergency accommodation for people
experiencing family and/or sexual
violence (FSV). The initiative brings
together businesses, the Australian and
PNG governments, service providers,
local and international non-government
organisations and technical advisors.
Participating companies are able to
help staff who need support such as
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
medical care, counselling, police, legal
resources and shelter.
Women’s empowerment and
protection was also the focus of the
Champions of Change initiative, which
was launched in 2018. Developed
and driven by OSF, the programme
encourages Oil Search employees to
use the skills and knowledge gained
at work to improve their communities.
In 2018, 18 small grants were awarded
through the Champions of Change
initiative to support community
activities, including training employees
to address local FSV.
CLIMATE CHANGE
Community resilience
Oil Search’s PNG host communities
can be vulnerable to natural disasters or
incremental changes caused by climate
change. By improving their resilience
and contributing to natural disaster
management, the Company has the
ability to make a significant difference.
In November 2018, Oil Search
and PNG’s Climate Change and
Development Authority (CCDA)
established CCDA’s first public-private
partnership (PPP) on climate resilience.
Cooperation through this PPP will
explore areas of mutual interest that
contribute to the resilience of PNG
communities, share and leverage
knowledge and contribute to PNG’s
National Determined Contributions
adaptation targets.
Physical climate change
risk assessment
In 2018, Oil Search began a three-phase
Physical Climate Change Scenario and
Risk Assessment (PSRA) to understand
and quantify direct and indirect
physical risks of climate change on its
Oil Search Foundation Director, Stephanie Copus-Campbell, with children enrolled
in the Habare Literacy Library in Hela Province.
53
assets, supply chains and project area
communities. The Company focused
on implementing Phase 1 and will input
the assessment findings into Oil Search’s
engineering, investment and asset
development plans.
HUMAN RIGHTS
Respect for human rights and the
desire to do no harm underpin Oil
Search’s commitment to sustainable
development and the Company’s
approach to operating responsibly.
They help to build mutual trust and
respect within the Company’s local
communities, are vital to maintaining its
social licence to operate and provide
a stable operating environment.
To demonstrate the Company’s
focus on its most salient human
rights issues, Oil Search updated its
organisation-wide Human Rights Impact
Assessment. This due diligence work
examines the human rights risks and
impacts associated with each type of
Company and supply chain activity,
including those associated with the
Company’s power business and public
infrastructure work in PNG as well as
current and planned Alaskan activities.
This work is expected to be finalised in
early 2019.
The assessment highlighted risk
factors and other considerations
around the potential modern slavery
risks in the Company’s operations and
supply chain. The results will inform
several concurrent initiatives including
reviews of the Company’s grievance
management system, development
of human rights training, responsible
supply chain management and
readiness preparations for disclosures
under the new Australian Modern
Slavery Act.
In 2018, Oil Search engaged human
rights specialists to help the Company
review its community engagement and
grievance management practices and
update business requirements for the
assessment, escalation, investigation
and remedy of community grievances,
as well as needs for resources, training
S T A B L E O P E R A T I N G E N V I R O N M E N T
and tools. These will be progressively
addressed as part of the Company’s
human rights plan.
large part, from the non-payment of
funds committed by the Government to
the landowners.
BENEFITS DISTRIBUTION
As in previous years, Oil Search
voluntarily disclosed its 2018 payments
to governments in the Annual Report,
the Transparency Report and the PNG
Extractive Industries Transparency
Initiative Report.
In PNG, ExxonMobil, on behalf of the
Project participants, pays royalties from
the PNG LNG Project into a trust fund
administered by the PNG Government,
which is responsible for distributing
benefits payments to landowners. The
landowner identification process is
integral to determining the appropriate
allocation and distribution of these
benefits. This process has experienced
delays due to landowner disputes and
the February Highlands earthquake. In
early 2018, Oil Search’s oil operations
in one licence area were interrupted
due to community unrest resulting, in
During the year, the Department of
Petroleum resumed the identification
process and made significant progress
in completing Phase 1 of the PNG
LNG identification process. Phase 2 is
anticipated to be completed in the first
half of 2019.
LAYING FOUNDATIONS IN ALASKA
Following the assumption of
operatorship of the Alaska assets in
2018, Oil Search started to build the
relationships and partnerships that will
be so important to progress this project
and maintain local community support.
Community groups are a major
engagement channel and the
Company invested in many stakeholder
engagement activities that were in
addition to Oil Search’s regulatory
obligations. This included hosting
meetings and workshops close to the
O I L S E A R C H ’ S C L I M AT E E F FO R TS R E CO G N I S E D
In March 2018, Oil Search published its inaugural Climate Change Resilience
Report aligned with the recommendations of the Financial Stability Board’s
Task Force on Climate-related Financial Disclosures (TCFD). The Report
assessed the financial risks of climate change by examining the Company’s
existing and future projects and their resilience in a range of decarbonisation
scenarios, including a 2°C world.
In July 2018, Carbon Tracker published its 2 Degrees of Separation
report, which estimated the relative climate change transition risk of
major oil and gas producers, from the point of view of potential capital
expenditure committed to high-cost projects outside a 2°C pathway.
The Report placed Oil Search in the top quartile for resilience to
financial transition risk and found all of its projects would be required in
both a 2°C pathway and a 1.75°C pathway.
Carbon Tracker’s assessment is consistent with Oil Search’s own analysis
and demonstrates to shareholders, communities, employees and other
stakeholders that the Company’s climate change risk processes are robust
and its assets have long-term resilience and value-generation in a 2°C world.
54
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
Since arriving on the Alaska North Slope, Oil Search has spent time building relationships with local community groups,
with the goal of partnership, collaboration and alignment.
Company’s project area in Nuiqsut to
share information and gather feedback,
as well as appointing a community
liaison person to engage with the local
community. Oil Search also took part in
cultural, social and government events
in Alaska to raise project awareness.
Through proactive, defined
engagement, the Company aims to
create the opportunity for dialogue,
demonstrate its willingness to identify
and understand suggestions and
concerns and establish a positive
reputation within the community.
Oil Search is currently developing
a formal framework for stakeholder
engagement that will inform its future
approach and priorities.
2 0 1 9
F O C U S A R E A S
Review the Corporate Social Responsibility Strategy
and objectives.
Detail the Company’s commitment to human rights in a
Map the Company’s supply chain and commence
supplier engagement in responsible supply
chain practices.
standalone Human Rights Policy.
Complete a physical climate risk assessment and
Begin implementation of the recommendations of the
grievance management review.
progress its implementation.
55
55
O R G A N I S AT I O N A L
C A PA B I L I T Y TO D E L I V E R
Developing organisational capability is a strategic objective for Oil Search and good
progress was made in this area during 2018. Several initiatives are underway to continue
to strengthen the Company’s pipeline of future leaders, foster employee engagement
and build a capable and diverse workforce. The representation of females and PNG
citizens in leadership roles increased and Oil Search was recognised in the Top 200
of Equileap’s 2018 Gender Equality Ranking.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
SUPPORTING DIVERSITY
AND INCLUSION
Oil Search’s capability and resilience
are strengthened by having a diverse
and inclusive workforce. In 2018,
the Company remained focused
on improving diversity through
its 2020 Diversity and Inclusion
Strategy, which addresses gender
diversity, citizen development and an
inclusive workplace.
The Board’s gender diversity was
improved with the appointment of
a new female director, increasing
the percentage of female directors
from 25% in 2017, to 33% in 2018.
The percentage of females in senior
management and the 2018 Graduate
Development Programme intake
also increased, to 23% and 46%,
respectively in 2018.
During the year, the Company
delivered its inaugural Leading Our
Way for Women leadership programme
involving 17 participants across
the organisation. This programme
is designed to build a population
of high potential female leaders
and improve gender diversity in
leadership roles within the business.
Participants benefited from an intensive
development experience, with their
managers also involved to promote
greater understanding and empathy
for the various development barriers
faced and how best to address these.
Since commencing the programme, five
participants have been promoted and
another three have had the opportunity
to change roles within the business.
As part of the Company’s 2020
Diversity and Inclusion Strategy, Oil
Search measures progress against an
inclusion index derived from the results
of its 2017 employee engagement
survey. An organisation-wide employee
engagement plan was implemented
in 2018 to promote an inclusive and
positive work environment. Initiatives
focused on:
Enabling managers to create a safe
and trusting environment where
people feel valued and can work to
their potential.
Equipping managers to have
engaging conversations and bring
out the best in their staff through the
Coaching Our Way programme.
Recognition Guidelines that support
more frequent and consistent
manager recognition.
Citizen Development
Programme (CDP)
Established in 2016, the CDP provides
clear development and employment
opportunities for high performing
PNG citizens.
In 2018, 70 participants, all of
whom are supported by a coach
and have individual development
plans underway, attended the
annual CDP residential workshop.
Of these participants, 17 progressed
into leadership roles and eight
were provided with a secondment
opportunity to the Sydney office.
At the end of 2018, 66% of the
leadership roles in the PNG workforce
were held by PNG citizens, with the
Company progressing towards its
goal of 73% by 2020.
PROGRESS AGAINST DIVERSITY AND INCLUSION GOALS
FOCUS AREA
2020 GOAL
2018 RESULTS
STATUS
At least 30% female Executive General Managers
on the Executive Leadership Team by 2020
11%
PROGRESSING,
ACTION PLANS IN PLACE
GENDER DIVERSITY
30% female representation at Senior Manager level
by 2020
23%
PROGRESSING,
ACTION PLANS IN PLACE
50% female representation in graduate intakes
2018-2020
46%
PROGRESSING,
ACTION PLANS IN PLACE
CITIZEN DEVELOPMENT
Increase percentage of PNG citizens in leadership
roles in the PNG workforce to 73% by 2020
65%
PROGRESSING,
ACTION PLANS IN PLACE
INCLUSIVE WORKPLACE
Consistently improve results on the Inclusion Index
on the 2017 baseline
N/A
ACTION PLANS IN PLACE;
RESULTS AVAILABLE IN
AUGUST 2019
57
O R G A N I S A T I O N A L C A P A B I L I T Y T O D E L I V E R
Oil Search also partnered with the
Oil Search Foundation to develop a
scholarship programme focused on
the early identification and attraction of
technical and leadership talent amongst
PNG citizens. The programme will
provide educational opportunities at
secondary and tertiary levels and will be
implemented in 2019.
Oil Search continually reviews and
refreshes its CDP in support of its
commitment to local leadership and its
2020 Diversity and Inclusion goals.
BUILDING CAPABILITY
In 2018, employee development
was a key focus, with several
initiatives underway to develop
workforce capability, foster employee
engagement and manage the pipeline
of people with the potential to move
into leadership roles. These initiatives
fit within an expanded leadership
development framework that balances
development for all employees
with targeted investments to build
leadership capacity and capability
for the future.
Workforce capability
and engagement
In 2018, Oil Search continued to
expand its leadership development
curriculum, with the introduction of
Coaching Our Way. This programme
equips leaders to create an engaging
work environment and enhance the
employee experience of recognition,
development, learning and growth. 15
Coaching Our Way workshops were
held during the year for 161 senior
managers, managers and supervisors in
Sydney and Port Moresby.
The Company upgraded its
performance and development process
to enhance employee engagement
through more constructive and frequent
conversations and planning. The
refreshed process will be introduced in
2019 enabled by a new HR Information
System and a comprehensive launch
strategy that includes employee and
leader workshops.
Managing our leadership pipeline
The depth and diversity of leadership
talent continues to improve across
the organisation. This is managed and
tracked through the Company’s annual
talent and succession review which,
in 2018, assessed 192 critical roles for
succession with the following results:
86 employees were evaluated
as being high potential (capable
of progressing to leadership or
executive levels).
15 individuals were assessed as
successor candidates to Executive
General Manager roles.
44% of individuals on succession
plans were PNG citizens and 31%
were female.
Several programmes are in place to
manage and continue to develop a
diverse leadership pipeline across
the organisation, including the
following programmes:
Graduate Development Programme.
Accelerated Development
Programme (for high
potential employees).
LEADERSHIP DEVELOPMENT FRAMEWORK
LEADING SELF
LEADING OTHERS
LEADING TEAMS
LEADING THE BUSINESS
Graduate Development
Accelerated Development
Senior Leader Development
MANAGING THE LEADERSHIP PIPELINE
Diversity and Inclusion Initiatives Citizen and Female Leadership Development
DEVELOPING WORKFORCE CAPABILITY AND ENGAGEMENT
Tiered Leadership Curriculum
PROFESSIONAL DEVELOPMENT
FRONTLINE MANAGEMENT TRAINING
JOB AND PROJECT EXPERIENCES, MENTORING, COACHING
58
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
Senior Leader Development Process.
Targeted diversity and inclusion
initiatives, Leading Our Way
for Women and the Citizen
Development Programme.
In 2018, the Senior Leader Development
Process was introduced to build a
highly capable, committed and diverse
leadership group that is well-equipped
to execute Oil Search’s Business
Strategy. Six participants were selected
across Port Moresby, Sydney and
Anchorage, with the programme to be
extended across a broader population
in 2019. The process includes a rigorous
upfront assessment and individual
development strategies deployed
over 12 months ranging from executive
education, to coaching, mentoring and
involvement in business projects.
CODE OF CONDUCT
In 2018, Oil Search strengthened
its Code of Conduct to include new
guidance around personal relationships
within the organisation. This reinforced
the Company’s approach to managing
conflicts of interest to ensure all
decisions regarding a person’s work,
entitlements or position/standing
in Oil Search are made without bias
or discrimination.
During the year, Oil Search investigated
all reported and suspected breaches of
the Code of Conduct. After appropriate
investigations, 11 records of discussion
or written warnings were issued,
one termination occurred and one
employee resigned. The breaches
related to harassment and bullying,
policy or procedures and health, safety,
environment and security. No instances
of discrimination were reported.
One call was made to the Company’s
Whistle-blower Hotline relating
to a conflict of interest. The issue
was investigated, found to be
unsubstantiated and closed out via
the whistle-blower process.
S U P P O R T I N G P H YS I C A L A N D M E N TA L H E A LT H
Oil Search is committed to protecting and improving the health and
wellbeing of its employees and contractors. In 2018, the Company’s
wellbeing programme was rebranded and reintroduced as “Lifestyle
Connect”, a programme that builds on the existing platform to deliver a
renewed focus on managing the impact of lifestyle diseases. The Lifestyle
Connect programme includes education, health checks, occupational
health and professional support for employees and their families.
With awareness about mental health conditions increasing globally,
Oil Search is acting to create a psychologically healthy workplace
by helping to protect its workers’ mental health. During 2018,
industry experts delivered Better Mental Health training to 691
employees to help them recognise and manage mental health issues
for themselves and their colleagues.
59
O R G A N I S A T I O N A L C A P A B I L I T Y T O D E L I V E R
DEMONSTRATING A CULTURE OF
SOCIAL RESPONSIBILITY
During 2018, Oil Search employees
demonstrated a strong culture and
commitment to social responsibility
through a number of initiatives:
Employees were at the forefront of
the earthquake relief and response
campaign, donating more than
US$19,500 in cash and coordinating
the collection and delivery of 170
boxes of goods and supplies from
staff and partners.
The Sydney Social Club raised
almost US$4,500 for Bel isi PNG
through a Christmas drive selling
cards and wrapping paper based on
drawings from children in the Kikori
Literacy Library.
Employees represented Oil Search
at a 2,000-strong walk in Port
Moresby in support of the 2018
International Day for the Elimination
of Violence Against Women.
Sydney and Port Moresby
employees participated in Oil
Search’s Caring for Kids Corporate
Fitness Challenge, raising over
US$17,400 for the Children’s Ward
at Port Moresby General Hospital.
Through the Daffodil Corporate
Golf Challenge, the Company
helped to raise US$30,000 to bring
cancer education and awareness
programmes to communities and
schools throughout PNG.
A total of 27 employees and
contractors in Port Moresby
participated in the corporate blood
drive in support of the Port Moresby
General Hospital Blood Bank.
Oil Search employees were involved in several social responsibility initiatives in 2018.
60
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
O P T I M I S I N G
O U R B U S I N E SS
Project Vara (“growth” in Pidgin)
is a business optimisation project
that will simplify and integrate Oil
Search’s IT environment. Phase one
went live in November 2018 for the
Company’s operations in PNG and
Australia and involved extensive
implementation and business
readiness processes.
The project has created several
learning and development
opportunities, including
secondments for 17 employees
and new responsibilities for many
others. Those involved have had
the opportunity to develop new
skills in areas such as change
management, business analysis
and project management as well as
test a best-in-class solution to help
ensure it is fit-for-purpose.
2 0 1 9
F O C U S A R E A S
Pursue the Oil Search 2018-2020 Diversity and
Inclusion goals, focused on continuous improvement in
the areas of gender diversity, citizen development and
an inclusive workplace.
Implement the Oil Search scholarship programme
targeting secondary and tertiary PNG students as
part of longer-term development of PNG talent
through the CDP.
Refresh and continue to extend the leadership
Conduct the Company’s second Employee
development curriculum, including the delivery of
targeted programmes for senior leaders, females and
PNG citizens.
Engagement Survey and use the results to track
progress and re-set organisational priorities.
Conduct Code of Conduct refresher training
Strengthen the effectiveness of development and career
for employees.
planning processes.
61
61
R E S E R V E S A N D R E S O U R C E S
In 2018, Oil Search’s total oil and gas proved and probable (2P) Reserves
and contingent (2C) Resources increased by 15%. 2P and 2C Reserves
and Resources are now at the highest level the Company has ever recorded.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
Total 2P and 2C oil Reserves and
Resources increased 102% to 253.5
million barrels (mmbbl). This primarily
reflected the booking of 127.5 mmbbl
2C oil Resources at the Pikka Unit for
the first time, following the completion
of the Company’s acquisition of
assets on the Alaska North Slope in
February 2018.
Total 2P and 2C gas Reserves and
Resources rose by 6% to 6,742.2 billion
cubic feet (bcf) due to additions at
the P’nyang and Kimu fields in PNG
following successful appraisal drilling
during the year.
This strong resources position provides
the platform for Oil Search’s growth
projects in both PNG and Alaska and
supports the Company’s ability to
provide excellent long-term returns
to shareholders.
Based on 2018 production of 25.2
mmboe, Oil Search has a 1P Reserves
life of 17 years and a 2P Reserves and 2C
Resources life of 63 years.
OIL AND GAS RESERVES
At 31 December 2018, the Company’s
Proved (1P) Reserves were 54.1 mmbbl
of oil and condensate and 1,937.1 bcf of
gas. Proved and Probable (2P) Reserves
were 68.0 mmbbl of oil and condensate
and 2,209.3 bcf of gas.
The key changes in 1P and 2P Reserves
since 31 December 2017, which
are summarised in Tables 1 and 2,
are as follows:
Reserves at 31 December 2018 have
been adjusted for net production of
4.9 mmbbl of oil and condensate
and 98.9 bcf of gas1.
There have been no changes to the
estimated ultimate recovery (EUR) for
oil and gas associated with the PNG
LNG Project, or oil in the Kutubu
Agogo, and Moran fields. Reserves
in both the 1P and 2P categories
reflect the year-end 2017 position
less 2018 production volumes.
There were minor additions
to the Hides GTE 1P Reserve
booking, reflecting the 2017 gas
nominations under the Hides Gas
Sales Agreement.
There have been minor reductions
to the Gobe Main oil booking
and SE Gobe bookings for oil
and gas. These are the result of
revised Operator forecasts, which
incorporate changes to production
assumptions since the last external
audit in 2015.
Developed and undeveloped Reserves
are shown in Table 3. Undeveloped gas
and condensate Reserves are related
to the PNG LNG Project, where the
construction of additional infrastructure
is required prior to the commencement
of gas export, consistent with the
approved development plan.
This infrastructure is not currently
required, as the developments on-
line can provide sufficient gas to the
LNG facilities.
Undeveloped oil Reserves are
associated with future development
drilling in producing oil fields.
CONTINGENT RESOURCES
At the end of 2018, the Company’s
2C Contingent Resources comprised
4,533.0 bcf of gas, up from 4,027.4
bcf at the end of 2017, and 185.5
mmbbl of oil and condensate, up from
52.7 mmbbl.
The key changes in 2C Contingent
Resources since 31 December 2017,
which are summarised in Tables 1 and 2,
are as follows:
The addition of 127.5 mmbbl
of oil Resources in Oil Search’s
Alaskan North Slope assets, after
the acquisition of interests in the
Pikka Unit.
The addition of 319.8 bcf gas and
5.2 mmbbl condensate at P’nyang,
1. Note that these production figures are based on Oil Search’s net 16.67% share of PDL 1 Hides
GTE production
63
after the successful drilling of the
P’nyang South 2ST1 well (see below
for further details).
The addition of 186.7 bcf 2C gas at
Kimu, which reflects the Company’s
successful Kimu 2 appraisal well
drilled in 2018.
Minor movements in Contingent
Resources at Gobe Main and
SE Gobe, associated with the
production beyond economic
life from the updated forecasts for
these fields.
RESERVES AND RESOURCES
As highlighted in Table 4, at the
end of 2018, Oil Search’s total 2P oil
and condensate Reserves and 2C
Contingent Resources were 253.5
mmbbl, up from 125.8 mmbbl at
year-end 2017. The Company’s total
2P gas Reserves and 2C Contingent
Resources were 6,742.2 bcf, up from
6,341.1 bcf at the end of 2017.
PIKKA UNIT, ALASKA NORTH
SLOPE – BOOKING OF 2C
CONTINGENT RESOURCE
Following the completion of the
acquisition of a 25.5% interest in the
Pikka Unit in February 2018, 127.5
mmbbl of oil net to Oil Search have
been assigned to the 2C Contingent
Resource category. This reflects Oil
Search’s 25.5% share of the estimated
gross resources for the Unit of
500 mmbbl.
The current mapping of the Nanushuk
and satellite reservoirs in the Pikka Unit
is based on an extensive grid of 3D
seismic data and 19 well penetrations.
The presence of significant quantities
of moveable hydrocarbons in the
Pikka Unit has been confirmed from
the following:
Data acquired from well logging
during and after drilling, which has
been used to determine the fluid
R E S E R V E S A N D R E S O U R C E S
The Kimu 2 appraisal well resulted in the addition of 186.7 bcf (net) of 2C gas resouce
to Oil Search’s Kimu booking.
content and most likely fluid contacts
in the sandstone reservoir. This
approach includes the analysis of
reservoir pressure data and samples
of hydrocarbons brought to surface
during wireline logging.
The interpretation of data acquired
from six production tests (notably
the Qugruk 301 horizontal well and
the Qugruk 8 vertical well), including
the analysis of reservoir hydrocarbon
samples recovered to surface.
The interpretation of 3D seismic data
and data from offset wells.
Oil Search has assessed all available
data to reach a position on the
Contingent Resource potential of the
field. Contingent Resource volumes
have been estimated by combining
in-place volume estimates from
geological modelling with recovery
factor estimates from both reservoir
simulation studies and analogue fields.
A deterministic approach was used to
estimate the reported volume.
These Resources are considered
contingent on future appraisal results,
development studies and project
commerciality. The collection of
additional well log, core and production
test data is currently underway, with the
drilling of two further appraisal wells
with two penetrations each – Pikka B
and C. The data from these wells will
be evaluated during 2019 to assess
the potential for commercial recovery
and to further define the Company’s
resource estimates for the field.
P’NYANG – INCREASE IN BOOKED
2C CONTINGENT RESOURCE
The addition of 319.8 bcf of 2C gas and
5.2 mmbbl of 2C condensate reflects
the interpretation of data gathered from
the drilling of the successful P’nyang
South 2 ST1 appraisal well in 2018, as
well as updates to the proposed field
development plan.
The P’nyang Resource is considered to
remain contingent on several factors,
including: additional technical studies,
the confirmation of a commercially
viable development project, acceptable
project financing and the negotiation
of, and commitment to, future gas
sales contracts.
KIMU – INCREASE IN BOOKED 2C
CONTINGENT RESOURCE
An additional 186.7 bcf of 2C gas
has been booked in the Kimu field,
following the successful Kimu 2
appraisal well. The increase in booked
volume has been determined by
analysis of the results of the May 2018
drill-stem test, which produced gas
from the Alene sandstone interval.
64
The Kimu Resource is considered to
remain contingent on multiple factors,
including the requirement for additional
technical studies, a commercially viable
development project and future gas
sales contracts.
BARIKEWA – NO CHANGE TO
BOOKED 2C CONTINGENT
RESOURCE
The Barikewa 3 well drilled in 2018
successfully intersected hydrocarbons,
in line with expectations. Initial
analysis of the data collected with the
well supports the existing Barikewa
Resource booking. Further technical
studies on Barikewa will be carried out
through 2019 to review Resource size
and assist in determining the optimal
commercialisation options for this
gas field.
GOVERNANCE AND 2019
AUDIT PLAN
The governance arrangements for the
reporting of hydrocarbon Reserves and
Resources are based on Oil Search’s
Resources Management and Audit
Process (RMAP), which consists of
the following:
A Technical Reserves Committee
(TRC), which assesses all proposed
changes and additions to the
Company’s Reserves and Resources
database, utilising advice and
contributions from peer review
and subject matter experts,
where appropriate.
The TRC reports to the Reserves
Operating Committee (ROC),
consisting of senior management
from technical and commercial
disciplines, for the sanction of
changes proposed by the TRC.
Final statements are subject to
review by the Audit and Financial
Risk Committee prior to approval by
the Board.
Oil Fields
Under the Company’s Reserves
Management and Audit Process,
operated oil fields are subject to
independent audit every three years,
or alternative intervals under some
circumstances (for example, where
anticipated changes may or may not
be material). The Kutubu and Moran
fields were audited at year-end 2017
by independent auditor, Netherland,
Sewell & Associates, Inc. (NSAI). No
changes to the Kutubu and Moran
fields’ EUR are anticipated after the
2018 earthquake, due to the recovery
programme implemented through 2018
and 2019. As such, no further audit is
planned for 2019.
The Gobe oil fields were audited in
2015, also by NSAI. In 2018, an external
audit was deferred, due to the low oil
Reserves associated with these fields.
The requirement for external audit of
the Gobe oil fields will continue to
be assessed under the Company’s
Reserves Management and Audit
Process in 2019.
PNG LNG Project
A PNG LNG Project Resources re-
certification is proposed for 2019, to
provide an updated view of PNG LNG
Resources to support the funding
of the third LNG train and gas sales
marketing. This work is intended to
capture data gathered, including the
significant improvements in production
performance, since the last re-
certification was conducted in 2016.
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
As with the 2016 re-certification, while
the PNG LNG Operator will coordinate
and manage the overall certification
process, Oil Search will take a leading
role in the re-certification of the
Associated Gas (AG) field Reserves.
PRL 15
Two separate audits of the Resources
at Elk-Antelope were undertaken by
NSAI and Gaffney, Cline & Associates
(GCA) in 2016 as part of the First PAC
Certification under the sale and
purchase agreement with the sellers
of the PAC LNG group of companies.
These audits were updated by the same
auditors in 2017 to include the results
of Antelope 7 for Oil Search internal
purposes. There is no requirement for
further audit in 2019.
The Second PAC Certification will
occur one year after delivery of the first
commercial LNG cargo.
Muruk
An independent certification of the
Muruk field may occur in 2019, subject
to the results of the Muruk 2 well.
PRL 3
Gas Resources at P’nyang (PRL 3) were
recertified by the Joint Venture in 2018
following the drilling of the successful
P’nyang South 2 ST1 appraisal well. No
further audit is planned for 2019.
Other gas fields
Following the successful Kimu 2
and Barikewa 3 appraisal wells and
pending further internal technical
work, independent certification of
one or both fields may be undertaken
if required to support progression
of a viable development concept to
commercialisation.
Alaska – Pikka Unit
External audit of the Pikka Unit
Resources is proposed for 2019, which
will provide certified numbers ahead of
a Final Investment Decision on the Pikka
Unit development, expected in 2020.
The Company booked 127.5 mmbbl of 2C oil resource at the Pikka Unit, following completion
of its acquisition of Alaska North Slope assets in February 2018.
65
R E S E R V E S A N D R E S O U R C E S
TABLE 1: 2018 OIL AND CONDENSATE RESERVES AND RESOURCES RECONCILIATION WITH 2017
PROVED OIL AND CONDENSATE RESERVES (MILLION BARRELS)
LICENCE/FIELD
PDL 2 – KUTUBU
PDL 2/5/6 – MORAN UNIT
PDL 4 – GOBE MAIN
PDL 3/4 – SE GOBE
PDL 1 – HIDES GTE
PNG LNG PROJECT
TOTAL
END 2017
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2018
RESERVES
12.9
6.4
0.0
0.1
_
39.6
59.1
-1.6
-0.3
-0.0
-0.0
_
-3.0
-4.9
_
_
-0.0
-0.0
_
_
-0.0
_
_
_
_
_
_
_
11.3
6.1
0.0
0.0
_
36.7
54.1
PROVED AND PROBABLE OIL AND CONDENSATE RESERVES (MILLION BARRELS)
LICENCE/FIELD
PDL 2 – KUTUBU
PDL 2/5/6 – MORAN UNIT
PDL 4 – GOBE MAIN
PDL 3/4 – SE GOBE
PDL 1 – HIDES GTE
PNG LNG PROJECT
TOTAL
END 2017
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2018
RESERVES
18.3
10.0
0.1
0.2
_
44.6
73.0
-1.6
-0.3
-0.0
-0.0
_
-3.0
-4.9
_
_
-0.0
-0.1
_
_
-0.1
_
_
_
_
_
_
_
16.6
9.6
0.0
0.1
_
41.6
68.0
2C CONTINGENT OIL AND CONDENSATE RESOURCES (MILLION BARRELS)
LICENCE/FIELD
PNG LNG PROJECT FIELDS OIL AND
CONDENSATE
OTHER PNG OIL AND CONDENSATE
ALASKA OIL AND CONDENSATE
TOTAL
END 2017
2C RESOURCES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2018
2C RESOURCES
1.6
51.1
_
52.7
_
_
_
_
_
5.3
_
5.3
_
_
127.5
127.5
1.6
56.4
127.5
185.5
66
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
TABLE 2: 2018 GAS RESERVES AND RESOURCES RECONCILIATION WITH 2017
PROVED GAS RESERVES (BILLION STANDARD CUBIC FEET)
LICENCE/FIELD
PDL 2 – KUTUBU
PDL 2/5/6 – MORAN UNIT
PDL 4 – GOBE MAIN
PDL 3/4 – SE GOBE
PDL 1 – HIDES GTE
PNG LNG PROJECT
TOTAL
END 2017
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2018
RESERVES
_
_
_
7.4
3.2
2,029.9
2,040.5
_
_
_
-1.4
-1.0
-96.5
-98.9
_
_
_
-4.9
0.4
_
-4.5
_
_
_
_
_
_
_
_
_
_
1.1
2.6
1,933.4
1,937.1
PROVED AND PROBABLE GAS RESERVES (BILLION STANDARD CUBIC FEET)
LICENCE/FIELD
PDL 2 – KUTUBU
PDL 2/5/6 – MORAN UNIT
PDL 4 – GOBE MAIN
PDL 3/4 – SE GOBE
PDL 1 – HIDES GTE
PNG LNG PROJECT
TOTAL
END 2017
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2018
RESERVES
_
_
_
10.9
4.0
2,298.8
2,313.7
_
_
_
-1.4
-1.0
-96.5
-98.9
_
_
_
-5.5
_
_
-5.5
_
_
_
_
_
_
_
_
_
_
4.0
3.1
2,202.3
2,209.3
2C CONTINGENT GAS RESOURCES (BILLION STANDARD CUBIC FEET)
LICENCE/FIELD
PNG LNG PROJECT FIELDS GAS
OTHER PNG GAS
ALASKA GAS
TOTAL
END 2017
2C RESOURCES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2018
2C RESOURCES
60.0
3,967.4
_
4,027.4
_
_
_
_
_
505.6
_
505.6
_
_
_
_
60.0
4,473.0
_
4,533.0
67
R E S E R V E S A N D R E S O U R C E S
TABLE 3: DEVELOPED AND UNDEVELOPED RESERVES
DEVELOPED RESERVES AS AT 31 DECEMBER 2018 (NET TO OIL SEARCH)
60.0%
49.5%
10.0%
22.3%
16.7%
60.0%
49.5%
10.0%
22.3%
16.7%
LICENCE/FIELD
RESERVES
PDL 2 – KUTUBU
PDL 2/5/6 – MORAN UNIT
PDL 4 – GOBE
PDL 3/4 – SE GOBE
PDL 1 – HIDES GTE
LICENCE/FIELD
RESERVES
PDL 2 – KUTUBU
PDL 2/5/6 – MORAN UNIT
PDL 4 – GOBE
PDL 3/4 – SE GOBE
PDL 1 – HIDES GTE
OIL SEARCH
INTEREST
DEVELOPED
OIL AND
CONDENSATE3
DEVELOPED
GAS4,5
DEVELOPED
OIL AND
CONDENSATE3
DEVELOPED
GAS4,5
%
mmbbl
bcf
mmbbl
bcf
PROVED (1P)
PROVED AND PROBABLE (2P)
9.4
4.3
0.0
0.0
_
13.7
25.7
39.4
_
_
_
1.1
2.6
3.7
1,394.0
1,397.7
13.2
6.4
0.0
0.1
_
19.7
29.0
48.7
_
_
_
4.0
3.1
7.0
1,560.7
1,567.7
OIL FIELDS AND HIDES GTE RESERVES
PNG LNG PROJECT RESERVES
29.0%
SUB-TOTAL DEVELOPED RESERVES
UNDEVELOPED RESERVES AS AT 31 DECEMBER 2018 (NET TO OIL SEARCH)
OIL SEARCH
INTEREST
DEVELOPED
OIL AND
CONDENSATE3
DEVELOPED
GAS4,5
DEVELOPED
OIL AND
CONDENSATE3
DEVELOPED
GAS4,5
%
mmbbl
bcf
mmbbl
bcf
PROVED (1P)
PROVED AND PROBABLE (2P)
1.9
1.9
_
_
_
3.7
11.0
14.7
_
_
_
_
_
_
539.4
539.4
3.5
3.2
_
_
_
6.7
12.6
19.2
_
_
_
_
_
_
641.6
641.6
OIL FIELDS AND HIDES GTE RESERVES
PNG LNG PROJECT RESERVES
29.0%
SUB-TOTAL DEVELOPED RESERVES
TOTAL DEVELOPED AND UNDEVELOPED RESERVES
54.1
1,937.1
68.0
2,209.3
68
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
TABLE 4: TOTAL RESERVES AND RESOURCES SUMMARY
RESERVES AND RESOURCES AS AT 31 DECEMBER 20181,2 (NET TO OIL SEARCH)
OIL SEARCH
INTEREST
TOTAL OIL AND
CONDENSATE3
TOTAL
GAS4
TOTAL OIL AND
CONDENSATE3
TOTAL
GAS4
%
mmbbl
PROVED (1P)
mmbbl
PROVED AND PROBABLE (2P)
LICENCE/FIELD
RESERVES
PDL 2 - KUTUBU
PDL 2/5/6 - MORAN UNIT
PDL 4 - GOBE
PDL 3/4 - SE GOBE5
PDL 1 – HIDES GTE6
60.0%
49.5%
10.0%
22.3%
16.7%
OIL FIELDS AND HIDES GTE RESERVES
PNG LNG PROJECT RESERVES5
29.0%
SUB-TOTAL DEVELOPED RESERVES
CONTINGENT RESOURCES
PNG LNG PROJECT FIELDS GAS, OIL AND CONDENSATE
OTHER PNG GAS, OIL AND CONDENSATE7
ALASKA GAS, OIL AND CONDENSATE8
SUB-TOTAL RESOURCES
bcf
_
_
_
1.1
2.6
3.7
1,933.4
1,937.1
_
_
_
_
11.3
6.1
0.0
0.0
_
17.4
36.7
54.1
1C
_
_
_
_
bcf
_
_
_
4.0
3.1
7.0
2,202.3
2,209.3
60.0
4,473.0
_
4,533.0
6,742.2
16.6
9.6
0.0
0.1
_
26.4
41.6
68.0
1.6
56.4
127.5
185.5
253.5
2C
TOTAL RESERVES AND RESOURCES
54.1
1,937.1
NOTES
1. Numbers may not add due to rounding.
2. Kutubu and Moran oil fields proved Reserves
(1P) and proved and probable (2P) Reserves are
as certified by independent auditor Netherland,
Sewell & Associates, Inc. (NSAI) in 2017. 1P
and 2P PNG LNG Project Reserves are based
on Contingent Resources as certified in 2016
by independent auditor, NSAI, adjusted for
economic limit using Oil Search’s corporate
assumptions. Gobe Main and SE Gobe 1P and
2P Reserves are based on Oil Search 2018
technical estimates.
3. Crude oil, and separator and plant condensates.
4. For the PNG LNG Project, shrinkage has been
applied to raw gas for the field condensate,
plant liquids recovery, and fuel and flare.
5. PNG LNG Project Reserves comprise the
Kutubu, Moran, Gobe Main, SE Hedinia,
Hides, Angore and Juha fields. Minor volumes
associated with proposed domestic gas sales
have been included as part of PNG LNG
reserves. In addition, third party wet gas sales
to the project at the Gobe plant outlet (inclusive
of plant condensate) have been included for SE
Gobe in 1P and 2P Reserves at the post-sales
agreement field interest of 22.34%. SE Gobe
estimates for gas are based on Oil Search 2018
technical estimates.
6. Hides Reserves associated with the GTE Project
under existing contract. Production volumes
shown in this Reserves report are based on Oil
Search’s entitlement in PDL 1 (16.67%).
7. Other gas, oil and condensate Resources
comprise the Company’s other PNG fields
including Elk-Antelope, SE Mananda, Juha
North, P’nyang, Kimu, Uramu, Barikewa, Iehi,
Cobra, Mananda, Flinders and Muruk and may
also include Resources beyond the current
economic limit of producing oil and gas fields.
These gas Resources may include fuel, flare,
and shrinkage depending on the choice of
reference point.
8. Alaskan gas, oil, and condensate Resources
comprise the Company’s share in Alaskan
assets, incorporating the Nanushuk and satellite
reservoirs in the Pikka Unit.
This Reserves and Resources statement is based on,
and fairly represents, information and supporting
documentation that has been prepared by, or under
the supervision of, one of the qualified petroleum
reserves and resources evaluators listed in the
table below. Drs. Schakel, a full-time employee of
Oil Search and qualified petroleum reserves and
resources evaluator, has consented to publish this
information in the form and context in which it is
presented in this statement.
QUALIFIED PETROLEUM RESERVES
AND RESOURCES EVALUATORS
NAME
EMPLOYER
PROFESSIONAL
ORGANISATION
J. Spilsbury-Schakel Oil Search
SPE, PESA, AAPG
A. Judzewitsch
Oil Search
G. Johnson
Oil Search
SPE
SPE
J. Rowse
M. Spiby
M. Ireland
Oil Search
SPE, PESA, PESGB
SPE, PESA
SPE, SPEE, PE
Oil Search
Oil Search
69
ADDITIONAL NOTES
• The evaluation date for these estimates is
31 December 2018.
• Oil Search’s Reserves and Contingent Resource
estimates are prepared in accordance with
the 2007 Petroleum Resources Management
System (PRMS), sponsored by the Society of
Petroleum Engineers (SPE).
• The following reference points are assumed:
x Oil volumes: include both oil and condensate
recovered by lease processing. The reference
point is at the outlet of the relevant process
facility. Volumes are adjusted to stock-tank
using field standard conditions.
x Hides GTE: the custody transfer point at
the wellhead
x PNG LNG Project: the outlet to the LNG plant
x SE Gobe gas: the outlet to the Gobe facility
x Fuel, flare and shrinkage upstream of
the reference points have been excluded.
• Reserves and Contingent Resources are
aggregated by arithmetic summation by
category and therefore Proved Reserves may
be a conservative estimate due to the portfolio
effects of arithmetic summation.
• Reserves and Contingent Resources have
been estimated using both deterministic and
probabilistic methods.
L I C E N C E I N T E R E S T S
LICENCE INTERESTS AS AT 26 FEBRUARY 2019
LICENCE
FIELD/PROJECT
OIL SEARCH INTEREST %
OPERATOR
PNG PETROLEUM DEVELOPMENT LICENCES (PDL)
PDL 1
PDL 2
PDL 2 - SE Mananda JV
PDL 3
PDL 4
PDL 5
PDL 6
SE Gobe Unit (PDL 3/PDL 4)
Moran Unit (PDL 2/PDL 5/PDL 6)
Hides Gas-to-Electricity Project (PDL 1)
PDL 7
PDL 8
PDL 9
APDL 11
APDL 13
PNG LNG PROJECT
PNG PIPELINE LICENCES (PL)
PL 1
PL 2
PL 3
PL 4
PL 5
PL 6
PL 7
PL 8
PNG PETROLEUM PROCESSING FACILITY LICENCE
PPFL 2
PNG PETROLEUM RETENTION LICENCES (PRL)
PRL 8
PRL 9
PRL 10
PRL 14
PRL 15
APRL 41
PNG PETROLEUM PROSPECTING LICENCES (PPL)
PPL 339
PPL 374
PPL 375
PPL 385
PPL 395
PPL 402
PPL 487
PPL 504
PPL 507
PPL 545
PPL 548
PPL 595
PNG FARM - IN AGREEMENTS
PPL 474
PPL 475
PPL 476
PRL 39
PPL 569
ALASKA, UNITED STATES OF AMERICA7
Pikka Unit
Horsehoe Area
Grizzly Area
Exploration Areas
Hue Shale Area
NOTES
1. Pending Ministerial grant.
2. The PDL application submitted by the PRL 3
joint venture in respect of the P’nyang
field in December 2015 remains pending
Ministerial grant.
3. APRL 41 is a topfile application over part of
PPL 244 and remains pending Ministerial grant.
4. Kina’s proposed transfer to Santos of a 20%
5.
interest in two separate tranches (a first tranche
of 17.11% and a second tranche of 2.89%)
remains subject to satisfaction of conditions
including regulatory approval.
In October 2017, Oil Search entered into
an agreement with ExxonMobil and Santos
under which Santos will potentially acquire a
20% interest in PPLs 395, 487 and 507 (being
a 12.5% interest from Oil Search and a 7.5%
interest from ExxonMobil).
Hides
Kutubu, Moran
SE Mananda
SE Gobe
Gobe Main, SE Gobe
Moran
Moran
South Hides
Angore
Juha
Mananda
P’nyang
PNG LNG Project
Hides
Kutubu
Gobe
PNG LNG Project
PNG LNG Project
PNG LNG Project
PNG LNG Project
PNG LNG Project
PNG LNG Project
Kimu
Barikewa
Uramu
Cobra, Iehi
Elk, Antelope
Flinders, Hagana
16.66
60.05
72.27
36.36
10.00
40.69
71.07
22.34
49.51
100.00
40.69
40.69
24.42
71.251
38.512
29.00
100.00
60.05
17.78
29.00
29.00
29.00
29.00
29.00
29.00
60.71
45.11
100.00
62.56
22.835
100.003
35.004
40.00
40.00
100.00
50.005
37.50
50.005
100.00
50.005
40 .00
100.00
100.00
25.006
25.006
25.006
25.006
50.076
25.508
37.509
51.00
25.5010
37.5011
ExxonMobil
Oil Search
Oil Search
Santos
Oil Search
ExxonMobil
Oil Search
Oil Search
Oil Search
Oil Search
ExxonMobil
ExxonMobil
ExxonMobil
Oil Search
ExxonMobil
ExxonMobil
Oil Search
Oil Search
Oil Search
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
Oil Search
Oil Search
Oil Search
Oil Search
Total
Oil Search
Oil Search
ExxonMobil
ExxonMobil
Oil Search
Oil Search
Oil Search
ExxonMobil
Oil Search
Exxon Mobil
Oil Search
Oil Search
Oil Search
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
10. Certain Exploration Area leases were acquired
by Repsol E&P USA Inc. in the 2018 lease
sale and are awaiting Government award. Oil
Search’s ultimate ownership interest will be
as follows: ADLs 393782, 393783, 393873,
393874, 393875,393876, 393877, 393878,
393879, 393880, 393881: 50.5%. Oil Search
will operate all acquired leases.
11. Certain Hue Shale Area leases were acquired by
Lagniappe Alaska, LLC, an Affiliate of Armstrong
Oil and Gas, LLC in the 2018 lease sale and
are awaiting Government award. Oil Search’s
ultimate ownership interest will 50% in all
Lagniappe Alaska, LLC leases. Oil Search will
operate all acquired leases.
6. Remains subject to regulatory approvals.
7.
Includes US Government and State of Alaska
leases. Oil Search has an option to increase its
interest by acquiring additional interest in each
lease from Armstrong Energy, LLC and GMT
Exploration Company, LLC.
8. Certain Pikka Unit area leases outside the Pikka
Unit were acquired in the 2018 lease sale and
are awaiting Government award. Oil Search’s
ultimate ownership interest will be as follows:
ADLs 393743, 393744, 393745, 393746:
51%; ADL 393882 (acquired by Repsol E&P
USA Inc.): 33.34%. Oil Search will operate all
acquired leases.
9. Certain Horseshoe Area lease interests pending
Government approval have different Oil Search
ownership interests as follows: ADL 392345 and
ADL 392346: 75%. Oil Search will operate all
acquired leases.
70
OPEN TO SEE LICE NCE INTE RE ST MAP
fold-out map following?
P’NYANG
APDL 13
PPL 507
PPL 395
PPL 545
MURUK
JUHA NORTH
JUHA
PPL 402
PDL 8 PPL 487
PDL 9
PDL 1
HIDES
PDL 7
APDL 11
PDL 6
MANANDA
SE MANANDA
AGOGO PROCESSING FACILITY
AGOGO
KUTUBU
CENTRAL PROCESSING FACILITY
B I S M A R C K S E A
ANGORE
HIDES GAS CONDITIONING PLANT
PDL 5
MORAN
USANO
SE HEDINIA
PDL 2
PDL 4
Papua New Guinea
SE GOBE
PRL 14
COBRA
PPL 475
GOBE MAIN
GOBE PROCESSING FACILITY
PDL 3
KIMU
PRL 8
PRL 9
BILIP
IEHI
BARIKEWA
ELK
RAPTOR
PRL 39
PPL 339
PPL 475
PRL 15
PPL 476
PPL 548
ANTELOPE
PPL 475
PPL 339
PPL 339
PRL 10
URAMU
KUMUL MARINE
TERMINAL
PPL 474
PPL 504
PPL 595
APRL 41
HAGANA
PPL 385
FLINDERS
AUSTRALIA
PIKKA NORTH
THETIS
PNG LNG PLANT
PORT MORESBY
LEGEND
T O R R E S S T R A I T
PIKKA UNIT
HARRISON BAY
ALPINE
PIKKA SOUTH
PIKKA B
NUIQSUT
WILLOW
B E A U F O R T S E A
G U L F O F P A P U A
MILNE
POINT
PIKKA C
KUPARUK RIVER
PIKKA
EAST
PRUDHOE BAY
PRUDHOE
BAY
DEADHORSE
POINT THOMSON
ATLAS A
ATLAS
B
ANTIGUA
HORSESHOE
HUE
SHALE
GRIZZLY
NORTH
KACHEMACH
GRIZZLY
T
R
A
N
S
-
A
L
A
S
K
A
C O R A L S E A
ALASKA
CANADA
GUBIK
P
I
P
E
L
I
N
E
0
5
10 miles
0
10
km20
EAST OF HUE
PPL 374
PPL 375
PPL 375
APPLICATION WITH OSH INTEREST
PPL 374
LEGEND
SETTLEMENT
EXPLORATION
PIKKA DEVELOPMENT UNIT
NEW LEASES IN JV
WITH ARMSTRONG ENERGY
OTHER NEW LEASES
OIL FIELD
OIL PIPELINE
PPL 374
PPL 375
PPL 569
0
100
200km
S O L O M O N S E A
GAS FIELDS
OIL FIELDS
GAS AND OIL FIELDS
OPERATED PDL
OPERATED PRL
OPERATED PPL
OPERATED APPLICATIONS
PDL WITH OSH INTEREST
PRL WITH OSH INTEREST
PPL WITH OSH INTEREST
FACILITIES
GAS PIPELINE
CONDENSATE PIPELINE
OIL PIPELINE
NATIONAL CAPITAL
Alaska
P’NYANG
APDL 13
PPL 507
PPL 395
PPL 545
MURUK
JUHA NORTH
JUHA
PPL 402
PDL 9
PDL 1
PDL 8 PPL 487
B I S M A R C K S E A
Papua New Guinea
ANGORE
HIDES GAS CONDITIONING PLANT
HIDES
PDL 7
APDL 11
PDL 6
MANANDA
SE MANANDA
AGOGO PROCESSING FACILITY
PDL 5
MORAN
CENTRAL PROCESSING FACILITY
AGOGO
KUTUBU
USANO
SE HEDINIA
PDL 2
PDL 4
GOBE MAIN
GOBE PROCESSING FACILITY
PDL 3
KIMU
PRL 8
BARIKEWA
SE GOBE
PRL 14
COBRA
PPL 475
PRL 9
BILIP
IEHI
ELK
RAPTOR
PRL 39
KUMUL MARINE
TERMINAL
PPL 474
PPL 339
PPL 475
PRL 15
PPL 476
ANTELOPE
PPL 548
PPL 475
PPL 339
PPL 339
PRL 10
URAMU
PPL 504
PPL 595
APRL 41
HAGANA
PPL 385
FLINDERS
T O R R E S S T R A I T
G U L F O F P A P U A
S O L O M O N S E A
PNG LNG PLANT
PORT MORESBY
LEGEND
GAS FIELDS
OIL FIELDS
GAS AND OIL FIELDS
OPERATED PDL
OPERATED PRL
OPERATED PPL
OPERATED APPLICATIONS
PDL WITH OSH INTEREST
PRL WITH OSH INTEREST
PPL WITH OSH INTEREST
APPLICATION WITH OSH INTEREST
FACILITIES
GAS PIPELINE
CONDENSATE PIPELINE
OIL PIPELINE
NATIONAL CAPITAL
0
100
200km
PPL 374
PPL 375
PPL 375
PPL 374
C O R A L S E A
PPL 374
PPL 375
PPL 569
Pictured from left to right: RJ Lee (Chairman), SM Cunningham, FE Harris, BS Al Katheeri, KG Constantinou, EJ Doyle, MP Togolo, AJ Kantsler, PR Botten.
C O R P O R A T E G O V E R N A N C E
C O R P O R AT E G OV E R N A N C E
Oil Search is commited to adopting and implementing rigorous corporate governance
practices across all of its activities. The Company supports this commitment by
transparent and open reporting of its governance practices to assist investors in
making informed investment decisions.
COMMITMENT TO
GOOD GOVERNANCE
Oil Search has reported against the
ASX Corporate Governance Council’s
Corporate Governance Principles
and Recommendations (the “CGC
Recommendations”) each year since
their first release in 2003. Oil Search
believes it followed all the CGC
Recommendations in the 3rd Edition of
the CGC Recommendations, released
in March 2014, during the 12 months
ended 31 December 2018.
www.oilsearch.com. The Company’s
charters, policies and Constitution are
also available on the website.
Oil Search’s Corporate Governance
Statement, which provides details of
the corporate governance practices
adopted by the Company to adhere
to the CGC Recommendations,
is published on its website,
The table below provides a brief
summary of the relevant sections
of the Corporate Governance
Statement that address the
Company’s compliance with each of
the CGC Recommendations.
ASX CORPORATE GOVERNANCE COUNCIL RECOMMENDATIONS
HOW OIL SEARCH SATISFIES THE RECOMMENDATIONS
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
1.1
1.2
1.3
1.4
1.5
Disclose:
The respective roles and responsibilities of the board
Compliant – see Board and Committee
Charters on the Company’s website.
and management.
Those matters expressly reserved to the board and those
delegated to management.
Undertake appropriate checks before appointing a person or
putting forward to security holders a candidate for election, as
a director.
Compliant – see Corporate Governance Statement for a summary of director
selection and appointment processes. See 2019 Notice of Annual Meeting for
information on directors standing for election/re-election.
Provide security holders with all material information in its
possession relevant to a decision on whether or not to elect or
re-elect a director.
Have a written agreement with each director and senior
executive setting out the terms of their appointment.
Compliant – all agreements in place.
The Company Secretary should be accountable directly to the
board, through the chair, on all matters to do with the proper
functioning of the board.
Have and disclose a diversity policy, including measurable
objectives for achieving gender diversity, its progress towards
achieving those objectives and the respective proportions of
men and women on the board, in senior executive positions
and across the whole organisation.
Compliant – see Board Charter on the Company’s website.
Compliant – see Diversity Policy on the Company’s website, and the Company’s
2018 diversity objectives and progress against achieving those objectives
disclosed in the Corporate Governance Statement.
74
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
ASX CORPORATE GOVERNANCE COUNCIL RECOMMENDATIONS
HOW OIL SEARCH SATISFIES THE RECOMMENDATIONS
1.6
1.7
Have and disclose a process for periodically evaluating
the performance of the board, its committees and
individual directors.
Disclose whether a performance evaluation was undertaken in
the reporting period in accordance with that process.
Compliant – process for annual director performance reviews disclosed in the
Corporate Governance Statement.
Board Effectiveness Review undertaken in 2018.
Have and disclose a process for periodically evaluating
the performance of senior executives.
Compliant – process for senior executive performance reviews disclosed in the
Corporate Governance Statement.
Disclose whether a performance evaluation was undertaken in
the reporting period in accordance with that process.
Senior executive performance reviews undertaken in 2018
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
2.1
2.2
2.3
2.4
2.5
2.6
Have a nomination committee which:
Has at least three members, a majority of whom are
independent directors.
Is chaired by an independent director.
Disclose:
The charter of the committee.
The members of the committee.
The number of times the committee met during the
reporting period and the individual attendances of the
members at those meetings.
Compliant – People and Nominations Committee has five members, all
independent, including the Chairman.
Committee Charter disclosed on the Company’s website. Members, meetings
held and attendances disclosed in the Directors’ Report.
Have and disclose a board skills matrix setting out the mix of
skills and diversity that the board currently has or is looking to
achieve in its membership.
Compliant – Skills matrix and preferred Board composition disclosed in
the Corporate Governance Statement.
Disclose:
The names of directors considered independent.
The nature of any interest, position, association or
relationship that each director has and an explanation
of why it does not compromise the independence of
the director.
The length of service of each director.
Compliant – Director details disclosed in the Directors’ Report.
Any potential conflicts and related mitigants disclosed in the Corporate
Governance Statement.
A majority of the board should be independent directors.
Compliant – Seven of nine directors are assessed as independent.
The chair of the board should be an independent director.
The chair should not be the same person as the CEO.
Have a programme for inducting new directors and provide
appropriate professional development opportunities
for directors.
Compliant – Chairman is non-executive and independent.
Compliant – detailed director induction programme in place and annual
director ongoing education programme provided by the Company.
PRINCIPLE 3 – ACT ETHICALLY AND RESPONSIBLY
3.1
Have and disclose a code of conduct for directors, senior
executives and employees.
Compliant – Code of Conduct disclosed on the Company’s website.
PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING
4.1
4.2
Compliant – Audit and Financial Risk Committee has five members, all
non-executive and four of whom are independent, including the Committee
Chairman, who is not the Chairman of the Board.
Committee Charter disclosed on the Company’s website. Members,
qualifications/experience, meetings held and attendances disclosed in
the Directors’ Report.
Have an audit committee which:
Has at least three members.
Consists only of non-executive directors, majority of whom
are independent.
Is chaired by an independent director, who is not the chair
of the board.
Disclose:
The charter of the committee.
The relevant qualifications and experience of the members.
The number of times the committee met during the
reporting period and the individual attendances of the
members at those meetings.
CEO and CFO certification of financial statements before
the board approves the financial statements for the
financial period.
Compliant – CEO and CFO certifications issued prior to the Board approving
the 2018 Financial Report.
75
C O R P O R A T E G O V E R N A N C E
ASX CORPORATE GOVERNANCE COUNCIL RECOMMENDATIONS
HOW OIL SEARCH SATISFIES THE RECOMMENDATIONS
4.3
Ensure external auditor attendance and availability at the AGM
to answer questions from security holders relevant to the audit.
Compliant – Company’s auditor, from Deloitte Touche Tohmatsu, attended the
2018 Annual Meeting, with shareholders invited to put questions to the auditor.
PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE
5.1
Have and disclose a written policy for complying with
continuous disclosure obligations under the Listing Rules.
Compliant – Public Disclosure Policy disclosed on the Company’s website.
PRINCIPLE 6 – RESPECT THE RIGHTS OF SECURITY HOLDERS
6.1
6.2
6.3
6.4
Provide information about itself and its governance to investors
on its website.
Compliant – Detailed disclosures contained on the Company’s website.
Design and implement an investor relations programme to
facilitate effective two-way communication with investors.
Compliant – Investor Relations programme in operation, with communications
governed by the Public Disclosure Policy.
Disclose the policies and processes it has in place to facilitate
and encourage participation at meetings of security holders.
Compliant – Disclosed in the Public Disclosure Policy.
Give security holders the option to receive communications
from, and send communications to, the entity and the security
registry electronically.
Compliant – Electronic security registry communication options in place.
PRINCIPLE 7 – RECOGNISE AND MANAGE RISK
7.1
7.2
7.3
7.4
Have a committee or committees to oversee risk,
each of which:
Has at least three members, a majority of whom are
independent directors.
Is chaired by an independent director.
Disclose:
The charter of the committee.
The members of the committee.
The number of times the committee met during
the reporting period and the individual attendances of the
members at those meetings.
The board or a committee of the board should:
review the entity’s risk management framework at least
annually to satisfy itself that it continues to be sound.
disclose, in relation to each reporting period, whether such
a review has taken place.
Compliant – Financial risk overseen by the Audit and Financial Risk Committee
– see section 4.1.
Health, Safety and Sustainability Committee oversees operational and social
responsibility risks. This Committee has four members, three of whom are
independent, including the Chairman.
Health, Safety and Sustainability Committee Charter disclosed on the
Company’s website. Members, qualifications/experience, meetings held and
attendances disclosed in the Directors’ Report.
Board and People and Nominations Committee oversee other risks.
Compliant – Board reviews the entity’s risk management framework at least
annually, with review undertaken in 2018.
Disclose the structure and role of its internal audit function.
Compliant – Disclosed in the Corporate Governance Statement.
Disclose any material exposure to economic,
environmental and social sustainability risks and how these
risks are managed.
Compliant – Disclosed in the Operating and Financial Review section of
the Directors’ Report.
PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
8.1
8.2
8.3
Have a remuneration committee which:
Has at least three members, a majority of whom are
independent directors.
Is chaired by an independent director.
Disclose:
The charter of the committee.
The members of the committee.
The number of times the committee met during
the reporting period and the individual attendances of
the members at those meetings.
Separately disclose the policies and practices regarding
the remuneration of non-executive directors and executive
directors and other senior executives.
Have and disclose a policy on whether participants in
equity-based remuneration schemes are permitted to enter
into transactions which limit the economic risk of participating
in the scheme.
76
Compliant – See section 2.1. The People and Nominations Committee
Charter provides advice and recommendations to the Board regarding the
remuneration of Directors, executives and employees.
Compliant – see Remuneration Report contained in the Directors’ Report.
Compliant – See Share Trading Policy on the Company’s website.
C O N S O L I DAT E D
F I N A N C I A L R E P O R T
For the year ended 31 December 2018
CONSOLIDATED FINANCIAL REPORT
CONSOLIDATED FINANCIAL REPORT
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
DIRECTORS’ REPORT ...................................................................................................................................................... 79
REMUNERATION REPORT ......................................................................................................................................... 92
AUDITOR’S INDEPENDENCE DECLARATION ...................................................................................................................118
FINANCIAL STATEMENTS .............................................................................................................................................. 119
STATEMENTS OF COMPREHENSIVE INCOME ........................................................................................................... 119
STATEMENTS OF FINANCIAL POSITION ................................................................................................................... 120
STATEMENTS OF CASH FLOWS ............................................................................................................................... 121
STATEMENTS OF CHANGES IN EQUITY ................................................................................................................... 122
NOTES TO THE FINANCIAL STATEMENTS ................................................................................................................. 124
DIRECTORS’ DECLARATION ........................................................................................................................... 155
INDEPENDENT AUDITOR’S REPORT ................................................................................................................. 156
78
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
DIRECTORS’ REPORT
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
The directors submit their report for the financial year ended 31
December 2018.
DIRECTORS
The names, details and shareholdings of the directors of the
Company in office during or since the end of the financial year are:
Mr RJ Lee, AM, BEng (Chem) (Hons), MA (Oxon), FAICD,
(Chairman, Non-Executive Director), 68 years
Mr Lee joined the Board on 9 May 2012 and was appointed
Chairman on 28 February 2013. Mr Lee has extensive resource
banking and international commercial experience. His
previous senior executive roles include 16 years with CSR
Limited and 9 years in the position of Chief Executive Officer
of NM Rothschild Australia Limited. Mr Lee is Chairman of
Ruralco Holdings Limited. He was the former Chairman of
Salmat Limited, Deputy Chairman of Ridley Corporation Limited
and a Director of Newcrest Mining Limited and Wesfarmers
General Insurance Limited. Mr Lee was also Chairman of the
Australian Institute of Company Directors. Ordinary shares,
fully paid: 96,829
Mr PR Botten, AC, CBE, BSc, ARSM,
(Managing Director), 64 years
Mr Botten was appointed Managing Director on 28 October
1994, having previously filled both exploration and general
manager roles in the company since joining in 1992. He has
extensive worldwide experience in the oil and gas business,
previously holding various senior technical and managerial
positions in a number of listed and government owned
organisations. Mr Botten is a Director of AGL Energy and is
on the Executive Committee of the Australia PNG Business
Council. He is Chairman of the Hela Provincial Health Authority
and the National Football Stadium Trust in Port Moresby.
Mr Botten is a former President of the Papua New Guinea
Chamber of Mines and Petroleum. Mr Botten was awarded
Companion of the Order of Australia in the Australia Day 2019
honours list for eminent service to Australia-Papua New Guinea
relations, particularly in the oil and gas industry, and to social
and economic initiatives. Ordinary shares fully paid: 2,347,330;
Performance Rights: 1,148,084; Restricted shares: 530,660
Mr G Aopi, CBE, BEc, BAC, MBA,
(Executive Director), 64 years (Resigned 16 March 2018)
Mr Aopi joined the Board as an Executive Director on
18 May 2006 and presently holds the position of PNG Country
Chairman for Oil Search. Mr Aopi has substantial public service
and business experience in Papua New Guinea, having had a
long and distinguished career in government, filling a number
of important positions, including Secretary for Finance and
Planning and Managing Director of Telikom PNG Ltd. Mr Aopi is
a Director of Steamships Trading, Marsh Limited and a number
of other private sector and charitable organisations in Papua
New Guinea. He was previously a Director of Bank of South
Pacific and the Chairman of Telikom PNG Ltd and Independent
Public Business Corporation (IPBC). Ordinary shares fully paid:
511,687; Performance Rights: 64,716; Restricted shares: 86,841
Dr BS Al Katheeri, PhD, BASc, MSc, Executive
MBA (Hons), (Non-Executive Director), 44 years
(Appointed 26 March 2018)
Dr Al Katheeri joined the Board on 26 March 2018. Dr Al
Katheeri has been the Chief Executive Officer of Mubadala
Petroleum since March 2017. Prior to his appointment as CEO,
he held the positions of Chief Growth Officer, responsible
for all Mubadala Petroleum’s new business development
and mergers and acquisitions activity and Chief Operating
Officer, overseeing both operated and non-operated assets,
and United Arab Emirates (UAE) gas supply. Before joining
Mubadala Petroleum, Dr Al Katheeri had a long career with
Abu Dhabi National Oil Company. Dr Al Katheeri is a member
of a number of industry boards and committees in the UAE.
Ordinary shares fully paid: nil
Sir KG Constantinou, OBE, (Non-Executive Director),
61 years
Sir Kostas joined the Board on 16 April 2002. He is a prominent
business figure in Papua New Guinea, holding a number of
high-level public sector and private sector appointments.
Sir Kostas is Chairman of various companies, including
Airways Hotel and Apartments Limited, Lamana Hotel Limited,
Lamana Development Limited, Bank of South Pacific Limited
and Air Niugini. He is a Director of Alotau International Hotel,
Heritage Park Hotel in Honiara, Gazelle International Hotel
in Kokopo, Taumeasina Island Resort in Samoa, Good Taste
Company in New Zealand and Loloata Island Resort Limited
in Papua New Guinea. Sir Kostas is also Vice Chairman of the
Employers Federation of Papua New Guinea and Honorary
Consul for Greece and Cyprus in Papua New Guinea, and Trade
Commissioner for Solomon Islands to Papua New Guinea.
Ordinary shares fully paid: nil
Ms SM Cunningham, BA Geol & Geog, (Non-Executive
Director), 63 years (Appointed 26 March 2018)
Ms Cunningham joined the Board on 26 March 2018.
Ms Cunningham has more than 35 years of oil and gas industry
experience. including senior executive roles at Amoco, Texaco,
and Noble Energy, where Ms Cunningham ultimately became
the Executive Vice President responsible for global exploration,
geoscience, frontier and new ventures. Ms Cunningham served
as Chairman of the Offshore Technology Conference (OTC) from
2010 to 2011, representing the American Association of Petroleum
Geologists (AAPG). From 2005 to 2014, she was a Director of
Cliffs Natural Resources Inc. Ordinary shares fully paid: nil
Dr EJ Doyle, BMath (Hons), MMath, PhD, FAICD,
(Non-Executive Director), 64 years
Dr Doyle joined the Board on 18 February 2016. Dr Doyle’s career
spans the building materials, water and industrials and logistics
sectors, including senior operational roles at BHP Limited and
CSR Limited and culminating in her appointment as CEO of
CSR’s Panel’s Division. She is a Director of GPT Group Limited,
Boral Limited and Hunter Angels Trust. Dr Doyle is a member of
the National Governance Committee of the Australian Institute
of Company Directors. She has previously served on a number
of other boards, including as Deputy Chairman CSIRO and
Chairman of Port Waratah Coal Services and Director of the
Knights Rugby League Pty Ltd. Ordinary shares fully paid: 36,050
79
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
DIRECTORS’ REPORT
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
Ms FE Harris, BCom, FCA (Aust), FAICD,
(Non-Executive Director), 58 years
Ms Harris re-joined the Board on 1 January 2017, after previously
serving as a director from March 2013 to December 2015. Ms
Harris has over twenty years of experience as a non-executive
director, including on a number of internationally-focused
listed energy and natural resources companies, and is a
former WA State President and National Board Member of the
Australian Institute of Company Directors. Ms Harris is currently
a non-executive director of listed entity BWP Trust. In the past
three years she was also Chairman of Toro Energy Limited and
a non-executive director of Infigen Energy Limited. Prior to
commencing her career as a non-executive director, Ms Harris
was a partner at chartered accountants KPMG, working in Perth,
San Francisco and Sydney. Ordinary shares fully paid: 31,961
Dr AJ Kantsler, BSc (Hons), PhD, GAICD, FTSE,
(non-Executive Director), 67 years
Dr Kantsler joined the Board on 19 July 2010. Dr Kantsler
worked with Woodside Petroleum, where he was Executive
Vice President Exploration and New Ventures from 1995 to
2009 and Executive Vice President Health, Safety and Security
from 2009 to 2010. Before joining Woodside Petroleum, Dr
Kantsler had extensive experience with the Shell Group of
Companies working in various exploration roles in Australia
and internationally. Dr Kantsler has been a director of Forte
Consolidated Limited and Savcor Group Limited. He was a
Director of the Australian Petroleum Production and Exploration
Association for 15 years, where he chaired several committees
and was Chairman from 2000 to 2002. Dr Kantsler was a
member of the Australian Government’s Council for Australian
Arab Relations from 2003 to 2009. He is a former President
of the Chamber of Commerce and Industry, WA and a former
Director of the Australian Chamber of Commerce and Industry.
He is Managing Director of Transform Exploration Pty Ltd.
Ordinary shares fully paid: 45,736
Sir MP Togolo, CBE, BEcon (Hons), MA (Econ), MA
(Geography), (Non-Executive Director), 72 years
Sir Mel joined the Board on 1 October 2016. He has more
than twenty-five years’ experience in the mining industry. He
is currently the PNG Country Manager for Nautilus Minerals
and prior to that was the head of corporate affairs at Placer
Dome Niugini Limited. Sir Mel serves on boards both in PNG
and overseas, including the Board of Panamex Singapore
Holdings Limited, Heritage Park Hotel, Grand Pacific Hotel
and Loloata Island Resort. He has previously served on the
boards of a number of leading PNG companies, including
NASFUND. He was a founding member of the Business Council
of Papua New Guinea and was the President of that Council
for more than six years. He was awarded Knight Bachelor in
the 2018 Queen’s Birthday Honours for service to economic
development, in particular in the mining and petroleum
sectors, and to the community. Ordinary shares fully paid: nil
GROUP SECRETARY
Mr SW Gardiner, BEc (Hons), FCPA, 60 years
Mr Gardiner joined Oil Search in 2004, after a twenty-year
career in corporate finance at two of Australia’s largest
multinational construction materials companies and a major
Australian telecoms company. Mr Gardiner’s roles at Oil
Search have covered senior corporate finance and services
responsibilities. In November 2012, Stephen was appointed
to the position of Chief Financial Officer of Oil Search. Mr
Gardiner is also the Group Secretary of Oil Search; a role he
has held since May 2009. Ordinary shares, fully paid: 483,749;
Performance Rights: 241,010; Restricted shares: 101,769
RESULTS AND REVIEW OF OPERATIONS
The Oil Search Limited Group (‘the Group’) delivered
a consolidated net profit of US$341.2 million
(2017: US$302.1 million) for the year, after providing for
income tax of US$166.2 million (2017: US$138.8 million).
Further details on the Group’s operating and financial
performance can be found in the ‘Operating and Financial
Review’ on page 82.
DIVIDENDS
Subsequent to balance date, the directors approved the
payment of a final unfranked dividend of US 8.5 cents per
ordinary share (2017: US 5.5 cents final dividend) to ordinary
shareholders in respect of the financial year ended 31 December
2018. The due date for payment is 28 March 2019 to all holders
of ordinary shares on the Register of Members on 6 March
2019. The Company’s dividend reinvestment plan will remain
suspended for the final dividend. Dividends paid and declared
during the year are recorded in note 9 to the financial statements.
PRINCIPAL ACTIVITIES
The principal activity of the Group is the exploration for oil
and gas fields and the development and production of such
fields. This is carried out as both the operator and non-operator
participant in the exploration, development and production
of hydrocarbons.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
During the year, there were no significant changes in the nature
of the activities or the state of affairs of the Group other than that
referred to in the financial statements and notes thereto.
LIKELY FUTURE DEVELOPMENTS
Refer to the ‘Operating and Financial Review’ on page 82 for
details on likely developments and future prospects of the Group.
ENVIRONMENTAL DISCLOSURE
The Group materially complies with all environmental laws
and regulations and aims to operate at a high industry
standard for environmental compliance. The Group has
instituted appropriate environmental management systems
and processes in support of this aim.
The Group has provided for costs associated with the
restoration of sites in which it holds a participating interest.
The Group did not experience any incidents in 2018 that were
reportable to the regulatory authorities, nor did it incur any
fines for environmental infringements.
80
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
DIRECTORS’ REPORT
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
CORPORATE INFORMATION
Oil Search Limited is a Company limited by shares and is
incorporated and domiciled in Papua New Guinea. The
Group had 1,410 employees as at 31 December 2018 (2017:
1,286). Oil Search Limited is listed on the Australian Securities
Exchange and Port Moresby Stock Exchange.
SHARE BASED PAYMENT TRANSACTIONS
There were 983,042 share rights (2017: 717,446) granted
under the Employee Share Rights Plan. There were 1,833,601
performance rights (2017: 1,184,700) granted under the
Performance Rights Plan and 640,174 restricted shares
(2017: 627,304) granted under the Restricted Share Plan
during the year.
As at 31 December 2018, there were 2,206,192 share
rights (2017: 1,710,808 ), 3,924,765 performance rights
(2017: 3,201,088) and 1,300,928 restricted shares
(2017: 1,220,155 ) granted over ordinary shares exercisable
at various dates in the future, subject to meeting applicable
performance hurdles, and at varying exercise prices (refer
to note 21 for further details).
COMMITTEES OF THE BOARD
During the year ended 31 December 2018, the Company had
an Audit and Financial Risk Committee, a Corporate Actions
Committee, a Health, Safety and Sustainability Committee
and a People and Nominations Committee.
Members comprising the Committees of the Board during the
year were:
Audit and Financial Risk Committee: Ms FE Harris
(Committee Chair)(1), Dr BS Al Katheeri(2), Sir KG Constantinou(3),
Dr EJ Doyle, and Sir MP Togolo. RJ Lee is an ex-officio attendee
of this Committee;
Corporate Actions Committee: Mr RJ Lee (Committee
Chair), Mr PR Botten, Ms FE Harris(1) and Dr AJ Kantsler(4);
Health, Safety and Sustainability Committee: Dr EJ
Doyle (Committee Chair), Dr BS Al Katheeri(2), Mr G Aopi(5),
Sir KG Constantinou(3), Ms SM Cunningham(6) and Dr AJ Kantsler(4).
Mr RJ Lee is an ex-officio attendee of this Committee; and
People and Nominations Committee: Dr AJ
Kantsler (Committee Chair)(4), Sir KG Constantinou(3),
Ms SM Cunningham(6), Ms FE Harris(1) and Sir MP Togolo.
Mr RJ Lee is an ex-officio attendee of this Committee.
INDEPENDENT COMMITTEE MEMBERS
The Independent Committee Members during the year were:
Mr RL Kuna, BBus, CPA, Audit Partner, KTK Accountants and
Advisors and President of CPA Papua New Guinea. Mr Kuna was an
Independent Member of the Audit and Financial Risk Committee
for the February, April and August 2018 meetings of that
Committee. He became an Independent Member of the People
and Nominations Committee, effective from 1 October 2018.
Ms ME Johns, LL.B, Company Secretary, Bank of South Pacific
Limited. Ms Johns was an Independent Member of the People
and Nominations Committee for the February and May 2018
meetings of that Committee. She became an Independent
Member of the Audit and Financial Risk Committee, effective
from 1 October 2018.
Ms S Sasingian-Sumanop, LL.B., MBus, Principal Legal
Officer, PNG Department of Justice and Attorney General.
Ms Sansingian-Sumanop was an Independent Member
of the Health, Safety and Sustainability Committee for the
February 2018 meeting of that Committee. Ms Sansingian-
Sumanop ceased to be as Independent Committee Member
following the February 2018 meeting of the Health, Safety and
Sustainability Committee.
Ms W Kula-Amini, MBus, BSc CS, AAICD, Head of Projects
at Kina Bank. Ms Kula-Amini was appointed as Independent
Committee Member effective 1 October 2018. She is an
Independent Member of the Audit and Financial Risk Committee.
Mrs JM Baing-Waiko, BAppSc (Fisheries), AAICD. Ms Baing-
Waiko was appointed as Independent Committee Member
effective 1 October 2018. She is an Independent Member of
the Health, Safety and Sustainability Committee.
Mr GD Wayne, LLB (Hons, UPNG), LLM (Dist, London),
AAICD, Principal with Kessadale Lawyer and Founder/
Speaker with Attitude Plus. Mr Wayne was appointed as
Independent Committee Member effective 1 October 2018.
He is an Independent Member of the Health, Safety and
Sustainability Committee.
Mr DW Yaninen, BBus, PGDipFin, CPA, MPNGID, AAICD,
Chief Executive Officer at NDB Investments Limited. Mr Yaninen
was appointed as Independent Committee Member effective
1 October 2018. He is an Independent Member of the People
and Nominations Committee.
The Independent Committee Members do not serve as
members of the Oil Search Board.
(1) Ms FE Harris became the Chair of the Audit and Financial Risk Committee effective 14 February 2018.
(2) Dr BS Al Katheeri was appointed to the Board effective 26 March 2018. He became a member of the Audit and Financial Risk Committee and the Health, Safety
and Sustainability Committee effective from the date of his Board appointment.
(3) Sir KG Constantinou was a member of the Health, Safety and Sustainability Committee for the 14 February 2018 meeting of that Committee. He became a member of
the Audit and Financial Risk Committee effective 26 March 2018. Sir Kostas’ membership of the People and Nominations Committee did not change during the year.
(4) Dr AJ Kantsler was a member of the Audit and Financial Risk Committee for the 14 February 2018 meeting of that Committee. He became a member and Chair of
the People and Nominations Committee effective 14 February 2018 meeting. Dr Kantsler’s membership of the Health, Safety and Sustainability Committee did not
change during the year.
(5) Mr G Aopi was a member of the Health, Safety and Sustainability Committee until his resignation from the Board effective 16 March 2018.
(6) Ms SM Cunningham was appointed to the Board effective 26 March 2018. She became a member of the Health, Safety and Sustainability Committee and People
and Nominations Committee effective from date of her Board appointment.
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OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
DIRECTORS’ REPORT
O p erati ng a n d Fin a n cial R ev iew
O p erati ng a n d Fin a n cial R ev iew
ATTENDANCES AT DIRECTORS’ AND COMMITTEE MEETINGS
The number of meetings of directors (including meetings of Committees of the Board) held during the year and the number of
meetings attended by each director were as follows:
DIRECTORS
Number of meetings held
Number of meetings attended
Dr BS Al Katheeri
Mr G Aopi
Mr PR Botten
Sir KG Constantinou
Ms SM Cunningham
Dr EJ Doyle
Ms FE Harris
Dr AJ Kantsler
Mr RJ Lee
Sir MP Togolo
DIRECTORS’
MEETINGS
AUDIT AND
FINANCIAL RISK
CORPORATE
ACTIONS
HEALTH,
SAFETY AND
SUSTAINABILITY
PEOPLE AND
NOMINATIONS
7
6/6
1/1
7/7
7/7
6/6
7/7
7/7
7/7
7/7
7/7
4
3/3
–
–
3/3
–
4/4
4/4
1/1
4/4
4/4
–
–
–
–
–
–
–
–
–
–
–
4
2/3
1/1
–
1/1
3/3
4/4
–
4/4
4/4
–
4
–
–
–
3/4
3/3
–
4/4
4/4
4/4
4/4
Note: The Managing Director and Chief Financial Officer attend Committee meetings at the request of the Committees. Other members of the Board have attended
various Committee meetings during the year. These attendances are not included in the above table.
1.
1.1
FINANCIAL OVERVIEW
Summary of Financial Performance
YEAR ENDED 31 DECEMBER
Production and Sales Data
Production (mmboe(1))
Sales (mmboe)
Average realised oil and condensate price (US$/bbl(2))
Average realised LNG and gas price (US$/mmBtu(3))
Financial Data ($US million)
Revenue
Production costs
Other operating costs
Other income
EBITDAX(4)
Depreciation and amortisation
Exploration costs expensed
Net finance costs
Profit before tax
Taxation
Net profit after tax
Net debt
2018
2017
% CHANGE
25.21
25.02
70.65
10.06
1,535.8
(290.0)
(145.4)
9.6
1,110.0
(326.1)
(66.7)
(209.9)
507.4
(166.2)
341.2
30.31
30.04
55.68
7.67
1,446.0
(262.8)
(141.1)
10.0
1,052.1
(380.6)
(35.9)
(194.7)
440.9
(138.8)
302.1
2,693.0
2,610.2
-17
-17
+27
+31
+6
+10
+3
-4
+6
-14
+86
+8
+15
+20
+13
+3
Note: Numbers may not add due to rounding.
(1) mmboe = million barrels of oil equivalent. Gas volumes have been converted to barrels of oil equivalent using an Oil Search specific conversion factor of 5,100 scf
= 1 boe, which represents a weighted average, based on Oil Search’s reserves portfolio, using the actual calorific value of each gas volume at its point of sale.
(2) bbl = barrel of oil.
(3) mmBtu = million (106) British thermal units.
(4) EBITDAX (earnings before interest, tax, depreciation/amortisation, non-core activities, impairment and exploration) is 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.
82
OIL SEARCH ANNUAL REPORT 2018
DIRECTORS’ REPORT
O p erating a n d Fin a n cial R ev iew
Production and Revenue
Oil Search’s total net production in 2018 of 25.21 million barrels
of oil equivalent (mmboe) was lower than net production of
30.31 mmboe in 2017, as it was impacted by the devastating PNG
Highlands earthquake in late February 2018 which caused a
complete production shut-in across both PNG LNG and operated
facilities. Further details on performance by operating segment
and field are included in Section 2 ‘Overview of operations’.
Despite lower production, total revenue of US$1,535.8 million
was 6% higher than the prior year, bolstered by stronger
average realised oil and gas prices during 2018. The average
price realised for LNG and gas sales increased by 31%,
compared to the prior year, to US$10.06/mmBtu. The average
realised oil and condensate price for 2018 was US$70.65 per
barrel, 27% higher than the prior year outcome. The Group did
not have any oil hedges in place during the year and remained
unhedged to oil price movements.
LNG delivered sales volumes totalled 111,008 billion Btu in
2018, 10% lower than in the prior year, with the delivery of 99
LNG cargoes (2017: 110 cargoes). Liquid volumes delivered in
2018 totalled 4.94 million barrels (mmbbl), 34% lower than the
7.50 mmbbl delivered in 2017, due to both the impact of the
PNG earthquake and natural field declines.
Other revenue, consisting mainly of rig revenue, electricity,
refinery and naphtha sales, and infrastructure tariffs, decreased
to US$49.7 million in 2018 from US$58.0 million in 2017.
Production and other operating costs
Production costs increased by 10% from US$262.8 million
in 2017 to US$290.0 million in 2018, mainly impacted by
earthquake related work to reinstate production and repair
damaged production facilities and other infrastructure.
Recovery work performed during 2018, excluding an LNG
cargo purchase required to restart the LNG plant, totalled
US$63.3 million with just under half that amount offset by
insurance proceeds. Consequently, and together with lower
overall production, production costs on a per barrel of oil
equivalent (boe) basis increased from US$8.67 per boe in
2017 to US$11.51 per boe in 2018.
US$ MILLION
PNG LNG
PNG oil and gas
PRODUCTION COSTS
2018
171.0
119.0
290.0
2017
142.2
120.6
262.8
Other operating costs increased from US$141.1 million in 2017
to US$145.4 million in 2018.
Depreciation and amortisation
Depreciation and amortisation decreased from
US$380.6 million in 2017 to US$326.1 million in 2018.
Amortisation costs decreased by US$52.2 million to
US$310.0 million in 2018, primarily due to the curtailment
of production following the PNG earthquake. On a cost
per boe produced basis, the average amortisation rate for
the producing assets was US$12.40 in 2018, compared to
US$11.95 in 2017.
Exploration costs expensed
In line with the Group’s successful efforts accounting policy,
all costs associated with unsuccessful drilling, seismic work
and other support costs related to exploration activity were
expensed during the year and resulted in a pre-tax charge of
US$66.7 million. This included US$33.7 million attributable to
extensive seismic activity covering PRL 15, PPL 475, PPL 476,
and PRL 39 in the Papuan Gulf Basin and PDL 4 and PRL 14 in the
Forelands region of PNG. A further US$18.2 million was spent
on exploration seismic, G&G and G&A activities in Alaska.
Further details on exploration activities during the year are
included in Section 2 ‘Overview of operations’.
Net finance costs
Net finance costs of US$209.9 million in 2018 were
US$15.2 million higher than the prior year and were impacted
by higher US interest rates on PNG LNG and Corporate debt
facilities, as well as the unwind of site restoration provisions.
Taxation
Tax expense on statutory profit in 2018 was US$166.2 million,
compared to US$138.8 million in 2017. This resulted in an
effective tax rate of 32.8% for 2018, against an effective tax rate
of 31.5% in 2017. This increase was largely driven by a one-off
adjustment to deferred tax assets in 2017.
1.2
Summary of Financial Position
Net debt
At 31 December 2018, Oil Search had net debt (total borrowings
less cash) of US$2,693.0 million, a US$82.8 million increase
on the prior year net debt position of US$2,610.2 million, due
in part to the all-cash acquisition of licence interests in Alaska.
A reconciliation of the movement in net debt between year-end
balance dates is as follows:
Net debt at 31 December 2017
Net repayment – PNG LNG Project finance facility
Decrease in cash balances from Alaskan acquisition
Increase in other cash balances
Net movement in 2018
Net debt at 31 December 2018
US$ MILLION
2,610.2
(331.9)
415.4
(0.7)
82.8
2,693.0
At 31 December 2018, the Group had US$3,293.6 million of
debt outstanding under the PNG LNG Project finance facility,
with corporate credit facilities undrawn.
Oil Search remained in a strong liquidity position at
31 December 2018, with cash of US$600.6 million, including
US$308.6 million in PNG LNG escrow accounts, and
US$900 million available under the Group’s corporate facilities.
In December 2018, the Company increased its corporate
credit facilities, to a total of US$900 million, after entering into
three new US$100 million bilateral revolving credit facilities
that replaced two US$125 million bilateral facilities. The three
new facilities expire in December 2023 and the Company’s
US$600 million syndicated facility, refinanced in 2017, expires
in June 2022.
83
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erati ng a n d Fin a n cial R ev iew
Investment expenditure
Total investment expenditure for 2018 was US$835.4 million,
compared to US$277.6 million in 2017 with the increase
predominantly due to a significant expansion of the company’s
growth portfolio. During 2018 Oil Search completed several
asset acquisitions, including licence interests in the North Slope
of Alaska and multiple licence interests in the onshore Papuan
Gulf basin. Oil Search also completed one of the largest seismic
acquisition programmes in the Company’s history in PNG.
Pre-FEED activities for the PNG gas expansion projects under
the PRL 15 and PRL 3 licences were ongoing during the year.
The components of investment expenditure for the year were:
US$ MILLION
Exploration and evaluation(1)
Development
PNG LNG Project
Biomass
Producing assets
Other plant and equipment(2)
Total investment expenditure
2018
714.8
36.8
10.7
21.7
51.4
835.4
2017
169.5
30.1
9.8
40.7
27.6
277.6
(1)
Includes Alaska acquisition costs of US$415.4 million (2017: nil)
and exploration costs expensed during the year of US$66.6 million
(2017: US$35.9 million).
(2) Excludes finance leased assets that are recognised as other plant
and equipment.
Exploration and evaluation expenditure for 2018 totalled
US$714.8 million (2017: US$169.5 million), comprising
US$231.0 million (2017: US$158.8 million) and US$483.5
million (US$7.9 million) in PNG and the USA respectively. Major
expenditures in PNG in 2018 included US$73.1 million on
PPL402/PDL9, Muruk 2, PRL 8 Kimu, PRL 9 Barikewa appraisal
drilling, US$54.9 million on pre-FEED activity for the PRL 15
and PRL 3 expansion projects, US$33.3 million on seismic
acquisition activity and US$45.1 on licence acquisition costs.
US$483.5 million was spent in Alaska, including the acquisition
of licence interests, seismic acquisition and preparatory works
for appraisal drilling that commenced on 31 December 2018.
Development expenditure for 2018 was US$47.5 million
(2017: US$39.9 million). This included Oil Search’s share of PNG
LNG Angore development costs of US$36.8 million, where
activity has been suspended pending the easing of inter-tribal
tensions. In addition, US$10.7 million was spent predominantly
on developing forestry assets for the Biomass project.
Expenditure on producing assets totalled US$21.7 million in
2018 (2017: US$40.7 million) and largely comprised sustaining
capital expenditure for PNG LNG and PNG oil and gas assets.
The increase in other plant and equipment expenditure from
US$27.6 million in 2017 to US$51.4 million in 2018, was mainly
associated with implementation costs for the Company’s new
Enterprise Resource Planning (ERP) system.
1.3 Operating cash flows
YEAR TO
31 DECEMBER
(US$ MILLION)
Net receipts
Net interest paid
Tax paid
Operating cash flow
Net investing cash flow
Net financing cash flow
Net cash inflow
2018
1,129.9
(190.4)
(84.9)
854.6
(811.0)
(458.3)
(414.7)
2017
% CHANGE
1,089.6
(186.3)
(59.7)
843.6
(267.3)
(423.8)
152.5
+4
+2
+42
+1
+203
+8
-372
Operating cash flow was largely unchanged year-on-year, with
higher revenues from higher average realised prices offset by
lower sales volumes, earthquake remediation costs, higher
exploration seismic, G&A and G&G activities, higher taxes paid
and higher borrowing costs.
During 2018, Oil Search’s net investing cash flow included
expenditures of:
¸ US$647.6 million on exploration and evaluation
(US$157.3 million in 2017);
¸ US$56.4 million on other plant and equipment
(US$38.1 million in 2017);
¸ US$41.7 million on payments made in respect of power
assets (US$10.2 million in 2017).
¸ US$36.9 million on projects under development
(US$21.1 million in 2017); and
¸ US$26.2 million of capital investment on production
activities (US$38.2 million in 2017).
The Group distributed US$114.3 million to shareholders
by way of the 2017 final dividend and the 2018 interim
dividend during the year. During 2018, borrowings of
US$331.9 million (2017: US$313.9 million) were repaid under
the PNG LNG Project finance facility, in accordance with the
repayment schedule.
Reserves and Resources
1.4
As at 31 December 2018, the Company’s Proved Reserves (1P)
were 54.1 million barrels (MMbbl) oil and condensate, down
from 59.1 MMbbl in 2017 and 1,937.1 billion cubic feet (bcf) gas,
down from 2,040.5 bcf in 2017.
The Company’s total Proved and Probable Reserves (2P)
plus Contingent Resources (2C) for oil and condensate were
253.5 MMbbl, up 101.5% compared to 2017. The movements
reflect the addition of 127.5 MMbbl of Alaskan Pikka Unit oil to
2C Contingent Resources, as well as 5.2 MMbbl of P’Nyang
condensate to 2C, after the successful drilling of the P’Nyang
South 2ST1 appraisal well. These additions were partially offset
by net production of 4.9 MMbbl and minor changes to the
Gobe Main and SE Gobe field 2P oil Reserves.
Total Proved and Probable Reserves (2P) plus Contingent
Resources (2C) for gas were 6,742.2 bcf, up 6.3% from 2017.
The movements reflected an additional 186.7 bcf of 2C gas at
Kimu, after the successful Kimu 2 appraisal well, as well as the
addition of 319.8 bcf of 2C gas after the successful drilling of
the P’Nyang South 2ST1 appraisal well. Those increases were
84
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erating a n d Fin a n cial R ev iew
partially offset by net production of 98.9 bcf, as well as minor
changes to the SE Gobe field 2P gas Reserves.
Further details are included in the 2018 Reserves and
Resources Statement.
OVERVIEW OF OPERATIONS
2.
Established in 1929, Oil Search is a Papua New Guinean (PNG)
oil and gas exploration, development and production company.
The Company operates all of PNG’s currently producing oil
fields and the Hides Gas-to-Electricity Project and invests in a
number of exploration licences in PNG and in the North Slope
of Alaska. It also has a 29% interest in the PNG LNG Project, a
world scale liquefied natural gas (LNG) development, operated
by ExxonMobil PNG Limited.
During 2018, Oil Search produced 25.2 million barrels of
oil equivalent (mmboe). This compared to production of
30.3 mmboe in 2017, reflecting the shut-in of operated
production and the PNG LNG Project following a 7.5
magnitude earthquake that struck the PNG Highlands in late
February 2018. Having withstood the earthquake well, the
PNG LNG Project came back online in April and ramped up to
an annualised production rate of 8.8 million tonnes per annum
(MTPA) in the second half of 2018, the highest half-year rate
achieved since the Project came onstream in 2014. Oil Search’s
operated production recovered progressively over the year, as
remedial work was completed to restore damaged flow lines
and bring wells back online.
In 2018, Oil Search and its joint venture partners reached
broad alignment on the preferred downstream development
concept for the proposed construction of three new LNG
trains, to be located on the existing PNG LNG plant site.
The new trains will be underpinned by approximately 11 tcf of
certified 2C gas resource from the Elk-Antelope fields in PRL
15 (Papua LNG Project) and the P’nyang field in PRL 3. During
the year, commercial arrangements to enable the integration
of the Papua LNG Project and PNG LNG were broadly agreed
and pre-FEED downstream studies, project financing and
marketing discussions were advanced. In November 2018, a
Memorandum of Understanding was signed between the PNG
Government and the PRL 15 joint venture, outlining the key
terms and conditions to be included within the Gas Agreement
that will apply to the PRL 15 development. Oil Search expects
the Gas Agreement to be finalised by the end of March 2019.
The Gas Agreement between the State and the PRL 3 joint
venture also is expected to be negotiated in a similar timeframe,
allowing an integrated FEED entry on the proposed three-train
development to take place.
During the year, Oil Search continued to explore actively
in PNG. The Company drilled four appraisal wells, farmed
into four highly prospective licences in the onshore Gulf and
completed one of the largest onshore seismic programmes
in the Company’s history.
In February 2018, Oil Search completed the acquisition of
interests in the Alaska North Slope for US$400m, plus deal
costs, and assumed operatorship in March 2018. The assets
acquired include a 25.5% interest in the Pikka Unit, which
contains a major undeveloped oil field. During the year, the
Company built a world-class team in Anchorage, progressed
the environmental permitting process for the Pikka Unit
development towards its final stages and commenced a two-
well appraisal drilling programme in the Pikka Unit area.
2.1
Production Activities
2.1.1 PNG LNG Project (29%, non-operator)
The PNG LNG Project produced 22.1 mmboe net to Oil Search
in 2018, comprising 97.5 bcf of LNG and 3.0 mmbbl of liquids.
Gross LNG production from the Project was 7.4 MT, 11% below
2017 and representing a strong result given the eight-week
production shut-in following the earthquake in February.
The Project, which came back online in April, produced at
an annualised rate of 8.8 MTPA in the second half of 2018
(almost 30% above nameplate capacity), benefitting from
planned modifications to the Hides Gas Conditioning Plant and
maintenance work on the LNG trains, which were carried out
during the production shut-in period.
In 2018, 99 LNG cargoes were exported, with 73 sold under
long-term contract, eight sold under mid-term sale and
purchase agreements and 18 cargoes sold on the spot market.
15 cargoes of Kutubu Blend and 10 cargoes of naphtha were
also sold.
The Project entered into two mid-term LNG sale and purchase
agreements (SPAs) with PetroChina and BP, totalling 0.9 MPTA
over five years from 2018 to 2023. These new SPAs take total
contracted volumes to approximately 7.5 MTPA. ExxonMobil,
on behalf of the PNG LNG project participants, continued to
negotiate the sale of the final mid-term tranche of 0.45 MTPA.
Work to tie the Angore field into the PNG LNG processing
facilities was halted in early 2018 due to local unrest and
remains suspended until tensions in the area subside.
2.1.2 Operated oil and gas production
Kutubu (PDL 2 – 60.0%, operator)
Gross production from the Kutubu complex in 2018 averaged
7,451 bopd, down 38% from 2017 levels.
Production from the Kutubu complex was shut-in in late February
due to the Highlands earthquake. The Central Processing Facility
(CPF) resumed operations in late March, allowing production
from the Kutubu fields to recommence at an initial rate of
approximately 4,000 barrels of oil per day (bopd).
Moran (49.5%, based on PDL 2 – 60.0%, PDL 5 – 40.7%
and PDL 6 – 71.1%, operator)
Gross production from Moran in 2018 averaged 1,715 bopd,
down 76% from 2017 levels.
Given their proximity to the earthquake’s epicentre, the Agogo
Processing Facility (APF) and the Moran and Agogo fields
sustained the most damage from the earthquake. Production
from Agogo fields resumed in late July, with total output
building up to 2000 bopd by the end of the year as flowlines
damaged during the earthquake were progressively repaired
and production wells were brought back online. Earthquake
damage to the high-pressure compression systems at the APF
limited production rates from the Agogo field through the
year, with remedial work to these systems completed in early
2019. Production from Moran was shut-in from late February to
85
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erati ng a n d Fin a n cial R ev iew
August while repairs to the APF, flowlines and well sites took place, allowing operations to resume. As mentioned above, damage
to the compression systems at the APF also impacted the volume of hydrocarbons that could be processed from the Moran fields
following the earthquake. Natural field decline also contributed to lower production levels in 2018.
Gobe Main (PDL 4 - 10%, operator) and SE Gobe (PDL 3 - 36.4% and PDL 4 - 10%, operator)
In 2018, gross production from the Gobe Main field declined 26% to 400 bopd, while production from the SE Gobe field was 38%
lower, at 432 bopd.
Production from both fields was impacted by the earthquake, with production recommencing in late April, following the
completion of initial repairs and planned maintenance. Earthquake-related damage to key wells, including the G 7X well, continued
to impact production rates through the second half of the year.
In 2018, 17.9 bcf of gas (gross) was supplied to the PNG LNG Project from the Gobe Main and SE Gobe fields, compared to 26.7
bcf in 2017.
Hides Gas to Electricity (GTE) Project – 100%, operator (PDL 1 – 16.7%)
The Hides GTE Project produced 4.0 bcf of gas in 2018, 32% lower than in 2017, and 83,000 barrels of liquids, down 29% on 2017
levels. The Hides Gas-to-Electricity (GTE) facilities resumed operations in May, after the completion of earthquake-related repairs to
the Porgera Joint Venture electricity generation facility.
2018 Production Summary(1)
YEAR TO 31 DECEMBER
2018
2017
% CHANGE
GROSS DAILY
PRODUCTION
(BOPD)
NET TO
OSH
(MMBBL)
GROSS DAILY
PRODUCTION
(BOPD)
NET TO
OSH
(MMBBL)
GROSS DAILY
PRODUCTION
NET TO
OSH
Oil Production
Kutubu
Moran
Gobe Main
SE Gobe
Total PNG Oil
PNG LNG Project Liquids
Hides Liquids
Total Liquids
Gas production
PNG LNG Project LNG
PNG LNG Gas to Power
Hides Gas Production
SE Gobe Gas to PNG LNG
Total Gas
Total Production(2)
7,451
1,715
400
432
9,998
27,900
228
38,126
1.633
0.310
0.015
0.035
1.993
2.954
0.083
5.030
12,000
7,013
540
693
20,246
32,777
323
53,346
2.630
1.267
0.020
0.057
3.974
3.470
0.118
7.562
MMSCF/D
MMSCF
MMSCF/D
MMSCF
915
6
11
17
96,826
674
4,000
1,400
1,004
106,266
6
16
40
665
5,843
3,265
949
102,900
1,066
116,039
-38%
-76%
-26%
-38%
-51%
-15%
-29%
-29%
-9%
1%
-32%
-57%
-11%
-38%
-76%
-25%
-38%
-50%
-15%
-29%
-33%
-9%
1%
-32%
-57%
-11%
BOEPD
224,231
MMBOE
25.206
BOEPD
262,392
MMBOE
30.314
-15%
-17%
(1) Numbers may not add due to rounding.
(2) Gas and LNG volumes have been converted to barrels of oil equivalent using an Oil Search specific conversion factor of 5,100 scf = 1 boe, which represents a
weighted average, based on Oil Search’s reserves portfolio, using the actual calorific value of each gas volume at its point of sale. This reflects the energy content
of the Company’s gas reserve portfolio. Minor variations to the conversion factors may occur over time.
In 2018, the Company carried out a major analysis on how to optimise production from its mature and declining oil fields in PNG.
A range of new drilling and workover opportunities were identified for implementation over the 2019 to 2023 period, with the
potential to add approximately 30 million barrels to Oil Search’s oil reserves on a risked basis.
During the year, work also progressed on the Associated Gas Expansion (AGX) Project, which seeks to accelerate the delivery of gas
from the Oil Search-operated Kutubu, Agogo and Moran fields to the PNG LNG Project. Studies have confirmed that AGX feedstock
gas could provide a source of cost effective gas to front-end the proposed PNG LNG/P’nyang expansion train. The project passed
the concept screening phase in 2018 and the Company is targeting selection of the preferred development concept to enable a
decision on FEED entry in 2019.
86
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erating a n d Fin a n cial R ev iew
2.2 Gas Development
In 2018, Oil Search and its joint venture partners, ExxonMobil
and Total, reached broad alignment on the preferred
downstream development concept for a proposed expansion
of LNG capacity in PNG. This comprises the construction of
three LNG trains, with a total capacity of 8 MTPA, located on the
existing PNG LNG plant site. Two of the trains will be dedicated
to the Papua LNG Project and will be supplied with gas from
the Elk-Antelope fields in PRL 15, while the third train will be
underpinned by gas from the existing PNG LNG Project fields
and the P’nyang field in PRL 3. By integrating the new trains
with the existing PNG LNG Project, material construction and
operating cost savings are expected to be realised through
the sharing of infrastructure and personnel.
During the year, commercial agreements supporting the
integration of both projects with the existing PNG LNG
Project infrastructure were broadly agreed. Project financing
discussions advanced and pre-FEED downstream studies
were matured, including engineering work on the design,
process and layout optimisation of the three-train development
concept, from the gas inlet to the LNG loading arm. In addition,
Oil Search established a regional office in Tokyo, staffed with a
highly experienced LNG team, to market its equity share of LNG
from the Papua LNG Project. Engagement with potential LNG
buyers in key Asian markets has been positive, with significant
interest expressed for additional LNG volumes from PNG.
In November, a Memorandum of Understanding (MOU) was
signed between the PNG Government and PRL 15 (Papua LNG)
Joint Venture. This MOU provides the framework for key terms
and conditions to be included within the Gas Agreement,
including tax arrangements and a Domestic Market Obligation,
as well as a timeline for the finalisation of negotiations by the
end of March 2019. Discussions also advanced between the
PNG Government and the PRL 3 joint venture, with a Gas
Agreement also expected to be finalised in the same timeframe,
allowing an integrated FEED entry decision on the proposed
three-train development.
In early 2018, independent recertification of the P’nyang field,
incorporating results from the P’nyang South 2 ST1 appraisal
well and additional seismic and core data, resulted in a tripling
of the certified gross 1C gas resource to 3.51 tcf and an increase
in 2C gross resources to 4.36 tcf. Combined with gas resources
in the Elk-Antelope fields, there is approximately 11 tcf of
certified 2C gas resource available to underpin the proposed
additional LNG capacity.
2.2
Exploration and appraisal activities
NW Highlands
Preparations to drill the Muruk 2 appraisal well in PDL 9
(Oil Search – 24.4%), which were halted by the Highlands
earthquake in early 2018, resumed in the third quarter. Well site
construction and mobilisation of the rig to site were completed
and the well commenced drilling in November 2018. Muruk 2 is
located approximately 11 kilometres north-west of the Muruk 1
gas discovery well and aims to delineate the potential resource
volume in the Muruk field. Oil Search was contracted to drill
the Muruk 2 appraisal well on behalf of the operator of PDL 9,
ExxonMobil. Given its location near Hides, Muruk could be a
valuable source of gas for either a new LNG train or as back-fill
for the PNG LNG Project.
87
A 2D seismic programme covering approximately
100 kilometres over Muruk and adjacent acreage, which was
interrupted by the earthquake, is planned to recommence in
late 2019/early 2020. This will help mature potentially drillable
prospects along the Hides-P’nyang trend, which the Company
estimates could hold more than 10 tcf of unrisked gas. Due to
its proximity to existing and planned infrastructure, Muruk and
other prospects in the Hides-P’nyang fairway offer optionality
for sourcing gas to underpin an additional LNG train, or as
backfill for the PNG LNG Project.
Forelands / Onshore Gulf
During the year, the Company successfully drilled the Kimu 2
and Barikewa 3 appraisal wells in the PNG Forelands.
The Kimu 2 appraisal well in PRL 8 (Oil Search – 60.7%,
operator) spudded in late April and reached total depth in
late May, after intersecting gas in the target Alene Sandstone
formation. A Drill Stem Test was conducted over the interval,
confirming excellent reservoir quality, before the well was
plugged and abandoned as planned.
The Barikewa 3 appraisal well in PRL 9 (Oil Search – 45.1%
operator) spudded in June and reached total depth in
July, successfully encountering gas in the target Toro and
Hedinia Sandstone reservoirs. Both reservoirs were well
developed, with testing indicating a clean, dry gas comprising
approximately 20% nitrogen, in line with expectations. The well
was plugged and abandoned as planned.
Evaluation of the data from both wells, together with an update
on the subsurface interpretation, is expected to be completed
in early 2019. These findings will help to constrain the resource
base of the Kimu and Barikewa fields and assist in selecting the
optimal route for potential commercialisation.
In the onshore Gulf, Oil Search completed the acquisition of
a 25% interest in four highly prospective leases, PPL 474, 475
and 476 and PRL 39, located adjacent to the Elk-Antelope
fields in PRL 15. During the year, the first phase of a 2D seismic
programme, covering 330 kilometres over these ExxonMobil-
operated licences and over the Total-operated PRL 15 licence
was completed. A second phase, covering approximately
250 kilometres, commenced in late 2018 and is expected to
conclude by mid-2019. Data from these surveys will help to
mature identified leads and prospects located near planned
Papua LNG infrastructure for potential future drilling.
In the Forelands, a 50-kilometre seismic programme was
completed to assess the potential of the Gobe Footwall
exploration prospect in PDL 4 and help further constrain
the lehi gas discovery in PRL 14.
Offshore Papuan Gulf
During the year, Oil Search continued to optimise offshore Gulf
3D seismic data sets to constrain the acreage’s prospectivity.
In the shallow water offshore Gulf, a gravity gradiometry and
magnetics survey was acquired and studies on the Uramu
discovery in PRL 10 (Oil Search – 100%, operator) also took
place to ascertain its viability for appraisal drilling. In the
Deepwater Gulf, evaluation of 2D seismic data continued
and identified prospects were risked, ranked and prioritised.
The Company is considering acquiring 3D seismic in late
2019 or 2020 to mature prospects further.
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erati ng a n d Fin a n cial R ev iew
Power
2.4
In 2018, NiuPower Ltd, a 50:50 joint venture between Oil
Search and Kumul Petroleum, commenced construction of a
58 MW gas fired power station located next to the PNG LNG
plant site. PNG LNG will contribute 100% of the gas supply.
The power station seeks to provide the cheapest source of
electricity to Port Moresby, benefitting local individuals and
businesses. Construction of the power station was completed
in February 2019, with commissioning activities underway
ahead of first supply expected in March 2019.
Alaska
2.5
In February 2018, Oil Search completed the acquisition
of interests in the Alaska North Slope for US$400 million,
excluding transaction costs, and assumed operatorship of
the assets in March 2018. Assets acquired included a 25.5%
interest in the Pikka Unit and adjacent exploration acreage, a
37.5% interest in the Horseshoe Block, as well as an additional
25.5% interest in adjacent exploration acreage.
Approximately 500 million barrels (gross) of 2C oil resource
was assigned to the Pikka and satellite oil fields for acquisition
purposes. However, there is material resource upside, which
is being tested in the 2018/19 appraisal drilling programme,
comprising two wells, Pikka B and Pikka C. If successful, these
wells have the potential to add up to 250 mmbbl to the current
2C resource estimate of 500 mmbbl (gross) of oil and will help
define the optimal well design for the Pikka Unit development.
Both appraisal wells comprise a vertical hole and a sidetrack,
allowing four reservoir penetrations to confirm the presence,
volume, thickness and quality of the Nanushuk reservoir at
the Pikka B and Pikka C locations. Testing will confirm well
deliverability, which will feed into the selection of the well
design that will be used in the Pikka Unit development.
The Pikka B well spudded in late December and penetrated the
target Nanushuk formation in early January 2019, successfully
encountering hydrocarbons, in line with pre-drill expectations.
Cores were acquired and open-hole logging runs completed
before the wellbore was plugged and abandoned and a side
track, Pikka B ST1, kicked off. The forward plan is to drill ahead
and acquire additional cores in the Nanushuk 3 sands before
conducting a well test.
The Pikka C well spudded in late January and is drilling ahead.
The forward plan is to drill through to the Nanushuk Formation,
evaluate, then drill a side track to build a lateral section in the
reservoir. The well will then be completed and flow tested.
Initial concept select evaluations took place during the year,
which indicated the most likely development concept as a
120,000 bopd processing facility, with production from three
drill sites (of which two will be developed initially, with one
in reserve). Further facility processing studies are currently
underway to confirm the optimal configuration.
Over 2018, the Company made good progress advancing
the environmental permitting process for the Pikka Unit
development. Following consultation with local communities,
the Company proposed enhancements to the project concept
that have addressed community concerns and the Final
Environmental Impact Statement was issued in November.
Oil Search expects the Record of Decision to be granted late
88
in the first quarter of 2019, enabling the joint venture to proceed
to front end engineering and design (FEED) in mid-2019.
During the year, work took place to optimise the value of Oil
Search’s option to double the Company’s interests in the
assets acquired for the payment of a further US$450 million.
Oil Search anticipates this will involve exercising the option,
prior to its expiry on 30 June 2019, and on-selling a portion
of the interest to introduce one or two additional participants
into the assets. There has been significant market interest in
the opportunity and towards the end of the year, Oil Search
commenced discussions with potential new partners.
In late 2018, the Company acquired lease interests covering
over 20,000 acres in areas surrounding the Pikka Unit.
These leases significantly enhance the Company’s exploration
prospects, and if future drilling proves successful, could
be developed utilising infrastructure planned for the Pikka
development. In addition, the Company acquired interests
in leases covering approximately 195,200 gross acres in
the eastern area of the Alaska North Slope, which has been
identified in a regional study as being highly prospective for oil.
Since assuming operatorship, Oil Search has built a highly
experienced, multi-disciplinary team based in Anchorage.
At the end of 2018, approximately 100 employees and
contract staff, with diverse backgrounds in the global and local
Alaskan oil industry had been recruited, including all senior
department heads.
3.
BUSINESS STRATEGY AND OUTLOOK
Business Strategy
3.1
During 2018, Oil Search focused on delivering the key
strategies established in the 2017 Strategy Refresh, including:
¸ Optimising the value of existing Oil Search oil and gas
assets through safe, reliable and sustainable operations.
¸ Commercialising additional LNG trains, with gas sourced
from the NW Highlands and Gulf Hubs, and ensuring
optimal commercial integration between projects.
¸ Exploring for high value oil and gas accumulations in PNG
with a clear monetisation pathway.
¸ Maintaining Oil Search as a leading corporate citizen in
PNG and promoting a stable operating environment.
¸ Developing options for material growth beyond the next
phase of LNG expansion.
¸ Optimising capital and liquidity management to support
investment and reward shareholders.
¸ Enhancing organisational capabilities to deliver the
Company’s strategic commitments.
3.2 Outlook
Key corporate priorities for 2019 include the following:
¸ Continue to deliver gas from Oil Search-operated fields to
the PNG LNG Project and operate the liquids export system
efficiently and reliably.
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erating a n d Fin a n cial R ev iew
¸ Complete remedial work required to fully restore operated
production and undertake workover and drilling activity at
Kutubu and Moran to optimise operated production from
the PNG oil fields.
¸ Finalise and execute all necessary agreements, including
Gas Agreements with the PNG Government and
commercial agreements with partners, to allow entry into
FEED for the three train LNG expansion in PNG.
expenditure. If Oil Search is unable to obtain additional funding
on acceptable terms in these circumstances, its financial
condition and ability to continue operating may be affected.
The Group’s financial risk management strategy to address
liquidity risk is outlined in note 27 in the financial statements.
The Group also institutes regular short, medium and long-
term forecasts to assess any implications for future liquidity
and profitability.
¸ Select the preferred development concept for the AGX
opportunity and enter FEED.
Operational risks
¸ Implement the Company’s revised stakeholder
management plan in PNG.
¸ Enter FEED on the Pikka Unit development in Alaska.
¸ Optimise the value of the Alaskan licence equity option,
including a potential on-sale of part of the equity acquired.
¸ Continue to focus on the development and enhanced
engagement of staff.
3.3 MATERIAL BUSINESS RISKS
The scope of the Group’s operations, the nature of the oil and
gas industry and external economic considerations mean that
a range of factors may impact results. Material business risks
that could impact Oil Search’s results and performance are
described below.
These risks are not the only risks that may affect the Group.
Additional risks and uncertainties not presently known to
management or that management currently believe not to
be material may also affect Oil Search’s business.
Financial and Liquidity risks
Pricing risk
Oil Search’s business is heavily dependent on prevailing market
prices for its products, primarily oil and gas. Changes in the
prices of these commodities will impact the Group’s revenue
and cash flows. There are a number of macroeconomic factors
that influence oil pricing, over which Oil Search has no control.
Oil Search has executed long term sales and purchase
agreements for the supply and sale of the majority of its
LNG production with pricing mechanisms established under
these agreements.
The Group’s financial risk management strategy to address
commodity price risk is outlined in note 27 in the financial
statements. The Group’s Audit and Financial Risk Committee
is responsible for reviewing the policies, processes, practices
and reporting systems covering the Group’s exposure to
financial risks.
Future operating and capital cost requirements
Future operating and capital cost requirements may be
impacted by multiple external and internal factors, many of
which have been identified elsewhere through this section.
Unexpected changes to future cost profiles could result in Oil
Search’s cash requirements being over and above its available
liquidity. To the extent that the Group’s operating cash flows
and debt facilities are insufficient to meet its requirements for
ongoing operations and capital expenditure, Oil Search may
need to seek additional funding, sell assets or defer capital
89
Production
Oil and gas producing assets may be exposed to production
decreases or stoppages, which may be the result of facility shut-
downs, mechanical or technical failure, well, reservoir or other
subsurface impediments, safety breaches, natural disasters and
other unforeseeable events. A significant failure to maintain
production could result in the Group lowering production
forecasts, loss of revenues and incurring additional costs to
reinstate production to expected levels.
Safety and environmental
Oil and gas producing and exploration operations are also
exposed to industry operational safety risks including fire,
explosions, blow-outs, pipe failures, as well as transport and
occupational safety incidents. Major environmental risks
include accidental spills or leakage of petroleum liquids, gas
leaks, ruptures, or discharge of toxic gases. The occurrence
of any of these risks could result in substantial losses to the
Group due to injury or loss of life; damage to or destruction of
property, natural resources, or equipment; pollution or other
environmental damage; cleanup responsibilities; regulatory
investigation and penalties or suspension of operations.
Damages occurring to third parties as a result of such risks may
also give rise to claims against the Group.
The Group’s Health, Safety, Environment and Security (HSES)
Policy details the Company’s commitment to achieving
incident free operations through the provision of effective
HSES management across all of its operations and worksites.
The Policy is implemented via a number of underpinning
procedures, steering groups and incentive measures to ensure
high standards of HSES management are maintained. In
addition, the Group’s drilling, production, processing, refining
and export activities in PNG operate under an environmental
management system that is certified as ISO 14001 compliant.
In addition, the PNG highlands were subject to a major
earthquake in February 2018 and Oil Search’s infrastructure
and facilities sustained some damage, with remediation work to
reinstate the damaged assets ongoing. The unresolved damage
escalates both the production and safety/environmental risks as
a consequence.
Cyber security
The integrity, availability and reliability of data within Oil
Search’s information technology systems may be subject
to intentional or unintentional disruption. Given the level of
increasing sophistication and scope of potential cyber attacks,
these attacks may lead to significant breaches of security
which could jeopardise the sensitive information and financial
transactions of the Group.
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erati ng a n d Fin a n cial R ev iew
The Group manages operational risk through a variety of
means including: strict adherence to its operating standards,
procedures and policies; staff competency development and
training programmes and through the effective use of a Group-
wide risk management system to ensure that the Group’s
operational controls are continuously improved. In addition, the
Group has insurance programmes in place that are consistent
with good industry practice.
Reserves, resource and development risks
Reserves decline and replacement
Oil Search, like any oil and gas company, is subject to reserves
depletion and its impact on organisational value. Oil Search
aims to replace and grow its reserve and resource base via
exploration and commercial activities. The longer term health
of the business will depend on the quality and size of its current
asset and opportunity portfolio and the investment decisions it
makes over many years.
Oil and gas exploration is a speculative endeavor and each
prospect/investment carries a degree of risk associated with
the discovery of hydrocarbons in commercial quantities,
which is more challenging for smaller fields in a lower
commodity price environment. The value of exploration and
development assets can be affected by a number of different
factors including, amongst other things, macro-economic
and socio-political conditions, changes to reserves estimates,
the composition of oil and gas reserves, unforeseen project
difficulties and other operational issues. Similarly, the economic
value of the Group’s individual producing assets declines
as oil and gas is produced. Oil Search’s future production
profitability is subject to both subsurface and commodity price
uncertainties but is also highly dependent on how Oil Search
manages and maximizes the value of the production business
over this period.
The Group’s Board and management’s investment review
committee oversee all significant investment decisions, each of
which are subject to economic and risk analysis and assurance
activities at specific gates, in line with the Group’s management
system. Further, the Group also employs significant exploration,
drilling and development teams who regularly monitor the
Group’s prospects inventory and exploration plan, and lead
activities to identify and develop the Group’s reserves. For
producing assets, the Group has a life-of-asset planning
process which guides the long term management of operated
producing assets.
Reserves and resource estimates
Underground oil and gas reserve and resource estimates are
expressions of judgment based on knowledge, experience and
industry practice. Estimates which are valid at a certain point
in time may alter significantly or become uncertain when new
oil and gas reservoir information becomes available through
additional drilling or reservoir engineering over the life of the
field. As reserve and resource estimates change, development
and production plans may be altered in a way that may affect
the Group’s operations and/or financial results.
Additionally, oil and gas reserves and resources assume that the
Group continues to be entitled to production licences over the
fields and that the fields will be produced until the economic
limit of production is reached. If any production licences for
fields are not renewed or are cancelled, estimated oil and
gas reserves and resources may be materially impacted.
The Group employs the appropriate internal expertise to
estimate reserves and resources and to prepare the Annual
Reserves Statement in compliance with the ASX listing rules.
In addition, material proven (1P) and proven and probable
(2P) oil and gas field reserves are periodically certified by
independent auditors.
Project development and execution
To achieve continual growth, Oil Search and its partners commit
significant capital to the initiation, development and delivery
of major projects, such as the successful PNG LNG Project.
A number of factors influence the successful delivery of projects
of this scale and/or complexity in our operating contexts,
ranging from commercial and political risks in development
to operational risks on delivery. Oil Search is undertaking or
planning to undertake a number of significant projects in the
coming years across its PNG, corporate and Alaskan assets,
with a number of these projects planned to enter the Front End
Engineering and Design (FEED) phase in 2019. These projects
include both hydrocarbon development and corporate/PNG
capability building, and can be led either by Oil Search or one
of its JV partners. Each project has its own set of substantial risks
that may affect organisational value.
In line with the Group’s Opportunity Delivery Framework, the
Group has a defined process by which it develops and executes
capital projects under the guidance of its project assurance
team and dedicated project managers. Further, a dedicated
team is in place to closely monitor Oil Search’s major joint
venture-led projects. The Group’s Board and management’s
investment review committee oversee all significant investment
decisions for these projects, each of which are subject to
economic and risk analysis and assurance activities at specific
gates within the Opportunity Delivery Framework.
External and stakeholder risks
Legislative and regulatory risk
Oil Search has interests in international jurisdictions and
therefore the business is subject to various national and local
laws and regulations in those jurisdictions. Non-compliance can
lead to regulatory or legal actions, and can impact the status of
licenses or operatorship. Changes in government policy, the
fiscal regime, regulatory regime or the legislative framework
could impact the Group’s business, results from operations or
financial condition and performance.
The possible extent of such changes that may affect the Group’s
business activities cannot be predicted with any certainty.
The effects of any such actions may result in, amongst other
things, increased costs, whether in the nature of capital or
operating expenses, taxes (direct and indirect) or through
delays or the prevention of the Group to be able to execute
certain activities.
Companies in the oil and gas industry may be subject to
paying direct and indirect taxes, royalties and other imposts
in addition to normal company taxes. The Group’s profitability
may be affected by changes in government taxation and royalty
policies or in the interpretation or application of such policies.
90
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
O p erating a n d Fin a n cial R ev iew
Climate Change
The Group is exposed to a number of climate change-related
risks. Material climate-related risks include: changes in demand
for our products due to regulatory and technological changes
(transitional risk); increases in operating costs of assets due to
carbon-pricing policies or other market mechanisms; physical
damage to assets or interruption to operations from climatic
changes and extreme weather events; and reputational
damage driven by stakeholder activism and changing societal
expectations. The occurrence of any of these risks could result
in asset impairment, lost revenue and damage to brand value,
amongst other things.
The Company undertakes climate scenario analysis to test
resilience to various transition related risks and uses an
internal carbon price to assess potential cost impacts from
the introduction of emissions-based market mechanisms.
Technical design for major capital works projects are also
required to consider the potential physical impacts on a range
of climate outcomes. The Group’s Climate Policy details the
Company’s expectations and commitments to assessing,
responding and reporting climate change risks, implications
and management approach.
Joint venture risk
Oil Search derives significant revenues and growth through
joint venture arrangements. The use of joint ventures is common
in the oil and gas industry and usually exists through all stages
of the oil and gas lifecycle. Joint venture arrangements, amongst
other things, can serve to mitigate the risk associated with
exploration success and capital intensive development phases.
However, failure to establish alignment between joint venture
participants and with Government, negligence or competency
levels of joint venture operators, or the failure of joint venture
partners to meet their commitments and share of costs and
liabilities, could have a material impact on the Group’s business
or reputation.
The Group manages joint venture risk through its careful joint
venture partner selection (when applicable), stakeholder
engagement and relationship management. Commercial
and legal agreements are also in place across all joint
associations which bind the joint venture participants to certain
responsibilities and obligations.
In addition to changes in existing tax laws, risk is also
embedded in the interpretation or application of existing tax
laws, especially where specific guidance is unavailable or has
not been tested in the relevant tax jurisdiction.
Political, community and other stakeholders
The countries in which Oil Search has interests expose the
organisation to different degrees of political and commercial
risk. The overall socio-political environment in which Oil Search
operates, the profitability of particular operating assets and the
safety of people may be adversely impacted by political instability,
land ownership disputes, ongoing benefits delivery delays, and
community issues as well as war, civil unrest and terrorism.
Community incidents occurred in PNG in 2018, and a
heightened threat continues into 2019. This exposure changes
as the external conditions evolve and as Oil Search enters new
licenses or exits existing areas, regions and countries, as well
as through different stages of the asset lifecycle. Oil Search’s
ability to acquire, retain and gain full value from assets may
also be affected by a number of political and social issues
such as differing political agendas and decision making,
environmental and social policy and the impact of bribery and
corruption. Further, the media, non-government organisations
and other activists may play an increasing role at local, national
and international levels influencing political policy, societal
perception and community actions or otherwise impacting
the organisation’s reputation. Delays in government-led
infrastructure development can also impact the commercial
outcome of projects.
Oil Search operates under its Stakeholder Engagement
standards and policies which require transparent, open, pro-
active communication and cooperation between the Company
and government at all levels. Oil Search operates dedicated
teams to manage government relations, which amongst other
things, are targeted towards minimising risk that could arise
out of potential fiscal, tax, resource investment, infrastructure
access or regulatory and legal changes. Oil Search also has in
place a comprehensive corruption prevention framework.
Oil Search also strives to minimise any negative impact of the
Group’s operations on local society, culture and environment
while contributing to local community and economic
development so as to leave a positive legacy. The Group
spends considerable time, effort and expense in working with
government and communities, led by a dedicated Stakeholder
Engagement team working in conjunction with Oil Search’s
Security team. The Health, Safety and Sustainability Committee
provides oversight of the strategies and processes adopted
by management and monitors the Group’s performance and
exposures in these areas.
Human rights
The Group may face risks related to the potential impacts of
actions of both public and private security forces, interactions
with and the use of land associated with subsistence-based
and/or indigenous communities and the work practices
of contractors. The Group’s human rights risk profile is
updated regularly. Human rights due diligence is conducted
in accordance with the UN Guiding Principles for Business
and Human Rights.
91
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
DIRECTORS’ REPORT
R emu n eratio n R ep o r t
R emu n eratio n R ep o r t
I N T R O D U C T O R Y L E T T E R F R O M
D R A G U K A N T S L E R
Chair of the People & Nominations Committee
Dear Fellow Shareholders,
On behalf of the Board, I am pleased to present Oil Search Limited’s Remuneration Report for 2018.
The purpose of this introductory letter is to summarise key remuneration outcomes for 2018, explain how those outcomes are
aligned with company performance, and to flag enhancements made during the year.
Your Board is confident that Oil Search’s remuneration strategy and practices are appropriate and that they continue to:
¸ ensure alignment between shareholders and executives;
¸ provide a clear link between performance and remuneration outcomes; and
¸ ensure remuneration outcomes are consistent with Oil Search’s long term strategic objectives and incentivise the delivery of
long term shareholder wealth creation.
Changes to fixed remuneration during 2018
Senior Management received modest increases in fixed remuneration during 2018 (generally 2.5%), and this was broadly in line
with the salary review budget approved for other Australian based employees.
Short Term Incentive outcome for 2018
The Company has delivered strong performance in 2018 against the backdrop of a significant earthquake in the PNG Highlands
which impacted both operated and non-operated production for a significant period. Operationally, Oil Search achieved better
than target personal and process safety performance, which was particularly impressive in the circumstances, and the return to
production was delivered more quickly than initially anticipated without a single recordable injury. As described earlier in the
Annual Report, Oil Search’s achievements as ‘first responder’ to the local communities impacted by the earthquake has received
considerable recognition both nationally and internationally.
2018 saw the recognition of a major new oil resource addition associated with the Alaska North Slope farm-in. This was not
recognised in the 2017 scorecard as the transaction was still subject to approval by the Committee on Foreign Investment in the
US at 2017 year end. This approval was received in February 2018 and Oil Search assumed operatorship of the Alaskan assets in
March 2018. Since then the company has built a world class team in Anchorage totalling more than 100 employees.
In recent years, the Board has established a track record of applying discretion to the scorecard result to ensure that it considers
factors not anticipated at the start of the year and that the interests of shareholders and employees are appropriately aligned and
balanced. Reflecting the extraordinary events of 2018, and to ensure STI outcomes considered both the shareholder experience
resulting from deferred production due to the February 2018 earthquake and the significant efforts of the company in response
to the earthquake, the Board has resolved to exercise its discretion and has adjusted the size of the final STI pool available
for distribution.
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DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Firstly, an adjustment was made to acknowledge that shareholders had experienced a deferred production opportunity loss arising
from the earthquake of approximately two months of production. The Board acknowledges that while this is deferred production
which will be produced in later years, the deferred opportunity occurred during a period of high hydrocarbon prices relative to
recent years and the STI outcome should be reduced to reflect that. Balancing that adjustment, the Board also acknowledges that
Oil Search and Managing Director & CEO Peter Botten played a lead role in coordinating the regional response to the earthquake
and that employees were considerably stretched to recover operations from the impacts of the earthquake. Field-based staff who
remained on site in the period immediately after the earthquake experienced many heavy aftershocks and endured basic living
conditions whilst reconstructing accommodation facilities, restoring power and adequate supplies of potable water. The entire
organisation worked with a singular focus to return to business as usual as quickly as possible. Significantly, not one recordable
injury was recorded during the restoration of services and production. The business outcomes achieved in 2018 reflect the
dedication and commitment of all staff.
These adjustments when combined have resulted in an overall STI outcome for 2018 of 92% of Opportunity. Consistent with prior
years, 50% of STI outcomes for Executives are awarded in the form of Restricted Shares which are subject to a further two-year
deferral period.
The LNG expansion projects continue to make progress indicated by the signed Memorandum of Understanding with the State of
PNG at the APEC conference held in Port Moresby during November 2018. As noted below, and subject to timely achievement of
the agreed initiatives, progress on LNG expansion will be recognised and rewarded under the LNG Expansion Incentive approved
by shareholders at the 2018 Annual Meeting rather than the STI scorecard. That incentive will be delivered predominantly in
equity vesting two years after the achievement of the Final Investment Decision provided that it occurs within a timeframe which is
acceptable to the Board.
Vesting of Long Term Incentive awards from 2016
Performance Rights granted under the 2016 Long Term Incentive awards were tested based on Total Shareholder Return (“TSR”)
performance over the period 1 January 2016 to 31 December 2018.
Oil Search’s TSR was between the lower quartile and median against both the ASX50 peer group and the international Oil & Gas
peer group.
This meant that none of the 2016 Performance Rights vested. There are no re-testing provisions in the Long Term Incentive scheme
and the 2016 Performance Rights awards have therefore lapsed.
Thank you for taking time to review our Remuneration Report and we look forward to welcoming you to our 2018 Annual Meeting.
Agu Kantsler
Chair, People and Nominations Committee
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This report has been prepared in accordance with section
300A of the Australian Corporations Act 2001 and summarises
the arrangements in place for the remuneration of Directors and
Executive Key Management Personnel and other employees of
Oil Search for the period from 1 January 2018 to 31 December
2018. Although it is not a requirement for PNG companies,
Oil Search has voluntarily complied with section 300A of the
Australian Corporations Act 2001 to ensure it meets current
best practice remuneration reporting for ASX listed companies.
REMUNERATION POLICY
1.
The objectives of the Oil Search remuneration policy are to:
¸ Attract, retain and motivate the talent necessary to create
value for shareholders;
¸ Reward Executives and other employees fairly and
responsibly, having regard to the performance of Oil
Search, the competitive environment and the individual
performance of each employee; and
¸ Comply with all relevant legal and regulatory provisions.
Oil Search’s approach to remuneration is based upon
“Reward for Performance”, and remuneration is differentiated
based on various measures of corporate, business unit/function
and individual performance.
Remuneration for non-executive directors was established
using data from external independent consultants which is
updated from time to time and takes into account:
¸ The level of fees paid to non-executive directors of other
ASX listed corporations of a similar size and complexity
to Oil Search;
¸ The international scale of Oil Search activities;
¸ Responsibilities of non-executive directors; and
¸ Work requirements of Board members.
SHARE TRADING POLICY
2.
Oil Search has a share trading policy in place for all employees,
including Executives and Directors, which is available on the
Oil Search website in the Corporate Governance Section.
Under this policy there are three groups of employees:
¸ Restricted Employees – Directors, Executive General
Managers and their direct reports, General Managers
and their direct reports and other employees notified
by the Group Secretary from time to time that they are a
restricted employee;
¸ Prescribed Employees – particular employees, contractors
or a member of a class of employees or contractors that are
notified from time to time by the Group Secretary that they
are prescribed employees due to the nature of work they
are undertaking; and
¸ All Other Employees – any employee or contractor who
is not classified as a Restricted or Prescribed Employee.
There are two specific periods defined in the share trading policy:
¸ Closed Period – the period from 1 January to 12 noon on the
day after the release of the full year results and the period
from 1 July to 12 noon the day after the release of the half
year results:
¸ Trading Window – the period of four weeks commencing
at 12 noon the day after:
· The release of the half year results;
· The release of the full year results; and
· The Oil Search Annual Meeting.
The Board may also approve trading windows at other times
of the year.
Table 1 summarises the times at which employees can trade in
Oil Search shares.
Table 1 – Trading permitted under the Oil Search Share
Trading Policy
CLOSED
PERIOD
Restricted
Employees
Not permitted
to trade
Prescribed
Employees
All Other
Employees
Not permitted
to trade
Not permitted
to trade
TRADING WINDOW
May trade, but Directors
and Executive Management
must first notify the Group
Secretary
Not permitted to trade
May trade
ALL OTHER
TIMES
Must receive
pre-approval
to trade
Not permitted
to trade
May trade
Regardless of the trading times specified in the above table,
employees and contractors are not permitted to trade at
any time if they are in possession of inside information.
Employees are also prohibited from hedging or acquiring
options over unvested securities, granted under employee
share plans, at any time. Regular audits of share trading are
conducted by the Group Secretary to ensure compliance.
Effective from 1 January 2018 the Company introduced a
Minimum Shareholding Policy to increase alignment with the
interests of Oil Search shareholders by imposing a requirement
that Non-Executive Directors and Executive Key Management
Personnel build over time, and then maintain, a Minimum
Shareholding of Oil Search shares.
The Minimum Shareholding is set as a fixed number of
Oil Search shares. This fixed number will be reviewed from
time to time by the Board.
The Minimum Shareholding is calculated by reference to
the Oil Search share price and (i) the annual base fee received
by Non-Executive Directors, (ii) the annual Total Fixed
Remuneration for the Managing Director and (iii) half of the
average annual Total Fixed Remuneration for the Executive
General Managers.
Table 2 summarises the current applicable Minimum
Shareholding required under this Policy.
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OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
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The Committee must comprise at least three non-executive
directors.
The members of the Committee during 2018 were:
¸ Dr A Kantsler – independent non-executive (Chair from
1 January 2018)
¸ Sir KG Constantinou OBE – independent non-executive
¸ Ms FE Harris – independent non-executive
¸ Sir MP Togolo – independent non-executive
¸ Ms SM Cunningham – independent non-executive
(from 26 March 2018)
In addition to the above, Ms M Johns served as an Independent
Member of the Committee until 30 September 2018. Effective
from 1 October 2018, Mr Richard Kuna and Mr Desmond
Yaninen were appointed as Independent Members of the
Committee. While not a member of the Board, an Independent
Member is expected to contribute fully to the effective
functioning and execution of duties and responsibilities of
the relevant Board committees. The motivation for these
appointments is twofold; to draw on the experiences and
capabilities of highly talented PNG citizens as the Company
continues to invest for the future in PNG, and as equally
important, to provide the appointees with the unique
opportunity to experience and participate in governance
processes of PNG’s largest and most successful listed company.
This is aligned with Oil Search’s aim of enhancing the pool of
capable, well-rounded business leaders in PNG.
At the Committee’s invitation, the Managing Director, Executive
General Manager Human Resources, and Head of Rewards
attend meetings in an advisory capacity and co-ordinate the
work of external, independent advisors as requested. All
executives are excluded from any discussions impacting their
own remuneration.
Under its Charter, the Committee must meet at least four times
a year. The Committee formally met four times during 2018 and
the Committee Members’ attendance records are disclosed in
the Directors’ Report. A copy of the charter of the Committee is
available on Oil Search’s website in the Corporate Governance
section. The committee also met informally on a number of
occasions to progress issues on foot and consider other matters
as they arose.
To ensure it remains up to date with market practice, the
Committee engages independent external advisors from
time to time. Table 3 summarises remuneration-related work
undertaken by external consultants at the Committee’s request
in 2018 and also notes additional work undertaken by the
same consultants on behalf of management. While none of the
Committee’s engagements were for work which constituted
Remuneration Recommendations for the purposes of the
Australian Corporations Act 2001, findings were reported
directly to the Committee or the Board.
Table 2 – Minimum Shareholding requirements
INDIVIDUAL COVERED BY THIS POLICY
Chairman of the Board
Other Non-Executive Directors
Managing Director
Executive General Managers
MINIMUM
SHAREHOLDING
(NUMBER OF
SHARES)
75,000
25,000
320,000
52,500
Non-Executive Directors do not participate in the Company’s
Long Term Incentive schemes and must establish their holding
by acquiring shares on market.
For the Managing Director and Executive General Managers,
the Policy operates by restricting the disposal of relevant Oil
Search Shares acquired under the Company’s Long Term
Incentive schemes. It does not require the Managing Director
or Executive General Managers to whom it applies to “top-up”
the minimum holding threshold by buying Oil Search shares
on market.
Exceptions to the Policy are permitted (i) if approved by the
Board (or its delegate) at its sole discretion or (ii) to the extent
that a disposal is reasonably necessary to enable statutory
obligations (for example relating to tax) to be met arising from
the operation of an Oil Search equity-based incentive scheme.
All Oil Search shares held by the individual will count towards
the satisfaction of the Minimum Shareholding threshold
including shares owned through a trust or superannuation
fund or otherwise held for the benefit of the individual.
3.
ROLE OF THE PEOPLE AND
NOMINATIONS COMMITTEE
The People and Nominations Committee (the Committee)
provides advice and recommendations to the Board regarding
people matters.
The Committee’s responsibilities include, inter alia:
¸ Reviewing the ongoing appropriateness, coherence,
and market competitiveness of human resource and
remuneration policies and practices, and recommending
changes to the Board as appropriate;
¸ Overseeing the implementation of remuneration, retention,
talent management and termination policies;
¸ Overseeing the key processes employed to identify and
develop talent across the Group;
¸ Recommending the remuneration of Executive Directors,
Executive Key Management Personnel and any other direct
reports to the Managing Director to the Board;
¸ Recommending to the Board the budgets for annual
remuneration awards for all other employees;
¸ Recommending to the Board the performance measures
underpinning all Incentive Plans;
¸ Conducting Board Performance Reviews;
¸ Proposing to the Board the appointment of new non-
executive directors;
¸ Approving the terms and conditions and contracts for any
new Executive Key Management Personnel and other direct
reports of the Managing Director.
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OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
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Table 3 – External Consultants Engaged by the Committee
in 2018
COMMITTEE AND
BOARD ENGAGEMENTS
MANAGEMENT
ENGAGEMENTS
CONSULTANT
Aon Hewitt
Executive remuneration
benchmarking.
Ernst & Young Market benchmarking of
Guerdon
Associates
certain executive benefits.
Non-Executive Director Fee
Benchmarking and support
with the LNG Expansion
Incentive design and
communication.
Various salary surveys for
non-executive positions.
Accounting and advisory
services.
No management
engagements.
Orient Capital
(A subsidiary of
Link Group)
Annual reporting in relation
to Total Shareholder Return
calculations to determine
vesting of Performance Rights.
Quarterly Long Term
Incentive Plan vesting
updates. Regular analysis of
the Company’s shareholder
registry.
REMUNERATION STRUCTURE
4.
Oil Search’s remuneration structure comprises four elements:
¸ Total Fixed Remuneration (TFR);
¸ Short-Term Incentive (STI);
¸ Long-Term Incentive (LTI); and
¸ Occasional Retention Awards of Restricted Shares for
key/critical staff.
The mix of remuneration elements for individual employees
is dependent on their level and role within Oil Search, with
the proportion of “at risk” performance-related remuneration
(STI and LTI elements) increasing with greater seniority.
Chart 1 – Aggregate Managing Director Realised
Remuneration (non-Statutory) over the cycle
Chart 1 shows the aggregate indexed value of realised
remuneration outcomes over the ten year period 2009 to 2018
for the Managing Director. Short and Long Term Incentive
outcomes have been calculated using the current framework for
all years to provide consistency of analysis and show the value
ultimately received in respect of a year, being the aggregate of:
¸ TFR (indexed to 100)
¸ Cash STI: Cash STI paid in relation to the year (based on
Target STI multiplied by the STI scorecard outcome for
the year, with 50% of the resulting STI amount being paid
in cash);
¸ Deferred STI: The value of the Deferred STI ultimately
received (the 50% deferred STI amount as adjusted for
movements in the Oil Search share price between award
and vesting); and
¸ Performance Rights: Value of the Performance Rights
ultimately received in respect of the year, taking
into account the amount of awards which ultimately
vested based on the TSR performance condition and
the movement in the Oil Search share price between
award and vesting.
e
r
e
h
w
e
m
o
c
t
u
o
e
t
a
g
e
r
g
g
a
d
e
x
e
d
n
I
0
0
1
=
R
F
T
500
400
300
200
100
0
2
9
3
1
7
3
8
3
3
6
7
2
9
6
2
9
5
2
5
1
0 3
8
1 2
4
2
6
3
3
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Chart 1 shows how the aggregate remuneration outcomes for
the Managing Director have varied over time as result of the
combined operation of the Short Term Incentive scorecard
(which is tightly linked to the long term strategic plan, coupled
with the significant 50% equity deferral arrangement) and the
Total Shareholder Return performance conditions attaching to
the Long Term Incentive awards.
Total Fixed Remuneration (TFR)
The target ranges for TFR payable for roles in the organisation,
including those for Executive Key Management Personnel are
80% – 120% of competitive benchmarks. An independent
external remuneration consultant is engaged by the Committee
from time to time to provide competitive benchmark data for
Executive Key Management Personnel roles.
For other roles in the organisation, remuneration information
is derived from relevant remuneration surveys conducted by
independent third parties.
An annual TFR review budget, agreed by the Board each year,
is used to adjust TFRs paid to individuals to ensure that their
fixed remuneration remains competitive for their specific skills,
competence, and value to the Company.
Short-Term Incentive (STI)
Each permanent employee has the opportunity to earn an
annual STI which is based on a percentage of his or her TFR.
The STI percentage increases with seniority to ensure a higher
proportion of remuneration is “at risk” for senior employees.
The size of the STI pool is directly related to corporate
performance through a scorecard which includes a range of key
measures that directly affect Shareholder Value and which are
directly linked to the Oil Search Strategic Plan.
At the start of each year, the Board determines the hurdles and
target levels of performance which form the STI scorecard.
At the end of the year, the Board approves an overall STI pool
based on the level of achievement against the hurdles that were
determined at the start of the year.
The STI pool is then distributed to employees taking
into account:
¸ The contribution of the employee’s division to the
achievement of the organisational objectives; and
¸ The individual performance of the employee.
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DIRECTORS’ REPORT
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The target levels of performance set by the Board are
challenging and are driven by the annual budget and longer
term strategic plan including resource replacement objectives.
Achievement of target levels of performance delivers the
payment of 50% of STI Opportunity.
The Board has discretion, having regard to recommendations
from the People and Nominations Committee, to adjust the final
size of the STI pool after due consideration of the Oil Search
business performance and scorecard outcomes, including
clawing back previous awards where appropriate.
The overall STI pool available to all employees is capped at
100% of the STI Opportunity amount (i.e. 2 x the aggregate
of STI Target amounts).
Short Term Incentive award objectives and outcomes
Table 4 summarises the scorecard measures, weightings,
targets and outcomes for 2018.
Table 4 – Short Term Incentive scorecard measures and outcomes
MEASURE
Safety
PERFORMANCE AND
REWARD ALIGNMENT
Rewards a continuous focus on safe
and reliable operations measured
through a combination of lagging
(Total Recordable Injury Rate, Process
Safety Events) and leading (Safety
Critical Maintenance Tasks and Well
Integrity Assurance) indicators.
WEIGHTING
OUTCOME(1) OUTCOME COMMENTARY
2018
10%
Achievement for the Safety measure was between target and
stretch. The Personal Safety element was well ahead of the target
level of performance, and Process Safety performance was
above target leading to an overall outcome which was between
target and stretch.
Production Rewards the achievement of the
20%
budgeted operated and non-
operated production volumes
– the largest contributors to short
term financial performance.
OPERATIONAL
MEASURES
(55%)`
Costs
Rewards achievement of incurring
below budget controllable field
and corporate costs as well as
Oil Search net share of PNG LNG
controllable costs.
EBITDAX
Rewards achievement of profitability
of the business against budget.
2C Gas
Resources
2C Oil
Resources
GROWTH
MEASURES
(45%)
Rewards the discovery or acquisition
of new 2C gas resources, providing
the resources required to undertake
major gas projects or expansions. Gas
Resource additions are recognised in
a phased approach over three years
to smooth recognition and to provide
additional opportunity to appraise
and therefore increase the confidence
in the size of the resource discovered.
Rewards the discovery or acquisition
of new 2C oil resources, increasing
the scale of the company’s oil
producing activities. 2C Oil Resource
additions are recognised in a phased
approach over three years to smooth
recognition and to provide additional
opportunity to appraise and therefore
increase the confidence in the size of
the resource discovered.
Strategic
and growth
initiatives
Rewards the delivery of milestones
that ensure the progressive
achievement of strategic plan
objectives.
20%
5%
15%
15%
15%
Achievement for the Production measure was between
threshold and target. Target levels of Production for STI
scorecard purposes were based on the 2018 budget approved
by the Board prior to the earthquake. These targets were not
adjusted to reflect periods of deferred production arising from
the earthquake. Oil Search operated production was below the
threshold performance against the original scorecard target
and PNG LNG performance was slightly ahead of threshold
performance. Actual production for 2018 was above the revised
operational production targets which were set in April and then
July as the outcomes from the recovery became clearer, but as
noted above the targets for STI purposes were not adjusted.
Achievement of the Costs measure was overall close to target.
This comprised a much better than target outcome for costs
associated with Oil Search operated assets being under budget
due to reprioritisation of work programs following the earthquake
and abnormal costs being offset by insurance recoveries. Costs
associated with non-operated assets were above budget.
Achievement of the EBITDAX measure was between target and
stretch. Higher realised hydrocarbon prices more than offset the
earthquake impacted production outcomes.
Achievement on the Gas Resource discovery measure was
beyond stretch. This was a result of major resource revisions
(described in the year-end reserve and resource statement)
relating to P’nyang and Kimu following successful appraisal
drilling. Under the phased approach to recognising resource
additions for Short Term Incentive purposes, the outcome also
included carried forward recognition of a proportion of the
PNG LNG gas recertification outcome from 2016.
Achievement on the Oil Resource discovery measure was
beyond stretch. This was largely a result of the major new oil
resource addition associated with the Alaska North Slope farm-
in. No part of this was recognised in the 2017 scorecard as the
transaction was still subject to approval by the Committee on
Foreign Investment in the US at 2017 year end. This approval was
received in February 2018 and Oil Search assumed operatorship
in March 2018.
Achievement on the strategic and growth initiatives was at
stretch reflecting achievement of key milestones in earthquake
return to service objectives, resumption of reliable gas export to
PNGLNG, Alaska North Slope deal closure, Alaska pre-requisites
to execute winter drilling program, diversity & inclusion, climate
change and enterprise wide systems implementation.
(1) Performance Level achieved:
No achievement (below threshold)
B/w threshold and target
Close to target
B/w target and stretch
At or beyond stretch
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OIL SEARCH ANNUAL REPORT 2018
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The STI scorecard outcome was beyond the stretch outcome
and under the terms of the scheme the overall outcome was
therefore capped at 100% of opportunity. The Board has an
established track record of applying discretion to the overall
scorecard result to ensure it considers factors not anticipated
at the start of the year and that the interests of shareholders
and employees are appropriately aligned and balanced.
Reflecting the extraordinary events of 2018, and to ensure STI
outcomes considered both shareholder experience as well
as the significant efforts of the company in response to the
earthquake, the Board resolved to exercise its discretion and
make two further adjustments to the size of the final STI pool
available for distribution.
Firstly, an adjustment was made to acknowledge that
shareholders had experienced circa two months of lost
2018 production. The Board acknowledges that while this is
deferred production which will occur in later years, the deferred
opportunity occurred during a period of high hydrocarbon
prices relative to recent years and the STI outcome should
be reduced to reflect that. Balancing that adjustment, the
Board also acknowledges that Oil Search employees were
considerably stretched to recover operations from the impacts
of the earthquake, and field-based staff who remained
on site immediately thereafter had to endure numerous
aftershocks and basic living conditions whilst reconstructing
accommodation facilities, restoring power and adequate
supplies of potable water. The entire organisation worked
with a singular focus to return to business as usual as quickly as
possible. Significantly, not one recordable injury was recorded
during the restoration of services and production. The
business outcomes achieved in 2018 reflect the dedication and
commitment of all staff.
Balancing the above, the Board resolved to apply its
discretion to reduce the overall STI outcome for 2018 to 92%
of Opportunity.
Chart 2 illustrates the STI pool as a percentage of STI
Opportunity over the five year period 2014 to 2018.
Chart 2 – STI Awards to Employees
Over the period 2014 to 2018 STI, the STI pool as a percentage
of STI Opportunity has been as follows:
100%
80%
60%
40%
20%
0%
%
0
0
1
%
5
.
2
7
%
0
.
5
9
%
6
.
9
8
%
0
.
2
9
2014
2015
2016
2017
2018
Incentives – Executives
Performance Rights
For Executive Key Management Personnel, and other senior
managers, the Long Term Incentive Plan (LTIP) is provided in
the form of a grant of Performance Rights (PRs).
Awards of PRs under the LTIP are rights to acquire ordinary
shares in the Company for nil consideration, conditional on
the achievement of pre-determined corporate performance
hurdles within defined time restrictions.
The performance criteria for the vesting of PRs are based on
the Company’s Total Shareholder Return (TSR) over a three-year
performance period against two peer groups:
¸ The ASX50 (excluding property trusts and non-standard
listings); and
¸ The constituents of the Standard & Poor’s Global 1200
Energy Index (S&P Global 1200 Energy Index).
For awards made between 2012 and 2016, half of each award
of PRs was tested against each peer group.
Following a review of the measures in late 2016, the Board
increased the proportion of the LTI tested against the S&P
Global 1200 Energy Index from one half to two thirds.
This change applied prospectively to new awards made from
2017 onwards. In part, this change recognised the Company’s
changing shareholder base, which has become increasingly
international. The remaining one third of awards continues to
be measured against the constituents of the ASX50, retaining
alignment of a component executive rewards to Oil Search’s
performance relative to large Australian listed companies.
To reduce the impact of foreign currency movements on
the vesting calculations, half of the award tested against the
international peer group is measured based on Oil Search’s
and other companies’ TSR in a common currency (USD) and
the other half in the local currency of the country of primary
listing (which for Oil Search is Australia). Reducing the impact of
foreign currency movements increases executives’ perceived
value of the long term incentives by de-emphasising the
importance of foreign currency movements on the outcome,
as such movements are beyond the control of executives.
No changes were made to the method of calculation of TSR
outcomes for any prior year awards.
To determine the number of awards vesting, the Company’s
TSR over the performance period is ranked as follows:
¸ as regards one third of the award, against the TSR of each
of the constituents of the S&P/ASX50 Index (excluding
property trusts and non-standard listings) as at the
commencement of the three-year performance period; and
¸ as regards one third of the award, against the TSR of each of
the constituents of the S&P Global 1200 Energy Index at the
commencement of the three-year performance period. TSR
outcomes for this part of the award are measured in a US
dollar base for Oil Search and each constituent company;
and
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OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
¸ as regards the final third of the award, against the TSR of
each of the constituents of the S&P Global 1200 Energy
Index at the commencement of the three-year performance
period. TSR outcomes for this part of the award are
measured in the local currency of the country of main listing
for Oil Search and each constituent company.
If, in regard to each part of the award described above, the
Company’s TSR performance is:
¸ below the median, that is, the 50th percentile, the number
of PRs comprising that part of the award that vest will be zero;
¸ at median, the number of PRs that vest will be 50% of the
total number of PRs comprised in that part of the award;
¸ greater than median and less than the 75th percentile, the
number of PRs that vest will increase on a straight line basis
from 50% to 100% of the total number of PRs comprised in
that part of the award; or
¸ equal to or greater than the 75th percentile, the number
of PRs that vest will be 100% of the total number of PRs
comprised in that part of the award.
This is illustrated in Chart 3.
Oil Search’s TSR performance is required to be at or above
the 75th percentile against all peer groups for 100% of the
Performance Rights granted to vest. TSR is calculated by an
independent external consultant and is based on share price
Table 5 – Details of Awards of Performance Rights
changes and dividends paid on the shares over the measurement
period. In calculating the TSR it is assumed dividends are
reinvested to purchase additional shares of the Company
at the closing price applicable on the ex-dividend date.
Chart 3 – Illustration of vesting outcomes vs percentile
ranking against the peer group for each portion of the award
g
n
i
t
s
e
v
d
r
a
w
A
l
l
a
r
e
v
O
f
o
%
35
30
25
20
15
10
5
0
1050
15
20
25
40
35
30
50
Percentile ranking vs peer group
65
45
60
55
70
75
80
85
90
95
100
Awards of Performance Rights are aligned with growth in
Shareholder Value, measured in terms of Total Shareholder
Return relative to other peer companies.
Table 5 details the grant and vesting of Performance Rights
issued between 2014 and 2018:
Measurement Period
Total Rights Granted
ASX50 Peer Group
2014
2015
2016(2)
2017
2018
1 Jan 14
to 31 Dec 16
1 Jan 15
to 31 Dec 17
1 Jan 2016
to 31 Dec 18
1 Jan 2017
to 31 Dec 19
1 Jan 2018
to 31 Dec 20
948,000
1,052,876
1,154,612
1,184,700
1,332,666
Oil Search TSR (3 year – AUD)
(12.7%)
(6.85%)
Percentile Rank
Vesting
(Maximum Vesting)
S&P Global 1200 Energy Index Peer Group – USD(1)
Oil Search TSR (3 year – USD)
Percentile Rank
Vesting
(Maximum Vesting)
S&P Global 1200 Energy Index Peer Group – Local Currencies(1)
21.0
0%
(50%)
(29.6%)
47.1
0%
(50%)
10.3
0%
(50%)
(16.4%)
50.6
25.6%
(50%)
8.43%
30.0
0%
22 May 2020
21 May 2021
(50%)
(33.3%)
(33.3%)
8.00%
42.9
0%
22 May 2020
21 May 2021
(50%)
(33.3%)
(33.3%)
Oil Search TSR (3 year – AUD)
Percentile Rank
Vesting
(Maximum Vesting)
N/A
N/A
N/A
22 May 2020
21 May 2021
(33.3%)
(33.3%)
Total Vesting (maximum 100%)
0%
25.6%
0% 22 May 2020
21 May 2021
(1) TSR outcomes against the S&P Global 1200 Energy Index peer group were measured in US dollars for awards up the 2016 Performance Rights awards. For the
2017 Performance Rights onwards, TSR outcomes are measured half in US dollar and half in local currencies.
(2) While the 2016 Performance Rights would not have vested until May 2019, Oil Search’s relative TSR for the period 1 January 2016 to 31 December 2018 against
the comparator groups has been calculated by the independent external consultant. Performance against each group was below the median and as a result no
awards vested.
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Chart 4 shows Oil Search’s percentile ranking against each of the two peer groups for the 2014, 2015 and 2016 awards.
Chart 4 – Oil Search’s percentile ranking against each peer group
None of the 2014 Performance Rights or 2016 Performance Rights vested as the percentile ranking against both peer groups was
below the 50th percentile. The 2015 Performance Rights vested at 25.6%.
Deferred STI
The 50% deferred portion of an executive’s STI (see section 6 below) is awarded as Restricted Shares under the LTIP. Any dividends
payable on Restricted Shares issued as the deferred component of an executive’s STI award are paid to the executive.
Long Term Incentives – General Employee Share Plan
Each permanent employee can participate in the Oil Search Long Term Incentive Plan if they have demonstrated an acceptable level
of personal performance.
Share Rights
Share Rights (SRs) are rights to receive Oil Search shares at the end of the three year vesting period subject to continued
employment at the vesting date. The number of SRs, and therefore the number of shares which will be delivered on the vesting date,
is determined at the grant date.
Table 6 contains details of the Share Rights awards made under the general employee share plan between 2014 and 2018.
Table 6 – Details of Share Rights awards under the general employee share plan
Grant Date
Vesting Date
Total Award
Exercise/Vesting Price
Long Term Incentives – Retention
2014
2015
2016
2017
2018
19 May 2014
18 May 2015
16 May 2016
22 May 2017
21 May 2018
19 May 2017
18 May 2018
17 May 2019
22 May 2020
21 May 2021
611,045
682,736
677,623
717,446
816,540
$nil
$nil
$nil
$nil
$nil
Retention Awards of Restricted Shares
In order to assist the Company in retaining key executives and other employees, the Company may issue Restricted Shares.
Restricted Shares issued only vest after the employee has completed a specified period of future service with the Company.
Restricted Shares are held on behalf of participants in trust, subject to disposal restrictions and forfeiture conditions, until released
under the terms of the Plan.
Retention awards are only made where the Board determines that a significant retention risk exists. In certain cases for senior new
hires, awards of Restricted Shares are made in lieu of equity forgone with previous employers.
The vesting of Restricted Shares is subject to continued employment only and as such no additional performance conditions apply.
Unless the Board otherwise determines, unvested Restricted Shares will be forfeited when a participant ceases employment before
the vesting date.
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R emu n eratio n R ep o r t
Short Term Incentive
The Short Term Incentive (STI) provides an incentive opportunity
of 100% of TFR for senior executives and 180% of TFR for the
Managing Director.
The target payout under the STI provides for a payment of 50%
of the incentive opportunity. Half of the STI outcome is deferred
in to Restricted Shares vesting two years after the end of the
performance period to which the STI relates.
Table 7 summarises STI awards as a % of TFR for Senior
Executives and the Managing Director for a range STI outcomes.
Table 7 – STI awards at minimum, target and opportunity
for Senior Executives and the Managing Director
STI OUTCOME AS % OF TFR
STI OUTCOME
AS A % OF
OPPORTUNITY
SENIOR
EXECUTIVES
MANAGING
DIRECTOR
0%
50%
100%
0%
50%
100%
0%
90%
180%
Minimum
Target
‘Opportunity’
Individual awards above ‘Opportunity’ are possible in
exceptional circumstances with the maximum STI outcome
possible being capped at 200% of TFR. The overall STI pool is
capped at 200% of the target amount.
The STI is awarded in March each year for performance in the
previous calendar year.
Following the end of the financial year, the Board approves
an overall STI pool for executives based on the level of
achievement against the hurdles that were determined at the
start of the year. This pool is distributed to individual senior
executives based on their individual performance.
For all senior executives, 50% of their STI award is paid in cash
and the other 50% is converted to Restricted Shares under the
LTIP. The Restricted Shares are held in Trust on behalf of the
employee and vest on 1 January two years after the end of the
performance period to which the award relates, providing the
executive remains employed with Oil Search. Any dividends
payable on Restricted Shares issued as the deferred component
of an executive’s STI award are paid to the executive.
Table 8 shows the STI outcomes for the Managing Director and
Senior Executives since 2014 expressed as a percentage of
Total Fixed Remuneration.
Restricted Shares held in trust (whether vested or not) will be
forfeited by participants who are considered by the Board to
have acted fraudulently or dishonestly. Once a participant’s
Restricted Shares have vested, disposal restrictions and
forfeiture conditions will cease and the Restricted Shares
will be released from the trust.
Restricted Shares provided as retention awards do not attract
voting rights or dividends.
Long Term Incentive Plan Rules
Under the LTIP, all grants are automatically exercised on vesting.
All unvested awards lapse on termination of employment unless
the Board determines otherwise.
The Company may use newly issued or existing shares
(for example, through purchase on market) to satisfy awards.
5.
REMUNERATION OF KEY
MANAGEMENT PERSONNEL
Remuneration for Executive Key Management Personnel
is benchmarked against that of similar roles in a primary
reference group of ASX companies of similar size to Oil Search
in terms of Enterprise Value, Total Assets, Gross Revenue,
and Net Profit after Tax. For certain roles remuneration may
also be benchmarked at different management tiers of much
larger entities to normalise for relative business size while
reflecting the likely recruitment market for roles. A smaller and
secondary reference group of international energy and mining
companies is used to assess whether any particular positions
for which incumbents may be sourced internationally warrant
extra consideration.
Total Fixed Remuneration (TFR)
TFR, which includes Company superannuation contributions
and other remunerative benefits, is targeted within the range
of the median and the 62.5 percentile of the reference group,
depending on the international marketability and mobility of the
executive concerned. Executives may choose to salary package
items such as motor vehicles or superannuation contributions.
However, any costs arising from Fringe Benefits Tax (FBT) on
salary package items are borne by the executive.
At Risk Remuneration & Relationship to Company
Performance
As noted above in section 4, Oil Search executives are eligible
to receive a STI and participate in a LTI program which is “at risk”
remuneration, with any payment dependent on performance.
The Board’s objective is that the size of these incentives should
reflect Oil Search’s success in creating Shareholder Value, whilst
also being competitively positioned against benchmarks based
on the reference groups of companies mentioned above.
Accordingly, the size of the STI is directly related to corporate
performance against a range of key measures that impact
shareholder value, namely operational metrics (safety,
production, costs, and development initiatives) and growth
metrics (the discovery or acquisition of new hydrocarbon
resources and achievement of tangible value adding milestones
towards commercialisation of significant oil or gas volumes).
Similarly, the proportion of Performance Rights grants which
vest is directly related to Oil Search’s Total Shareholder Return
relative to peer groups of companies.
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Table 8 – Senior Executive STI outcomes as a % of TFR, 2014-2018
Managing Director
Senior Executives
2014
172.4%
95.8%
2015
143.6%
68.1%
2016
180.0%
95.0%
2017
171.0%
89.6%
2018
165.6%
92.0%
Analysis of individual Senior Executive STIs is contained in Tables 11 and 13 below.
Long Term Incentive (LTI) – Performance Rights
For 2018 the number of Performance Rights granted for the Managing Director and other senior executives was based on the
following formula:
X% of TFR
Oil Search Share Price
where X is 100% for the Managing Director and 60% for other senior executives, and “Oil Search Share Price” was the Volume
Weighted Average Price of Oil Search shares for the 5 trading days following the release of 2017 annual results.
Table 9 summarises performance rights grants and vesting levels for awards made over the period 2014 to 2018 for Executive Key
Management Personnel.
Table 9 – Allocation of Performance Rights to Executives
2014
2015
2016
2017
2018
NO.
VEST
NO.
VEST
NO.
VEST(1)
NO.
VEST
NO.
VEST
222,600
0%
236,000
25.6%
326,900
0%
315,000
2020
302,200
2021
50,000
5,500
49,700
42,500
49,400
13,100
–
48,500
51,000
0%
0%
0%
0%
0%
0%
–
0%
0%
53,009
11,660
52,697
45,081
52,331
9,819
55,638
25.6%
25.6%
25.6%
25.6%
25.6%
25.6%
25.6%
66,087
14,537
67,300
56,203
65,243
12,242
69,365
51,400
54,025
25.6%
25.6%
64,100
67,353
0%
0%
0%
0%
0%
0%
0%
0%
0%
63,700
56,300
66,800
54,200
62,900
40,808
66,900
2020
2020
2020
2020
2020
2020
2020
61,100
55,500
65,800
52,000
60,300
54,100
64,100
61,800
64,900
2020
2020
–
62,300
2021
2021
2021
2021
2021
2021
2021
–
2021
Directors
P Botten
Executives
P Cholakos
M Drew(2)
S Gardiner
M Herrett
I Munro
E White(3)
K Wulff
Former
Executives
G Aopi
J Fowles
(1) The vesting date of the 2016 Performance Rights is 18 May 2019. As described above, Oil Search’s TSR for the period 1 January 2016 to 31 December 2018 will
result in 0% vesting.
(2) Mr Drew was appointed to an Executive General Manager position effective 19 October 2016. The Performance Rights detailed above for 2016 were allocated
based on the framework applying to his previous, non-Executive General Manager level, position.
(3) Ms White was appointed to an Executive General Manager position effective 1 May 2017. The Performance Rights detailed above for 2017 were allocated based
on a pro-rata basis using the frameworks applying to her positions during the year.
LNG Expansion Incentive
The LNG Expansion Incentive is a separate incentive for the achievement of investment sanction for the Papua LNG development project
and the PNG LNG expansion project (“the Projects”). Oil Search’s participation in the next phase of LNG development in PNG through the
Projects provides transformative opportunities that will have a material impact on company value and sustainability.
Ensuring successful co-operation between stakeholders in the Projects is contingent on a highly complex alignment of commitments and
assessments requiring the combined financial, engineering, geoscientific, and stakeholder engagement expertise of the current Oil Search
executive team for a successful outcome. In addition to these transformative and material opportunities, the company’s executives are
expected to deliver on key operational objectives critical to the everyday operations of Oil Search.
This has presented the Board with a number of significant issues from the perspective of strategic and operational risk, performance
management and remuneration:
¸ Oil Search’s management team have the skills and operational experience with local PNG issues for the coordinated
management and achievement of investment sanction for these highly complex and transformative Projects;
¸ The materiality of reward for the Projects within the current STI scorecard and incentive framework does not reflect the
materiality of the LNG expansion opportunities;
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¸ Increasing the weighting of the Projects within the existing scorecard reward system would dilute the importance of operational
objectives beyond their ongoing importance; and
¸ The timing of investment sanction and implementation of the Projects does not fit well within the current annual STI and LTI
periods, and is itself a key driver of value.
The Board has considered these strategic and operational risks and determined to implement a separate LNG Expansion Incentive
Plan that will:
¸ Match the materiality of reward with the materiality of achieving both operational objectives and achieving investment sanction
for the Projects;
¸ Focus executives on achieving both operational and transformative objectives; and
¸ Increase the probability that key executives remain with the project for the near to mid-term.
The participants in the LNG Expansion Incentive Plan are the Managing Director and his Executive direct reports, being the
members of the management team who are critical to a successful achievement of investment sanction for the Projects.
The LNG Expansion Incentive Plan has been structured in a way that will minimise the risks and optimise outcomes for shareholders.
¸ 25% of the LNG Expansion Incentive is paid as cash and is contingent on the achievement of scorecard objectives that are
essential pre-requisites for achieving investment sanction for the Projects. The level of achievement of this tranche will be
determined at the time KPIs are achieved; and
¸ 75% of the LNG Expansion Incentive will be granted as Share Rights. Vesting will be contingent on achieving investment
sanction for the Projects within a defined period, and continuing service (subject to good leaver provisions) with a vesting
period that ends two years after investment sanction is achieved (provided that date is before a certain date determined by the
Board).
The deferred Share Rights and the cash component of the LNG Expansion Incentive are at risk and subject to the achievement of:
¸ A scorecard of pre-requisites that are necessary to achieve investment sanction for the Projects;
¸ Investment sanction for the Projects to be achieved before a certain date; and
¸ Continuing employment with the Group (or otherwise a good leaver).
A total of 500,935 Share Rights were granted on 21 June 2018
There is a scorecard of pre-requisite objectives that are critical to achieving investment sanction to proceed with the Projects.
These objectives are separate and distinct from the scorecard objectives for the existing STI. Since the LNG Expansion Incentive
Plan scorecard objectives are commercially sensitive the Board intends to provide details of the extent to which targets were set
and objectives achieved in the company’s remuneration report for the year in which the objectives are to be tested and the cash
incentive, if any, awarded. However, the Board has taken care to ensure the LNG Expansion Incentive Plan scorecard objectives are
specifically measurable and focussed on the following areas:
SCOPE OF ACCOUNTABILITY
DELIVERABLES
Delivery of Oil Search investment
sanction pre-requisites
Support Operators to achieve their
investment sanction pre-requisites
Equity and project financing
LNG Sales and purchase agreements
Commercial agreements
FEED execution and licencing for AGX
Engineering, design and contracting
Reserves
Licencing
Project financing
Commercial agreements
METRICS CENTRED ON:
¸ Funding arrangements with financiers
¸ Construction risk management
¸ Equity marketing arrangements in place
¸ Shipping arrangements
¸ Integration agreements negotiated
¸ AGX FEED studies delivered on schedule
¸ Licensing variations (as required)
¸ Environmental approvals
¸ Delivery of FEED studies
¸ Delivery of development plan
¸ Certification of project reserves
¸ Obtaining required project licences
¸ Licence variations (as required)
¸ Funding arrangements with financiers
¸ Construction risk management
¸ Integration agreements negotiated
In addition to the above, the Board will also consider the contribution Oil Search makes in relation to supporting in-country
engagement with other stakeholders including Government and Landowners.
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OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
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The timing of investment sanction for the Projects is critical to the timing of the first LNG cargoes and cash flows, and consequently,
Net Present Value (NPV). The Board has made an allowance for a complex set of other factors that could optimise NPV, but slightly
delay investment sanction of either Project. Nevertheless, the Board want to impress upon management that investment sanction
beyond a certain date will not result in any additional reward. As this time to achieve investment sanction is commercially sensitive, it
will be disclosed after investment sanction is achieved.
Corporate Financial Performance
Table 10 illustrates Oil Search’s financial performance over the past five years, which may be compared with the levels of STI and LTI
awards granted to Executives and detailed above.
Table 10 – Oil Search’s Five Year Performance
YEAR ENDED 31 DECEMBER
Net profit/(loss) after tax (US$m)
Diluted Earnings per share (US cents)
Dividends per share (US cents)
Shares Closing price (A$)(2)
Oil Search Three Year TSR (AUD)(3)
2014
353.2
23.8
14.0(1)
$7.89
34.7%
2015
(39.4)
(2.59)
10.0
$6.70
6.1%
2016
89.8
5.89
3.50
$7.17
(12.7%)
2017
302.1
19.77
9.50
$7.79
(6.9%)
2018
341.2
22.32
10.50
$7.16
8.43%
(1) Comprising an ordinary dividend of 8 US cents per share, a special dividend of 4 US cents per share and an interim dividend of 2 US cents per share.
(2) The closing price of Oil Search shares is taken on the last day of the financial year. The closing share price at the start of the 5 year period (31 December 2013)
was $8.11.
(3) The TSR has been calculated by an independent external consultant and is based on share price increases and dividends paid on the shares over the three year
period up to and including 31 December of the year they are reported against.
REMUNERATION DETAILS FOR KEY MANAGEMENT PERSONNEL
6.
For this section of the report, Key Management Personnel excludes Non-Executive Directors, whose remuneration is disclosed in
Section 9. The Executive Key Management Personnel for the purposes of this section are the following employees:
Mr Peter Botten CBE – Managing Director
Incumbent for the full year
As the Managing Director, Peter has the overall responsibility for effectively managing Oil Search and achieving the corporate
objectives. He is also responsible for ensuring that strategies agreed with the Board are implemented.
Mr Paul Cholakos – Executive General Manager Technical Services
Incumbent for the full year
Paul was appointed to the role of EGM Technical Services in February 2015. In his current position, Paul oversees the delivery of
HSES, risk, drilling, engineering and ICT functions that underpin the Company’s operations. In his previous role as EGM PNG
Operations, Paul played a major role in the Company’s transition to a major LNG exporter through its contributions to the world-
class PNG LNG Project.
Mr Michael Drew – Executive General Manager
& General Counsel
Incumbent for the full year
Michael joined Oil Search in 2014 in the role of General Counsel. His duties were subsequently expanded to include procurement
& supply chain when he was appointed General Counsel and Chief Procurement Officer in 2015. Michael joined the Executive
Leadership team as Executive General Manager & General Counsel from 19 October 2016. In his current position Michael is
responsible for the legal function, as well as all aspects of procurement, contracts and supply chain. Michael also leads teams in the
technical and commercial evaluation of new ventures and business development opportunities.
Mr Stephen Gardiner – Chief Financial Officer
& Group Secretary
Incumbent for the full year
Stephen’s role is to manage the corporate finance, treasury, tax and audit functions for the Company as well as all Group Secretarial
matters. He is also responsible for delivering an appropriate financial control and reporting framework. Prior to this position,
Stephen held the position of EGM Sustainability, Corporate Services & Group Secretary.
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Mr Michael Herrett – Executive General Manager
Human Resources – Health & Administration
Incumbent for the full year
Dr Julian Fowles – Executive General Manager
PNG Business Unit
Incumbent until 7 November 2018
Julian was appointed to the role of EGM PNG Business
Unit in February 2015. Julian’s responsibilities included the
management of Oil Search’s PNG assets and production,
engagement with key stakeholders and addressing in-country
issues. Julian previously held the position of Executive General
Manager Exploration.
The remuneration philosophy outlined above is applied
consistently to the Company’s Executive Key Management
Personnel. The following chart shows the remuneration
breakdown for current Executive Key Management Personnel.
2018 Key Management Personnel Remuneration Mix
The remuneration mix and quantum for the Managing Director
and Executive General Managers is aligned with achieving the
Company’s targeted market positioning. The remuneration mix
for the Managing Director and Executive General Managers is
set out in the chart in Chart 5.
Chart 5 – Key Management Personnel Remuneration Mix
100%
80%
60%
40%
20%
0%
%
4
3
%
6
1
%
6
1
%
4
3
At Risk
Remuneration
(66%)
Fixed
Remuneration
(34%)
%
8
2
%
2
1
%
2
1
%
8
4
At Risk
Remuneration
(52%)
Fixed
Remuneration
(48%)
Managing Director
Executive General Managers
TFR STI Cash STI Deferred LTI Face Value
The pay mix outlined above is determined by the application
of the Oil Search Remuneration Strategy, assuming STI awards
at 100% of target and LTI awards at 100% of their ‘face value’
(i.e., not discounted to take account of the performance
conditions nor dividends forgone over the vesting period).
Percentages shown in the later section on Executive
Remuneration reflect actual incentives paid as a percentage
of TFR, which includes movements in leave balances, non-
monetary benefits and share based payments calculated in
accordance with IFRS 2 Share-Based Payment.
Michael is responsible for establishing and aligning people
management strategies, processes and systems to ensure that
Oil Search attracts, develops, retains and rewards the right
people with the right skills to achieve the strategic objectives
of the organisation. Michael also has overall responsibility for
Company’s enterprise management system and the Health
& Administration function within the Company.
Mr Ian Munro – Executive General Manager
– Gas & Marketing
Incumbent for the full year
Ian has responsibility for directing and managing Oil Search’s
gas business development strategy, including LNG joint
venture commercial strategy and management (PRL3, PRL15
and PNG LNG) negotiation of joint venture agreements to
deliver expansion and marketing and shipping of OSH joint
and equity volumes from existing and new projects. Ian also
has responsibility for Oil Search’s exploration programs which
is focussed on growing Shareholder value through exposure
to quality exploration projects.
Ms Elizabeth (Beth) White – Executive General Manager
– Gas Project Delivery
Incumbent from 1 May 2017
Beth is responsible for the development of gas resources
in PNG including the delivery of state (gas) agreements,
development of PNG gas resources, technical delivery of LNG
expansion, commercialisation of smaller gas fields, domestic
gas strategy and in-country project interface, coordination
and JV management for gas assets.
Dr Keiran Wulff – Executive General Manager –
Exploration & New Business
Incumbent for the full year
Keiran was appointed to the position of President Alaska in
March 2018, following Oil Search’s acquisition of oil assets
in the Alaska North Slope and is based in Anchorage,
Alaska. Keiran’s responsibilities included the establishment
and management of Oil Search’s operations, assets and
production, engagement with key stakeholders and
addressing in-country issues.
Former Executive Key Management Personal
Mr Gerea Aopi CBE – Executive General Manager
Stakeholder Engagement
Incumbent until 31 May 2018
Gerea played a major role in managing relationships with the
PNG Government and other joint venture partners and was
also charged with strategy development and enactment of
our community affairs within the Company.
Mr Aopi maintains his association with the Company by serving
as PNG Country Chair, on a part-time basis, while continuing
as a Director of the Oil Search Foundation and Oil Search
Power Holdings.
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OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
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Realised Remuneration of Executive Key Management Personnel Remuneration (Australian Dollars)
Table 11 below sets out the ‘Realised Remuneration’ of Executive Key Management Personnel for 2017 and 2018 in Australian
Dollars. It is included to complement the Statutory Remuneration disclosure and to better illustrate the remuneration received by
Executives.
As Oil Search benchmarks (and for all but one Executive) pays remuneration in Australian Dollars, it is difficult for the reader to
distinguish annual movements in fixed remuneration from exchange rate movements in the Statutory Remuneration table.
In Table 11, Fixed Remuneration represents the level of Base Pay, Superannuation and expatriate allowances paid to the Executive.
The Cash Short Term Incentive is the cash Short Term Incentive earned to the Executive in respect of the year (even though it is paid
to the Executive in the March following the year). Deferred STI from Prior Years shows the value on the vesting date of Restricted
Shares granted in lieu of Deferred Short Term Incentives from two years prior. The Long Term Incentive vesting in the year is the
value of Performance Rights vesting in the year reflecting (a) the portion of awards which satisfies the Total Shareholder Return
performance condition and (b) the Oil Search share price on the date of vesting.
While this disclosure is non-statutory it has been audited.
Table 11 – Realised Remuneration Key Management Personnel Remuneration (Australian Dollars)
FIXED
REMUNERATION
YEAR
CASH SHORT
TERM INCENTIVE
IN RESPECT OF
THE YEAR
DEFERRED STI
FROM PRIOR
YEARS
LONG TERM
INCENTIVE
VESTING IN THE
YEAR
TOTAL
Directors
P Botten
Managing Director
Executives
P Cholakos
EGM Technical Services
M Drew
EGM & General Counsel
S Gardiner
Chief Financial Officer & Group Secretary
M Herrett
2018
2017
2018
2017
2018
2017
2018
2017
2018
EGM Human Resources, Health & Administration
2017
I Munro
EGM Gas & Marketing
E White(2)
EGM Gas Project Delivery
K Wulff (1)
EGM Exploration & New Business
2018
2017
2018
2017
2018
2017
2,283,414
1,890,667
1,782,936
516,557
6,473,574
2,233,168
1,909,359
1,620,728
–
5,763,255
769,479
752,547
698,356
665,101
828,353
788,908
654,403
640,003
759,648
742,932
681,345
432,600
1,019,654
789,876
318,565
303,258
321,244
327,579
400,095
388,557
301,026
286,562
331,966
332,648
329,090
194,490
390,094
389,033
303,444
304,768
–
224,063
305,197
314,863
268,747
259,188
299,985
312,684
–
–
116,024
–
25,513
–
1,507,512
1,360,573
1,045,113
1,216,743
115,340
1,648,985
–
1,492,328
98,667
1,322,842
–
1,185,753
114,536
–
21,486
–
1,506,135
1,388,264
1,031,921
627,090
338,047
121,778
1,869,573
–
1,178,909
(1) Remuneration for Dr Wulff included a Foreign Service Premium whilst his role was based in Anchorage.
(2) Remuneration disclosed for Ms White for 2017 is for the period 1 May 2017 to 31 December 2017.
For all remuneration reporting stated in US Dollars, the exchange rates set out in Table 12 have been used:
Table 12 – Exchange rates used in the remuneration tables where disclosure is in US Dollars
EXCHANGE RATE
AUD/USD
PGK/USD
2018
0.7059
0.2970
2017
0.7667
0.3135
106
OIL SEARCH ANNUAL REPORT 2018
DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Table 13 sets out the remuneration of Executive Key Management Personnel for the 2018 Financial Year in US Dollars and has
been prepared in accordance with the requirements of Section 300A of the Australian Corporations Act 2001 and associated
accounting standards.
Table 13 – Key Management Personnel Remuneration (US$)
YEAR
SHORT TERM
EMPLOYMENT LONG TERM
EQUITY(6)
OTHER
TOTAL
POST
SALARIES
FEES AND
ALLOW
ANCES (1)
NON-
MONETARY
SHORT TERM
COMPANY
CONTRI-
BUTION TO
BENEFITS(2)
INCENTIVE(3)
SUPER(4)
LONG
SERVICE
LEAVE
ACCRUAL(5)
PERFORM.
RIGHTS
RESTRICTED
SHARES
SIGN ON/
TERMI-
NATION
BENEFITS
Directors
P Botten
2018
1,710,458
277,848 1,334,527
14,322
52,733
1,074,905 1,452,630
Managing Director
2017
1,868,510
300,268
1,463,906
15,205
52,460
831,147
1,314,957
Executives
P Cholakos
2018
531,335
143,101
224,859
14,322
10,572
216,324
247,404
EGM Technical Services
2017
578,299
156,909
232,508
15,205
10,866
174,788
228,353
M Drew
2018
503,390
–
226,750
16,255
EGM & General Counsel
2017
481,364
3,407
251,155
18,381
–
–
146,652
46,788
66,495
81,157
–
–
–
–
–
–
5,917,422
5,846,453
1,387,917
1,396,928
939,835
901,959
S Gardiner
2018
580,050
–
282,407
14,322
16,152
226,529
275,983
–
1,395,443
Chief Financial Officer
& Group Secretary
2017
603,873
–
297,907
15,205
16,230
177,773
231,004
–
1,341,992
M Herrett
2018
456,263
EGM Human Resources,
Health & Administration
2017
466,395
I Munro
EGM Gas & Marketing
2018
2017
511,357
568,339
–
–
–
212,479
14,953
8,600
184,029
219,044
–
1,095,368
219,707
20,031
43,735
148,654
198,535
–
1,097,057
234,318
15,268
47,816
213,561
254,271
–
255,041
19,693
–
172,586
225,622
E White(7)
2018
491,612
–
232,288
14,322
11,697
125,456
58,632
EGM Gas Project Delivery 2017
334,220
1,503
149,115
10,192
31,409
42,796
–
K Wulff
2018
882,779
230,467
275,348
14,322
EGM & President Alaska
2017
579,745
295,861
298,272
15,205
–
–
227,076
281,558
155,192
247,188
Former Directors
G Aopi
2018
151,310
65,489
–
23,104
(217,011)
67,187
239,861
263,771
593,711
EGM Stakeholder
Engagement
Former Executives
2017
353,166
155,210
225,419
35,380
16,060
169,534
221,378
–
1,176,146
J Fowles
2018
993,561
EGM PNG Business Unit
2017
981,345
–
–
–
20,823
(77,639)
181,534
252,146
138,386
1,508,811
236,964
–
84,332
178,145
342,190
–
1,822,977
(1)
Includes salaries, allowances, expatriate allowances and movements in annual leave accruals.
(2)
Includes the grossed up FBT value of benefits subject to FBT provided to an employee in the year that the FBT is payable.
(3) STI is based on the year that the performance period relates to, regardless of when paid and excludes the 50% which is deferred into Oil Search Shares under the
Restricted Share Plan, which is captured in the Restricted Shares data in the Equity section.
(4) Superannuation is the contributions made to an approved superannuation fund.
(5) Long service leave accrual is based on the relevant legislation.
(6) Equity is the expensed value of all Performance Rights or Restricted Shares as calculated under IFRS 2 Share-Based Payment.
(7) Remuneration disclosed for Ms White for 2017 is for the period 1 May 2017 to 31 December 2017.
107
–
–
–
–
–
–
1,276,591
1,241,281
934,007
569,235
1,911,550
1,591,463
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Table 14 details the vesting profile of the Short Term Incentives awarded as remuneration to each Director of Oil Search and the
Executive Key Management Personnel for 2018.
Table 14 – Analysis of STI Included in Remuneration
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
INCLUDED
IN REMUN-
ERATION
(US$)(1)
% OF STI
OPPORTUNITY
CASH
DEFERRED
2,669,055
92.0
1,334,528
1,334,527
449,717
453,500
564,813
424,957
468,636
464,576
550,696
82.8
92.0
96.6
92.0
87.4
96.6
96.6
224,858
226,750
282,407
212,479
234,318
232,288
275,348
224,857
226,750
282,406
212,478
234,318
232,288
275,348
(1) The value includes 50% of the STI award paid as cash (as reported in Table 13) as well as the 50% to be deferred via the allocation of Restricted Shares that will vest
on 1 January 2021.
KEY TERMS OF EMPLOYMENT CONTRACTS FOR KEY MANAGEMENT PERSONNEL
7.
Table 15 sets out the contractual provisions for current Executive Key Management Personnel. All employees at Oil Search have
no contractual entitlement to future increases in remuneration or entitlement to receive any incentives, whether Short Term or
Long Term.
Table 15 – Contractual Provisions for Specified Executives
P Botten
Other EGMs
EMPLOYING
COMPANY
POSL
POSL
CONTRACT
DURATION
Ongoing
NOTICE PERIOD
COMPANY
NOTICE PERIOD
EMPLOYEE
TERMINATION PROVISION
6 months
6 months
18 months Total Fixed Reward
Ongoing
6 months
6 months
4 weeks per year of service
(minimum 8, maximum 52)
Remuneration for all employees is reviewed via an annual process across the organisation. Remuneration for the Managing
Director and the other Executive Key Management Personnel is reviewed by the People and Nominations Committee, which then
recommends to the Board:
¸ Budgets for TFR increases for the coming year;
¸ STI payments for the previous year;
¸ STI targets for the coming year; and
¸ LTI participation in the coming year.
For all other employees, the Managing Director approves recommendations from senior managers across the organisation, within
budgets approved by the Board.
EQUITY INSTRUMENTS
8.
All Rights in the following tables refer to Performance Rights or Restricted Shares issued in accordance with the Performance Rights
Plan or Long Term Incentive Plan. The structure of the Rights is detailed in section 4 on Remuneration Structure.
Rights over Equity Instruments Granted as Remuneration
Table 16 provides details of Performance Rights over ordinary shares in the Company that were granted as remuneration to
Executive Key Management Personnel during 2018 and details of Performance Rights that vested during 2018.
108
OIL SEARCH ANNUAL REPORT 2018
DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Table 16– Details of Performance Rights Granted during 2018
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
Former Executives
J Fowles
NUMBER
OF RIGHTS
GRANTED
DURING 2018
GRANT
DATE
FAIR VALUE
PER RIGHT
(A$)
EXERCISE
PRICE PER
RIGHT
(A$)
EXPIRY
DATE
302,200
21 May 2018
$5.23
Nil
21 May 2021
61,100
21 May 2018
55,500
65,800
52,000
60,300
54,100
64,100
21 May 2018
21 May 2018
21 May 2018
21 May 2018
21 May 2018
21 May 2018
$5.23
$5.23
$5.23
$5.23
$5.23
$5.23
$5.23
Nil
Nil
Nil
Nil
Nil
Nil
Nil
21 May 2021
21 May 2021
21 May 2021
21 May 2021
21 May 2021
21 May 2021
21 May 2021
62,300
21 May 2018
$5.23
Nil
21 May 2021
All Performance Rights expire on the earlier of their expiry date or termination of the individual’s employment unless the Board
determines otherwise. Performance Rights automatically exercise on the vesting dates detailed in the tables above conditional on
Oil Search achieving certain performance hurdles. Details of the performance criteria are included in the section on Long Term
Incentives above. For Performance Rights granted in 2018 the earliest exercise date is 21 May 2021.
Table 16b– Details of LNG Expansion Incentive Rights Granted during 2018
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White(1)
K Wulff
Former Executives
J Fowles
Note 1
NUMBER
OF RIGHTS
GRANTED
DURING 2018
GRANT
DATE
FAIR VALUE
PER RIGHT
(A$)
EXERCISE
PRICE PER
RIGHT
(A$)
203,984
21 June 2018
$8.50
38,188
21 June 2018
34,659
21 June 2018
41,110
21 June 2018
32,477
21 June 2018
37,700
33,814
21 June 2018
21 June 2018
40,083
21 June 2018
$8.50
$8.50
$8.50
$8.50
$8.50
$8.50
$8.50
38,920
21 June 2018
$8.50
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
EXPIRY
DATE
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
Awards vest two years after achievement of Financial Sanction of the Papua LNG Project and the PNG LNG Expansion Project pursuant to the
LNG Expansion Incentive approved by shareholders at the 2018 Annual Meeting.
All LNG Expansion Incentive Rights expire on the earlier of their expiry date or termination of the individual’s employment unless
the Board determines otherwise. LNG Expansion Incentive Rights automatically exercise on the vesting dates detailed in the tables
above conditional on Oil Search achieving certain performance hurdles. Details of the performance criteria are included in the
section on Long Term Incentives above.
109
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
The deferred component of the 2017 STI was allocated as Restricted Shares under the Long Term Incentive Plan outlined above for
certain Executive Key Management Personnel in 2018. Table 17 sets out the number of Restricted Shares granted during 2018:
Table 17 – Details of Deferred STI granted as Restricted Shares
Directors
P Botten(1)
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White(2)
K Wulff
Former Directors
G Aopi
Former Executives
J Fowles
NUMBER
GRANTED
DURING 2018
GRANT
DATE
FAIR VALUE
(A$)
EXERCISE
PRICE
(A$)
VESTING
DATE
252,694
21 May 2018
$8.50
nil
1 January 2020
40,135
21 May 2018
43,353
21 May 2018
51,424
37,925
44,024
25,750
21 May 2018
21 May 2018
21 May 2018
21 May 2018
51,487
21 May 2018
$8.50
$8.50
$8.50
$8.50
$8.50
$8.50
$8.50
nil
nil
nil
nil
nil
nil
nil
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
38,911
21 May 2018
$8.50
nil
1 January 2020
40,904
21 May 2018
$8.50
nil
1 January 2020
(1) The allocation for P Botten was approved at the 2018 Annual Meeting.
(2) Ms White was appointed to an Executive General Manager position effective 1 May 2017. The Deferred STI granted as Restricted Shares detailed above relates to
the STI awarded for the period from 1 May 2017 to 31 December 2017.
Modification of Terms of Equity Settled Share based Payment Transactions
No terms related to equity-settled share based payment transactions (including Performance Rights and Restricted Shares granted
as compensation to Executive Key Management Personnel) have been altered or modified by the issuing entity during the reporting
period or the prior period, with the exception of the early vesting of certain allocations for terminating employees.
110
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Exercise of Rights Granted as Remuneration
Table 18 summarises the number of Performance Rights exercised during 2018 and 2017.
Table 18 – Details of the Exercise of Performance Rights
EXERCISED IN 2018
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
Former Directors
G Aopi
Former Executives
J Fowles
EXERCISED IN 2017
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
Former Directors
G Aopi
Former Executives
J Fowles
NUMBER
OF RIGHTS
EXERCISED
AMOUNT
PAID PER
SHARE
(A$)
60,416
13,570
2,984
13,490
11,540
13,396
2,513
14,243
13,158
13,830
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
NUMBER
OF RIGHTS
EXERCISED
AMOUNT
PAID PER
SHARE
(A$)
–
–
–
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Analysis of Performance Rights, LNG Expansion Incentive Rights and Restricted Shares Over Equity Instruments
Granted as Remuneration
Details of movements of Performance Rights and Restricted Shares granted as remuneration to Executive Key Management
Personnel are set out in Tables 19 and Table 20.
111
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Table 19 – Details of movements of Performance Rights and LNG Expansion Incentive Rights during 2018
GRANT DATE
BALANCE AT
1 JAN 2018
RIGHTS
GRANTED
RIGHTS
EXERCISED
RIGHTS
LAPSED
BALANCE AT
31 DEC 2018
%
VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
MOVEMENTS DURING THE YEAR
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
22/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
236,000
326,900
315,000
-
-
877,900
53,009
66,087
63,700
-
-
182,796
11,660
14,537
56,300
-
-
82,497
52,697
67,300
66,800
-
-
186,797
45,081
56,203
54,200
-
-
155,484
52,331
65,243
62,900
-
-
180,474
9,819
12,242
40,808
-
-
62,869
55,638
69,365
66,900
-
-
191,903
-
-
-
302,200
203,984
506,184
-
-
-
61,100
38,188
99,288
-
-
-
55,500
34,659
90,159
-
-
-
65,800
41,110
106,910
-
-
-
52,000
32,477
84,477
-
-
-
60,300
37,700
98,000
-
-
-
54,100
33,814
87,914
-
-
-
64,100
40,083
104,183
(60,416)
(175,584)
-
25.6%
74.4%
-
-
-
-
-
-
326,900
315,000
302,200
-
-
-
-
-
-
-
(60,416)
-
(175,584)
203,984
1,148,084
(13,570)
(39,439)
-
25.6%
74.4%
-
-
-
-
-
-
-
(13,570)
(2,984)
-
(39,439)
(8,676)
-
-
-
-
-
-
-
(2,984)
(13,490)
-
(8,676)
(39,207)
-
-
-
-
-
-
-
(13,490)
(11,540)
-
(39,207)
(33,541)
-
-
-
-
-
-
-
(11,540)
(13,396)
-
(33,541)
(38,935)
-
-
-
-
-
-
-
(13,396)
(2,513)
-
(38,935)
(7,306)
-
-
-
-
-
-
-
(2,513)
(14,243)
-
(7,306)
(41,395)
66,087
63,700
61,100
38,188
229,075
-
-
-
-
-
-
-
25.6%
74.4%
14,537
56,300
55,500
34,659
160,996
-
-
-
-
-
-
-
25.6%
74.4%
67,300
66,800
65,800
41,110
241,010
-
-
-
-
-
-
-
25.6%
74.4%
56,203
54,200
52,000
32,477
194,880
-
-
-
-
-
-
-
25.6%
74.4%
65,243
62,900
60,300
37,700
226,143
-
-
-
-
-
-
-
25.6%
74.4%
12,242
40,808
54,100
33,814
140,964
-
-
-
-
-
-
-
25.6%
74.4%
-
-
-
-
-
-
69,365
66,900
64,100
-
-
-
-
-
-
-
(14,243)
-
(41,395)
40,083
240,448
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
2018
2019
2020
2021
2022(1)
112
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
GRANT DATE
BALANCE AT
1 JAN 2018
RIGHTS
GRANTED
RIGHTS
EXERCISED
RIGHTS
LAPSED
BALANCE AT
31 DEC 2018
%
VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
MOVEMENTS DURING THE YEAR
Former Directors
G Aopi
18/5/15
16/5/16
22/5/17
Total
51,400
64,100
61,800
177,300
Former Executives
J Fowles
18/5/15
16/5/16
22/5/17
21/5/18
21/6/18
Total
54,025
67,353
64,900
–
–
186,278
-
-
-
-
–
–
–
62,300
38,920
101,220
(13,158)
-
-
(13,158)
(38,242)
(20,510)
(40,674)
(99,426)
-
25.6%
43,590
21,126
64,716
-
-
74.4%
32.0%
65.8%
2018
2019
2020
(13,830)
–
–
–
(40,195)
(12,124)
(33,099)
(52,955)
–
(13,830)
(38,920)
(177,293)
–
25.6%
55,229
31,801
9,345
–
96,375
–
–
–
0%
74.4%
18.0%
51.0%
95%
100%
2018
2019
2020
2021
–
(1) Awards vest two years after achievement of Financial Sanction of the Papua LNG Project and the PNG LNG Expansion Project pursuant to the LNG Expansion
Incentive approved by shareholders at the 2018 Annual Meeting.
Table 20 – Details of movements of Restricted Shares
GRANT DATE
BALANCE AT
1 JAN 2018
RESTRICTED
SHARES
GRANTED
RESTRICTED
SHARES
VESTED
RESTRICTED
SHARES
FORFEITED
BALANCE AT
31 DEC 2018
%
VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
MOVEMENTS DURING THE YEAR
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
13/5/16
19/5/17
21/5/18
228,875
277,966
–
–
–
252,694
(228,875)
–
–
Total
506,841
252,694
(228,875)
13/5/16
19/5/17
21/5/18
38,953
49,437
–
Total
88,390
19/5/17
21/5/18
Total
13/5/16
19/5/17
21/5/18
Total
13/5/16
19/5/17
21/5/18
Total
13/5/16
19/5/17
21/5/18
Total
21/5/18
Total
8,501
–
8,501
39,178
50,345
–
89,523
34,499
42,044
–
76,543
38,509
48,806
–
87,315
–
–
–
–
40,135
40,135
–
43,353
43,353
–
–
51,424
51,424
–
–
37,925
37,925
–
–
44,024
44,024
25,740
25,740
(38,953)
–
–
(38,953)
–
–
–
(39,178)
–
–
(39,178)
(34,499)
–
–
(34,499)
(38,509)
–
–
(38,509)
–
–
113
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
277,966
252,694
530,660
–
–
0%
–
–
–
100%
0%
49,437
40,135
89,572
8,501
43,353
51,854
–
–
–
–
–
100%
50,345
51,424
101,769
–
–
–
100%
42,044
37,925
79,969
–
–
–
100%
48,806
44,024
92,830
25,740
25,740
–
–
–
–
–
–
–
0%
–
–
0%
–
–
0%
–
–
–
2018
2019
2020
2018
2019
2020
2019
2020
2018
2019
2020
2018
2019
2020
2018
2019
2020
2020
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
GRANT DATE
BALANCE AT
1 JAN 2018
RESTRICTED
SHARES
GRANTED
RESTRICTED
SHARES
VESTED
RESTRICTED
SHARES
FORFEITED
BALANCE AT
31 DEC 2018
%
VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
MOVEMENTS DURING THE YEAR
K Wulff
Former Directors
G Aopi
13/5/16
19/5/17
21/5/18
Total
13/5/16
19/5/17
21/5/18
Total
43,395
51,890
–
95,285
37,766
47,930
–
85,696
–
–
51,487
51,487
–
–
38,911
38,911
(43,395)
–
–
(43,395)
(37,766)
–
–
(37,766)
Former Executives
J Fowles
13/5/16
19/5/17
21/5/18
Total
39,700
50,385
–
90,085
–
–
40,904
40,904
(39,700)
–
–
(39,700)
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
51,890
51,487
103,377
–
–
–
100%
47,930
38,911
86,841
–
–
–
100%
50,385
40,904
91,289
–
–
0%
–
–
0%
–
–
0%
–
–
2018
2019
2020
2018
2019
2020
2018
2019
2020
Analysis of Movements in Performance Rights and Restricted Shares
Table 21 summarises the movement in value of Performance Rights and Restricted Shares held by each Executive Key Management
Personnel during 2018.
Table 21 – Movement in Value of Performance Rights and Restricted Shares
GRANTED
IN THE YEAR
(US$)(1)
VALUE OF PERFORMANCE RIGHTS
EXERCISED AND RESTRICTED SHARES
VESTED IN THE YEAR(2)
VALUE OF PERFORMANCE RIGHTS LAPSED
AND RESTRICTED SHARES FORFEITED
IN THE YEAR(3)
NUMBER
AVERAGE
VALUE (US$)
TOTAL
VALUE (US$)
NUMBER
AVERAGE
VALUE (US$)
TOTAL
VALUE (US$)
5,462,269
289,291
5.61
1,623,212
175,584
2.12
371,834
985,299
953,367
1,130,673
870,377
1,010,023
789,152
1,113,588
52,523
2,984
52,668
46,039
51,905
2,513
57,638
5.64
6.04
5.64
5.63
5.64
6.04
5.63
296,102
18,010
296,856
259,358
292,610
15,167
324,590
39,439
8,676
39,207
33,541
38,935
7,306
41,395
2.12
2.12
2.12
2.12
2.12
2.12
2.12
83,520
18,373
83,029
71,030
82,453
15,472
87,662
330,744
50,924
5.64
287,088
99,426
2.69
267,332
1,004,333
53,530
5.64
301,779
177,293
3.69
654,220
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
Former Directors
G Aopi
Former Executives
J Fowles
(1) The value for awards granted is the fair value at the time of grant for Performance Rights and the closing share price on the date of grant for Restricted Shares.
(2) The value for Performance Rights exercised is based on the market price of Oil Search shares on the close of trade on the date of exercise. The value for Restricted
Shares is based on the closing market price of Oil Search shares on the date of trade on the vesting date, or the opening price on the next trading day where the
market is closed on the vesting date.
(3) The value for Performance Rights lapsed and Restricted Shares forfeited is based on the market price of Oil Search shares on the close of trade on the date of the
lapse or forfeiture.
114
OIL SEARCH ANNUAL REPORT 2018
DIRECTORS’ REPORT
R emu n eratio n R ep o r t
KMP shareholdings
Table 22 summarises the movements in the numbers of Oil Search Limited shares held by Executive KMP and their personally related
entities during 2018.
Table 22 – Movements in Executive KMP shareholdings
Directors
P Botten
Executives
P Cholakos
M Drew
S Gardiner
M Herrett
I Munro
E White
K Wulff
Former Directors
G Aopi
Former Executives
J Fowles
BALANCE AT
1 JANUARY
2018
NET
MOVEMENT
DURING 2018
BALANCE AT
31 DECEMBER
2018
2,368,039
(20,709)
2,347,330
313,803
–
431,081
82,981
–
75,421
8,590
52,523
2,984
52,668
46,039
–
2,513
57,209
366,326
2,984
483,749
129,020
–
77,934
65,799
497,223
14,464
511,687
106,134
59,886
166,020
9.
NON-EXECUTIVE DIRECTOR REMUNERATION
Remuneration Policy
Remuneration for Non-Executive Directors is determined by reference to relevant external market data and takes into consideration
the level of fees paid to directors of other Australian corporations of similar size and complexity to Oil Search, the scale of its
international activities and the responsibilities and work requirements of Board members. Remuneration for Non-Executive Directors
is subject to the aggregate limit of A$2.5 million in any calendar year which was set by shareholders at the 2013 Annual Meeting.
Remuneration Payable
Fees payable to Non-Executive Directors are reviewed periodically and are fixed by the Board as discussed above.
Table 23 sets out the fee structure which has applied since 1 January 2017.
Table 23 – Annual Board and Committee Fees Payable to Non-Executive Directors in Australian Dollars
POSITION
Chairman of the Board(1)
Non-Executive Directors other than the Chairman
Chairman Audit and Financial Risk Committee (additional fee)
Chairman Health, Safety and Sustainability Committee (additional fee)
Chairman People and Nominations Committee (additional fee)
Member Audit and Financial Risk Committee (additional fee)
Member Health, Safety and Sustainability Committee (additional fee)
Member People and Nominations Committee (additional fee)
(1) The fees paid to the Chairman of the Board are inclusive of any Committee Fees.
ANNUAL FEE
A$519,750
A$173,250
A$49,500
A$38,500
A$38,500
A$25,500
A$22,000
A$22,000
Each Non-Executive Director also receives a travel allowance of A$25,500 per annum to compensate for the time spent
travelling to Papua New Guinea and Australia to attend Board and Committee Meetings and for time spent on field trips to
the Company’s operations.
Board fees are paid to Non-Executive Directors only. Mr Gerea Aopi, who was an Executive Director, retired from the Oil Search
Board effective from 16 March 2018. As an Executive Director, Mr Aopi did not receive Directors’ Fees. A Non-Executive Director
who does receive fees was appointed to fill the vacancy following Mr Aopi’s retirement. This consumed a substantial portion of the
remaining fee pool ‘headroom’. A proposal will be brought to the 2019 Annual Meeting to raise the aggregate fee pool available to
Directors from the current $2.5 million to $3.0 million. This will be the first increase sought since 2013.
115
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
In addition to Board and Committee fees, non-executive directors are entitled to be reimbursed for all reasonable travel,
accommodation and other expenses incurred in attending meetings of the Board, Committees or shareholders or while engaged
on Oil Search business.
Following an external benchmarking review of Directors Fees, effective from 1 January 2019, the Chair and Main Board fees were
increased to A$550,000 and A$190,000 respectively to better align with the market median. In additional the Chair fees for the
Health, Safety and Sustainability Committee and the People & Nominations Committee were increased to the level of the Audit &
Financial Risk Committee in recognition of the comparable workload and responsibilities of those Chair positions.
There are no provisions in any of the Non-Executive Directors’ appointment arrangements for compensation payable on early
termination of their directorship.
There is no separate retirement benefits plan or provision for superannuation for Oil Search’s non-executive directors.
Details of Directors’ Remuneration
Table 24 outlines the remuneration received by Oil Search Limited directors in 2017 and 2018.
The Managing Director, Mr Botten is the only executive director on the Board.
Table 24 – Oil Search Limited Directors Remuneration (US$)
YEAR
SHORT TERM
EMPLOYMENT LONG TERM
EQUITY
OTHER
TOTAL
POST
SALARIES
FEES AND
ALLOWANCES
NON-
MONETARY
BENEFITS
SHORT TERM
INCENTIVE
COMPANY
CONTRI-
BUTION
TO SUPER
LONG
SERVICE
LEAVE
ACCRUAL
PERFORM.
RIGHTS
RESTRICTED
SHARES
SIGN ON/
TERMI-
NATION
BENEFITS
2018
1,710,458
277,848 1,334,527
2017
1,868,510
300,268
1,463,906
14,322
15,205
52,733
1,074,905 1,452,630
52,460
831,147
1,314,957
–
–
5,917,422
5,846,453
DIRECTORS
Executive Directors
P Botten
Managing Director
Non-Executive Directors
R Lee
2018
2017
384,865
418,043
B Al Katheeri(1)
KG Constantinou
S Cunningham(1)
EJ Doyle
FE Harris
A Kantsler
MP Togolo
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
133,654
–
173,245
186,116
131,753
–
185,462
201,450
190,756
188,800
182,992
207,201
173,816
188,800
Former Non-Executive Directors
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2018
151,310
65,489
G Aopi
EGM Stakeholder
Engagement
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
384,865
418,043
133,654
–
173,245
186,116
131,753
–
185,462
201,450
190,756
188,800
182,992
207,201
173,816
188,800
23,104
(217,011)
67,187
239,861
263,771
593,711
2017
353,166
155,210
225,419
35,380
16,060
169,534
221,378
–
1,176,146
(1) Dr Al Katheeri and Ms Cunningham were appointed to the Oil Search Board on 26 March 2018.
116
OIL SEARCH ANNUAL REPORT 2018 DIRECTORS’ REPORT
R emu n eratio n R ep o r t
Equity Participation for Non-Executive Directors
There is no share plan for Oil Search Non-Executive Directors.
Table 25 summarises the movements in shareholdings of Non-Executive Directors including their personally related entities for the
2018 financial year.
Table 25 – Non-Executive Director shareholdings
B Al Katheeri
KG Constantinou
S Cunningham
EJ Doyle
FE Harris
AJ Kantsler
RJ Lee
MP Togolo
BALANCE AT
1 JANUARY
2018
NET
MOVEMENT
DURING 2018
BALANCE AT
31 DECEMBER
2018
–
–
–
30,800
31,961
45,736
96,829
–
–
–
–
5,250
–
–
–
–
–
–
–
36,050
31,961
45,736
96,829
–
117
OIL SEARCH ANNUAL REPORT 2018 AUDITOR’S INDEPENDENCE DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
The Directors
Oil Search Limited
Level 22,
1 Bligh Street
Sydney NSW 2000
18 February 2019
Dear Directors,
Oil Search Limited
I am pleased to provide the following declaration of independence to the directors of Oil Search
Limited.
As lead audit partner for the audit of the financial statements of Oil Search Limited for the year
ended 31 December 2018, I declare that to the best of my knowledge and belief, there have been
no contraventions of the auditor independence requirements of the Code of Ethics for
Professional Accountants, issued by the International Ethics Standards Board for Accountants
(IESBA) in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Matthew Donaldson
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
118
OIL SEARCH ANNUAL REPORT 2018
STATEMENTS OF COMPREHENSIVE INCOME
STATEMENTS OF COMPREHENSIVE INCOME
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
Revenue
Cost of sales
Gross profit
Other income
Other expenses
Profit/(loss) from operating activities
Net finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Net profit/(loss) after tax
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation differences for foreign operations
Total comprehensive income/(loss) for the year
Basic earnings per share
Diluted earnings per share
CONSOLIDATED
PARENT
NOTE
2018
$’000
2017
$’000
2018
$’000
2017
$’000
3
4
5
6
7
8
8
1,535,761
1,446,001
(698,262)
837,499
(715,048)
730,953
–
–
–
9,579
9,969
(129,836)
(105,320)
114,273
(7,495)
–
–
–
–
(13,738)
717,242
635,602
106,778
(13,738)
(209,850)
507,392
(194,728)
440,874
(166)
106,612
(513)
(14,251)
(166,190)
(138,782)
1,630
3,612
341,202
302,092
108,242
(10,639)
(2,005)
339,197
488
–
–
302,580
108,242
(10,639)
CENTS
CENTS
22.39
22.32
19.83
19.77
The statements of comprehensive income should be read in conjunction with the accompanying notes.
119
OIL SEARCH ANNUAL REPORT 2018
STATEMENTS OF FINANCIAL POSITION
STATEMENTS OF FINANCIAL POSITION
a s at 31 D ecemb er 2018
a s at 31 D ecemb er 2018
Current assets
Cash and cash equivalents
Receivables
Inventories
Prepayments
Current tax receivable
Total current assets
Non-current assets
Other assets
Other financial assets
Exploration and evaluation assets
Oil and gas assets
Other plant and equipment
Investments in subsidiaries
Investments in joint ventures
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Payables
Provisions
Borrowings
Current tax payable
Total current liabilities
Non-current liabilities
Payables
Provisions
Borrowings
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Reserves
Retained earnings/(losses)
Total shareholders’ equity
NOTE
20(a)
10
11
12
13
14
15
15
26
7
16
17
18
16
17
18
7
19
19
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
600,557
228,705
90,428
12,302
–
1,015,246
–
–
156,315
95,018
20,781
–
57,150
582,243
–
826
1,352
59,328
–
171
1,411
583,825
931,992
1,287,360
83,416
59,408
2,344,818
6,240,567
248,768
–
3,958
81,157
52,045
1,672,352
6,535,743
205,701
–
–
–
–
112,153
83,543
–
–
–
–
–
–
2,764,803
2,294,804
–
–
760,964
678,140
28,489
27,034
9,741,899
9,225,138
2,905,445
2,405,381
10,673,891
10,512,498
2,964,773
2,989,206
326,484
19,317
356,739
68,433
770,973
199,154
29,033
334,130
64,459
626,776
1,157
228
–
–
22,275
486
–
–
1,385
22,761
23,394
569,694
24,787
584,720
–
–
10,389
10,406
3,068,035
3,424,776
1,076,177
913,685
4,737,300
4,947,968
5,508,273
5,574,744
–
–
10,389
11,774
–
–
10,406
33,167
5,165,618
4,937,754
2,952,999
2,956,039
3,152,443
3,152,443
3,152,443
3,152,443
(5,448)
(6,434)
7,681
4,691
2,018,623
1,791,745
(207,125)
(201,095)
5,165,618
4,937,754
2,952,999
2,956,039
The statements of financial position should be read in conjunction with the accompanying notes.
120
OIL SEARCH ANNUAL REPORT 2018 STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
Cash flows from operating activities
Receipts from customers and third parties
Dividends received
Payments to suppliers and employees
Interest received
Borrowing costs paid
Income tax paid
Payments for exploration and evaluation – seismic, G&A, G&G
Payments for site restoration
CONSOLIDATED
PARENT
NOTE
2018
$’000
2017
$’000
2018
$’000
1,570,768
1,465,420
–
–
(360,999)
(361,206)
14,884
13,028
(205,273)
(199,326)
(84,940)
(63,150)
(16,658)
(59,749)
(13,987)
(598)
–
114,273
(9,885)
–
(45)
–
(35)
–
2017
$’000
–
–
(6,900)
–
(512)
–
(479)
–
Net cash from/(used in) operating activities
20(b)
854,632
843,582
104,308
(7,891)
Cash flows from investing activities
Payments for other plant and equipment
Payments for exploration and evaluation
Payments for oil and gas development assets
Payments for producing assets
Payments for power assets
Investment in subsidiaries
(56,404)
(647,617)
(36,945)
(26,211)
(41,653)
–
–
–
(28,408)
(5,894)
(38,120)
(157,292)
(21,117)
(38,226)
(10,231)
–
–
–
–
(470,000)
–
–
–
–
–
Advances made to third party in respect of investing activities
(2,167)
(2,340)
–
Net cash used in investing activities
(810,997)
(267,326)
(498,408)
(5,894)
(114,273)
(99,014)
(114,273)
(99,014)
(8,239)
4,246
–
1,821
(331,901)
(313,918)
(2,167)
(3,759)
(2,231)
–
(2,340)
(8,350)
(1,957)
–
(8,239)
–
–
–
–
–
–
–
–
–
–
–
516,612
394,100
112,799
13,785
–
–
–
–
–
–
Cash flows from financing activities
Dividend payments
Purchase of treasury shares
Contributions received for employee share schemes
Repayment of borrowings
Loan provided to third party
Establishment fee on credit facility
Finance lease payments
Loans from/(to) related entities
Net cash (used in)/from financing activities
(458,324)
(423,758)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(414,689)
1,015,246
152,498
862,748
Cash and cash equivalents at the end of the year
20(a)
600,557
1,015,246
The statements of cash flows should be read in conjunction with the accompanying notes.
121
OIL SEARCH ANNUAL REPORT 2018
STATEMENTS OF CHANGES IN EQUITY
STATEMENTS OF CHANGES IN EQUITY
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
CONSOLIDATED
Balance at 1 January 2017
Dividends provided for or paid
Total comprehensive income for the year
Net profit after tax for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Total comprehensive profit for the year
Transactions with owners, recorded directly
in equity
Transfer of vested shares
Employee share-based remuneration
Shares issued for the share purchase plan
Trust distribution
Total transactions with owners
Balance at 31 December 2017
Balance at 1 January 2018
Dividends provided for or paid
Total comprehensive income for the year
Net profit after tax for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Total comprehensive profit for the year
Transactions with owners,
recorded directly in equity
Transfer of vested shares
Employee share-based remuneration
Shares issued for the share purchase plan
Trust distribution
Total transactions with owners
Balance at 31 December 2018
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$’000
RESERVE FOR
TREASURY
SHARES
$’000
EMPLOYEE
EQUITY
COMPEN-
SATION
RESERVE
$’000
RETAINED
EARNINGS
$’000
TOTAL
$’000
(17,645)
(250)
7,126
1,588,745
4,725,316
–
–
488
488
–
–
–
–
–
–
–
–
–
9,016
–
(5,103)
–
3,913
3,663
–
–
–
–
(99,014)
(99,014)
302,092
302,092
–
488
302,092
302,580
(9,016)
8,950
–
–
(66)
7,060
–
–
–
(78)
(78)
–
8,950
–
(78)
8,872
1,791,745
4,937,754
SHARE
CAPITAL
$’000
3,147,340
–
–
–
–
–
–
5,103
–
5,103
3,152,443
(17,157)
3,152,443
(17,157)
3,663
7,060
1,791,745
4,937,754
–
–
–
–
–
–
–
–
–
–
–
(2,005)
(2,005)
–
–
–
–
–
3,152,443
(19,162)
–
–
–
–
–
–
–
–
(114,273)
(114,273)
341,202
341,202
–
(2,005)
341,202
339,197
7,545
–
(8,239)
–
(694)
2,969
(7,545)
11,230
–
–
3,685
–
–
–
(51)
(51)
–
11,230
(8,239)
(51)
2,940
10,745
2,018,623
5,165,618
The statements of changes in equity should be read in conjunction with the accompanying notes.
122
OIL SEARCH ANNUAL REPORT 2018 STATEMENTS OF CHANGES IN EQUITY
f o r the yea r en ded 31 D ecemb er 2018
PARENT
Balance at 1 January 2017
Dividends provided for or paid
Total comprehensive income for the year
Net loss after tax for the year
Total comprehensive loss for the year
Transactions with owners, recorded directly in
equity
Transfer of vested shares
Employee share-based remuneration
Shares issued for the share purchase plan
Net exchange differences
Total transactions with owners
Balance at 31 December 2017
Balance at 1 January 2018
Dividends provided for or paid
Total comprehensive income for the year
Net profit after tax for the year
Total comprehensive profit for the year
Transactions with owners, recorded directly in
equity
Transfer of vested shares
Employee share-based remuneration
Purchase of treasury
Net exchange differences
Total transactions with owners
Balance at 31 December 2018
AMALGA-
MATION
RESERVE
$’000
RESERVE FOR
TREASURY
SHARES
$’000
EMPLOYEE
EQUITY
COMPEN-
SATION
RESERVE
$’000
(2,990)
2,370
1,463
SHARE
CAPITAL
$’000
3,147,340
–
–
–
–
–
5,103
–
5,103
–
–
–
–
–
–
–
–
3,152,443
(2,990)
–
–
–
9,016
–
(5,103)
–
3,913
6,283
–
–
–
(9,016)
8,950
–
1
(65)
1,398
RETAINED
EARNINGS/
(LOSSES)
$’000
(91,442)
(99,014)
TOTAL
$’000
3,056,741
(99,014)
(10,639)
(10,639)
(10,639)
(10,639)
–
–
–
–
–
–
8,950
–
1
8,951
(201,095)
2,956,039
3,152,443
(2,990)
6,283
1,398
(201,095)
2,956,039
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,152,443
(2,990)
–
–
–
–
–
–
(114,273)
(114,273)
108,242
108,242
108,242
108,242
7,545
–
(8,239)
–
(694)
5,589
(7,545)
11,230
–
(1)
3,684
5,082
–
–
–
–
–
–
11,230
(8,239)
(1)
2,990
(207,126)
2,952,999
The statements of changes in equity should be read in conjunction with the accompanying notes.
123
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
1
Oil Search Limited (the ‘parent entity’ or ‘Company’) is
incorporated in Papua New Guinea (PNG). The consolidated
financial report for the year ended 31 December 2018
comprises the parent entity and its controlled entities
(together, ‘the Group’).
The financial statements were authorised for issue by the Board
of Directors on 18 February 2019.
Basis of preparation
(a)
The financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS),
International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations and the PNG Companies Act 1997.
The financial statements have been prepared under the
historical cost convention.
(i)
Issued standards adopted during year
The Group has adopted all of the new and revised standards
and interpretations issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for
accounting periods that begin on or after 1 January 2018.
The introduction of new or amended standards required the
Group to amend its accounting policies for the following:
¸ IFRS 9 Financial Instruments; and
¸ IFRS 15 Revenue from Contracts with Customers.
There were no retrospective adjustments required as a
result of adopting the above standards. The other new or
amended standards did not have any impact on the Group’s
accounting policies.
There have been no other new standards or amendments
that were mandatory for adoption for the year ended
31 December 2018.
(ii)
New accounting standards not yet effective
The following new accounting standards are not yet effective
but may have an impact on the Group in the financial years
commencing 1 January 2019 or later:
¸ IFRS 16 Leases – effective 1 January 2019
IFRS 16 Leases supersedes existing accounting guidance
contained under IAS 17 Leases and IFRIC 4 Determining
whether an Arrangement contains a Lease and related
interpretations. IFRS 16 provides a single lessee accounting
model requiring lessees to recognise assets and liabilities
for all leases unless the lease term is 12 months or less or the
underlying asset has a low value. Lessors continue to classify
leases as operating or finance, with IFRS 16’s approach
to lessor accounting substantially unchanged from its
predecessor, IAS 17. New disclosure requirements have
also been introduced under the new standard.
IFRS 16 is effective for annual reporting periods commencing
on or after 1 January 2019, making it effective for the Group’s
half year financial statements ending 30 June 2019.
The Group has conducted a comprehensive review, of all
relevant company contracts and contracts in joint operations
operated by others.
The Group will apply the standard from its mandatory adoption
date of 1 January 2019. The Group intends to apply the
simplified transition approach and will not restate comparative
amounts. Right-of-use assets will be measured on transition as if
the new Standard had been applied since the commencement
date of the lease. The lease liability will be measured at the date
of adoption.
As at reporting date, the Group has non-cancellable
operating lease commitments of $305 million. The Group
expects to recognise right of use assets of approximately
$230.7 million, lease liabilities of approximately $281.3 million
and an adjustment reducing opening retained earnings by
approximately $24.9 million.
As a result of the transition the Group expects the following pre-
tax changes to be reflected in its statement of comprehensive
income based on leases identified at 31 December 2018:
¸ an increase of approximately $20-22 million in net finance
costs and $23-25 million in depreciation charges;
¸ a reduction of rental expense of approximately
$10-12 million; and
¸ an increase in other income of approximately
$25-27 million.
The transition to IFRS 16 requires the Group to make certain
policy choices and elections for various available practical
expedients and transitional reliefs. The Group will adopt the
following policy and practical expedients:
¸ The Group has opted not to apply IFRS 16 to leases of
intangible assets.
¸ The Group has opted not to apply IFRS 16 to low value items
of under $5,000 and leases with a term of 12 months or less.
¸ The Group will separate lease and non-lease components
from arrangements and account for these separately.
¸ The Group will not apply IFRS 16 to a portfolio of similar
leases and will account for each lease separately.
Principles of consolidation
(b)
The consolidated financial statements comprise the financial
statements of Oil Search Limited and its controlled subsidiaries,
after elimination of all inter-company transactions.
Business combinations
(i)
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group.
The consideration transferred in the acquisition is generally
measured at fair value, as are the identifiable net assets acquired.
Any goodwill that arises is tested annually for impairment.
Any gain on a bargain purchase is recognised in profit or loss
immediately. Transaction costs are expensed as incurred, except
if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related
to the settlement of pre-existing relationships. Such amounts
are generally recognised in profit or loss.
124
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Any contingent consideration payable is measured at fair
value at the acquisition date. If the contingent consideration is
classified as equity, then it is not remeasured and settlement is
accounted for within equity. Otherwise, subsequent changes in
the fair value of the contingent consideration are recognised in
profit or loss.
Subsidiaries
(ii)
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control
commences until the date on which control ceases. The financial
statements of subsidiaries are prepared for the same reporting
period as the parent entity, using consistent accounting policies.
Joint arrangements
(iii)
Exploration, development and production activities of the
Group are primarily carried on through joint arrangements
with other parties. Joint arrangements are classified as either
joint operations or joint ventures depending on the contractual
rights and obligations each investor has, rather than the legal
structure of the joint arrangement. The Group has assessed
the nature of its joint arrangements and determined that they
comprise investments in joint operations.
Joint operations
The Group has accounted for its direct rights and obligations
by recognising its share of jointly held assets, liabilities, revenues
and expenses of each joint operation. These have been
incorporated in the financial statements under the appropriate
headings. Details of the joint operations are set out in note 26.
Joint venture
The Group has accounted for its investments in joint ventures
under the equity method of accounting with these investments
initially recognised at cost. The Group’s investment in
the joint venture, profit and loss and movements in other
comprehensive income are adjusted to recognise the
Group’s corresponding share of the post-acquisition profits
or losses and movements in other comprehensive income
of the investee. Dividends received or receivable from joint
ventures are recognised as a reduction in the carrying amount
of the investment.
When the Group’s share of losses in an equity-accounted
investment equals or exceeds its interest in the entity, the
Group does not recognise further losses, unless it has incurred
obligations or made payments on behalf of that entity.
(c)
Currency translation
Functional and presentation currency
(i)
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the
functional currency’). The consolidated and parent financial
statements are presented in United States dollars, which is
Oil Search Limited’s functional and presentation currency.
125
Transactions and balances
(ii)
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation
at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in profit
or loss.
Foreign exchange gains and losses that relate to borrowings are
presented in the statement of comprehensive income, within
finance costs. All other foreign exchange gains and losses are
presented in the statement of comprehensive income on a net
basis within other expenses.
Group companies
(iii)
The results and financial position of foreign operations (none
of which has the currency of a hyperinflationary economy)
thathave a functional currency different from the presentation
currency are translated into the presentation currency
as follows:
¸ assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of
that statement of financial position;
¸ income and expenses for each statement of comprehensive
income are translated at average exchange rates (unless this
is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the
transactions); and
¸ all resulting exchange differences are recognised in other
comprehensive income.
Revenue recognition
(d)
Revenue is recognised when the performance obligation
is satisfied by transferring a promised good or service to a
customer. An asset or service is transferred when the customer
obtains control of that asset or service. When a performance
obligation is satisfied, the amount of revenue recognised is
the amount of the transaction price that is allocated to that
performance obligation. Where part or all of the transaction
price is variable, revenue is recognised only to the extent that it
is highly probable that a significant reversal of revenue will not
occur. Revenue for the Group’s main products is recognised
as follows:
Liquefied natural gas
Performance obligations are satisfied when the control of LNG
is transferred to the customer when the product is loaded
on board the offtake vessel or offloaded from the vessel,
depending on the contractual terms of the cargo. Sales
made under long term contracts are subject to take or pay
arrangements and represent the delivery of a series of distinct
but substantially the same goods consecutively over a period
of time. A contract liability may arise under these contracts if
delivered quantities are less than contracted quantities.
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The initial transaction price for LNG sales is calculated using a
provisional price at the date the customer takes control of the
product. The difference between the provisional and the final
transaction price is recognised at the point when the final price
is determined.
estimates of the number of awards that are expected to vest.
It recognises the impact of the revision of original estimates,
if any, in the statement of comprehensive income, and a
corresponding adjustment to equity over the remaining
vesting period.
Credit terms for LNG sales are between 8-10 days.
Oil and condensate
Performance obligations are satisfied when the control of oil
and condensate is transferred to the customer at the despatch
point to the offtake vessel. The transaction price for oil and
condensate sales may not be finalised at the date the customer
takes control of the product. In such cases, a provisional
transaction price is used until a final transaction price can be
determined. The difference between the provisional and the
final transaction price is recognised at the point when the final
price is determined.
Credit terms for crude and condensate cargoes are 30 days.
Gas
Performance obligations are satisfied when control of the gas
is transferred to the customer at the gas delivery point.
Credit terms are between 20-30 days.
Dividend income
Dividend income from controlled entities is recognised as other
income in the statement of comprehensive income when the
dividends are declared, and from other parties as the dividends
are received or receivable.
Borrowing costs
(e)
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get
ready for their intended use or sale, are added to the cost of
those assets, until such time as the assets are substantially ready
for their intended use or sale. The capitalisation rate used to
determine the amount of borrowing costs to be capitalised is
the weighted average interest rate applicable to the borrower’s
outstanding borrowings during the year used to develop the
qualifying asset.
All other borrowing costs are recognised in the statement of
comprehensive income in the period in which they are incurred.
Share-based remuneration
(f)
The fair value at grant date of equity-settled, share-based
compensation plans is charged to the statement of
comprehensive income over the period for which the benefits
of employee services are to be derived. The corresponding
accrued employee entitlement is recorded in the employee
equity compensation reserve. The fair value of the awards is
calculated using an option pricing model which considers
a number of factors. Where awards are forfeited because
non-market vesting conditions are not satisfied, the expense
previously recognised is proportionately reversed. At each
statement of financial position date, the entity revises its
Where shares in Oil Search Limited are acquired by on-market
purchases prior to settling vested entitlements, the cost of the
acquired shares is carried as treasury shares and deducted
from equity. No gain or loss is recognised in the statement
of comprehensive income on the purchase, sale, issue or
cancellation of the Group’s own equity instruments.
Income tax
(g)
The current tax payable or receivable is based on taxable
profit for the year. Taxable profit differs from net profit as
reported in the statement of comprehensive income because
it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group’s liability or asset for
current tax is calculated using tax rates that have been enacted
or substantively enacted at the reporting date. Deferred tax
is accounted for using the balance sheet liability method.
Temporary differences are differences between the tax base
of an asset or liability and its carrying amount in the statement
of financial position. The tax base of an asset or liability is the
amount attributed to that asset or liability for tax purposes.
In principle, deferred tax liabilities are recognised for all taxable
temporary differences. Deferred tax assets are recognised to
the extent that it is probable that sufficient taxable amounts will
be available against which deductible temporary differences
or unused tax losses and tax offsets can be utilised. However,
deferred tax assets and liabilities are not recognised if the
temporary differences giving rise to them arise from initial
recognition of assets and liabilities (other than as a result of a
business combination) which affects neither taxable income
nor accounting profit. Furthermore, a deferred tax liability is not
recognised in relation to taxable temporary differences arising
from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent
that it is no longer probable that sufficient taxable profit will
be available to allow all or part of the deferred tax asset to
be utilised.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
statement of financial position date. Deferred tax is charged
or credited in the statement of comprehensive income, except
when it relates to items charged or credited directly to equity,
in which case the deferred tax is also dealt with in equity.
Tax benefits transferred between Group companies are
transferred under normal commercial arrangements, with
consideration paid equal to the tax benefit of the transfer.
126
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
(h)
Inventories are valued at the lower of cost or net realisable
value. Cost is determined as follows:
¸ materials, which include drilling and maintenance stocks,
are valued at the cost of acquisition; and
¸ petroleum products, comprising extracted crude oil and
condensate, LNG and refined products stored in tanks,
pipeline systems and aboard vessels are valued using the
full absorption cost method.
Exploration and evaluation assets
(i)
Exploration and evaluation expenditures are accounted for
under the successful efforts method.
Exploration licence acquisition costs are initially capitalised.
For exploration and appraisal wells, costs directly associated
with drilling and evaluating the wells are initially capitalised
pending an assessment of whether economically recoverable
hydrocarbons have been discovered or whether expenditures
are expected to be recouped by sale. All other exploration and
evaluation costs are expensed as incurred.
Capitalised exploration costs are reviewed at each reporting
date to determine whether there is an indication of impairment,
generally on a licence-by-licence basis. Impairment
indicators include:
¸ the exploration licence has expired and is not expected
to be renewed;
¸ exploration and appraisal activities have not led to the
discovery of economically recoverable reserves and no
further activity on the licence is planned;
¸ sufficient information exists to indicate that the carrying
amount of the exploration and evaluation asset is unlikely to
be recovered in full from successful development or by sale.
Where such indicators exist, an impairment test is performed –
see accounting policy (m).
When an oil or gas field has been approved for development,
the accumulated exploration and evaluation costs are
transferred to Oil and Gas Assets – Assets in Development.
Where an ownership interest in an exploration and evaluation
asset is exchanged for another, the transaction is recognised by
reference to the carrying value of the original interest. Any cash
consideration paid, including transaction costs, is accounted for
as an acquisition of exploration and evaluation assets. Any cash
consideration received, net of transaction costs, is treated as
a recoupment of costs expensed in the relevant year, with any
excess consideration received accounted for as a reduction
to the previously capitalised amounts. If the consideration
received is in excess of current year expense and capitalised
amounts, the excess is recorded as a gain on disposal of
non-current assets.
(j)
Oil and gas assets
Assets in development
When the technical and commercial feasibility of an
undeveloped oil or gas field has been demonstrated and
approval of commercial development occurs, the field
enters its development phase. The costs of oil and gas
assets in development are separately accounted for and
include past exploration and evaluation costs, development
drilling and other subsurface expenditure, surface plant and
equipment and any associated land and buildings. When
the committed development expenditure programs are
completed and production commences, these costs are
subject to amortisation.
Producing assets
The costs of oil and gas assets in production include past
exploration and evaluation costs, past development costs
and the ongoing costs of continuing to develop reserves
for production and to expand, replace, acquire or improve
plant and equipment and any associated land and buildings.
These costs are subject to amortisation.
Amortisation of oil and gas assets
Amortisation is calculated using the units of production method
for an asset or group of assets from the date of commencement
of production. Depletion charges are calculated using the
units of production method over the life of the estimated
Developed, Proven plus Probable (“2P”) reserves for an asset
or group of assets.
Restoration costs
Site restoration costs are capitalised within the cost of the
associated assets and the provision is stated in the statement of
financial position at total estimated present value. These costs
are based on judgements and assumptions regarding removal
dates, technologies, and industry practice. Over time, the
liability is increased for the change in the present value based
on a risk adjusted pre-tax discount rate appropriate to the risks
inherent in the liability. The costs of restoration are brought to
account in the statement of comprehensive income through
depreciation of the associated assets over the economic
life of the projects with which these costs are associated.
The unwinding of the discount is recorded as an accretion
charge within finance costs.
Other plant and equipment
(k)
Plant and equipment are carried at cost less accumulated
depreciation and impairment. Any gain or loss on the disposal
of assets is determined as the difference between the carrying
value of the asset at the time of disposal and the proceeds from
disposal, and is included in the results of the Group in the year
of disposal.
127
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation
Depreciation on plant and equipment, excluding rigs, is calculated
on a straight-line basis so as to generally write-off the cost of each
fixed asset over its estimated useful life on the following basis:
Marine
Corporate plant and equipment
4%
20% – 33%
The depreciation on rigs is computed using drilling days based
on a ten year drilling ltife.
(l)
Leases
Leased assets
(i)
Assets held by the Group under leases that transfer to the
Group substantially all the risks and rewards of ownership
are classified as finance leases. The leased asset is measured
initially at an amount equal to the lower of its fair value and the
present value of the minimum lease payments. Subsequent to
initial recognition, the assets are accounted for in accordance
with the accounting policy applicable to that asset. Assets held
under other leases are classified as operating leases and are not
recognised in the Group’s statement of financial position.
Lease payments
(ii)
Payments made under operating leases are recognised in profit
or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the
total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are
apportioned between the finance expense and the reduction
of the outstanding liability. The finance expense is allocated to
each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability.
Impairment of assets
(m)
The carrying amounts of all assets, other than inventory, certain
financial assets and deferred tax assets, are reviewed at each
reporting date to determine whether there is an indication of
impairment. Where such an indication exists, an estimate of the
recoverable amount is made.
For any asset that does not generate largely independent
cash flows, the recoverable amount is determined for the
cash generating unit (CGU) to which the asset belongs.
Expected future cash flows are the basis for determining
the recoverable amount, however, market values are also
referenced where appropriate.
An impairment loss is recognised in the statement of
comprehensive income when the carrying amount of an asset or
its CGU exceeds its recoverable amount. Where an impairment
loss subsequently reverses, the carrying amount of the asset
(or CGU) is increased to the revised estimate of its recoverable
amount, but only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
128
Employee benefits
(n)
Provision is made for long service leave and annual leave
estimated to be payable to employees on the basis of statutory
and contractual requirements. The liability for long service leave
and annual leave which is not expected to be settled within
12 months after the end of the period in which the employees
render the related service is recognised in the provision for
employee entitlements and measured as the present value of
expected future payments to be made in respect of services
provided by employees up to the end of the reporting period.
Expected future payments are discounted using market yields
at the end of the reporting period on government bonds with
terms and currencies that match, as closely as possible, the
estimated future cash outflows.
The obligations are presented as current liabilities in the
statement of financial position if the entity does not have an
unconditional right to defer settlement for at least twelve
months after the reporting date, regardless of when the
actual settlement is expected to occur.
(o)
Investments and other financial assets
Investments
(i)
Investments in subsidiaries are accounted for at cost in the
parent entity financial statements.
Other financial assets
(ii)
All other financial assets are initially recognised at the fair value
of consideration paid. Subsequently, all financial assets are
measured at amortised cost or fair value on the basis of the
entity’s business model for managing the financial assets and
the contractual cash flow characteristics of the financial assets.
Financial assets are assessed for indicators of impairment through
the use of an expected credit loss model. The expected credit
loss (ECL) model requires the Group to account for expected
credit losses and changes in those expected credit losses
at each reporting date to reflect changes in credit risk upon
initial recognition of the financial assets. In other words, it is not
necessary for a credit event to have occurred before credit losses
are recognised.
The Group assesses on a forward-looking basis, the
expected credit losses associated with its financial assets.
The loss allowance for a financial instrument is measured at an
amount equal to the lifetime ECL if the credit risk on that financial
instrument has increased significantly since initial recognition.
If the credit risk on a financial instrument has not increased
significantly since initial recognition, the loss allowance is
measured for that financial instrument at an amount equal to
a 12 month ECL horizon.
A simplified approach is used for measuring the loss allowance
at an amount equal to lifetime ECL for trade receivables, contract
assets and lease receivables in certain circumstances. For trade
receivables, the simplified approach requires expected lifetime
losses to be recognised from initial recognition of receivables.
Given the credit quality of the Group’s customers, which are
investment grade or backed by letters of credit and there has
been no historical credit loss experience for trade receivables,
no additional loss allowance was recognised.
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Borrowings
(p)
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss or capitalised against a
qualifying project over the period of the borrowings using the
effective interest method. Fees paid on the establishment of
loan facilities are recognised as transaction costs of the loan
to the extent that it is probable that some or all of the facility
will be drawn down. In this case, the fee is deferred until the
draw down occurs. To the extent there is no evidence that it
is probable that some or all of the facility will be drawn down,
the fee is capitalised as a prepayment for liquidity services and
amortised over the period of the facility to which it relates.
Borrowings are removed from the statement of financial
position when the obligation specified in the contract is
discharged, cancelled or expired.
Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability for
at least 12 months after the reporting period.
(q)
Critical accounting estimates and assumptions
In applying the Group’s accounting policies, management
regularly evaluates judgements, estimates and assumptions
based on experience and other factors, including expectations
of future events that may have an impact on the Group.
All judgements, estimates and assumptions made are
believed to be reasonable based on the most current set of
circumstances available to management. Actual results may
differ from those judgements, estimates and assumptions.
Significant judgements, estimates and assumptions made by
management in the preparation of these financial statements
are outlined below.
Impairment of assets
The Group assesses whether oil and gas assets are impaired
on a semi-annual basis. This requires review of the indicators of
impairment and/or an estimation of the recoverable amount of
the cash-generating unit to which the assets belong. For oil and
gas properties, expected future cash flow estimation is based
on reserves, future production profiles, commodity prices and
costs. Market values are also referenced where appropriate.
The carrying value of oil and gas properties, exploration and
evaluation and other plant and equipment is disclosed in
notes 14 to 15.
Restoration obligations
The Group estimates the future removal and restoration costs
of oil and gas production facilities, wells, pipelines and related
assets at the time of installation of the assets. In most instances
the removal of these assets will occur many years in the future.
The estimates of future removal costs are made considering
relevant legislation and industry practice and require
management to make judgments regarding the removal date,
the extent of restoration activities required and future removal
technologies. For more detail regarding the policy in respect of
provision for restoration refer to note 1(j).
The carrying amount of the provision for restoration is disclosed
in note 17.
Reserve estimates
The estimated reserves are management assessments and
take into consideration reviews by an independent third party,
Netherland Sewell and Associates, under the Company’s
reserves audit program which requires an external audit of
each material producing field every three years, as well as
other assumptions, interpretations and assessments.
These include assumptions regarding commodity prices,
exchange rates, discount rates, future production and
transportation costs, and interpretations of geological and
geophysical models to make assessments of the quality of
reservoirs and their anticipated recoveries. Changes in reported
reserves can impact asset carrying values, the provision for
restoration and the recognition of deferred tax assets, due to
changes in expected future cash flows. Reserves are integral
to the amount of depreciation, depletion and amortisation
charged to the statement of comprehensive income and the
calculation of inventory. Reserves estimation conforms with
guidelines prepared by the Society of Petroleum Engineers and
the Australian Securities Exchange Listing Rules.
Exploration and evaluation
The Group’s policy for exploration and evaluation expenditure
is discussed in note 1(i). The application of this policy requires
management to make certain estimates and assumptions as
to future events and circumstances, particularly in relation to
the assessment of whether economic quantities of reserves
have been found. Any such estimates and assumptions
may change as new information becomes available. If, after
having capitalised exploration and evaluation expenditure,
management concludes that the capitalised expenditure is
unlikely to be recovered by future exploitation or sale, then the
relevant capitalised amount will be written off to the statement
of comprehensive income.
The carrying amount of exploration and evaluation assets is
disclosed in note 14.
Classification of joint arrangements
Exploration, development and production activities of the
Group are conducted primarily through arrangements with
other parties. Each arrangement has a contractual agreement
which provides the participating parties rights to the assets and
obligations for the liabilities of the arrangement. Under certain
agreements, more than one combination of participants can
make decisions about the relevant activities and therefore joint
control does not exist. Where the arrangement has the same
legal form as a joint operation but is not subject to joint control,
the Group accounts for its interest in accordance with the
contractual agreements by recognising its share of jointly held
assets, liabilities, revenues and expenses of the arrangement.
The Group’s interest in joint operations is disclosed in note
26(b). The Group’s interest in other arrangements with same
legal form as a joint operation but that are not subject to joint
control are disclosed in note 26(d).
129
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred taxes
The calculation of the Group’s tax charge involves a degree of
estimation and judgement in respect of certain items for which
the ultimate tax determination is uncertain.
The Group recognises deferred tax assets only to the extent
that it is probable that future taxable profits will be available
against which the asset can be utilised.
In making this assessment, a forecast of future taxable profits
is made, based on revenues, future production profiles,
commodity prices and costs. Assumptions are also made in
respect of future tax elections that may be utilised between
tax ring fences and in respect of the ongoing success of the
Group’s exploration and appraisal program.
2
SEGMENT REPORTING
Information about reportable segments
(a)
The Group has identified its operating segments based
on the internal reports that are reviewed and used by the
executive management team (the chief operating decision
makers) in assessing performance and in determining the
allocation of resources.
PNG Business Unit (PNG BU)
Development, production and sale of liquefied natural
gas, crude oil, natural gas, condensate, naphtha, other
refined products and electricity from the Group’s interest
in its operated assets for PNG crude oil and Hides gas-to-
electricity operations and from the Group’s interest in the
PNG LNG Project.
Exploration
Exploration and evaluation of crude oil and gas in Papua
New Guinea and in the United States of America.
Other
This segment includes the Group’s ownership of drilling rigs,
investment and development towards the Group’s power
strategy and corporate activities. Net finance costs (excluding
the PNG LNG project financing) and income taxes are managed
at a Group level.
Segment information provided to the executive
(b)
management team
The Group’s executive management team evaluates the
financial performance of the Group and its segments principally
with reference to earnings before interest and tax, and capital
expenditure on exploration and evaluation assets, oil and gas
assets, and property, plant and equipment.
130
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
2
SEGMENT REPORTING (CONTINUED)
PNG BU
EXPLORATION
OTHER
TOTAL
$’000
2018
2017
2018
2017
External revenues
1,521,792
1,426,719
Costs of production
(326,275)
(294,385)
Selling and distribution costs
(50,755)
(45,071)
Rig operating costs
Corporate
Foreign currency gains/(losses)
Power costs expensed
Loss on obsolescence and disposal
of asset
Other income
Other expenses
EBITDAX
–
–
–
–
–
–
–
–
260
3,596
–
(7,402)
2,915
(123)
1,148,618
1,082,653
Depreciation and amortisation
(318,186)
(369,273)
–
–
–
–
–
–
–
–
–
–
–
–
Exploration costs expensed
–
–
(66,663)
2018
13,969
2017
2018
2017
19,282
1,535,761
1,446,001
–
(1,899)
(1,147)
–
(326,275)
(294,385)
(1,018)
(1,656)
(52,654)
(46,089)
(1,147)
(1,656)
(31,571)
(28,988)
(31,571)
(28,988)
(2,570)
(4,182)
–
5,983
(17,202)
(38,619)
(7,908)
(7)
(6,097)
(856)
7,054
(2,570)
(4,182)
260
9,579
(7)
(6,097)
(8,258)
9,969
(18,266)
(17,202)
(18,389)
(30,552)
1,109,999
1,052,101
(11,298)
(326,094)
(380,571)
–
–
–
–
–
–
–
–
–
–
–
–
830,432
713,380
(66,663)
(35,928)
(35,928)
–
–
(66,663)
(35,928)
(45,527)
(41,850)
717,242
635,602
(188,523)
(184,394)
(21,327)
(10,334)
(209,850)
(194,728)
507,392
440,874
(166,190)
(138,782)
341,202
302,092
EBIT
Net finance costs
Profit/(loss) before income tax
Income tax expense
Net profit/(loss) after tax
Capital expenditure
Exploration and evaluation assets
–
–
714,796
169,522
Oil and gas assets
– development and production
Other plant and equipment
58,520
70,756
–
–
–
–
–
–
58,520
70,756
714,796
169,522
–
–
–
–
62,047
62,047
37,341
37,341
714,796
169,522
58,520
62,047
835,363
70,756
37,341
277,619
Geographical segments
The Group operates primarily in Papua New Guinea, but also has activities in the United States of America and Australia.
Production from the designated segments is sold on commodity markets and may be sold to other geographical segments.
In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the location
of operating activity.
$’000
PNG
USA
Australia
Other
Total
(1) Non-current assets exclude deferred taxes of $761.0 million (2017: $678.1 million).
REVENUE
NON-CURRENT ASSETS(1)
2018
2017
2018
2017
1,535,761
1,446,001
8,305,847
8,364,394
–
–
–
477,169
64,603
133,316
–
–
–
54,886
127,718
1,535,761
1,446,001
8,980,935
8,546,998
131
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
2
SEGMENT REPORTING (CONTINUED)
Major customers
There are five customers with revenue exceeding 10% of the Group’s total sales revenue.
Revenue from one customer represents approximately $240.0 million or 16% of the Group’s total revenue (2017: $260.0 million, 18%).
Revenue from one customer represents approximately $240.6 million or 16% of the Group’s total revenue (2017: $233.7 million, 16%).
Revenue from one customer represents approximately $257.7 million or 17% of the Group’s total revenue (2017: $225.4 million, 15%).
Revenue from one customer represents approximately $157.3 million or 10% of the Group’s total revenue (2017: $206.3 million, 14%).
Revenue from one customer represents approximately $186.7 million or 12% of the Group’s total revenue (2017: $186.3 million, 13%).
Drilling rig and camp lease revenue
13,363
13,000
CONSOLIDATED
PARENT
2018
$’000
1,124,929
326,007
35,144
36,318
2017
$’000
952,629
394,944
40,444
44,984
1,522,398
1,433,001
1,535,761
1,446,001
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
–
–
–
–
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
(290,027)
(262,813)
(13,207)
(16,911)
(5,657)
(473)
(10,535)
(18,157)
–
(2,880)
(326,275)
(294,385)
(52,654)
(1,147)
(46,089)
(1,656)
(309,979)
(362,221)
(7,051)
(1,156)
(7,051)
(3,646)
(698,262)
(715,048)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
132
3
REVENUE
Liquefied natural gas sales
Oil and condensate sales
Gas sales
Other revenue
Total revenue
4
COST OF SALES
Costs of production:
Production costs
Royalties and levies
Gas purchases
Other costs of production
Inventory movements
Selling and distribution costs
Rig operating costs
Depreciation and amortisation
Oil and gas assets
Marine assets
Rig assets
Total cost of sales
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
5
OTHER EXPENSES
Corporate(1)
Exploration costs expensed
Power costs expensed
Acquisition related expenses
Impairment
Depreciation
Loss on obsolescence and disposal of assets
Donations
Other
Foreign currency gain/(loss)
Total other expenses
CONSOLIDATED
PARENT
2018
$’000
(31,571)
(66,663)
(4,182)
–
–
(7,908)
260
(16,502)
(700)
(2,570)
2017
$’000
(28,988)
(35,928)
(6,097)
–
–
(7,653)
(8,258)
(13,207)
(5,182)
(7)
(129,836)
(105,320)
2018
$’000
(5,881)
(35)
–
–
2017
$’000
(5,660)
(479)
–
(28)
(563)
(6,580)
–
–
(1,015)
–
(7,494)
–
–
(991)
–
(13,738)
(1)
Includes business development costs of $2.0 million (2017: $3.2 million) on a consolidated basis.
6
NET FINANCE COSTS
Interest income
Finance leases
Borrowing costs
Unwinding of discount on site restoration
Net finance costs
7
INCOME TAX
The major components of tax expenses are:
Current tax expense
Adjustments for current tax of prior periods
Deferred tax (expense)/income
Income tax (expense)/benefit
Reconciliation of income tax expense to prima facie tax payable:
Profit/(loss) before tax
Tax at PNG rate of 30%
Additional Profits Tax payable
Effect of differing tax rates across tax regimes
Tax effect of items not tax deductible or assessable:
(Under)/over provisions in prior periods
Non-deductible expenditure
Non-assessable income
Reinstatement of deferred tax assets
Income tax (expense)/benefit
Deferred tax (expense)/income recognised in net profit/(loss)
for each type of temporary difference:
Exploration, development and production
Other assets
Provisions and accruals
Other items
Tax losses
Deferred tax (expense)/income
133
CONSOLIDATED
PARENT
2018
$’000
19,405
(17,700)
(196,014)
(15,541)
(209,850)
2017
$’000
17,495
(17,975)
(184,135)
(10,113)
(194,728)
2018
$’000
–
–
(45)
(121)
(166)
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
(29,392)
(9,641)
(127,157)
(166,190)
(18,127)
(419)
(120,236)
(138,782)
2018
$’000
–
(7)
1,637
1,630
2017
$’000
–
–
(513)
–
(513)
2017
$’000
–
(135)
3,747
3,612
507,392
440,874
106,612
(14,251)
(152,218)
(6,767)
(1,341)
(132,263)
(16,880)
1,643
(31,984)
4,276
–
–
–
–
(160,326)
(147,500)
(31,984)
4,276
(9,641)
(1,997)
–
5,774
15
(2,528)
244
10,987
(166,190)
(138,782)
(153,389)
(191,815)
2,323
(7,386)
1,025
30,270
(127,157)
1,973
59,413
(1,035)
11,228
(120,236)
(7)
(495)
34,282
(166)
1,630
136
–
34
–
1,467
1,637
(135)
(2,570)
–
2,041
3,612
(2,159)
–
2,671
386
2,849
3,747
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
7
INCOME TAX (CONTINUED)
Deferred tax assets
Temporary differences:
Exploration, development and production
Other assets
Provisions
Other differences
Tax losses recognised
Tax credits
Deferred tax liabilities
Temporary differences:
Exploration, development and production
Prepayments and receivables
Other assets
Other differences
8
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
227,597
6,251
219,834
6,260
46,088
254,934
760,964
229,312
3,488
226,265
29
12,885
206,161
678,140
1,024,674
870,679
1,412
41,930
8,161
1,076,177
–
42,913
93
913,685
20,879
–
3,185
–
4,425
–
28,489
–
–
–
–
–
20,981
–
3,204
–
2,849
–
27,034
–
–
–
–
–
CONSOLIDATED
2018
CENTS
22.39
22.32
2017
CENTS
19.83
19.77
NO.
NO.
1,523,631,192
1,523,268,608
1,764,126
1,504,143
3,549,532
3,163,920
1,528,944,850
1,527,936,671
Weighted average number of ordinary shares used for the purposes of calculating diluted earnings per share reconciles to the
number used to calculate basic earnings per share as follows:
Basic earnings per share
Employee share rights
Employee performance rights
Diluted earnings per share
Basic earnings and diluted earnings per share have been calculated on a net profit after tax of $341.2 million (2017: $302.1 million).
There are 1,764,126 share rights (2017: 1,504,143) and 3,549,532 performance rights (2017: 3,163,920) which are dilutive potential
ordinary shares and are therefore included in the weighted average number of shares for the calculation of diluted earnings per
share. In 2018, the Restricted Share Plan Trust held 4,953 (2017: 347) Oil Search Limited shares that may be used to settle dilutive
potential ordinary shares which were taken into account in the calculation of diluted earnings per share.
9
DIVIDENDS PAID OR PROPOSED
Unfranked(1) dividends in respect of the year, proposed subsequent to the year end:
Ordinary dividend(2)
Unfranked(1) dividends paid during the year:
Ordinary – previous year final
Ordinary – current year interim(3)
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
129,509
129,509
83,800
30,473
114,273
83,800
83,800
38,067
60,947
99,014
129,509
129,509
83,800
30,473
114,273
83,800
83,800
38,067
60,947
99,014
(1) As Oil Search Limited is a Papua New Guinea incorporated company, there are no franking credits available on dividends.
(2) On 18 February 2019, the Directors declared a final unfranked dividend of US 8.5 cents per ordinary share for the current year (2017: US 5.5 cents final dividend)
to be paid on 28 March 2019. The proposed final dividend for 2018 is payable to all holders of ordinary shares on the Register of Members on 6 March 2019
(record date). The proposed final dividend has not been included as a liability in these financial statements.
(3) On 20 August 2018, the Directors declared an interim unfranked dividend of US 2 cents per ordinary share (2017: US 4 cent interim dividend), paid to the holders
134
of ordinary shares on 5 September 2018.
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
10
RECEIVABLES
Current
Trade debtors(1),(2)
Other debtors(1),(3)
Amounts due from subsidiary entities(4)
CONSOLIDATED
PARENT
2018
$’000
151,372
77,333
–
2017
$’000
119,536
36,779
–
228,705
156,315
2018
$’000
–
–
57,150
57,150
2017
$’000
–
–
582,243
582,243
(1) During 2018, no current receivables have been determined to be impaired and no related impairment loss has been charged to the statement of comprehensive
income (2017: nil).
(2) Credit sales are on payment terms between 8 and 30 days.
(3) Other debtors include $43.5 million related to spend on the NiuPower and NiuEnergy joint ventures that will be settled as an investment in joint ventures pending
the completion of certain commercial agreements.
(4) Receivables from related entities are payable on call.
11
INVENTORIES
Current
Materials and supplies
Petroleum products
12
OTHER ASSETS
Non-current
Deposits
Prepayments – other
Prepayments made to third party(1)
(1) Refer to note 13 Other financial assets for further explanation.
13
OTHER FINANCIAL ASSETS
Non-current
Loan receivable
CONSOLIDATED
PARENT
2018
$’000
77,416
13,012
90,428
2017
$’000
82,537
12,481
95,018
2018
$’000
2017
$’000
–
–
–
–
–
–
CONSOLIDATED
PARENT
2018
$’000
860
8,743
73,813
83,416
2017
$’000
2,570
6,941
71,646
81,157
2018
$’000
2017
$’000
–
–
–
–
–
–
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
59,408
52,045
–
–
The loan receivable and non-current prepayments made to a third party relates to cash advanced by Oil Search to an Exploration
and Production (E&P) company under a farm-in arrangement in respect of an exploration licence containing discovered oil resources
and reflect the nature of the funding arrangement. The farm-in remains subject to government approvals and confidentiality. Interest
on the loan is calculated at the lesser of 10% per annum or LIBOR plus 7.5%. The loan receivable is payable out of future production
cash flows from the licence. The future classification of non-current prepayments to the third party is subject to either government
approval for Oil Search to farm-in to the exploration licence or the exercise of an option permitting Oil Search to acquire an equity
interest in the issued share capital of the E&P company.
The asset is not past due or impaired at the end of the reporting period.
135
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
14
EXPLORATION AND EVALUATION ASSETS
At cost
Less impairment
Balance at start of year
Additions(1)
Exploration costs expensed
Changes in restoration obligations
Net exchange differences
Balance at end of year
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2,991,283
2,318,816
135,945
(646,465)
(646,464)
2,344,818
1,672,352
(23,792)
112,153
1,672,352
1,521,371
714,796
(66,663)
26,387
(2,054)
169,522
(35,928)
16,748
639
83,543
28,684
(350)
276
–
2017
$’000
107,336
(23,793)
83,543
66,017
9,548
(479)
8,457
–
2,344,818
1,672,352
112,153
83,543
(1)
Includes the acquisition of exploration licences in Alaska for a total purchase price of US$434.4 million.
Exploration and evaluation assets include $1,556.9 million (2017: $1,054.5 million) of licence acquisition costs that are classified as
intangible assets.
15
PROPERTY, PLANT AND EQUIPMENT
2018
At cost
Accumulated amortisation,
depreciation and impairment
CONSOLIDATED OIL AND GAS
CONSOLIDATED OTHER PLANT AND EQUIPMENT
DEVELOPMENT
$’000
PRODUCING
$’000
TOTAL
$’000
MARINE
$’000
RIGS
$’000
CORPORATE
$’000
TOTAL
$’000
65,818
9,117,741
9,183,559
138,020
90,295
234,294
462,609
–
(2,942,992)
(2,942,992)
65,818
6,174,749
6,240,567
(24,084)
113,936
(70,651)
(119,106)
(213,841)
19,644
115,188
248,768
Balance at 1 January 2018
28,961
6,506,782
6,535,743
120,987
Additions
Transfers
Disposals
Changes in restoration obligations
Net exchange differences
Amortisation and depreciation
36,797
21,723
58,520
60
–
–
–
–
(60)
–
–
–
(43,717)
(43,717)
–
–
(309,979)
(309,979)
Balance at 31 December 2018
65,818
6,174,749
6,240,567
18,703
2,097
–
–
–
–
–
–
–
–
–
(7,051)
113,936
(1,156)
19,644
66,011
59,950
–
(8)
(78)
(2,779)
(7,908)
205,701
62,047
–
(8)
(78)
(2,779)
(16,115)
115,188
248,768
2017
At cost
Accumulated amortisation,
depreciation and impairment
28,961
9,139,795
9,168,756
138,020
88,198
177,209
403,427
–
(2,633,013)
(2,633,013)
28,961
6,506,782
6,535,743
(17,033)
120,987
(69,495)
18,703
(111,198)
66,011
(197,726)
205,701
Balance at 1 January 2017
–
6,646,293
6,646,293
128,038
Additions
Transfers
Disposals
Changes in restoration obligations
Net exchange differences
Amortisation and depreciation
30,103
(1,142)
–
–
–
–
40,653
1,142
–
70,756
–
–
180,915
180,915
–
–
(362,221)
(362,221)
Balance at 31 December 2016
28,961
6,506,782
6,535,743
–
–
–
–
–
(7,051)
120,987
18,630
4,153
–
(434)
–
–
(3,646)
18,703
40,001
33,188
–
(509)
61
923
(7,653)
66,011
186,669
37,341
–
(943)
61
923
(18,350)
205,701
136
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
16
PAYABLES
Current
Payables and accruals(1)
Deferred lease liability
Non-current
Other payables
Deferred lease liability
(1) Trade creditors are normally settled on 30 day terms.
17
PROVISIONS
Current
Employee entitlements
Site restoration
Other provisions
Non-current
Employee entitlements
Site restoration
Other provisions
(i)
Movement in employee entitlements provision
Balance at start of year
Additional provision recognised
Provision utilised
Balance at end of year
CONSOLIDATED
PARENT
2018
$’000
321,536
4,948
326,484
10,294
13,100
23,394
2017
$’000
194,160
4,994
199,154
11,636
13,151
24,787
2018
$’000
1,157
–
1,157
–
–
–
2017
$’000
22,275
–
22,275
–
–
–
(i)
(ii)
(i)
(ii)
CONSOLIDATED
PARENT
2018
$’000
7,570
11,556
191
19,317
2017
$’000
6,908
21,915
210
29,033
2018
$’000
2017
$’000
–
228
–
228
–
486
–
486
11,836
557,332
526
11,952
572,242
526
–
–
10,389
10,406
–
–
569,694
584,720
10,389
10,406
CONSOLIDATED
PARENT
2018
$’000
18,860
6,395
(5,849)
19,406
2017
$’000
16,065
7,761
(4,966)
18,860
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
The provisions represent amounts due to employees in respect of entitlements to annual leave and long service leave accrued
under statutory obligations applicable in Australia and PNG. These amounts are payable in the normal course of business, either
when leave is taken or on termination of employment.
(ii)
Movement in site restoration provision
Balance at start of year
Change in provision
Provision utilised
Excess provision released
Unwinding of discount
Balance at end of year
CONSOLIDATED
PARENT
2018
$’000
594,157
(19,808)
(16,658)
(4,344)
15,541
2017
$’000
385,254
202,204
(598)
(2,816)
10,113
568,888
594,157
2018
$’000
10,892
(396)
–
–
121
10,617
2017
$’000
2,435
8,457
–
–
–
10,892
These provisions are related to the estimated costs of restoring wells, facilities and infrastructure at the end of the economic life of
the Group’s producing assets and for the restoration of wells drilled for exploration and evaluation activities.
137
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
18
BORROWINGS
Current
Finance lease
Secured loan from joint operation(1)
Non-current
Finance lease
Secured loan from joint operation(1)
(1) Details regarding borrowings are contained in Note 27(f).
19
SHARE CAPITAL AND RESERVES
Issued 1,523,631,192 (2017: 1,523,631,192)
Ordinary shares, fully paid (no par value)
Reserves at the end of the year
Foreign currency translation reserve
Amalgamation reserve
Reserve for treasury shares
Employee equity compensation reserve
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2,539
354,200
356,739
2,229
331,901
334,130
128,678
131,219
2,939,357
3,293,557
3,068,035
3,424,776
–
–
–
–
–
–
–
–
–
–
–
–
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
3,152,443
3,152,443
3,152,443
3,152,443
(i)
(ii)
(iii)
(iv)
(19,162)
(17,157)
–
–
–
2,969
10,745
(5,448)
–
(2,990)
(2,990)
3,663
7,060
(6,434)
5,589
5,082
7,681
6,283
1,398
4,691
(i) The foreign currency translation reserve is used to record foreign exchange differences arising from the translation of the financial statements of subsidiaries with
functional currencies other than US Dollars.
(ii) The amalgamation reserve was used to record the retained earnings of entities amalgamated into the parent entity in 2006.
(iii) The reserve for treasury shares is used to record the cost of purchasing Oil Search Limited shares by the Restricted Share Plan Trust and the issue of shares to settle
vested share-based obligations.
(iv) The employee equity compensation reserve is used to record the share-based remuneration obligations to employees in relation to Oil Search Limited ordinary
shares as held by the Employee Options and Rights Share Plans and Share Appreciation Rights Share Plans, which have not vested as at the end of the year.
20
(a)
STATEMENT OF CASH FLOWS
Cash and cash equivalents
Cash at bank and on hand(1),(2)
Share of cash in joint operations
Interest-bearing short-term deposits
CONSOLIDATED
PARENT
2018
$’000
429,336
9,221
162,000
600,557
2017
$’000
383,219
11,627
620,400
1,015,246
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
(1)
Includes $308.6 million (2017: $275.4 million) escrowed in the PNG LNG Project account. Refer to Note 27 for further details.
(2) Includes $12.0 million (2017: $12.0 million) in a debt service reserve account held with Australia & New Zealand Banking Group Limited, as required by the
$600 million revolving facility agreement.
138
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
20
(b)
STATEMENT OF CASH FLOWS (CONTINUED)
Reconciliation of cash flows from operating activities
Net profit/(loss) after tax
Add/(deduct):
Exploration costs expensed(1)
Impairment expense
Stock obsolescence and disposal of assets
Depreciation and amortisation
Unwinding of site restoration discount
Employee share-based remuneration
Exchange (gain)/losses - unrealised
Movement in tax provisions
(Increase)/decrease in receivables
(Increase)/decrease in inventories
Increase/(decrease) in payables
(Increase)/decrease in current and non-current assets
Increase/(decrease) in provisions
Net cash from/(used in) operating activities
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
341,202
302,092
108,242
–
–
(260)
326,095
15,542
11,229
1,521
79,086
(80,375)
7,801
147,989
6,496
(1,694)
513,430
854,632
21,941
–
8,258
380,571
10,113
8,950
(1,074)
78,342
(4,118)
395
42,649
(8,792)
4,255
–
563
–
–
121
–
–
(2,806)
(2,995)
–
1,854
–
(671)
541,490
843,582
(3,934)
104,308
2017
$’000
(10,639)
–
6,580
–
–
–
–
–
(3,592)
(39)
–
(130)
(71)
–
2,748
(7,891)
(1) Exploration costs expensed totalled $66.7 million (2017: $35.9 million), with no adjustment for unsuccessful well write off costs (2017: $21.9 million).
(c)
Changes in liabilities and financial assets from financing activities
CONSOLIDATED
Liabilities with cash flows from financing activities
Borrowings
Lease liabilities
Financial assets with cash flows
from financing activities
Loan receivable
Contributions receivable for employee share scheme
Parent
Financial assets with financing activities cash flows
Loans (to)/from related entities
CASH
(OUTFLOWS)/
INFLOWS
$’000
2017
$’000
3,625,458
133,448
3,758,906
(331,901)
(2,231)
(334,132)
(52,045)
(4,565)
(56,610)
(2,167)
4,246
2,079
(582,243)
(582,243)
516,612
516,612
NON-CASH CHANGES
ACQUISITION
$’000
FAIR VALUE
CHANGES
$’000
OTHER
CHANGES
$’000
2018
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,293,557
131,217
3,424,774
(5,196)
(4,055)
(9,251)
(59,408)
(4,374)
(63,782)
8,481
8,481
(57,150)
(57,150)
139
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
21
EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS
Salaries and short-term benefits
Post-employment benefits
Employee share-based payments
Total
CONSOLIDATED
PARENT
2018
$’000
147,509
4,961
11,229
2017
$’000
145,221
4,473
8,950
163,699
158,644
2018
$’000
2017
$’000
–
–
–
–
–
–
–
–
Employee Share Rights, Share Option Plan and Share Appreciation Rights Plans
Share Rights are granted for $nil consideration. A Share Right is a right to an allocation of ordinary shares in Oil Search Limited
(at no cost) subject to continued employment at the vesting date. On the vesting date, the number of Share Rights that have
vested will be automatically exercised and converted to ordinary shares in Oil Search Limited. Commencing with the 2014 grant,
Share Appreciation Rights are no longer awarded.
There are currently 975 (2017: 924) employees participating in the Employee Share Rights.
Grant date
18 Oct 2018 18 Oct 2018 18 Oct 2018 18 Oct 2018 18 Oct 2018 18 Oct 2018 18 Oct 2018 18 Oct 2018 18 Oct 2018 21 May 2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
Share price at grant
date
Fair value
Exercise date
Exercise price
Number of awards
Balance as at
1 Jan 2018
Granted during year
Forfeited during year
Exercised during
year
Balance at
31 Dec 2018
Avg. share price
at date of exercise
A$8.56
A$8.24
A$8.56
A$8.40
A$8.56
A$8.26
A$8.56
A$8.42
A$8.56
A$8.26
A$8.56
A$8.43
A$8.56
A$8.43
A$8.56
A$8.19
A$8.56
A$8.35
A$8.50
A$7.89
12 Sep 2020 12 Sep 2019 23 July 2020 23 July 2019 12 July 2020 12 July 2019
1 July 2019
1 Jan 2021
1 Jan 2020 1 March 2022
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
–
7,833
–
–
–
–
–
–
–
–
–
–
–
7,833
19,518
19,518
3,000
3,000
2,500
8,350
8,350
25,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,833
7,833
19,518
19,518
3,000
3,000
2,500
8,350
8,350
25,000
–
–
–
–
–
–
–
–
–
–
Grant date
21 May 2018 21 May 2018 21 May 2018 21 May 2018 21 May 2018 22 May 2017 16 May 2016 18 May 2015 19 May 2014
2018
2018
2018
2018
2018
2017
2016
2015
2014
A$8.50
A$8.04
A$8.50
A$8.20
A$8.50
A$8.28
A$8.50
A$8.45
A$8.50
A$8.01
A$7.38
A$7.14
A$6.70
A$6.61
A$8.15
A$6.86
A$9.04
A$8.46
1 March 2021 1 March 2020 1 Sep 2019
1 Sep 2018 21 May 2021 22 May 2020 17 May 2019 18 May 2018 19 May 2017
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
–
–
–
–
–
688,090
593,294
429,424
25,000
25,000
5,800
5,800
816,540
–
–
–
–
–
–
–
–
–
–
(17,771)
(34,663)
(58,292)
(9,946)
(5,800)
–
–
–
(419,478)
Balance at 31 Dec 2018
25,000
25,000
5,800
–
798,769
653,427
535,002
–
Avg. share price at date of exercise
Balance at 1 Jan 2017
Granted during year
Forfeited during year
Exercised during year
Balance at 31 Dec 2017
Avg. share price at date of exercise
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A$8.96
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A$8.55
–
–
648,396
474,597
374,716
717,446
–
–
–
(29,356)
(55,102)
(45,173)
(16,693)
–
–
–
(358,023)
688,090
593,294
429,424
–
–
–
–
A$7.25
Share Rights and Share Appreciation Rights were priced using a binomial option pricing model with the following inputs:
140
–
–
–
–
–
–
Share price at grant date
Fair value
Exercise date
Exercise price
Number of awards
Balance as at 1 Jan 2018
Granted during year
Forfeited during year
Exercised during year
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
21
EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS (CONTINUED)
Volatility
Dividend yield
Risk-free interest rate
2018
32%
1.98%
2.19%
2017
28%
1.1%
1.76%
2016
30%
0.70%
1.57%
2015
30%
2.2%
2.1%
2014
20%
2.2%
2.85%
Performance Rights Plan
An employee Performance Rights Plan was established in 2004, under which selected employees of the Group are granted
rights over ordinary shares of Oil Search Limited. Vesting of the awards depends on Oil Search’s Total Shareholder Return (TSR)
performance over a three-year period relative to peer groups of companies. The two peer groups are:
¸ the ASX50 (excluding property trusts and non-standard listings); and
¸ the constituents of the Standard and Poor’s Global Energy Index. TSR outcomes for this international group are normalised
against a US dollar base currency to provide consistency of measurement.
For performance rights granted from 2017 onwards, the portion of awards tested against Global Energy Index increased from 50%
to 66% while the portion of the awards tested against the ASX 50 decreased from 50% to 33%. To determine the level of vesting of
the awards, Oil Search’s TSR over the three-year performance period is ranked against the TSR of each company in the peer groups
over the same period.
For each peer group, if Oil Search’s TSR performance is:
¸ below median, that is the 50th percentile, no performance rights will vest;
¸ at the median, 50% of the performance rights granted will vest;
¸ greater than median and less than the 75th percentile, the number of performance rights that vest will increase on a straight line
basis from 50% to 100% of the total number of performance rights comprised in that part of the award; or
¸ equal to or greater than the 75th percentile, the number of performance rights that vest will be 100% of the total number of
performance rights comprised in that part of the award.
The rights are granted for nil consideration and are granted in accordance with guidelines approved by shareholders at the Annual
Meeting in 2004. The rights cannot be transferred and are not quoted on the Australian Securities Exchange. There are currently 56
(2017: 49) employees participating in the Performance Rights Plans.
Grant date
Share price at grant date
Fair value
Exercise date
Exercise price
Number of rights
Balance at 1 January 2018
Granted during year
Forfeited during year
Exercised during year
Balance at 31 December 2018
Average share price at date of exercise
Balance at 1 January 2017
Granted during year
Forfeited during year
Exercised during year
Balance at 31 December 2017
Average share price at date of exercise
2018
2018
2017
2016
2015
21 Jun 2018
21 May 2018
22 May 2017
16 May 2016
18 May 2015
A$8.50
A$8.50
Note 1
A$ nil
A$8.50
A$5.23
A$7.38
A$4.68
A$6.75
A$3.59
A$8.15
A$3.00
21 May 2021
22 May 2020
17 May 2019
18 May 2018
A$ nil
A$ nil
A$ nil
A$ nil
–
–
1,184,700
1,127,316
889,072
500,935
1,332,666
–
–
(38,920)
(62,731)
(83,732)
(35,212)
–
–
–
–
462,015
1,269,935
1,100,968
1,092,104
–
(661,291)
(227,781)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A$8.55
1,142,370
917,384
1,184,700
–
–
–
–
(15,054)
(28,312)
–
–
1,184,700
1,127,316
889,072
–
–
–
Note 1: Awards vest two years after achievement of Financial Sanction of the Papua LNG Project and the PNG LNG Expansion Project.
141
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
21
EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS (CONTINUED)
Volatility
Dividend yield
Risk-free interest rate
2018
32%
1.98%
2.19%
2017
28%
1.1%
1.76%
2016
30%
0.70%
1.57%
2015
30%
2.2%
2.1%
Restricted Share Plan
An employee Restricted Share Plan was established in 2007 where selected employees of the Group are granted restricted shares
of Oil Search Limited.
Restricted shares are granted under the plan in two situations. Firstly, they were granted as a way of retaining key management and
other employees, and, secondly, by way of a mandatory deferral of a portion of a selected participant’s short-term incentive award.
Awards under the Restricted Share Plan are structured as grants of restricted shares for nil consideration. Restricted shares are held
on behalf of participants in trust, subject to the disposal restrictions and forfeiture conditions, until release under the terms of the
Plan and in accordance with guidelines approved by shareholders at the Annual Meeting in 2007. There are currently 12 (2017: 10)
employees participating in the Restricted Share Plan.
Restricted shares were priced at the closing share price at the grant date.
EXECUTIVES
Grant date
2018
2018
2017
2016
2016
2016
2015
2015
2015
21 May 2018 21 May 2018 19 May 2017
12 Jul 2016
12 Jul 2016 16 May 2016
2 Nov 2015 18 May 2015
2 Mar 2015
Share price at grant date
A$8.50
A$8.50
A$7.25
A$6.80
A$6.80
A$6.75
A$7.79
A$7.33
A$8.12
Exercise date
Exercise price
Number of shares
1 July 2020
1 Jan 2020
1 Jan 2019
10 Jul 2018
10 Jul 2019
1 Jan 2018 30 Oct 2017
1 Jan 2017 31 Dec 2017
$A nil
$A nil
$A nil
$A nil
$A nil
$A nil
$A nil
$A nil
$A nil
Balance at 1 January 2018
–
–
627,304
20,070
33,450
539,331
Granted during year
Forfeited during year
Vested during year
13,577
626,597
–
–
–
–
–
–
–
–
–
(20,070)
–
–
–
–
–
(539,331)
Balance at 31 December 2018
13,577
626,597
627,304
–
33,450
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 1 January 2017
Granted during year
Forfeited during year
Vested during year
Balance at 31 December 2017
–
–
–
–
–
–
–
–
–
–
–
20,070
33,450
539,331
31,250
513,752
50,000
627,304
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(31,250)
(513,752)
(50,000)
627,304
20,070
33,450
539,331
–
–
–
22
KEY MANAGEMENT PERSONNEL REMUNERATION
Directors’ and executive remuneration
Remuneration paid or payable, or otherwise made available, in respect of the financial year, to all directors and executives of Oil
Search Limited, directly or indirectly, by the Company or any related party:
Short-term benefits
Long-term benefits
Post-employment benefits
Share-based payments
Termination benefits
DIRECTORS’
EXECUTIVES
2018
$
2017
$
2018
$
2017
$
5,096,175
5,922,528
7,012,364
6,991,929
(164,278)
37,426
68,520
50,585
17,198
124,587
186,572
113,912
2,834,583
2,537,016
3,156,987
2,670,478
263,771
–
138,386
–
8,067,677
8,578,649
10,449,522
9,962,891
142
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
22
KEY MANAGEMENT PERSONNEL REMUNERATION (CONTINUED)
The number of directors and executives of Oil Search Limited whose remuneration falls within the following bands:
DIRECTORS’
EXECUTIVES
2018
NO.
2017
NO.
2018
NO.
2017
NO.
$20,000 – $29,999
$40,000 – $49,999
$110,000 – $119,999
$130,000 – $139,999
$150,000 – $159,999
$160,000 – $169,999
$170,000 – $179,999
$180,000 – $189,999
$190,000 – $199,999
$200,000 – $209,999
$230,000 – $239,999
$380,000 – $389,999
$390,000 – $399,999
$400,000 – $409,999
$410,000 – $419,999
$560,000 – $569,999
$900,000 – $909,999
$930,000 – $939,999
$970,000 – $979,999
$1,020,000 – $1,029,999
$1,030,000 – $1,039,999
$1,090,000 – $1,099,999
$1,100,000 – $1,109,999
$1,130,000 – $1,139,999
$1,140,000 – $1,149,999
$1,170,000 – $1,179,999
$1,200,000 – $1,209,999
$1,230,000 – $1,239,999
$1,240,000 – $1,249,999
$1,270,000 – $1,279,999
$1,280,000 – $1,289,999
$1,340,000 – $1,349,999
$1,380,000 – $1,389,999
$1,390,000 – $1,399,999
$1,400,000 – $1,409,999
$1,500,000 – $1,509,999
$1,670,000 – $1,679,999
$1,910,000 – $1,919,999
$2,060,000 – $2,069,999
$5,800,000 – $5,809,999
$5,840,000 – $5,849,999
–
–
–
2
–
–
2
2
1
–
1
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
1
–
3
–
2
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
1
–
–
–
–
–
–
–
1
–
–
1
1
–
1
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
–
–
1
–
–
–
–
–
–
1
–
–
1
–
1
–
1
–
1
–
–
–
143
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
KEY MANAGEMENT PERSONNEL TRANSACTIONS
23
The directors and other key management personnel of Oil Search Limited during the year to 31 December 2018 and their interests in
the shares of Oil Search Limited at that date were:
NO. OF ORDINARY
SHARES
NO. OF PERFORMANCE
RIGHTS(1)
NO. OF RESTRICTED
SHARES(1)
2018
2017
2018
2017
2018
2017
3,347,330
2,368,039
1,148,084
511,687
497,223
64,716
877,900
177,300
530,660
86,841
506,841
85,696
–
36,050
31,961
45,736
96,829
–
–
–
–
366,326
166,020
483,749
129,020
–
65,799
2,984
77,934
–
30,800
31,961
45,736
96,829
25,000
–
–
–
313,803
106,134
431,081
82,981
–
8,590
–
75,421
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
229,075
96,375
241,010
194,880
226,143
240,448
160,996
140,964
182,796
186,278
186,797
155,484
180,474
191,903
82,497
62,869
89,572
91,289
101,769
79,969
92,830
103,377
51,854
25,740
88,390
140,085
89,523
76,543
87,315
95,285
8,501
–
Directors
Mr Peter Botten
Mr Gerea Aopi(2)
Sir Kostas Constantinou
Dr Eileen Doyle
Ms Fiona Harris
Dr Agu Kantsler
Mr Richard Lee
Mr Keith Spence(3)
Sir Melchior Togolo
Ms Susan Cunningham(4)
Dr Bakheet Al Katheeri(4)
Other key management personnel
Mr Paul Cholakos
Dr Julian Fowles
Mr Stephen Gardiner
Mr Michael Herrett
Mr Ian Munro
Dr Keiran Wulff
Mr Michael Drew
Ms Elizabeth White
(1) Refer to note 21 for key terms.
(2) Resigned as a director effective 16 March 2018.
(3) Resigned as a director effective 20 October 2017.
(4) Appointed to the board on 26 March 2018.
Some directors and other key management personnel, or their related parties, hold positions in other entities that may result in them
having control or joint control over those entities.
Four of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with key
management personnel and their related parties were no more favourable than those available, or which might reasonably be
expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.
The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they
have control or significant influence were as follows:
CONSOLIDATED
Airways Hotel and Apartments Limited(1)
Airways Residence Limited(1)
Alotau International Hotel(1)
Lamana Hotel Port Moresby(1)
TRANSACTIONS VALUE
YEAR ENDED 31 DECEMBER
2018
$’000
504
42
62
22
2017
$’000
335
–
2
11
(1) The Group acquired hotel, conference facility and accommodation services from PNG from Airways Hotel and Apartments Limited, Airways Residence Limited,
Alotau International Hotel and Lamana Hotel Port Moresby, companies of which Sir KG Constantinou is a Director.
All services acquired were based upon normal commercial terms and conditions.
144
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
24
COMMITMENTS
Finance lease commitments
Payable within 12 months
Payable 1 to 5 years
Payable greater than 5 years
Future finance charges
Finance lease liability
Operating lease commitments
Payable within 12 months
Payable 1 to 5 years
Payable greater than 5 years
Expenditure commitments
Capital expenditure commitments
Other expenditure commitments
25
AUDITOR’S REMUNERATION
Amounts paid or due and payable in respect of:
Audit and review of the Group’s financial report
Other services
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
19,931
79,724
225,496
325,151
(193,934)
131,217
52,609
147,297
105,011
304,917
19,931
79,724
245,429
345,084
(211,636)
133,448
39,368
119,594
131,510
290,472
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
175,644
112,399
288,043
112,369
118,348
230,717
16,109
–
28,109
–
16,109
28,109
CONSOLIDATED
PARENT
2018
$’000
2017
$’000
2018
$’000
2017
$’000
361
33
394
301
90
391
101
–
101
108
–
108
The audit fees are in Australian dollars and are translated at 0.7452 (2017: 0.7800).
145
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
26
(a)
SUBSIDIARIES AND INTERESTS IN JOINT ARRANGEMENTS
Subsidiaries
Parent entity
Oil Search Limited
Consolidated entities
Oil Search (Middle Eastern) Limited
Oil Search (Iraq) Limited
Oil Search (Libya) Limited
Oil Search (Tunisia) Limited
Oil Search (Newco) Limited
Oil Search (ROY) Limited(1)
Oil Search (Gas Holdings) Limited
Oil Search (Tumbudu) Limited
Oil Search Highlands Power Limited
Markham Valley Power Limited
Oil Search (PNG) Limited
Oil Search (Drilling) Limited
Oil Search (Exploration) Inc.
Oil Search (LNG) Limited
Oil Search Finance Limited
Oil Search Power Holdings Limited
Markham Valley Biomass Limited
Oil Search Foundation Limited(2)
Papuan Oil Search Limited
Oil Search (Uramu) Pty Limited
Oil Search (USA) Inc.
Oil Search (Alaska) LLC
Oil Search Limited Retention Share Plan Trust
Pac LNG Investments Limited
Pac LNG Assets Limited
Pac LNG International Limited
Pac LNG Overseas Limited
Pac LNG Holdings Limited
(1) Oil Search (ROY) Limited was sold during 2018.
OWNERSHIP
INTEREST %
2018
OWNERSHIP
INTEREST %
2017
COUNTRY OF
INCORPORATION
PNG
British Virgin Is.
British Virgin Is.
British Virgin Is.
British Virgin Is.
British Virgin Is.
British Virgin Is.
PNG
PNG
PNG
PNG
PNG
PNG
Cayman Is.
PNG
British Virgin Is.
PNG
PNG
PNG
Australia
Australia
USA
USA
Australia
PNG
PNG
PNG
PNG
PNG
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
(2) Oil Search Foundation Limited is Trustee of the Oil Search Foundation Trust, a not-for-profit organisation established for charitable purposes in PNG. This Trust is
not controlled by Oil Search and is not consolidated within the Group.
146
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
26
SUBSIDIARIES AND INTERESTS IN JOINT ARRANGEMENTS (CONTINUED)
Interests in joint operations
(b)
The principal activities of the following joint operations, in which the Group holds an interest, are for the exploration, production
and transportation of crude oil and natural gas. The Group’s interests in joint operations are as follows:
(i)
Exploration licences
PPL 339(1)
PPL 374
PPL 375
PPL 487
PPL 395
PPL 507
PRL 3
PRL 9(1)
Block 7(3)
PPL 474(2)
PPL 475(2)
PPL 476(2)
PRL39(2)
Antigua(4)
Atlas A(4)
Atlas B(4)
Grizzly(4)
Harrison Bay(4)
Kachemach(4)
Thetis(4)
Horseshoe(4)
Hue Shale(4)
Pikka Unit (4)
(ii)
Production assets and other arrangements
PNG LNG Project(4)
Papua New Guinea Liquefied Natural Gas Global Company LDC
(c)
Interests in other arrangements
NiuPower Limited(5)
NiuEnergy Limited(5)
(1) Operated by an Oil Search Group entity.
(2) Subject to regulatory approval.
(3) Block 7 was sold to Petsec Energy Ltd during 2018.
(4) US licences acquired in 2018.
PRINCIPAL
PLACE OF
BUSINESS
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
Yemen
PNG
PNG
PNG
PNG
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
% INTEREST
2018
37.50
40.00
40.00
37.50
37.50
37.50
38.51
45.11
–
25.00
25.00
25.00
25.00
25.50
25.50
25.50
51.00
25.50
25.50
25.50
37.50
37.50
25.50
2017
37.50
40.00
40.00
37.50
37.50
37.50
38.51
45.11
34.00
–
–
–
–
–
–
–
–
–
–
–
–
–
–
PNG
Bahamas
29.00
29.00
29.00
29.00
PNG
PNG
50.00
50.00
–
–
(5) Shareholder Deeds were executed in 2018 to form joint ventures for the generation and supply of electricity in PNG.
147
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
26
SUBSIDIARIES AND INTERESTS IN JOINT ARRANGEMENTS (CONTINUED)
Interests in other arrangements
(d)
The Group participates in arrangements with other parties that have the same legal form as a joint operation but are not subject to
joint control (as described in note 1(q)). The Group’s interests in these arrangements are as follows:
(i)
Production assets and other arrangements
Hides gas-to-electricity project(1)
PDL 2 Kutubu(1)
South East Mananda(1)
Moran Unit(1)
South East Gobe Unit(1)
Gobe Main(1)
Kutubu pipeline system(1)
(ii)
Exploration licences
APDL 11 (PPL 219)(1),(2)
APPL623 (PPL 233)(1),(2)
PPL 504(1)
APRL41 (PPL 244)(1),(2)
PPL 545(1)
APPL608 (PPL 277)(2)
PPL 548(1)
PPL 595(1)
PPL 385(1)
PPL 402(1)
PRL 8(1)
PRL 10(1)
PRL 14(1)
PRL 15
(1) Operated by an Oil Search Group entity.
(2) Subject to regulatory approval.
PRINCIPAL
PLACE OF
BUSINESS
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
% INTEREST
2018
100.00
60.05
72.27
49.51
22.34
10.00
60.05
71.25
100.00
100.00
100.00
40.00
100.00
100.00
100.00
100.00
37.50
60.71
100.00
62.56
22.84
2017
100.00
60.05
72.27
49.51
22.34
10.00
60.05
71.25
100.00
100.00
100.00
40.00
50.00
–
–
100.00
37.50
60.71
100.00
62.56
22.84
148
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL AND CAPITAL RISK MANAGEMENT
27
Financial risk exposures arise in the course of the day-to-day operating activities of the Group, primarily due to the impact of oil
price movements on revenue items and exchange rate and interest rate impacts on expenditure and statement of financial position
items. The management of borrowings, cash and counter-parties for liquefied natural gas, oil, condensate and gas sales also create
liquidity and credit risk exposures. Monetary assets and liabilities denominated in currencies that are different to the Group’s
functional currency may also give rise to translation exposures.
The Group’s overall approach to financial risk management is to enter into hedges using derivative financial instruments only
in circumstances where it is necessary to ensure adequate cash flow to meet future financial commitments. Financial risk
management is undertaken by Group Treasury and risks are managed within the parameters of the Board approved Financial Risk
Management Procedure.
Foreign exchange risk
(a)
The Group’s revenue and major capital obligations are predominantly denominated in US dollars (US$).
The Group’s residual currency risk exposure mainly originates from two different sources:
¸ Administrative and business development expenditures incurred at the corporate level in Australian dollars (A$); and
¸ Operating and capital expenditures incurred by the Group in relation to its PNG operations in Papua New Guinea kina (PGK)
and A$.
The Group is not exposed to material translation exposures as the majority of its assets and liabilities are denominated in US$.
Foreign exchange risk management
The Group manages its exposure to foreign exchange rate volatility by matching the currency of its cost structure to its US$
revenue stream. Transaction exposures are netted off across the Group to reduce volatility and avoid incurring the dealing spread
on transactions, providing a natural hedge. The residual operating cost exposures, primarily in A$, are recurring in nature and
therefore no long-term hedging is undertaken to minimise the profit and loss impact of these exposures.
Cash flows related to joint ventures where Oil Search is the operator are managed independently to the Group’s corporate
exposures, reflecting the interests of joint arrangement partners in the operator cash flows. The operator’s A$ and PGK
requirements are bought on the spot market. Where these currencies are purchased in advance of requirements, A$ and PGK
cash balances do not exceed three months’ requirements.
As at 31 December 2018, there were no foreign exchange hedge contracts outstanding (2017: nil).
No currency sensitivity analysis is provided as there were no derivative financial instruments in place to hedge residual foreign
exchange exposure.
Interest rate risk
(b)
The Group is exposed to interest rate movements directly through borrowings and investments in each of the currencies of its
operations. Surplus cash is invested in accordance with Board approved credit counterparty limits, based on minimum credit
ratings, and managed to ensure adequate liquidity is maintained. Whilst some cash is held in PGK and A$, the Group’s primary
exposure is to US interest rates.
Interest rate risk management
Interest rate risk is managed on a Group basis at the corporate level. Limits on the proportion of fixed interest rate exposure are
applied and interest rates may be fixed for a maximum term of four years or the remaining life of term debt facilities, whichever is
the longer.
As at 31 December 2018, there was no interest rate hedging in place (2017: nil). Cash was invested in short-term instruments with
an average maturity of 1 to 3 months.
Interest rate sensitivity
The sensitivity analysis below has been determined based on exposure to interest rates at the reporting date and the stipulated
change taking place at the beginning of the financial year and held constant throughout the year.
At the reporting date, if interest rates had been 25 basis points (2017: 25 basis points) higher or lower and all other variables were
held constant, the Group’s net profit after tax would decrease/increase by $5.0 million (2017: $4.8 million).
At the reporting date, if interest rates had been 25 basis points (2017: 25 basis points) higher or lower and all other variables were
held constant, the Parent entity’s net profit after tax would increase/decrease by nil (2017: nil).
149
OIL SEARCH ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS
27
FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
CONSOLIDATED
FIXED INTEREST RATE MATURING IN:
FLOATING
INTEREST
RATE
$’000
1 YEAR
OR LESS
$’000
1-5 YEARS
$’000
MORE THAN
5 YEARS
$’000
TOTAL CARRYING
AMOUNT IN
THE STATEMENT
OF FINANCIAL
POSITION
$’000
NON-
INTEREST
BEARING
$’000
FINANCIAL INSTRUMENTS
2018
Financial assets
Cash and cash equivalents
438,557
162,000
–
151,372
77,333
–
860
229,565
321,536
10,294
–
–
331,830
–
119,536
36,779
–
2,570
158,885
194,160
11,636
–
–
205,796
600,557
151,372
77,333
59,408
860
889,530
321,536
10,294
131,217
3,293,557
3,756,604
1,015,246
119,536
36,779
52,045
2,570
1,226,176
194,160
11,636
133,448
3,625,458
3,964,702
Trade debtors
Other debtors
Loan receivable
Non-current deposits
Total financial assets
Financial liabilities
Payables and accruals
Other payables
Finance leases
Secured loan from Joint operations
Total financial liabilities
2017
Financial assets
–
–
59,408
–
–
–
–
–
497,965
162,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,677,332
2,677,332
2,539
14,222
–
–
2,539
14,222
114,456
616,225
730,681
Cash and cash equivalents
394,846
620,400
Trade debtors
Other debtors
Loan receivable
Non-current receivables
Total financial assets
Financial liabilities
Payables and accruals
Other payables
Finance leases
Secured loan from Joint operations
Total financial liabilities
–
–
52,045
–
–
–
–
–
446,891
620,400
–
–
–
2,947,135
2,947,135
–
–
2,229
–
2,229
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,956
–
10,956
120,263
678,323
798,586
150
OIL SEARCH ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTS
27
FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
PARENT
FIXED INTEREST RATE MATURING IN:
FINANCIAL INSTRUMENTS
2018
Financial assets
Amounts due from subsidiary entities
Total financial assets
Financial liabilities
Payables and accruals
Total financial liabilities
2017
Financial assets
Amounts due from subsidiary entities
Total financial assets
Financial liabilities
Payables and accruals
Total financial liabilities
FLOATING
INTEREST
RATE
$’000
1 YEAR
OR LESS
$’000
1-5 YEARS
$’000
MORE THAN
5 YEARS
$’000
TOTAL CARRYING
AMOUNT IN
THE STATEMENT
OF FINANCIAL
POSITION
$’000
NON-
INTEREST
BEARING
$’000
–
–
–
–
–
–
18,585
18,585
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57,150
57,150
1,157
1,157
582,243
582,243
3,690
3,690
57,150
57,150
1,157
1,157
582,243
582,243
22,275
22,275
Commodity price risk
(c)
The Group has exposure to commodity price risk associated with the production and sale of oil, condensate, natural gas and
liquefied natural gas.
Commodity risk management
The Group does not seek to limit its exposure to fluctuations in oil prices; rather the central aim of oil price risk management is to
ensure the Group’s financial position remains sound and that the Group is able to meet its financial obligations in the event of low oil
prices. Hedge cover targets are determined through detailed modelling of the Group’s position under various oil price scenarios.
Any hedging programmes entered into will ensure that maturities are spread over time and there are maximum hedge cover levels
that apply to future years. This avoids the Group being forced to price a significant proportion of its exposure in an unfavourable oil
price environment.
Under the PNG LNG Project financing arrangements there are restrictions relating to hedging activities that may be undertaken.
Permitted hedging instruments as defined in the financing agreements, which must be non-recourse to the participant’s Project
interest and the Project property.
As at 31 December 2018, there was no oil price hedging in place (2017: nil). No commodity price sensitivity analysis is required as
there was no hedging in place.
Credit risk
(d)
The Group has exposure to credit risk if counterparties are not able to meet their financial obligations to the Group. The exposure
arises as a result of the following activities:
¸ Financial transactions involving money market, surplus cash investments and derivative instruments;
¸ Direct sales of liquefied natural gas, oil, condensate and gas;
¸ Other receivables; and
¸ Loan receivable.
151
OIL SEARCH ANNUAL REPORT 2018
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
NOTES TO THE FINANCIAL STATEMENTS
27
FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
Credit risk management
Global credit limits have been established across all categories of financial transactions. These limits are based on the
counterparties’ credit rating as issued by Standard and Poor’s and Moody’s.
The Group markets Kutubu crude oil, blended with PNG LNG condensate, on behalf of the Joint Lifting Consortium, primarily selling
this product to investment grade counterparties. Sales to non-investment grade counterparties are secured by letters of credit from
investment grade banks.
An option agreement and a share pledge agreement are held as security for the third party loan receivable balance, permitting
Oil Search Limited to acquire an equity interest in the issued share capital of the borrower (note 13).
At 31 December 2018 there was no significant concentration of credit risk exposure to any single counterparty (2017: nil).
The extent of the Group’s credit risk exposure is identified in the following table:
Current
Cash at bank and on hand
Share of cash in joint operations
Interest-bearing short-term deposits
Receivables
Non-current
Other assets - receivables
Loan receivable
CONSOLIDATED
PARENT
NOTE
2018
$’000
2017
$’000
2018
$’000
2017
$’000
20(a)
20(a)
20(a)
10
12
13
429,336
9,221
162,000
228,705
829,262
860
59,408
60,268
383,219
11,627
620,400
156,315
1,171,561
2,570
52,045
54,615
–
–
–
–
–
–
57,150
57,150
582,243
582,243
–
–
–
–
–
–
Liquidity risk
(e)
The Group has exposure to liquidity risk if it is unable to settle financial transactions in the normal course of business and if new
funding and refinancing cannot be obtained as required and on reasonable terms.
Liquidity risk management
The Group manages liquidity risk by ensuring it has sufficient funds available to meet its financial obligations on a day-to-day basis
and to meet any unexpected liquidity needs in the normal course of business. The Group’s policy is to maintain surplus immediate
cash liquidity together with committed undrawn lines of credit for business opportunities and unanticipated cash outflows.
The Group also seeks to ensure maturities of committed debt facilities are spread over time to minimise the Group’s exposure
to risk on the cost or availability of funds should the refinancing requirement coincide with unexpected short-term disruption or
adverse fund-raising conditions in the capital markets. In order to avoid an exposure to any particular source of external funding the
Group acknowledges the benefits of diversification of funding sources and where possible, aims to source its funds from a range of
lenders, markets and funding instruments.
As at 31 December 2018, the Group has cash of $600.6 million (2017: $1,015.2 million), of which $162.0 million was invested in
short-term instruments (2017: $620.4 million), and undrawn loan facilities of $900.0 million (2017: $850 million).
The table below shows the Group’s non-derivative financial liabilities into relevant maturity groupings based on their contractual
maturities. The amounts disclosed in the table are the contractual undiscounted cash flows.
152
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
NOTES TO THE FINANCIAL STATEMENTS
27
FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
NON-DERIVATIVE FINANCIAL LIABILITIES
2018
Payables and accruals
Other payables
Secured loan from joint operation
Finance leases
Total
2017
Payables and accruals
Other payables
CONTRACTUAL CASH FLOWS
CARRYING
AMOUNT
$’000
TOTAL
$’000
LESS THAN
1 YEAR
$’000
1 TO 5 YEARS
$’000
MORE THAN
5 YEARS
$’000
321,536
10,294
321,536
10,294
321,536
10,294
–
–
–
–
3,293,557
4,128,171
539,103
2,249,950
1,339,118
131,217
325,151
19,931
79,724
225,496
3,756,604
4,785,152
890,864
2,329,674
1,564,614
194,160
11,636
194,160
11,636
194,160
11,636
–
–
–
–
Secured loan from joint operation
3,625,458
4,519,981
496,282
2,069,824
1,953,875
Finance leases
Total
(f)
Financing facilities
Syndicated revolving credit facility
The Group entered into a five year non-amortising syndicated
financing facility effective 22 June 2017 for US$600 million,
which remains undrawn at 31 December 2018. As part of the
terms and conditions of this new facility, Oil Search (PNG)
Limited has provided a charge over the Debt Service Reserve
Account and Offshore Receivable Account held in Singapore
with Australia & New Zealand Banking Group Limited.
Bilateral facilities
In December 2018, Oil Search entered into three new
US$100 million bilateral revolving credit facilities, totalling
US$300 million, with three major banks- Commonwealth
Bank of Australia, Mizuho Bank Limited and Sumitomo Mitsui
Banking Corporation. The new facilities each have a five-year
term and will expire in December 2023. They replace the two
US$125 million bilateral facilities that expired in December
2018. As part of the terms and conditions of this new facility,
Oil Search (PNG) Limited has provided a charge over the
Debt Service Reserve Account and Offshore Receivable
Account held in Singapore with Australia & New Zealand
Banking Group Limited.
Secured loan from joint operation
Papua New Guinea Liquefied Natural Gas Global Company
LDC, a limited duration company incorporated under the laws
of the Commonwealth of the Bahamas (the “Borrower”) was
organised to conduct certain activities of the PNG LNG Project
outside of PNG, including the borrowing and on-lending to
the Project participants of the Project Finance Debt Facility,
and the purchase and re-sale of PNG LNG Project liquids and
LNG. The Borrower is owned by each Project participant in a
percentage equal to its interest in the PNG LNG Project (the Oil
Search Limited Group interest at 31 December 2018 is 29.0%
(December 2017: 29.0%)). Oil Search (LNG) Limited and Oil
Search (Tumbudu) Limited are the Group’s participants in the
PNG LNG Project (the “OSL Participants”).
133,448
344,165
19,931
79,724
244,510
3,964,702
5,069,942
722,009
2,149,548
2,198,385
Interest and principal on the Project Finance Debt Facility is
payable on specified semi-annual dates, which commenced
in June 2015, with the principal being repayable over 11.5 years
based on a customised repayment profile and with 7.5 years
remaining on the facility as at 31 December 2018.
The liquids and LNG sales proceeds from the PNG LNG Project
are received into a sales escrow account from which agreed
expenditure obligations and debt servicing are firstly made
and, subject to meeting certain debt service cover ratio tests,
surpluses are distributed to the Project participants.
The Borrower granted to the security trustee for the Project
Finance Debt Facility:
¸ a first-ranking security interest in all of its assets, with a few
limited exceptions;
¸ a fixed and floating charge over existing and future funds in
the offshore accounts; a deed of charge (and assignment)
over the sales contracts, LNG charter party agreements,
rights under insurance policies, LNG supply and sales
commitment agreements, on-loan agreements and the
sales, shipping and finance administration agreements,
collectively known as “Borrower Material Agreements”; and
¸ a mortgage of contractual rights over Borrower Material
Agreements.
The OSL Participants have granted the security trustee for the
Project Finance Debt Facility a security interest in all their rights,
titles, interests in and to all of their assets, excluding any non-
PNG LNG Project assets. The Company, as the shareholder in
the OSL Participants, has provided the security trustee for the
Project Finance Debt Facility a share mortgage over its shares in
the OSL Participants.
The Project Finance Debt Facility is subject to various covenants
and a negative pledge restricting further secured borrowings,
subject to a number of permitted lien exceptions. Neither the
covenants nor the negative pledge have been breached at any
time during the reporting period.
153
NOTES TO THE FINANCIAL STATEMENTS
27
FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
28
EVENTS OCCURRING AFTER
THE REPORTING PERIOD
Subsequent to balance date, the Directors declared an
unfranked final dividend of US 8.5 cents per share, to be paid
on 28 March 2019. The proposed final dividend for 2018 is
payable to all holders of ordinary shares on the Register of
Members on 6 March 2019.
There were no other significant events after balance date.
Financial Completion for the PNG LNG Project was achieved
on 5 February 2015. From that date, the completion guarantee
that was provided by the Company for its share of the Project
Finance Debt Facility was released. The Company has not
provided any other security.
Capital management
(g)
The Group manages its capital to ensure that entities in the
consolidated Group will be able to continue as a going concern
while maximising the return to stakeholders through the
optimisation of the debt and equity balances.
This involves the use of corporate forecasting models which
facilitate analysis of the Group’s financial position, including
cash flow forecasts to determine the future capital management
requirements. Capital management is undertaken to ensure a
secure, cost-effective and flexible supply of funds is available
to meet the Group’s operating and capital expenditure
requirements.
Fair values
(h)
All financial assets and financial liabilities are initially recognised
at the fair value of consideration paid or received, net of
transaction costs as appropriate, and subsequently carried at
amortised cost. The fair values of financial assets and liabilities
approximate their carrying amounts.
154
OIL SEARCH ANNUAL REPORT 2018
DIRECTORS’ DECLARATION
DIRECTORS’ DECLARATION
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
In accordance with a resolution of the Directors of Oil Search Limited, the Directors declare that:
(a) the attached financial statements and notes thereto of the consolidated entity:
(i) give a true and fair view of the consolidated entity’s financial position as at 31 December 2018, and its performance for the
year ended on that date; and
(ii) comply with International Financial Reporting Standards; and
(iii) the attached financial statements and notes thereto comply with the reporting requirements of the Australian Securities
Exchange Listing Rules; and
(b) in the opinion of the Directors, there are reasonable grounds to believe that the company will be able to pay its debts as and
when they become due or payable.
This declaration has been made after receiving unqualified declarations from the Managing Director and the Chief Financial
Officer, that are consistent with requirements under section 295A of the Australian Corporations Act 2001, for the year ended
31 December 2018.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
RJ LEE
Chairman
PR BOTTEN
Managing Director
Sydney, 18 February 2018
155
OIL SEARCH ANNUAL REPORT 2018 INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
f o r the yea r en ded 31 D ecemb er 2018
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Deloitte Haus, Level 9
MacGregor Street
Port Moresby
PO Box 1275 Port Moresby
National Capital District
Papua New Guinea
Tel: +675 308 7000
Fax: +675 308 7001
www.deloitte.com.pg
Independent Auditor’s Report
to the members of Oil Search Limited
Report on the Audit of the Financial Statements
Opinions
We have audited the consolidated financial statements of Oil Search Limited and its subsidiaries
(the Group) and the financial statements of Oil Search Limited (the Company) which comprise the
statements of financial position as at 31 December 2018, the statements of comprehensive
income, the statements of cash flows and the statements of changes in equity for the year then
ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.
In our opinion
(i) the accompanying financial statements give a true and fair view of the Group and the
Company’s financial position as at 31 December 2018 and of their performance for the
year ended on that date in accordance with International Financial Reporting Standards
(including the interpretations of the International Financial Reporting Interpretations
Committee) and the Papua New Guinea Companies Act 1997; and
(ii) proper accounting records have been kept by the Group and the Company.
Basis for Opinions
We conducted our audit in accordance with International Standards on Auditing. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Financial Statements section of our report. We are independent of the Group and
the Company in accordance with the auditor independence requirements of the International
Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial statements. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We have no interest in the Group or the Company or any relationship other than that of the auditor
of the Group and the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinions.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
156
OIL SEARCH ANNUAL REPORT 2018 INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements for the current period. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Applicable to The Group
Key Audit Matter
How the scope of our audit responded to the Key
Audit Matter
Carrying Value of Exploration and
Evaluation Assets
The carrying value of Exploration and
Evaluation assets at 31 December 2018 is
$2,345 million. Refer note 14 for further
details. The Group’s accounting policy in
respect of Exploration and Evaluation
assets is outlined in note 1(i).
of
to
including
impairment
exercise
The assessment as to whether there are
requires
indicators
significant
management
judgement
in respect of the
Group’s intention to proceed with a future
work programme for a licence, the right of
tenure, and where relevant, the likelihood
of licence renewal or extension, and the
success of exploration and appraisal
activities including drilling and geological
and geophysical analysis.
Carrying value
Development Assets
of
Producing
and
The carrying value of Producing and
Development assets at 31 December 2018
is $6,241 million. Refer note 15 for further
details.
The assessment of the carrying value of
assets
Producing
and Development
Our procedures included, but were not limited to:
evaluating and
testing
the key controls
management has in place to analyse and
identify
for
Exploration and Evaluation assets.
impairment
indicators
of
evaluating the status of licences and, where
applicable, obtaining evidence of the lodged
applications for licence renewal or extension,
assessing on a case by case basis, the
reasonableness of management’s expectation,
that the licence will be extended upon their
expiry.
obtaining,
licence an
for each material
understanding of the exploration and appraisal
activity undertaken during the year and the
results of that activity.
In doing this we
participated in meetings with key operational
and finance staff.
obtaining evidence of the ongoing exploration
and appraisal activity, including the future
intention for each material licence, by reference
future budgeted
to
expenditure.
the allocation of
evaluating the appropriateness of the
disclosures in note 14.
Our procedures included, but were not limited to:
evaluating and
testing
the key controls
management have in place to assess indicators
of impairment for Producing and Development
assets.
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OIL SEARCH ANNUAL REPORT 2018 INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
to
exercise
requires management
judgement
indicators of
identifying
in
impairment (including significant adverse
changes in oil and gas prices, costs or
reserve estimates) for the purpose of
recoverable
determining whether
amount of
to be
estimated.
the assets needs
the
in conjunction with our valuation specialists
challenging management’s oil and gas price
assumptions against external data,
to
determine whether they indicate that there has
been a significant change with an adverse
effect on the recoverable amount.
comparing actual operating costs for Producing
and Development assets during the year to
budget, to determine whether they indicate
that there has been a significant change with an
adverse effect on the recoverable amount.
comparing
field
and plant production
performance during the year against budget, to
determine whether they indicate that there has
been a significant change with an adverse effect
on the recoverable amount.
assessing reserve estimates adopted by the
Group during the year to determine whether
they indicate there has been a significant
change with an adverse effect on
the
recoverable amount. This included holding
internal
discussions with management’s
experts
field operational
to understand
performance in the year and any significant
reserve upgrades or downgrades.
evaluating
the
appropriateness of
the
disclosures in note 15.
Our procedures included, but were not limited to:
evaluating and testing the key controls over the
ring-fences and
allocation of costs
preparation of tax calculations.
to
evaluating the utilisation of tax carrying values
and related deferred tax assets, by reference to
forecasts of future taxable income at a ring-
fenced asset level. This included evaluating
whether
in
assumptions
management’s forecasts were consistent with
board approved assumptions and prevailing
PNG tax legislation.
included
the
Accounting for Income Tax
The income tax expense for the year
ended 31 December 2018 is $166 million
tax
and the balances
assets and deferred tax liabilities at 31
December 2018 are $761 million and
$1,076 million respectively. Refer note
7 for further details.
deferred
of
Tax applicable to hydrocarbon exploration
and production activities in Papua New
Guinea is based on tax ring-fencing, on a
licence-by-licence basis.
Judgement is required to determine the
application of tax legislation, as well as to
assess the recoverability of deferred tax
assets.
assessing the impact on current and deferred
tax of changes to local tax laws enacted during
the year.
assessing tax returns and tax reconciliations
for compliance with local tax laws.
reconciling opening tax carrying values against
tax returns lodged with tax authorities.
evaluating
the appropriateness of
the
disclosures in note 7.
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OIL SEARCH ANNUAL REPORT 2018 INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
Applicable to The Parent Only
Key Audit Matter
How the scope of our audit responded to the Key
Audit Matter
Carrying Value of
Evaluation Assets
Exploration
and
The carrying value of Exploration and
Evaluation assets at 31 December 2018 is
$112 million. Refer note 14 for further
details. The Company’s accounting policy
in respect of Exploration and Evaluation
assets is outlined in note 1(i).
exercise
to
including
The assessment of the carrying value of
Exploration and Evaluation assets requires
significant
management
judgement
in respect of the
Company’s intention to proceed with a
future work programme for a licence, the
right of tenure, and where relevant, the
likelihood of licence renewal or extension
and
the success of exploration and
appraisal activities including drilling and
geological and geophysical analysis.
Carrying
subsidiaries
value
of
investments
in
investments
The Company has
in
subsidiaries at 31 December 2018 of
$2,765 million. Refer note 26 for further
details.
The assessment of the recoverable amount
of investments in subsidiaries requires
management to exercise judgement in
respect of
the
underlying assets held in each of the
subsidiaries.
the performance of
Our procedures included, but were not limited to:
evaluating and
testing
the key controls
management has in place to analyse and
identify
for
Exploration and Evaluation assets.
impairment
indicators
of
evaluating the status of licences and, where
applicable, obtaining evidence of the lodged
applications for licence renewal or extension,
assessing on a case by case basis, the
reasonableness of management’s expectation,
that the licence will be extended upon their
expiry.
obtaining,
licence an
for each material
understanding of the exploration and appraisal
activity undertaken during the year and the
In doing this we
results of that activity.
participated in meetings with key operational
and finance staff.
obtaining evidence of the ongoing exploration
and appraisal activity, including the future
intention
licence, by
reference to the allocation of future budgeted
expenditure.
for each material
evaluating the appropriateness of the
disclosures in note 14.
Our procedures included, but were not limited to
the following:
evaluating management’s assessment of
indicators of impairment for investments at 31
December 2018, including:
o for subsidiaries which include assets that
are producing oil and/or gas or generating
other
income, comparing the carrying
value of the investment to the net assets of
the subsidiaries.
that primarily hold
o for subsidiaries
exploration
assets,
and
evaluating management’s assessment of
impairment
whether
of
intention to
(including the Company’s
evaluation
indicators
159
OIL SEARCH ANNUAL REPORT 2018 INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
proceed with a future work programme for
a licence, the right of tenure, and where
relevant, the likelihood of licence renewal
or extension, and
success of
activities
exploration
including drilling and geological and
geophysical analysis)
the
underlying exploration and evaluation
assets.
evaluating
the appropriateness of
the
appraisal
exist
and
for
the
disclosures note 26.
Other Information
The directors are responsible for the other information. The other information comprises the
Directors’ Report, which we obtained prior to the date of this auditor’s report, and the following
additional documents which will be included in the annual report: 2018 Highlights, 2018 Review
by Richard Lee, Chairman, Update from Peter Botten Managing Director, Financial Overview,
Production, Gas Development, PNG Exploration and Appraisal, Alaska, Promoting a Stable
Operating Environment, Organisational Capability, 2018 Reserves and Resources, Licence
Interests, Licence Interest Map, Board and Corporate Governance, Shareholder Information, Ten-
year Summary Table, Glossary, Corporate Directory and About Oil Search which are expected to
be made available to us after that date.
Our opinion on the financial statements does not cover the other information and we do not and
will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the
date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
When we read the 2018 Highlights, 2018 Review by Richard Lee Chairman, Update from Peter
Botten Managing Director, Financial Overview, Production, Gas Development, PNG Exploration
and Appraisal, Alaska, Promoting a Stable Operating Environment, Organisational Capability, 2018
Reserves and Resources, Licence Interests, Licence Interest Map, Board and Corporate
Governance, Shareholder Information, Ten-year Summary Table, Glossary, Corporate Directory
and About Oil Search, if we conclude that there is a material misstatement therein, we are
required to communicate the matter to the directors and use our professional judgement to
determine the appropriate action.
Responsibilities of the Directors for the Financial Statements
The directors of the Company are responsible for the preparation of the financial statements that
give a true and fair view in accordance with International Financial Reporting Standards (including
the interpretations of the International Financial Reporting Interpretations Committee) and the
Papua New Guinea Companies Act 1997 and for such internal control as the directors determine
160
OIL SEARCH ANNUAL REPORT 2018 INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
is necessary to enable the preparation of the financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the ability of the
Group and the Company to continue as going concerns, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with the International Standards on
Auditing will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
As part of an audit in accordance with the International Standards on Auditing, we exercise
professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group’s or the Company’s internal
control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s and
the Company’s ability to continue as going concerns. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditor’s report. However, future events or conditions may cause the Group or the
Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
161
OIL SEARCH ANNUAL REPORT 2018
INDEPENDENT AUDITOR’S REPORT
f o r the yea r en ded 31 D ecemb er 2018
We communicate with the directors regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the directors, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 92 to 117 of the directors’ report
for the year ended 31 December 2018.
In our opinion, the Remuneration Report of Oil Search Limited for the year ended 31 December
2018, has been prepared in accordance with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company have voluntarily presented the Remuneration Report which has
been prepared in accordance with the requirements of section 300A of the Corporations Act 2001.
Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with International Standards on Auditing.
DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Matthew Donaldson
Partner
Chartered Accountants
Registered Company Auditor in Australia
Sydney, 18 February 2019
Benjamin Lee
Partner
Chartered Accountants
Registered under the Accountants Act, 1996
Port Moresby, 18 February 2019
162
OIL SEARCH ANNUAL REPORT 2018
SHAREHOLDER INFORMATION
OIL SEARCH LIMITED
ARBN 055 079 868
(a) The distribution of ordinary shares ranked according to size as at 26 February 2019 was:
SIZE OF HOLDING
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
NUMBER OF
HOLDERS
NUMBER OF
SHARES
% OF ISSUED
CAPITAL
19,654
19,017
4,404
2,688
9,378,939
46,551,228
31,554,408
56,091,617
0.62%
3.06%
2.07%
3.68%
159
1,380,055,000
45,922 1,523,631,192
90.58%
100.00%
(b) The 20 largest ordinary shareholders representing 87.41% of the ordinary shares as at 26 February 2019 were as follows:
SHAREHOLDER
NUMBER OF
SHARES
% OF ISSUED
CAPITAL
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Aust Executor Trustees Ltd (IPIC)
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd (Agency Lending Drp A/C)
BNP Paribas Nominees Pty Ltd (DRP)
Australian Foundation Investment Company Limited
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
Warbont Nominees Pty Ltd (Settlement Entrepot A/C)
National Superannuation Fund Limited
HSBC Custody Nominees (Australia) Limited (Nt-Comnwlth Super Corp A/C)
Argo Investments Limited
AMP Life Limited
BNP Paribas Nominees Pty Ltd (Agency Lending Collateral)
Mr Kwok Ching Chow + Ms Pik Yun Peggy Chan
Mrs Frances Claire Fox (Thomas J Beresford Will A/C)
Djerriwarrh Investments Limited
Rice Atlantic Company Limited (Worldwide Assets Holding A/C)
Spearhead International Limited
20.
Total
(c) Issued capital as at 26 February 2019 was:
¸ 1,523,631,192 ordinary fully paid shares
¸ 3,924,765 unlisted performance rights
¸ 673,624 restricted shares
¸ 2,145,019 share rights
457,787,987
391,647,628
196,604,177
100,367,233
43,578,901
43,300,259
26,588,208
16,482,507
14,802,538
8,075,000
6,171,998
6,041,262
3,800,000
3,724,311
2,502,000
2,475,916
2,272,000
1,871,000
1,865,394
1,785,626
30.05
25.70
12.90
6.59
2.86
2.84
1.75
1.08
0.97
0.53
0.41
0.40
0.25
0.24
0.16
0.16
0.15
0.12
0.12
0.12
1,331,743,945
87.41%
The trustee for the employee share plan holds 9,153 shares that are available to satisfy the exercise of employee rights and
options and vesting of restricted shares. The shares in the trust are part of the issued capital.
(d) The following interests were registered on the Company’s register of Substantial Shareholders as at 26 February 2019:
SHAREHOLDER
Mubadala Investment Company
The Capital Group Companies
FIL Limited
NUMBER OF
SHARES
% OF ISSUED
CAPITAL
196,604,177
120,438,589
91,995,672
12.90
7.90
6.04
(e) The Company’s ordinary fully paid shares are listed on the Australian Securities Exchange and the Port Moresby Stock Exchange.
Shares are also listed in the United States of America, via American Depositary Receipts (ADRs).
(f) At 26 February 2019, 1,474 holders held unmarketable parcels of ordinary shares in the Company.
163
OIL SEARCH ANNUAL REPORT 2018 SHAREHOLDER INFORMATION
AMERICAN DEPOSITARY RECEIPTS PROGRAMME
Bank of New York Mellon
ADR Division
22nd Floor
101 Barclay Street
New York
NY 10286
Telephone:
Within USA: +1 888 269 2377
Outside USA: +1 201 680 6825
Facsimile: +1 212 571 3050
SHARE CODES
ASX Share Code: OSH
POMSoX Share Code: OSH
ADR Share Code: OISHY
OIL SEARCH WEBSITE
A wide range of information on Oil Search is available on the
Company’s website, at www.oilsearch.com. As well as reviews
of Oil Search’s Board and senior management team, corporate
governance practices, activities and sustainability initiatives, the
following information for investors is available:
¸ Share price information
¸ Dividend information
¸ Annual reports
¸ Sustainability reports
¸ Quarterly reports
¸ Press releases
¸ Profit announcements
¸ Drilling reports
¸ Presentations
¸ Webcasts
Investor information, other than about shareholdings
and dividends, can be obtained by sending an email to:
investor@oilsearch.com.
VOTING RIGHTS ATTACHED TO ORDINARY SHARES
1. On a show of hands, one vote per member.
2. On a poll, every member present shall have one vote for
every share held by them in the Company.
ANNUAL MEETING
Oil Search’s 2019 Annual Meeting will be held at the Crowne
Hotel, Port Moresby, Papua New Guinea on Friday, 10 May
2019, commencing at 9:30am (Port Moresby time).
2018 FINAL DIVIDEND
The 2018 final dividend will be paid on 28 March 2019
to shareholders registered at the close of business on
6 March 2019.
The dividend will be paid in PNG Kina for those shareholders
domiciled in Papua New Guinea, in GB Pounds for those
shareholders that have lodged direct credit details
requesting a GB credit with the Company’s share registry,
Computershare, and in Australian dollars for all other
shareholders. The exchange rates used for converting the
US dollar dividend into the payment currencies are the rates
as on the record date, 6 March 2019.
The dividend will be unfranked and no withholding tax will
be deducted. The Company’s dividend reinvestment plan
remains suspended.
SHARE REGISTRY
Enquiries
Oil Search’s share register is managed by Computershare
Investor Services Pty Limited. Please contact Computershare
for all shareholding and dividend related enquiries.
Change of shareholder details
Shareholders should notify Computershare of any changes
in shareholder details via the Computershare website
(www. computershare.com.au) or in writing (fax, email,
mail). Examples of such changes include:
¸ Registered name
¸ Registered address
¸ Direct credit payment details
¸ Dividend payment currency preference.
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 3001
Australia
Telephone:
Within Australia: 1300 850 505
Outside Australia: +61 3 9415 4000
Facsimile: +61 3 9473 2500
Email: oilsearch@computershare.com.au
Website: www.computershare.com.au/investor/
164
OIL SEARCH ANNUAL REPORT 2018 SHAREHOLDER INFORMATION
KEY ANNOUNCEMENTS IN 2018
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
23
15
20
26
6
7
20
26
29
3
12
13
17
30
11
17
20
1
17
21
4
5
25
23
12
16
11
20
31
Release of 2017 4th Quarter results
Completion of the Alaska North Slope acquisition
Release of 2017 Full Year results
Earthquake in PNG Highlands
Ex-dividend date for 2017 final dividend
Record date for 2017 final dividend
Release of 2017 Climate Change Resilience Report
Appointments to the Oil Search Board
Payment of 2017 final dividend
Release of 2017 Annual Report
Oil Search Central Processing Facility resumes production
P’nyang resource recertification
PNG LNG recommences LNG production
Release of 2018 1st Quarter results
Assignment of resource to Pikka Unit, Alaska
Restart of second LNG train at PNG LNG plant site
2018 Annual Meeting
Release of 2018 2nd Quarter results
PNG LNG signs SPA with PetroChina
Oil Search Agogo Production Facility resumes operations
PNG LNG signs mid-term sales agreement with BP
Release of 2018 Half Year results
Ex-dividend date for 2018 interim dividend
Record date for 2018 interim dividend
Payment of 2018 interim dividend
Release of 2018 3rd Quarter results
Muruk 2 commences drilling
Papua LNG JV signs Memorandum of Understanding with PNG Government
Oil Search establishes US$300 million corporate bilateral facilities
Oil Search Alaska North Slope Assets – Update
End of Financial Year
2019 FINANCIAL CALENDAR(1)
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JULY
AUGUST
SEPTEMBER
OCTOBER
DECEMBER
22
19
5
6
28
16
10
16
20
3
24
15
31
Release of 2018 4th Quarter results
Release of 2018 Full Year results
Ex-dividend date for 2018 final dividend
Record date for 2018 final dividend
Payment of 2018 final dividend
Release of 2018 Annual Report
Release of 2019 1st Quarter results
2019 Annual Meeting
Release of 2019 2nd Quarter results
Release of 2019 Half Year results
Record date for 2019 interim dividend
Ex-dividend date for 2019 interim dividend
Payment of 2019 interim dividend
Release of 2019 3rd Quarter results
End of Financial Year
(1) Dates are subject to change.
165
OIL SEARCH ANNUAL REPORT 2018
TEN YEAR SUMMARY(1)
INCOME STATEMENT
Revenue
Production costs
Other operating costs
Other income
EBITDAX(2)
Depreciation and amortisation
Exploration costs expensed
Proposed InterOil acquisition
EBIT
Net finance (costs)/income
Net impairment (losses)/reversals
Profit before income tax
Income tax expense
Net profit after income tax, significant items
Significant items
Net profit after tax, before significant items
Dividends paid – ordinary
BALANCE SHEET
Total assets
Total cash
Total debt(3)
Shareholders’ equity
OTHER INFORMATION
Average realised oil and condensate price (US$/bbl)
Average realised LNG and gas price (US$/mmBtu)
Net annual oil and condensate production (mmbbl)
Net annual gas production (bcf)
Total BOE net annual production (mmboe)
Exploration and evaluation expenditure incurred (US$’000)
Assets in development expenditure incurred (US$’000)
Producing assets expenditure incurred (US$’000)
Operating cash flow (US$’000)
Operating cash flow per ordinary share (US cents)
Diluted EPS (including significant items) (US cents)
Basic EPS (excluding significant items) (US cents)
Ordinary dividend per share (US cents)
Special dividend per share (US cents)
Gearing (%)(4)
Return on average shareholders' funds (%)
Number of issued shares – ordinary (000’s)
EXCHANGE RATES
Year end A$ : US$
Average A$ : US$
SOCIAL RESPONSIBILITY
Total paid to PNG Government (US$'000)
Total invested in sustainable development activities (US$'000)
Total Recordable Incident Rate (per million hours worked)
Number of significant spills (>100bbl)
Total greenhouse gas emissions ((ktCO2-e )
Greenhouse gas emissions intensity (ktCO2-e /mmboe)(5)
Total number of employees(6)
Females in senior management (%)
PNG nationals in senior management (%)
TEN YEAR SUMMARY
2018
US$ 000
1,535,761
(290,027)
(145,314)
9,579
1,109,999
(326,094)
(66,663)
–
717,242
(209,850)
–
507,392
(166,190)
341,202
–
341,202
(114,273)
10,673,891
600,557
3,424,774
5,165,618
70.65
10.06
5.03
102.90
25.2
714,796
36,797
21,723
854,632
56.10
22.3
22.4
10.5
–
35.3%
10.0%
2017
US$ 000
1,446,001
(262,813)
(141,056)
9,969
1,052,101
(380,571)
(35,928)
–
635,602
(194,728)
–
440,874
(138,782)
302,092
–
302,092
(99,014)
10,512,498
1,015,246
3,758,906
4,937,754
55.68
7.67
7.56
116.04
30.3
169,544
30,102
40,654
843,585
55.40
19.8
19.8
9.5
–
37.0%
9.1%
2016
US$ 000
1,235,908
(257,104)
(131,721)
5,120
852,203
(436,702)
(53,164)
18,694
381,031
(195,999)
–
185,032
(95,237)
89,795
16,906
106,701
(76,135)
10,126,129
862,748
4,074,781
4,725,316
45.04
6.36
8.58
110.46
30.24
151,761
9,611
38,250
555,116
36.46
5.9
7.0
3.5
–
40.5%
3.9%
1,523,631
1,523,631
1,522,693
1,522,693
1,522,693
1,343,361
1,334,757
1,325,155
1,312,888
1,299,562
0.705
0.748
0.779
0.767
0.724
0.744
114,714
66,017
1.58
–
570
44
1,410
23
20
62,728
14,974
1.93
–
962
50
1,286
22
23
68,279
13,934
1.53
–
941
46
1,206
21
23
1.016
0.919
0.897
0.792
97,843
239,606
234,371
300,229
260,497
9,591
1.91
-
958
48
1,334
18
21
7,807
1.97
-
830
55
1,701
15
16
8,170
2.47
-
898
73
1,515
14
21
6,582
2.64
-
918
80
1,200
13
22
6,303
1.85
-
1,021
85
1,124
10
23
183,051
3,200
1.96
-
1,105
78
1,041
6
23
143,865
3,100
1.16
-
1,405
93
970
5
25
2015
US$ 000
1,585,728
(294,818)
(154,469)
14,841
1,151,282
(407,753)
(50,889)
–
692,640
(185,114)
(399,271)
108,255
(147,636)
(39,381)
399,271
359,890
(274,085)
10,342,835
910,479
4,302,650
4,709,362
51.36
9.44
8.89
103.84
29.25
275,699
135,211
111,830
952,739
62.57
(2.6)
(2.6)
10.0
–
41.9%
2.2%
0.731
0.753
2014
US$ 000
1,610,370
(235,380)
(125,769)
7,762
1,256,983
(252,671)
(109,132)
–
895,180
(129,595)
(180,593)
584,992
(231,774)
353,218
180,593
533,811
(60,308)
10,727,247
960,166
4,421,065
5,025,476
99.79
13.94
7.93
57.87
19.27
1,246,939
502,566
105,677
992,304
65.16
23.8
32.6
8.0
4.0
40.8%
8.4%
0.820
0.903
2013
US$ 000
766,265
(126,442)
(87,392)
216
552,647
(50,201)
(107,424)
–
–
–
395,022
(15,152)
379,870
(174,148)
205,722
205,722
(53,532)
8,421,537
209,661
4,024,421
3,421,052
110.73
–
5.82
5.51
6.74
293,985
1,214,615
152,600
366,804
27.39
15.3
15.4
4.0
–
52.7%
6.2%
0.895
0.969
2012
US$ 000
724,619
(112,042)
(88,244)
45,079
569,412
(49,457)
(143,970)
–
375,985
(4,557)
(23,793)
347,635
(171,801)
175,834
22,796
198,630
(53,143)
7,102,721
488,274
2,866,050
3,208,346
113.97
–
5.50
5.27
6.38
240,615
1,492,529
111,498
196,226
14.75
13.2
11.5
4.0
–
42.6%
5.6%
1.038
1.036
2011
US$ 000
732,869
(93,919)
(53,362)
138
585,726
(51,307)
(60,633)
–
473,786
(658)
(33,227)
439,901
(237,418)
202,483
(33,227)
169,256
(52,663)
5,702,034
1,047,463
1,747,567
3,017,232
116.09
–
5.76
5.56
6.69
144,606
1,286,542
129,396
386,193
29.3
15.3
17.9
4.0
–
18.8%
7.0%
1.016
1.032
2010
US$ 000
583,560
(87,770)
(24,078)
3,158
474,870
(49,874)
(131,188)
–
293,808
(826)
(15,808)
277,174
(91,572)
185,602
41,488
227,090
(52,087)
4,370,067
1,263,589
929,720
2,798,467
80.19
–
6.77
5.35
7.66
175,980
1,139,058
41,850
346,675
26.5
14.1
11.0
4.0
–
–
6.9%
2009
US$ 000
512,154
(84,104)
(18,663)
14,914
424,301
(105,416)
(75,729)
243,156
(3,326)
–
–
239,830
(106,150)
133,680
34,058
167,738
(67,359)
3,077,390
1,288,077
–
2,593,181
65.40
–
7.20
5.52
8.12
438,922
–
142,325
284,099
24.5
11.5
8.6
4.0
–
–
6.4%
(1) Prior year comparatives have been restated where necessary, in order to achieve consistency with current year disclosures.
(2) Earnings before interest, tax, depreciation and amortisation, impairment and exploration.
(3) Total debt includes finance leases.
(4) Net debt / (net debt and shareholders’ funds).
OIL SEARCH ANNUAL REPORT 2018 TEN YEAR SUMMARY(1)
INCOME STATEMENT
Revenue
Production costs
Other operating costs
Other income
EBITDAX(2)
Depreciation and amortisation
Exploration costs expensed
Proposed InterOil acquisition
EBIT
Net finance (costs)/income
Net impairment (losses)/reversals
Profit before income tax
Income tax expense
Dividends paid – ordinary
BALANCE SHEET
Total assets
Total cash
Total debt(3)
Shareholders’ equity
OTHER INFORMATION
Net profit after income tax, significant items
Significant items
Net profit after tax, before significant items
Average realised oil and condensate price (US$/bbl)
Average realised LNG and gas price (US$/mmBtu)
Net annual oil and condensate production (mmbbl)
Net annual gas production (bcf)
Total BOE net annual production (mmboe)
Exploration and evaluation expenditure incurred (US$’000)
Assets in development expenditure incurred (US$’000)
Producing assets expenditure incurred (US$’000)
Operating cash flow (US$’000)
Operating cash flow per ordinary share (US cents)
Diluted EPS (including significant items) (US cents)
Basic EPS (excluding significant items) (US cents)
Ordinary dividend per share (US cents)
Special dividend per share (US cents)
Gearing (%)(4)
Return on average shareholders' funds (%)
Number of issued shares – ordinary (000’s)
EXCHANGE RATES
Year end A$ : US$
Average A$ : US$
SOCIAL RESPONSIBILITY
Total paid to PNG Government (US$'000)
Total invested in sustainable development activities (US$'000)
Total Recordable Incident Rate (per million hours worked)
Number of significant spills (>100bbl)
Total greenhouse gas emissions ((ktCO2-e )
Greenhouse gas emissions intensity (ktCO2-e /mmboe)(5)
Total number of employees(6)
Females in senior management (%)
PNG nationals in senior management (%)
2018
US$ 000
1,535,761
(290,027)
(145,314)
9,579
1,109,999
(326,094)
(66,663)
717,242
(209,850)
507,392
(166,190)
341,202
341,202
(114,273)
–
–
–
10,673,891
600,557
3,424,774
5,165,618
70.65
10.06
5.03
102.90
25.2
714,796
36,797
21,723
854,632
56.10
22.3
22.4
10.5
–
35.3%
10.0%
0.705
0.748
2017
US$ 000
1,446,001
(262,813)
(141,056)
9,969
1,052,101
(380,571)
(35,928)
–
–
–
635,602
(194,728)
440,874
(138,782)
302,092
302,092
(99,014)
10,512,498
1,015,246
3,758,906
4,937,754
55.68
7.67
7.56
116.04
30.3
169,544
30,102
40,654
843,585
55.40
19.8
19.8
9.5
–
37.0%
9.1%
0.779
0.767
2016
US$ 000
1,235,908
(257,104)
(131,721)
5,120
852,203
(436,702)
(53,164)
18,694
381,031
(195,999)
–
185,032
(95,237)
89,795
16,906
106,701
(76,135)
10,126,129
862,748
4,074,781
4,725,316
45.04
6.36
8.58
110.46
30.24
151,761
9,611
38,250
555,116
36.46
5.9
7.0
3.5
–
40.5%
3.9%
0.724
0.744
114,714
66,017
1.58
–
570
44
1,410
23
20
62,728
14,974
1.93
–
962
50
1,286
22
23
68,279
13,934
1.53
–
941
46
1,206
21
23
TEN YEAR SUMMARY
2013
US$ 000
766,265
(126,442)
(87,392)
216
552,647
(50,201)
(107,424)
–
395,022
(15,152)
–
379,870
(174,148)
205,722
–
205,722
(53,532)
8,421,537
209,661
4,024,421
3,421,052
110.73
–
5.82
5.51
6.74
293,985
1,214,615
152,600
366,804
27.39
15.3
15.4
4.0
–
52.7%
6.2%
2012
US$ 000
724,619
(112,042)
(88,244)
45,079
569,412
(49,457)
(143,970)
–
375,985
(4,557)
(23,793)
347,635
(171,801)
175,834
22,796
198,630
(53,143)
7,102,721
488,274
2,866,050
3,208,346
113.97
–
5.50
5.27
6.38
240,615
1,492,529
111,498
196,226
14.75
13.2
11.5
4.0
–
42.6%
5.6%
2011
US$ 000
732,869
(93,919)
(53,362)
138
585,726
(51,307)
(60,633)
–
473,786
(658)
(33,227)
439,901
(237,418)
202,483
(33,227)
169,256
(52,663)
5,702,034
1,047,463
1,747,567
3,017,232
116.09
–
5.76
5.56
6.69
144,606
1,286,542
129,396
386,193
29.3
15.3
17.9
4.0
–
18.8%
7.0%
2010
US$ 000
583,560
(87,770)
(24,078)
3,158
474,870
(49,874)
(131,188)
–
293,808
(826)
(15,808)
277,174
(91,572)
185,602
41,488
227,090
(52,087)
4,370,067
1,263,589
929,720
2,798,467
80.19
–
6.77
5.35
7.66
175,980
1,139,058
41,850
346,675
26.5
14.1
11.0
4.0
–
–
6.9%
2009
US$ 000
512,154
(84,104)
(18,663)
14,914
424,301
(105,416)
(75,729)
–
243,156
(3,326)
–
239,830
(106,150)
133,680
34,058
167,738
(67,359)
3,077,390
1,288,077
–
2,593,181
65.40
–
7.20
5.52
8.12
438,922
–
142,325
284,099
24.5
11.5
8.6
4.0
–
–
6.4%
2015
US$ 000
1,585,728
(294,818)
(154,469)
14,841
1,151,282
(407,753)
(50,889)
–
692,640
(185,114)
(399,271)
108,255
(147,636)
(39,381)
399,271
359,890
(274,085)
10,342,835
910,479
4,302,650
4,709,362
51.36
9.44
8.89
103.84
29.25
275,699
135,211
111,830
952,739
62.57
(2.6)
(2.6)
10.0
–
41.9%
2.2%
2014
US$ 000
1,610,370
(235,380)
(125,769)
7,762
1,256,983
(252,671)
(109,132)
–
895,180
(129,595)
(180,593)
584,992
(231,774)
353,218
180,593
533,811
(60,308)
10,727,247
960,166
4,421,065
5,025,476
99.79
13.94
7.93
57.87
19.27
1,246,939
502,566
105,677
992,304
65.16
23.8
32.6
8.0
4.0
40.8%
8.4%
1,523,631
1,523,631
1,522,693
1,522,693
1,522,693
1,343,361
1,334,757
1,325,155
1,312,888
1,299,562
0.731
0.753
0.820
0.903
0.895
0.969
1.038
1.036
1.016
1.032
1.016
0.919
0.897
0.792
97,843
9,591
1.91
-
958
48
1,334
18
21
239,606
7,807
1.97
-
830
55
1,701
15
16
234,371
8,170
2.47
-
898
73
1,515
14
21
300,229
6,582
2.64
-
918
80
1,200
13
22
260,497
6,303
1.85
-
1,021
85
1,124
10
23
183,051
3,200
1.96
-
1,105
78
1,041
6
23
143,865
3,100
1.16
-
1,405
93
970
5
25
(5) Intensity is calculated by dividing total GHG (scope 1 and 2) emissions by gross total production. Gross production is based on operational control
(eg. total usable hydrocarbon production from Oil Search controlled operations only, as compared to equity based production figures).
(6) Includes all senior managers, technical experts and executives.
167
OIL SEARCH ANNUAL REPORT 2018 O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
SHAREHOLDER INFORMATION
$, $m, $bn
Dollars stated in US dollar terms unless otherwise stated.
1C
Low estimate of contingent resources.
1H, 2H
Halves of the calendar year. 1H (1 January – 30 June), 2H (1 July –
31 December).
1P
Proved reserves.
1Q, 2Q, 3Q, 4Q
Quarters of the calendar year. 1Q (1 January – 31 March),
2Q (1 April – 30 June), 3Q (1 July – 30 September),
4Q (1 October – 31 December).
2C
Best estimate of contingent resources.
2P
Proved and probable reserves.
AGX
Associated Gas Expansion opportunity.
Crude oil
Liquid petroleum as it comes out of the ground.
Crude oils range from very light (high in gasoline) to
very heavy (high in residual oils). Sour crude is high
in sulphur content. Sweet crude is low in sulphur and
therefore often more valuable.
Development well
Wells designed to produce hydrocarbons from a gas or
oil field within a proven productive reservoir defined by
exploration or appraisal drilling.
EBITDAX
Earnings before interest, tax, depreciation/amortisation,
impairment and exploration.
EITI
Extractive Industries Transparency Initiative.
ExxonMobil
Subsidiary of the ExxonMobil Corporation
Farm-in
A contractual agreement to acquire all or part of a working
interest in an oil or gas lease from the owner in exchange for
fulfilling contractually specified conditions.
Appraisal well
A well drilled to follow up an oil or gas discovery to evaluate its
commercial potential.
FEED
Front-End Engineering and Design. Conceptual design prior
to detailed design.
barrel/bbl
The standard unit of measurement for oil and condensate
production and sales.
bcf/bscf
Billion standard cubic feet, a measure of gas volume.
boe
Barrels of oil equivalent – the factor used to convert
volumes of different hydrocarbon production to barrels of
oil equivalent. Conversion rate used by Oil Search for gas
is 6,000 scf = 1 boe up to and including 2013 production;
5,100 scf = 1 boe thereafter.
bopd
Barrels of oil per day.
Btu
British thermal units, a measure of thermal energy.
Condensate
Hydrocarbons which are in the gaseous state under
reservoir conditions and which become liquid when
temperature or pressure is reduced. A mixture of
pentanes and higher hydrocarbons.
FID
Final Investment Decision.
Gearing
Net debt / (net debt and shareholders’ funds).
GHG
Greenhouse gas.
Hydrocarbons
Solid, liquid or gas compounds of the elements hydrogen
and carbon.
ITCS
Infrastructure Tax Credit Scheme.
JV
Joint venture.
LNG
Liquefied natural gas.
LPG
Liquid petroleum gas.
LTI
Long-term incentive.
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SHAREHOLDER INFORMATION
STI
Short-term incentive.
tcf
Trillion cubic feet, a measure of gas volume.
TCFD
Task Force on Climate-related Financial Disclosure.
TRIR
Total Recordable Incident Rate.
VPSHR
Voluntary Principles on Security and Human Rights.
Workover
To perform one or more of a variety of remedial operations on a
producing well to try to increase production.
Definition of reserves and contingent resources
Estimates of reserves and contingent resources are conducted
to Society of Petroleum Engineers (SPE) standards on a Proved
(1P and 1C) and Proved and Probable (2P and 2C) basis.
Proved reserves
Proved reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable
in future years from known reservoirs under existing economic
and operating conditions. Proved reserves are limited to those
quantities of oil and gas which can be expected, with little
doubt, to be recoverable commercially at current prices and
costs, under existing regulatory practices and with existing
conventional equipment and operating methods. Proved (1P)
reserves are probabilistically calculated reserves having a 90
per cent confidence level (P90); such reserves have a 90 per
cent likelihood of being equalled or exceeded.
Probable reserves
Probable reserves are those reserves which geological and
engineering data demonstrate to be potentially recoverable,
but where some element of risk or insufficient data prevent
classification as proven. Probable reserves are calculated
by subtracting proven reserves from those probabilistically
calculated reserves having a 50 per cent confidence level (P50).
Therefore, “Proved plus Probable” (2P) reserves are defined
as those reserves which have a 50 per cent likelihood of being
equalled or exceeded.
Contingent resources
The Company’s technically recoverable resources for its
discovered but uncommercialised gas fields are classified
as contingent resources. 2C denotes the best estimate of
contingent resources
LTIFR
Lost Time Injury Frequency Rate.
MENA
Middle East/North Africa.
mmbbl
Million barrels.
mmBtu
Million British thermal units.
mmscf/d
Million standard cubic feet per day.
MoU
Memorandum of Understanding.
MTPA
Million tonnes per annum (LNG).
Net debt
Total debt less cash and cash equivalents.
OSF
Oil Search Foundation
PDL
Petroleum Development Licence.
PL
Pipeline Licence.
PNG
Papua New Guinea.
PNG LNG Project operator
ExxonMobil PNG Limited, a subsidiary of Exxon Mobil
Corporation (ExxonMobil).
PPFL
Petroleum Processing Facilities Licence.
PPL
Petroleum Prospecting Licence.
PRL
Petroleum Retention Licence.
Seismic survey
A survey used to gain an understanding of rock formations
beneath the earth’s surface.
scf
Standard cubic feet, a measure of gas volume.
Side-track
A secondary wellbore drilled away from the original hole.
169
OIL SEARCH ANNUAL REPORT 2018 REGISTERED OFFICE
Oil Search (PNG) Limited
Ground Floor
Harbourside East Building
Stanley Esplanade
National Capital District
Port Moresby
Papua New Guinea
PO Box 842
Port Moresby
NCD 121
Papua New Guinea
Telephone: +675 322 5599
Facsimile: +675 322 5566
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
CORPORATE DIRECTORY
AUSTRALIAN OFFICE
Papuan Oil Search Limited
1 Bligh Street
Sydney NSW 2000
Australia
GPO Box 2442
Sydney NSW 2001
Australia
Telephone: +61 2 8207 8400
Facsimile: +61 2 8207 8500
ANCHORAGE OFFICE
Oil Search (Alaska), LLC
510 L Street, Suite 310
Anchorage
Alaska 99501
United States of America
Telephone: +907 375 6910
Facsimile: +907 375 6930
TOKYO OFFICE
Papuan Oil Search Limited
Level 25, Marunouchi Trust Tower-Main
1-8-3 Marunouchi Chiyoda-ku
Tokyo 100-0005
Japan
Telephone: +81 3 6275 6325
Facsimile: +81 3 6275 6317
ABU DHABI OFFICE
Oil Search (Middle Eastern) Limited
Level 9, Office 904
Tower 3, Etihad Towers
Corniche Road
Abu Dhabi
United Arab Emirates
PO Box 41951
Abu Dhabi, UAE
Telephone: +971 2 673 6882
Facsimile: +971 4 584 1531
170
O I L S E A R C H A N N U A L R E P O R T 2 0 1 8
ABOUT OIL SEARCH
Oil Search was established in Papua New Guinea (PNG) in 1929, where it operates
all of the country’s producing oil fields, has a 29% interest in the PNG LNG
Project, operated by ExxonMobil PNG Limited, and holds an extensive appraisal
and exploration portfolio. The Company also has interests in a number of major
undeveloped gas fields, including Elk-Antelope in PRL 15, operated by Total SA,
and P’nyang in PRL 3, operated by ExxonMobil. These fields are expected to underpin
a proposed three-train, 8 MTPA LNG development, to be constructed on the existing
PNG LNG plant site, doubling the LNG capacity in PNG.
The Company is undertaking a range of exploration and appraisal activities in
the North-West Highlands, the Forelands, the onshore and shallow water offshore
Gulf and Deepwater regions of PNG, to support further LNG expansion in the country
and ensure the availability of gas to backfill existing and future LNG capacity.
In February 2018, Oil Search farmed into a world class portfolio of oil assets on
the Alaska North Slope, USA. These assets offer significant upside and complement
the Company’s high-returning PNG gas portfolio. Oil Search assumed operatorship of
the assets in March 2018, positioning the Company at the forefront of the development
of the prolific Nanushuk play in the Pikka Unit, one of the largest conventional oil
discoveries in the US in more than 30 years.
Oil Search is listed on the Australian and Port Moresby security exchanges
(Share code: OSH) and its ADRs trade on the US Over the Counter market
(Share code: OISHY).
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