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KAR Auction ServicesW I S D O M
W I S D O M
In spire s
In spire s
C E L E B R A T I N G 9 0 Y E A R S
C E L E B R A T I N G 9 0 Y E A R S
L R E P O R T 2 0 1 9
A N N U AA L R E P O R T 2 0 1 9
A N N U
W I S D O M
In spire s
10 2019 HIGHLIGHTS
12
LET TER FROM THE CHAIRMAN
14 UPDATE FROM THE MANAGING DIRECTOR
19 MESSAGE FROM THE MANAGING DIRECTOR DESIGNATE
20 FINANCIAL OVERVIEW
22 PRODUCTION
30 GAS DEVELOPMENT
36 PNG EXPLOR ATION AND APPR AISAL
40 AL ASK A NORTH SLOPE
48 STABLE OPER ATING ENVIRONMENT
54 ORGANISATIONAL CAPABILIT Y TO DELIVER
60 RESERVES AND RESOURCES STATEMENT
70
LICENCE INTERESTS
72 CORPOR ATE GOVERNANCE
76 CONSOLIDATED FINANCIAL REPORT
157 SHAREHOLDER INFORMATION
160 TEN YEAR SUMMARY
164 CORPOR ATE DIRECTORY
O P P O R T U N I T Y
With a history of more than 90 years
in Papua New Guinea, Oil Search has
developed a deep understanding of
the people, culture and environment
of this remarkable country.
It is this understanding that leads
to wisdom. The wisdom to pioneer
exploration and development activities
and drive the social and economic
advancement of a nation.
It is this wisdom that enabled us to
recognise the significant development
opportunities on the Alaskan North
Slope, where we seek to replicate
our proven model and maximise
stakeholder value.
O P P O R T U N I T Y
In spire s
I N N O V A T I O N
Our proven ability to operate in the
remote and challenging terrain of
the PNG Highlands, where strong
logistical skills are vital, has been
a key factor behind our success.
This expertise is now being
applied in the arctic conditions
of the Alaskan North Slope, with
a highly successful inaugural drilling
programme completed in 2019.
To further strengthen these
capabilities, in 2019, Oil Search
formed the Technology and Value
Assurance Group to drive innovation
and the adoption of new technologies,
which will be incorporated into our
major new developments in PNG
and Alaska.
I N N O V A T I O N
In spire s
P R O G R E S S
Knowledge acquired over the past
90 years has enabled us to progress
the best opportunities Papua New
Guinea has to offer, positioning us
as the country’s most active explorer
and largest investor.
From the first gas discoveries in the
1930s to the development of the
PNG LNG Project, the nation’s largest
infrastructure development, Oil Search
has always been at the forefront of
progressing opportunities that drive
stakeholder value.
Our Alaskan acquisition provides
Oil Search with a leading position
in an exciting new oil play, which
is expected to revitalise the oil
industry in Alaska.
P R O G R E S S
In spire s
R E S P O N S I B I L I T Y
Oil Search has an unwavering
commitment to being a responsible
development partner, creating
shared value for all stakeholders
and delivering positive social and
development outcomes.
Operating in some of the most remote
and environmentally sensitive regions
in the world, we are committed to
minimising environmental impacts.
Through our ongoing social
development programmes and
initiatives, we seek to improve the
lives of people in the areas in which
we operate. We believe this is vital
for maintaining operating stability
and ensuring the Company’s
long‑term success.
In 2019, we were honoured to be
recognised in Strive Philanthropy’s
GivingLarge Report, as a corporate
leader for our socio‑economic
contributions to PNG.
R E S P O N S I B I L I T Y
In spire s
W H O W E A R E
Oil Search
90 years wise
With world-class projects, major
growth potential in PNG and Alaska
and a highly prospective exploration
portfolio, supported by a dedicated
workforce that will rise to any
challenge - our future is bright.
W I S D O M I n s p i r e s
P R O G R E S S
2 0 1 9 H I G H L I G H T S
AV E R AG E R E A L I S E D O I L
A N D C O N D E N SAT E P R I C E
( U S $ P E R BA R R E L )
AV E R AG E R E A L I S E D
L N G A N D G A S P R I C E
( U S $ P E R M M B T U )
7 0.65
9.44
62.86
10.06
9.58
P RO D U C T I O N
(M M B O E )
29.3
30.2
30.3
C O R E P RO F I T 1
( U S $ M I L L I O N )
359 .9
341. 2
312.4
302.1
2 7 .9
2 5.2
5 5.68
5 1.36
45 .04
7.67
6.36
106.7
20 15
20 1 6
20 1 7
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
O P E R AT I N G C A S H F LOW
( U S $ M I L L I O N )
953
L I Q U I D I T Y
( U S $ M I L L I O N )
1,8 65
855
844
752
1,658 1,612
1,501
1, 152
555
3.5
D I V I D E N D P E R S H A R E
( U S C E N T S )
10.0
9.5
10.5
9.5
TOTA L R E C O R DA B L E
I N C I D E N T R AT E
( P E R M I L L I O N
H O U R S WO R K E D)
1.93
1.9 1
1.70
1.58
1.53
20 15
20 1 6
20 1 7
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2015
2016
2017
2018 2019
2019
1 Core profit (net profit after tax before significant items) is a non‑IFRS measure that is presented to provide a more meaningful understanding of the performance of Oil Search’s
operations. The non‑IFRS financial information is derived from the financial statements which have been subject to audit by the group’s auditor.
10
OP E N TO SEE MORE 2019 HIG HLIG HTS
PNG LNG PRODUCED
8.5 MT GROSS
Highest annual production
since Project start‑up
MID TERM SPA SIGNED
WITH UNIPEC
Total contracted volumes
for the PNG LNG Project
now approximatley
7.9 MTPA
111 PNG LNG
CARGOES DELIVERED
100 LNG sold under contract,
11 on spot market
LANDMARK GAS
AGREEMENT
Signed for the Papua
LNG Project
SUCCESSFUL WORKOVER
AND INFILL DRILLING IN PNG
Will help offset oil field
natural decline
>200 KM OF
SEISMIC ACQUIRED
Over Onshore Gulf and Eastern
Foldbelt regions of PNG
SOCIO-ECONOMIC
CORPORATE LEADER
Recognised in Strive Philanthropy’s
2019 GivingLarge report as a leader
for our contributions to PNG
FIRST ALASKAN DRILLING
PROGRAMME
Completed within budget
with no recordable injuries
46% UPGRADE IN PIKKA
UNIT RESOURCES
728 mmbbl of gross 2C
contingent oil resources booked
(371 mmbbl net)
ARMSTRONG ENERGY/
GMT OPTION EXERCISED
Doubled interest in the Pikka
Unit, Horseshoe area and
surrounding lease areas
W I S D O M I n s p i r e s
P E R S P E C T I V E
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
Dear Shareholders,
2019 was a mixed year for Oil Search.
Major strides forward were made
in Alaska and the PNG LNG Project
produced at record levels. However,
progress of our world‑class LNG
expansion in PNG stalled, while
operated oil production continued
to be challenged.
Total production for the year was
27.9 mmboe, 11% higher than 2018.
This was driven by an excellent
performance from the PNG LNG
Project, partially offset by downtime
following damage to the offshore
liquids loading buoy and delays in fully
reinstating oil field production following
the 2018 earthquake. Weaker realised
oil and LNG prices, combined with
higher production costs, resulted in
a net profit after tax of US$312 million,
8% lower than in 2018. The Company
declared a total dividend of 9.5 US cents
per share, representing a dividend
payout ratio of 46%.
In PNG, several major milestones were
achieved for the integrated three‑train
LNG expansion projects. However,
progress towards a FEED decision
was delayed, with ExxonMobil and the
PNG Government unable to reach an
acceptable outcome on the P’nyang
Gas Agreement. Formal negotiations
were suspended in January 2020.
While disappointing, we and our
partners remain committed to reaching
an equitable solution with the State,
given that the integrated three‑train
development represents by far the most
efficient way to develop the P’nyang field
and the Papua LNG Project, creating
substantial value for all stakeholders.
In contrast, major advances were
achieved in Alaska. Information
from our inaugural Alaskan drilling
programme, combined with data from
adjacent permits, 3D seismic mapping
and detailed reservoir modelling,
led to a 46% upgrade in gross 2C
contingent oil resources for the Pikka
Unit Development. In addition, we
strengthened alignment with our
partner Repsol, secured a key Land Use
Agreement with the local community
representative, obtained re‑zoning
approvals required to start construction
and doubled our interests in key leases
through the exercise of the Armstrong
Energy/GMT option. In January 2020,
we commenced FEED activities for the
Pikka Unit Development. The Company
is targeting first oil through an early
production system in 2022, with
the full field development expected
onstream in 2025.
The Company has undergone major
organisational changes in the past year.
In June, we completed an organisational
redesign, to equip the Company with the
right talent, experience and resources
to deliver our growth ambitions in PNG
and Alaska. This included the formation
of PNG and Alaskan business units,
to provide greater autonomy to these
regions, as well as a new Technology
and Value Assurance group, to drive
innovation and strengthen our project
execution capabilities.
After 25 years as Oil Search’s Managing
Director, Mr Peter Botten retired on
25 February 2020. Under Peter’s
leadership, we have grown into a
leading oil and gas company, with
world‑class production, an extensive
exploration portfolio and major growth
potential. Just as important, Peter is
a passionate believer in companies
giving back to the communities
in which they work and delivering
social and economic change. He
led numerous initiatives that have
permanently impacted the lives of
Papua New Guineans. The Board is
extremely grateful for his commitment
and dedication over his time as
Managing Director.
Following a comprehensive global
search process, which considered
highly qualified internal and external
13
candidates, the Board unanimously
selected Dr Keiran Wulff to lead the
Company through its next phase of
growth. Keiran has more than 30 years
of international oil and gas experience,
including 20 years at Oil Search, with a
deep involvement in PNG. He presided
over our operations in the Middle East,
led the acquisition of Chevron’s PNG
assets in 2003 and, most recently,
pioneered our entry into the Alaskan
North Slope, building a world‑class
team in Anchorage.
The Board is confident that Keiran
has the skills, experience and values
required to lead the Company through
the current challenges and deliver
further success in both PNG and Alaska.
One of his first tasks in 2020 will be
to drive a Company‑wide strategic
review, which will focus on Oil Search’s
long‑term vision and strategic focus,
while recognising that the global energy
market is evolving. A major component
of the review will be on how to position
Oil Search for both the challenges and
new opportunities that energy transition
will bring, while retaining the Company’s
vision to generate top quartile returns for
shareholders and ensuring sustainable
and responsible operations.
I would like to thank our employees
for their dedication, our shareholders
for their continued support and
my fellow Board members for their
counsel and guidance through another
challenging year. Finally, I would like
to congratulate Peter on an outstanding
career and look forward to working
closely with Keiran on the next phase
of Oil Search’s development.
Richard Lee, AM
CHAIRMAN
W I S D O M I n s p i r e s
F O C U S
U P D AT 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
This is my final Annual Report update as
Managing Director of Oil Search. 2019
was one of the more challenging years
I have experienced in my 28‑year career
with the Company, 25 of which were
in the Managing Director role. While
Oil Search achieved strong progress in
Alaska and several important milestones
were reached on the LNG expansion
projects in PNG, it is disappointing that
we did not enter FEED for the three‑train
integrated LNG development during the
year, as planned. We remain committed
to progressing this development, which
is the most economic and efficient
way of developing the large volumes
of gas in Elk‑Antelope (Papua LNG)
and P’nyang.
Production continued to recover over
2019 from the impacts of the February
2018 PNG Highlands earthquake.
Total production increased 11% to
27.9 mmboe, supported by record
volumes from the PNG LNG Project,
which was achieved despite scheduled
maintenance in the second quarter and
reduced production rates in the third
quarter while repairs were made to the
mooring buoy at the offshore liquids
loading facility. Operated production
was weaker than in the prior year,
primarily due to continued facilities
outages following the earthquake
and a temporary curtailment in output
resulting from the mooring buoy issue.
Despite higher overall production in
2019, the Company’s net profit fell
8% to US$312.4 million, reflecting
weaker global oil and gas prices and
higher production costs.
S A F E T Y P E R F O R M A N C E
During 2019, Oil Search undertook
many activities in operationally
challenging regions, including
completing drilling the Muruk 2 well in
the PNG Highlands, seismic acquisition
in the Eastern Foldbelt, offshore diving
activities in the Gulf of Papua and the
completion of a drilling programme on
the Alaskan North Slope.
Pleasingly, our first drilling campaign
in Alaska was completed with no
recordable injuries or high potential
incidents, an excellent achievement for
our newly‑formed team in the region.
In addition, the PNG Business Unit
drilling team completed a recordable
14
injury‑free year. Unfortunately, there
were eight recordable injuries relating
to the PNG seismic programme, three
marine‑related incidents and several
other incidents involving contractor
management and supervision.
This resulted in an increase in the
Total Recordable Injury Rate from
1.58 in 2018 to 1.70.
While we are aware of the risks
associated with operating and
exploring in challenging terrains, it is our
goal to deliver zero recordable injuries,
focusing on the safety of our staff and
contractors across all our operations.
Several initiatives were undertaken to
address our weaker safety performance,
including a mid‑year safety summit
in PNG and the introduction of
improved governance processes
for land transportation, marine and
aviation activities.
Oil Search’s high potential incident
frequency rate (events with potentially
fatal consequences) declined from
1.11 in 2018 to 0.72, reflecting
our commitment to minimising
exposure to high risk activities.
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
We believe the most efficient way to
develop the P’nyang field and the Papua
LNG Project is through the integrated
three‑train development, whereby
material construction and operating
synergies are achieved by utilising
existing PNG LNG infrastructure.
In the current lower oil and LNG price
environment, with many competing
proposed LNG developments, it is
imperative that focus is maintained
on ensuring the most economical
development plan as possible.
Despite the recent setback, we are
encouraging continued dialogue with
the PNG Government on the P’nyang
Gas Agreement. We are committed to
achieve an agreement that is both fair to
the people of PNG while still allowing
the developers to earn an appropriate
return on their investment. Delivering an
agreement that is balanced is essential
to ensuring long term operating stability
for the development. Once the P’nyang
Gas Agreement is finalised, the joint
venture partners are largely ready
to commence the FEED phase of
the development, which will have a
material impact on the PNG economy,
benefiting all stakeholders.
M A J O R M I L E S T O N E S
A C H I E V E D I N A L A S K A
Our Alaskan business unit made
substantial progress in 2019, with FEED
activities commencing on the Pikka
Unit Development in early 2020 and a
Final Investment Decision targeted to
be made in the second half of 2020.
The development comprises an early
production system, with production of
approximately 30,000 barrels of oil per
day (bopd) from late 2022, followed
by a full field development producing
up to 135,000 bopd commencing in
2025. The development is underpinned
by independently certified gross 2C
contingent resources of 728 mmbbl
within the permitted Pikka Unit
development area, which is 46% higher
than our estimate when we acquired our
initial interest. These estimates exclude
The Company recorded one Tier 1
and four Tier 2 process safety events,
up from zero and three, respectively,
in 2018. Two of the Tier 2 events related
to “return to service” operations
following the earthquake. A Process
Safety Taskforce was established during
the year to drive improvements in this
key area of our operations.
L N G E X P A N S I O N I N P N G
During 2019, Oil Search and our
partners continued to work on the
planned three‑train integrated LNG
expansion projects in PNG. Much of
the pre‑FEED engineering work and
commercial agreements required
to progress into the FEED phase of
the development was completed
during the year.
In April, a major milestone was
reached when the PNG Government,
led by the then Prime Minister, the
Hon. Peter O’Neill, and the operator
of the Papua LNG Project, Total SA,
reached agreement on the Papua LNG
Gas Agreement. Following a change
in the Government leadership team
in May, the new Prime Minister, the
Hon. James Marape, initiated a full review
of the Agreement. In September, the
original Agreement, which included
material additional benefits to the
country, including a competitively
priced domestic market obligation,
a deferred payment mechanism to fund
past costs and a new production levy,
was endorsed.
ExxonMobil, operator of the P’nyang
Joint Venture, recommenced
negotiations with the State on the
P’nyang Gas Agreement in late
2019. Unfortunately, agreement
on appropriate terms could not be
reached and formal negotiations were
suspended on 31 January 2020. Under
the final terms proposed by the State,
the project rate of return would have
been approximately the same as our
cost of capital and the project would
not have been able to attract sufficient
project finance.
16
O I L S E A R C H A N N U A L R E P O R T 2 0 1 9
other resources in nearby satellites
and in the Horseshoe area, which are
presently the subject of a separate
resource review.
During the year, Oil Search received
the Federal Record of Decision from
the US Army Corps of Engineers,
approving the Pikka Unit development
plan, obtained key community support
and achieved re‑zoning allowing
development activities to commence.
Gravel laying operations for key
infrastructure, including roads and
well pads, is now underway.
The Company commenced its 2019/20
winter season drilling programme in
late 2019, with the Mitquq 1 exploration
well. Located less than 10 kilometres
from the planned Pikka Unit central
processing facility, the well discovered
oil in both the primary Nanushuk and
secondary Alpine C objectives. The
presence of the Nanushuk reservoir in
this location is extremely encouraging
and has materially upgraded several
prospects located between the Pikka
Unit and the Mitquq area.
The Stirrup 1 exploration well, located
south of the Pikka Unit and adjacent
to the Horseshoe 1 discovery, has also
encountered oil shows within the target
Nanushuk reservoir. The well results
will help determine whether resources
in this area are best developed through
a standalone central processing
facility or as satellites to the Pikka Unit
processing facilities.
In June, the Company exercised its
US$450 million Armstrong Energy/GMT
option, doubling our interest in the Pikka
Unit, Horseshoe area and surrounding
exploration lease areas to 51%. The
process to divest up to 15% of our
interest, to both mitigate development
risk and realise cash, has commenced,
with positive market interest. Oil Search
will retain operatorship of all lease areas
following the divestment. The sell‑down
is targeted to be finalised in the second
half of the year.
P N G E X P L O R A T I O N
A C T I V I T Y
In early 2019, the Company completed
the Muruk 2 appraisal well in the North
West Highlands of PNG. Information
gathered from the well resulted
in a 249% and 23% increase in our
estimates of gross 1C and 2C resources,
respectively, within the field. The current
resource has the potential to underwrite
future commercial production, given
its proximity to existing PNG LNG
infrastructure. We have commenced a
2D seismic programme across Muruk
and surrounding prospects. This
data, combined with further reservoir
modelling, will help us to further refine
our assessment of resources in the
Muruk field and mature adjacent leads
and prospects.
In late 2019, we commenced drilling
the Gobe Footwall exploration well,
targeting a footwall structure west
of the Gobe Main field. The well
encountered the primary Iagifu and
Toro targets, which unfortunately
proved to be water bearing.
PNG remains an attractive country
to explore and we believe we have
a highly prospective exploration
portfolio, covering the most attractive
areas in PNG ‑ the Eastern Foldbelt,
North West Highlands and Onshore
Gulf regions. However, near term,
Oil Search will limit its exploration
activity within the country until the
17
PNG Government has completed its
proposed review of the Oil and Gas
Act and any changes in fiscal terms
are known. Positively, the Company
has limited commitments within
the existing portfolio, affording us
the flexibility to allocate capital to
the highest value prospects only,
focusing on those opportunities
which have the potential to add
material gas, either for PNG LNG
Project backfill or to underwrite future
LNG expansion trains, and on oil
prospects located close to or within
existing oil developments.
N E W O R G A N I S A T I O N
S T R U C T U R E L A Y S
F O U N D A T I O N S F O R
T H E N E X T C H A P T E R
O F G R O W T H
A key highlight for 2019 was the full
implementation of our Company‑wide
organisation redesign, undertaken
to strengthen our capabilities as we
progress our major growth projects
in PNG and Alaska. This included
establishing two separate business
units for PNG and Alaska, giving the
units greater empowerment and
accountability, as well as the formation
of a Technology and Value Assurance
Group, to bolster our project execution
capabilities in the challenging
environments in which we will operate.
Following the redesign, we believe
our talented and dedicated workforce
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
and gas operator, leading exploration
programmes in challenging terrains,
participating in the development of the
world‑class PNG LNG Project and more
recently, evolving to be a major player in
the development of oil resources on the
Alaskan North Slope.
A key differentiator of our success
has been our proven ability to create
shared value for all stakeholders.
We are uniquely intertwined with
the communities in which we operate
and are committed to delivering not just
economic but also social improvements.
Oil Search has become a leader in
corporate social responsibility. When
I look back on my tenure as Managing
Director, it is programmes such as
delivering core infrastructure, building
capacity within the health system,
addressing gender‑based violence
and delivering literacy programmes for
children, that I will remain most proud.
While bidding farewell as Managing
Director, I am delighted that my
association with Oil Search will
continue with my roles as Chairman
of the Oil Search Foundation and
the Hela Provincial Health Authority
and Member of the Australian PNG
Business Council Executive Committee.
In closing, I would like to wish our new
Managing Director, Dr Keiran Wulff,
the very best for the future. Keiran has
been a close friend and colleague for
more than 30 years and I am confident
that, with the support of the Board
and management team, he has the
necessary skills and experience to
lead this great company through its
next phase of growth and will deliver
continued success for all Oil Search’s
stakeholders, including shareholders
and the citizens of both Papua New
Guinea and Alaska.
Peter Botten, CBE AC
MANAGING DIRECTOR
is well‑placed to deliver our operational
and growth ambitions, which will
position Oil Search for long‑term
success in both PNG and Alaska.
O P E R A T I N G
R E S P O N S I B L Y
Almost two years on from the
7.5 magnitude earthquake which
devastated the PNG Highlands,
we continue to provide long term
assistance to impacted communities,
focusing on the restoration of health
facilities and vital infrastructure. In
conjunction with the Oil Search
Foundation, among the many initiatives
undertaken in 2019, Oil Search
delivered and installed more than
100 water tanks in churches, schools
and hospitals in the Hela Province,
installed numerous containerised aid
posts in remote and severely affected
communities, supported the re‑build
of the Kutubu Secondary School and
continued restoration work on multiple
health facilities.
Oil Search has always had an unwavering
commitment to the communities in
which we operate. In 2019, we were
honoured to be recognised in Strive
Philanthropy’s 2019 GivingLarge
Report, as corporate leader for our
socio‑economic contributions and
commitment to PNG.
We were pleased to announce that
NiuPower commenced production
from its 58 MW gas‑fired power plant in
late December, which is fuelled by gas
from the PNG LNG Project. NiuPower
Ltd is a jointly held entity between Oil
Search and Kumul Petroleum and this
initiative underscores our commitment
to supporting the PNG Government’s
objective of delivering low cost power
to 70% of the population by 2030.
In Alaska, Oil Search continued
to build and strengthen its key
relationships with the Nuiqsut,
Utqiagvik and other North Slope
communities, laying the foundations
for long‑term engagement in
the region. In collaboration with
nearby operators and community
organisations, we helped fund the
delivery of outboard boat motors to
the marine Search and Rescue team
in Nuiqsut, advanced plans for the
development of a boat ramp on the
Colville River to support subsistence
fishing activities and sponsored several
sports programmes to promote
healthy lifestyles.
F A R E W E L L
It has been a tremendous honour
to have led Oil Search over the past
25 years. I would like to thank all our
dedicated employees, both past and
present, whom I’ve had the privilege of
working alongside and the Board, for
their ongoing counsel and enduring
support. I would also like to express
my appreciation to our shareholders
for their long‑standing commitment to
the Company. It has been a fantastic
journey to see Oil Search grow from
a small explorer to a prominent oil
18
W I S D O M I n s p i r e s
N E W L E A D E R S H I P
L E T T E R F R O M K E I R A N W U L F F
I am truly honoured to have been
appointed as Oil Search’s next
Managing Director and to succeed
Peter Botten, who has successfully
led Oil Search for the last 25 years
to become the extraordinary and
world‑class company it is today.
After 30 years of working extensively
in PNG, the Middle East, North Africa,
Australasia and North America,
I possess a deep understanding of our
two main operating environments in
Papua New Guinea and Alaska, as well
as having a global perspective. I joined
Oil Search in 1993 as a geologist
and lived in PNG. During the initial
years we undertook extensive studies
across the entire country and built
the acreage position that supports
our world‑class LNG assets today.
I am fortunate to have held numerous
technical, managerial and operating
roles with Oil Search, including the role
of Chief Operating Officer following
our acquisition of Chevron’s PNG assets
in 2003, President of Middle East and,
most recently, President of our Alaskan
operations, where we are building
a high quality, experienced team and
pursuing a major oil development.
Oil Search has a genuinely world‑class
asset base, excellent growth
opportunities and a proven ability
to create shared value. This will ensure
we are well positioned to succeed
in an era where social responsibility
and environmental sustainability
are fundamental for the global
energy industry.
At Oil Search, our unique commitment
to social responsibility is embedded
deeply into the Company’s DNA. I am
committed to building on this corporate
ethos and creating a model that sets us
apart in terms of socially responsible
project delivery in a sustainable and
environmentally responsible energy
world. We are also focused on evolving
with the rapidly changing energy
investment environment and providing
real solutions to decarbonisation and
19
the provision of cheap energy in areas
without reliable power.
We recently commenced
a comprehensive strategic review
that will guide Oil Search for the next
10 years. The review is focused on
delivering full value from our existing
asset base, targeting bottom quartile
cost production and ensuring the
Company is well placed to continue
to attract investors and finance, as well
as be a partner of choice for companies
and the investment community.
While the industry has its fair share
of challenges, we are well placed to
meet and exceed our shareholders’
expectations and the responsibilities
for the energy industry that lie ahead.
Keiran Wulff
MANAGING DIRECTOR DESIGNATE
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 P E R F O R M A N C E
Oil Search reported net profit after tax
of US$312.4 million in 2019, 8% lower
than in the prior year.
Revenue increased 3% to US$1,584.8
million, supported by an 11% increase
in production, which recovered from
the PNG Highlands earthquake in
2018 and benefitted from a record
performance by the PNG LNG
Project. This was partially offset by
the impact of weaker global energy
prices. Realised LNG and gas prices
fell 5% to US$9.58 per mmBtu, with
spot LNG prices remaining under
pressure from an oversupplied market
and LNG contract pricing impacted
by weaker global oil prices. Realised
oil and condensate prices fell 11%,
to US$62.86 per barrel.
Total unit production costs rose 8%
to US$12.48 per boe, reflecting an
increase in costs within Oil Search’s
operated oil fields due to higher work
programmes in the oil fields, repairs
to the offshore liquids loading facility
and ongoing earthquake remediation
activities pending assessment for
insurance recoveries. Unit production
costs at PNG LNG fell 7% to US$7.20
per boe, with costs spread over
higher production as operations
recovered following the 2018
earthquake. Other operating costs
increased 8% to US$157.4 million,
reflecting higher royalties, gas
purchases and inventory movements.
Unit depreciation increased 3% to
US$12.67 per barrel, largely driven
by recognition of depreciation and
amortisation on right of use assets,
F I N A N C I A L P E R F O R M A N C E S U M M A R Y
Year to 31 December
Revenue (US$ million)
EBITDAX1 (US$ million)
Depreciation and amortisation (US$ million)
EBIT1 (US$ million)
Net finance costs (US$ million)
Tax (US$ million)
Net profit after tax (US$ million)
EPS (US cents)
DPS (US cents)
2018
1,536
1,110
(326)
717
(210)
(166)
341
22.4
10.5
2019
1,585
1,146
(414)
685
(231)
(136)
312
20.5
9.5
CHANGE
+3%
+3%
+27%
‑4%
+10%
‑18%
‑8%
‑8%
‑10%
1 EBITDAX (earnings before interest, tax, depreciation/amortisation, impairment and exploration) and
EBIT (earnings before interest and tax) are non‑IFRS measures that are presented to provide a more
meaningful understanding of Oil Search’s financial performance. The non‑IFRS financial information
is unaudited but is derived from the financial statements which have been subject to review by the
Group’s auditor.
in line with the revised IFRS 16 (Leases)
accounting standard.
The Company expensed US$47.2
million of exploration and evaluation
expenditure during 2019, comprising
seismic acquisition and general,
geological, geophysical and
administration expenses in PNG and
Alaska. This was down 29% on the
prior year, with the costs of successful
appraisal drilling on the Pikka Unit in
Alaska capitalised.
The net finance charge for 2019 of
US$231.0 million was 10% higher than
in 2018, largely due to higher drawn
debt through the year, following the
payment of US$450 million on the
exercise of the Alaskan option, as well
as the recognition of lease liabilities,
in line with the IFRS 16 (Leases)
accounting standard.
The effective tax rate was 30.4%
compared with 32.8% in 2018,
primarily due to lower additional
profits tax for PNG oil fields.
C A S H F L O W S
Operating cash flow was
US$752.4 million in 2019, 12% lower
than in 2018. A 4% increase in receipts
from customers and third parties
was offset by 58% higher supplier
payments. This reflected changes
in working capital as well as the costs
associated with oil field workovers
and drilling, repair costs on the
20
damaged mooring buoy chain and
earthquake recovery costs.
Capital expenditure was similar
to 2018, at US$870.7 million.
This included US$450 million paid
on the exercise of the Armstrong
Energy/GMT Option, doubling the
Company’s interests across its Alaskan
portfolio, following the purchase
of the initial interests for US$400
million in 2018. Other major capital
expenditures during 2019 included:
X Pre‑FEED activities on the LNG
expansion project in PNG and the
Pikka Unit Development in Alaska.
X Drilling of the Muruk appraisal
and Gobe Footwall exploration
wells and seismic acquisition in
the Eastern Foldbelt and Onshore
Gulf in PNG.
X Appraisal of the Pikka Unit in
Alaska during the 2018/19 winter
drilling season and preparatory
work for the Mitquq and Stirrup
exploration wells which are being
drilled in the 2019/20 season.
X First phase implementation costs
for the new group‑wide Enterprise
Resource Planning system.
L I Q U I D I T Y A N D
C A P I T A L M A N A G E M E N T
Over the year, the Company’s
total debt increased slightly, from
US$3.29 billion to US$3.38 billion
(excluding lease liabilities), of
which US$2.94 billion related to
borrowings under the PNG LNG
project financing facility and the
balance drawn down from corporate
facilities. Net debt was US$2.98
billion at the end of 2019, compared
to US$2.69 billion in 2018. This
represented gearing (net debt over
net debt plus shareholders’ funds) of
36% (excluding lease liabilities).
To support the funding of Oil
Search’s US$450 million option
exercise in Alaska, a one‑year
US$300 million corporate credit
facility was arranged in late June.
This brought total corporate
facilities to US$1.2 billion, of which
US$755.7 million were undrawn at
the end of the year. Together with
cash of US$396.2 million, Oil Search
ended the year with US$1.15 billion in
liquidity, compared to US$1.50 billion
at the end of 2018.
G R O W T H P R I O R I T I E S
A N D F U N D I N G
Despite the suspension of talks
between the operator, ExxonMobil,
and the PNG Government on
the P’nyang Gas Agreement,
Oil Search remains committed
to progressing the integrated
three‑train LNG expansion in PNG.
In addition, the Company is making
strong progress on the Pikka Unit
Development in Alaska.
These growth opportunities are
expected to be funded with
a combination of debt and cash
contributions. Discussions are
underway with potential new lenders
with Oil Search targeting debt
funding of 60‑70% of project costs.
The cash component of development
costs is expected to be funded from
existing liquidity sources, cashflows
from operations and funds realised
from the proposed sell‑down of up
to a 15% interest in the Alaskan assets.
Oil Search’s financial capacity is highly
dependent on oil prices and Oil
Search regularly assesses whether
downside protection is required.
At 31 December 2019, the Company
remained unhedged.
D I V I D E N D S
Oil Search declared a final unfranked
2019 dividend of 4.5 US cents
per share, which, together with
the 5.0 US cents per share interim
dividend,resulted in a total 2019
dividend of 9.5 US cents per
share. This represents a payout
ratio of 46%, towards the upper
end of the Company’s 35 ‑ 50%
dividend payout policy.
2 0 2 0 O U T L O O K
Oil Search’s key financial objectives for 2020
are as follows:
X Maximise the value of the Company’s partial
sell‑down of its Alaskan North Slope assets.
X Mature project financing options for the LNG
expansion development, in conjunction with
the Company’s joint venture partners.
X Complete a suitable financing plan for the Pikka Unit
Development in Alaska.
X Rationalise capital spend, focusing on the highest
quality exploration prospects, including opportunities
which have the potential to improve the economics
of existing and planned LNG infrastructure.
X Continue to actively manage costs to maximise
profitability and operating cash flows.
21
OIL SEARCH ANNUAL REPORT 2019 P R O D U C T I O N
Total production in 2019
was 27.9 mmboe, 11%
higher than in 2018,
which was impacted
by the 7.5 magnitude
PNG Highlands earthquake.
The increase was achieved
despite ongoing earthquake
recovery work and unplanned
downtime while repairs
were made to the offshore
liquids loading facility, with
production supported by
a record performance from
the PNG LNG Project.
P N G L N G P R O J E C T
P R O D U C T I O N
The PNG LNG Project contributed
25.0 mmboe (net) to Oil Search
in 2019, comprising 21.8 mmboe
of liquefied natural gas (LNG) and
3.2 mmboe of liquids (condensate
and naphtha).
Gross LNG production for the
year totalled 8.5 million tonnes
(MT). This was the highest annual
production since the Project
came onstream in 2014 and 23%
above the 6.9 MTPA nameplate
capacity. The strong performance
was achieved despite a partial
shut‑in for scheduled maintenance
in the second quarter and a short
curtailment of production during the
third quarter due to damage to the
Oil Search‑operated offshore liquids
loading facility in the Gulf of Papua
(refer to page 26).
The ExxonMobil‑operated Hides field
contributed 88% of the gas delivered
to the LNG plant in Port Moresby.
The balance was supplied from the
Oil Search‑operated Associated
Gas fields (Kutubu and Gobe Main)
and SE Gobe, which provides third
party gas to the Project. These fields
delivered gas at an average rate of
130.9 million standard cubic feet
per day (mmscf/d) during 2019.
9.8 mmbbl (26,940 bbl/d) of
gross condensate from the
PNG LNG Project was processed
and transported through the
Oil Search‑operated liquids
handling facilities.
22
23
LEGEND
PNG LNG GAS FIELD
OSH OPERATED OIL & GAS FIELD
PNG LNG PROJECT FACILITY
OSH OPERATED FACILITY
PNG LNG GAS PIPELINE
PNG LNG CONDENSATE PIPELINE
OSH OPERATED OIL PIPELINE
PNG OIL AND GAS PRODUCTION
F I N A L M I D -T E R M T R A N C H E
O F P N G L N G VO LU M E S
CO N T R AC T E D W I T H U N I P E C
The final tranche of medium‑term
volumes on offer from PNG LNG was
contracted to Unipec Singapore Pte
Ltd (Unipec) in April, with the Project
committing to supply approximately
0.45 MTPA over four years
commencing in 2019.
This is in addition to the two mid‑term
contracts signed with PetroChina and
BP in 2018 and takes total mid‑term
contract volumes to 1.3 MTPA.
Approximately 7.9 MTPA from the
Project is now being sold under
long and medium‑term contracts,
representing more than 90% of
LNG production.
PNG L NG CON T R ACT E D VOLUM E S (MT PA)
6.60
6.60
Long-Term PNG LNG Foundation Contracts 6.6MTPA
1.8 MTPA
JERA
SINOPEC
2.0 MTPA
OSAKA GAS 1.5 MTPA
1.2 MTPA
CPC
2018
2023
2028
2034
Unipec (4 yrs)
BP (5 yrs)
Unipec (4 yrs)
PetroChina (3 yrs)
BP (5 yrs)
PetroChina (3 yrs)
24
R E CO R D G R O SS
P N G L N G P R O J E C T
SA L E S I N 2 0 1 9
111
lng cargoes
100 sold under contract,
11 on spot market
19
kutubu blend
cargoes
Comprising operated oil
production and Project
condensate
11
Naphtha
cargoes
KUMUL MARINE TERMINALPAPUA NEW GUINEAGulf of PapuaANGOREJUHAHIDESAGOGO PRODUCTION FACILITY
resulting in several wells being taken
offline to maintain reservoir pressure.
The Moran field was shut in due to
the mooring buoy damage, with
production resuming late in the
fourth quarter.
Repairs to facilities and wellpads in
the NW Moran region, which were
damaged by the earthquake, were
not possible during the year due to
tribal conflicts in the area, unrelated
to Oil Search activities. Oil Search
is targeting the resumption of
production from NW Moran late in
the second half of 2020, subject to
being able to access the area safely
and complete necessary repairs.
Gobe Main and SE Gobe production
declined 8% and 5%, respectively,
as the fields approach the end of their
life. The SE Gobe field contributed
1.5 bcf (net) of gas to PNG LNG
during the year.
The Hides GTE project, 100% owned
by Oil Search, produced 5.1 bcf of gas
and 96,338 barrels of liquids, up 27%
and 16%, respectively, as production
recovered from the 2018 earthquake.
This was despite the facility being
shut in for 27 days in April and June
due to vandalism of the power line
between the Barrick‑operated power
generation facility and the Porgera
mine site. Negotiations to extend the
Hides GTE contract with the Porgera
Joint Venture, which is due to expire
in 2021, have commenced.
PNG L NG PROJ ECT
PRODUCT ION R AT E (MT PA)
7.4
7.9
7.4
8.3
8.5
6.7
Nameplate
Capacity
6.9 MTPA
2H 2014
(ANNUALISED)
2015
2016
2017
2018
2019
The PNG LNG Project achieved record production of 8.5 MT (gross) in 2019
PNG LNG PROJECT
PARTICIPANTS
% INTEREST
O P E R A T E D O I L A N D G A S
P R O D U C T I O N
Oil Search’s net production from
operated PNG oil and gas fields was
2.95 mmboe, 6% lower than in the
previous year.
Net production from the Kutubu fields
fell 15% from 2018 levels. Production
was impacted by several planned
and unplanned outages at the
Central Processing Facility during
the first half of the year, a curtailment
of production to accommodate
repair work of the mooring buoy chain
and natural field decline.
Production from the Moran field was
57% lower than the prior year, with
output impacted by major repairs
at the Agogo Production Facility
following the 2018 earthquake,
ExxonMobil (operator)
Oil Search
Kumul Petroleum
(PNG Government)
Santos
JX Nippon
MRDC (PNG Landowners)
33.2
29.0
16.8
13.5
4.7
2.8
P N G L N G P R O J E C T B E N E F I TS
D I ST R I B U T I O N
Following the completion of the
Landowner Benefits Identification
(LOBID) process across most of the
licence areas in 2018, during 2019 the
PNG LNG Project partners worked
closely with the PNG Government to
complete LOBID for two outstanding
areas (PDLs 1 and 7).
Ministerial determinations for
both licences were gazetted in
March 2019 and good progress
has been made with the election
of Directors and Chairpersons
who will represent the identified
landowner groups in assisting with
the benefits distribution process.
LOBID for the few outstanding
licence areas is expected to be
finalised in the near‑term.
25
KUMUL MARINE TERMINALPAPUA NEW GUINEAGulf of PapuaANGOREJUHAHIDESAGOGO PRODUCTION FACILITY P R O D U C T I O N
P N G O I L F I E L D
O P T I M I S A T I O N
S T R A T E G Y
Oil Search has had encouraging initial
results from its multi‑year strategy
aimed at maximising oil recovery from
its maturing oil fields, prior to the
commencement of the Accelerated
Gas Expansion (AGX) project in the
mid‑2020s.
The workover of the IDT 21 well
at Kutubu was completed in the
first quarter and brought online in
April. The rig was then mobilised
to the Moran field, successfully
completing workovers of the M9 ST4
and M4 (gas injector) wells, which
commenced oil production and gas
injection, respectively, late in the year,
following the resumption of loading
at the offshore liquids loading facility.
Following the Moran workovers,
a sidetrack of the M15 ST1 well,
towards the south‑east of the
field, was successfully drilled and
intersected oil within the Toro
and Digimu sands. Production
commenced in December, with
initial flow rates of approximately
2,000 bopd.
O F F S H O R E L I Q U I D S
L O A D I N G B U O Y R E P A I R S
In late August, the mooring buoy at the Oil Search‑
operated offshore liquids loading facility at the
Kumul Marine Terminal in the Gulf of Papua was
observed to be listing. Further inspection identified
that a section of one of the six chains, which stabilise
the buoy during ship docking and loading, was
damaged. While a replacement chain was sourced,
for safety reasons, the Company restricted liquids
export operations, loading only on an ebb tide and
in suitable weather conditions. As a result, due to
the limited availability of onshore storage, Oil Search
temporarily shut‑in liquids production from the
Kutubu and Moran oil fields and the PNG LNG Project
operator, ExxonMobil, reduced Project production
rates for a short period of time, with priority access to
ullage and loading given to PNG LNG condensate.
During October, the damaged section of chain was
replaced. As a precaution, sections of the remaining
five chains were also replaced, to mitigate the risk of
any potential future chain failures.
Export restrictions were lifted fully in late October,
with Moran and Kutubu wells progressively
returned to service over November and December.
The swift and efficient response by Oil Search’s
recovery team resulted in the field impact being
minimised and production being restored well
ahead of initial expectations.
26
O I L S E A R C H A N N U A L R E P O R T 2 0 1 9
“Oil Search’s Biomass project
is designed to provide
domestic, low-emission
renewable energy to the
Ramu electricity grid.”
The final well of the programme, the
Usano (UDT 15) in‑fill development
well, successfully encountered
oil within the Toro sands, with
production commencing in early
2020 at very encouraging rates.
Further drilling and workover
opportunities have been identified,
including the IDT 26 development
well in the Kutubu field, which will
be drilled in the first half of 2020.
P O W E R D E V E L O P M E N T S
I N P N G
P N G B I O M ASS
Oil Search’s PNG Biomass project
is a renewable energy and sustainable
development project in the Markham
Valley in Morobe Province. It is
designed to provide domestic
low‑emission renewable energy to
the Ramu Grid through an inclusive
economic growth model that
empowers local communities.
Since entry into the Markham Valley
in 2011, PNG Biomass has placed
communities and landowners at the
core of its operations to ensure
they can benefit from the project.
For Oil Search, it underpins its
commitment to the sustainable
development of PNG.
The development comprises
a 30 MW power plant, utilising
integrated and dedicated sustainable
forestry plantations in the Markham
Valley to generate electricity for the
Ramu Grid. Basic engineering work
commenced in May 2019. FEED
phase tendering for major equipment
will occur shortly, with a Final
Investment Decision targeted for
mid‑2020. The project is in the
process of validation and registration
under the Gold Standard for the
Global Goals and has the potential
to develop approximately four million
tonnes of CO2 carbon offsets
over its life.
P O R T M O R E S BY
P OW E R STAT I O N
NiuPower Ltd, an entity held 50:50
by Oil Search and Kumul Petroleum,
completed the construction and
commissioning of the 58 MW Port
Moresby gas‑fired power station
in March 2019. The power station,
which is located adjacent to the
PNG LNG facility and fuelled by
gas sourced from the PNG LNG
Project, achieved a world‑class safety
performance during implementation.
In the fourth quarter of 2019,
NiuPower was granted a generation
licence by the PNG Government,
allowing for the commencement
of power sales to PNG Power
Limited. The power station is
currently supplying approximately
32 MW to the Port Moresby
electricity grid, with distribution
expected to increase to the 58 MW
capacity during 2020, following
the recent completion of a new
80 MW transmission line from
the power station to the grid.
27
P R O D U C T I O N
O P E R AT E D O I L A N D GAS F I E L D PA R T N E R S *
KUTUBU (PDL 2)
MORAN
(PDL 2, PDL 5
AND PDL 6)
GOBE MAIN
(PDL 4)
SE GOBE
(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%
21.4%
2.0%
100%
% INTERESTS
Oil Search
ExxonMobil
Barracuda Limited (Santos)
Merlin Petroleum Company (JX Nippon)
Kumul Petroleum (PNG Government)
Landowner interests
*Numbers may not add due to rounding.
2 0 1 9 P R O D U C T I O N S UM M A RY 1
Year to 31 December
GAS PRODUCTION
PNG LNG Project LNG2
PNG LNG Gas to Power3
Hides GTE Gas Production4
SE Gobe Gas to PNG LNG5
2019
2018
% Change
mmscf
110,768
598
5,088
1,470
mmscf
96,826
674
4,000
1,400
Total Gas
117,923
102,899
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
1.39
0.13
0.01
0.03
1.57
3.16
0.10
4.83
1.63
0.31
0.02
0.04
1.99
2.95
0.08
5.03
mmboe
27.95
mmboe
25.21
+14
-11
+27
+5
+15
-15
-57
-8
-5
-21
+7
+16
-4
+11
1. Numbers may not add due to rounding.
2. Production net of fuel, flare, shrinkage and SE Gobe wet gas.
3. Gas to power has 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 include approximately 2% unrecovered process gas.
5. SE Gobe wet gas reported at inlet to plant, including 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.
28
At full capacity, the plant can supply
approximately 75% of Port Moresby’s
daily average electricity requirements
and is the lowest cost hydrocarbon
fuelled source of power in the region.
Importantly, the facility, powered by
natural gas, provides a significantly
cleaner energy supply than the
heavy oil and diesel currently used
for the majority of Port Moresby’s
power generation needs.
This initiative underscores the
Company’s commitment to the
PNG Government’s strategic priority
to deliver competitively priced
power to more than 70% of the
population by 2030.
S A F E T Y P E R F O R M A N C E
The PNG Business Unit drilling team
achieved a recordable injury-free year
which was a pleasing result. However,
unfortunately the Company had
eight recordable injuries relating to
the PNG seismic programme, three
marine-related incidents and several
other incidents involving contractor
management and supervision.
This drove an increase in the Total
Recordable Injury Rate (TRIR) from
1.58 to 1.70 in 2019.
Numerous initiatives were
undertaken to address the weaker
safety performance, including a
mid-year safety summit in PNG and
improved governance processes
of land transportation, marine and
aviation activities.
The Company recorded one Tier
1 and four Tier 2 process safety
events (PSEs) during the year, up
from zero and three respectively in
2018. Two of the Tier 2 events related
to ‘return to service’ operations
following the earthquake. Due to the
increase in number of PSEs during
the second quarter, a Process Safety
Taskforce was established to drive
improvement, with positive results
seen in the second half of the year.
During the second year of operations
on the Alaska North Slope, no PSEs
were recorded in Alaska.
In a commitment to minimising
exposure to high risk activities,
Oil Search’s high potential incident
frequency rate (events with potentially
fatal consequences) fell from 1.11
in 2018 to 0.72.
2 0 2 0 O U T L O O K
U Maintain focus on safe and reliable operations,
minimising downtime, maximising throughput
and improving both personal and process safety.
U Mature the oil field optimisation programme,
including drilling the IDT 26 development well
in the Kutubu field in 2020.
U Undertake a coil tubing programme to increase
production and achieve greater well reliability.
The Company expects operated oil and gas
production to increase in 2020. Output will benefit
from contributions from the workover and infill wells
drilled in 2019 and planned activities in 2020, which
are anticipated to mitigate natural field decline.
Subject to access to the NW Moran area and repairs
to damaged facilities and wellpads, production from
this area is expected to recommence in late 2020.
U Complete repairs to earthquake‑damaged flowlines
and well pads at NW Moran, subject to the status
with the local communities.
2020 PRODUCTION GUIDANCE1
Oil Search-operated PNG oil and gas
(mmboe)2,3
3 – 5
P R O D U C T I O N G U I D A N C E F O R 2 0 2 0
Oil Search’s 2020 full year production is anticipated
to be in the range of 27.5 – 29.5 mmboe.
PNG LNG production rates in 2020 will be impacted
by major scheduled maintenance at both the Hides Gas
Conditioning Plant and the LNG plant in Port Moresby,
with further major maintenance work at the LNG plant
scheduled for 2021.
PNG LNG Project:
LNG (bcf)
Power (bcf)
Liquids (mmbbl)
108 – 110
1 – 2
2.9 – 3.2
Total PNG LNG Project (mmboe)2
24 – 25
Total production (mmboe)
27.5 – 29.5
1. Numbers may not add due to rounding.
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 exported to the PNG LNG Project
(OSH – 22.34%).
29
OIL SEARCH ANNUAL REPORT 2019 G A S D E V E L O P M E N T
During 2019, Oil Search
and its joint venture
partners continued to
progress the proposed
approximately 8 MTPA,
three-train integrated LNG
expansion projects in PNG.
Several major milestones
were achieved, but,
disappointingly, agreement
was not reached with the
State on terms for the
P’nyang Gas Agreement.
Oil Search believes the
development of P’nyang
through the three-train
development is the optimal
outcome and is encouraging
ongoing dialogue with
the State.
O V E R V I E W
The PNG LNG Project, PRL 15 (Papua)
and PRL 3 (P’nyang) joint ventures
have dedicated the last three years
to maturing a three‑train brownfield
LNG expansion in PNG. The
development concept includes the
construction of three new LNG trains,
with a total capacity of approximately
8 MTPA, located on the PNG
LNG plant site, thereby utilising
existing downstream infrastructure.
Extensive studies have confirmed
that this is the most efficient way of
expanding LNG capacity in PNG.
It will deliver significant construction
and operating cost savings that will
benefit all stakeholders, including
the Government and people of PNG.
Two trains will source gas from the
Elk‑Antelope (Papua LNG) fields and
one train will be supplied with gas
initially from the existing PNG LNG
fields (supported by the Oil Search‑
operated AGX project), prior to the
commencement of gas production
from the P’nyang field.
During 2019, key commercial
terms between the Papua LNG and
PNG LNG joint venture partners
were largely finalised, including
the payment mechanism for Papua
LNG to utilise the existing PNG LNG
downstream infrastructure. In April,
agreement was also reached with
the PNG Government on the Papua
LNG Gas Agreement, which provided
material extra benefits to the State.
Following a change to the
Government leadership team in May,
the new PNG Cabinet, led by Prime
Minister, the Hon. James Marape,
conducted a review of the Papua LNG
Gas Agreement. In September,
the terms of the original agreement
were validated. Negotiations on the
P’nyang Gas Agreement, which will
allow the three‑train expansion to
proceed, then resumed.
30
31
OIL SEARCH ANNUAL REPORT 2020 P’NYANG
MURUK
HIDES
JUHA
HIDES GAS CONDITIONING PLANT
ANGORE
MORAN
AGOGO
KUTUBU
AGOGO PRODUCTION FACILITY
AUSTRALIA
CENTRAL PROCESSING FACILITY
GOBE MAIN
SE GOBE
GOBE PROCESSING FACILITY
KIMU
BARIKEWA
PAPUA NEW GUINEA
ELK-ANTELOPE
URAMU
KUMUL MARINE
TERMINAL
Gulf of Papua
PNG LNG PLANT
PORT MORESBY
SOURCE OF GAS FOR NEW LNG CAPACITY
Unfortunately, despite lengthy talks,
an agreement could not be reached
on the appropriate split of value and
benefits of the P’nyang development,
with the State’s proposed terms
resulting in a sub‑economic return for
the project proponents. Negotiations
on the P’nyang Gas Agreement were
subsequently suspended by the State
on 31 January 2020.
The expansion joint venture
partners believe that developing the
P’nyang field through the proposed
three‑train development is the
optimal development outcome
for all stakeholders. Oil Search is
encouraging ongoing dialogue
with the PNG Government, aimed
at finalising P’nyang Gas Agreement
terms that deliver an equitable split
of project value.
C O M P L E T I O N O F P A P U A
G A S A G R E E M E N T
In April 2019, the PRL 15 Joint Venture
and PNG Government signed a
milestone gas agreement for the
Papua LNG Project with the PNG
Government, led by then Prime
Minister, the Hon. Peter O’Neill.
The Papua LNG Gas Agreement,
which comprises the fiscal
arrangements and other key terms
and conditions that will apply to the
development, was finalised after
more than 12 months of detailed
negotiations. The agreement
provided a range of additional
benefits to the State, including:
X An additional 2% tax
on production.
X A Domestic Market Obligation
(DMO) of up to 5%, ensuring gas
from the Papua LNG fields will be
available for local consumption at
a competitive fixed price.
32
X An enhanced National
Content plan, to drive the
socio‑economic development
of local communities impacted
by the project.
X A deferred payment mechanism
to support funding of the
Government’s share of past
development costs. This will
ease the upfront financial burden
associated with the Government
option to acquire a 22.5% interest
in the Papua LNG Project.
Following a change in the PNG
Government leadership team in late
May, the newly appointed Cabinet,
led by Prime Minister, the Hon. James
Marape, commenced a review of
the Papua LNG Gas Agreement. The
review was completed in September,
with the PNG Cabinet validating the
agreement signed by the O’Neill
Government in April. Ten legislative
changes required by the Papua LNG
Gas Agreement were passed by
OIL PIPELINECONDENSATE PIPELINEGAS PIPELINEFACILITIESLEGENDPOTENTIAL SOURCES OF GAS FOR NEW LNG TRAINSSOURCES OF GAS FOR NEW LNG TRAINSEXISTING OIL AND GAS FIELDSEXISTING GAS FIELDSOIL PIPELINECONDENSATE PIPELINEGAS PIPELINEFACILITIESLEGENDPOTENTIAL SOURCES OF GAS FOR NEW LNG TRAINSSOURCES OF GAS FOR NEW LNG TRAINSEXISTING GAS FIELDSPROPOSED GAS PIPELINE P’NYANG
MURUK
HIDES
JUHA
HIDES GAS CONDITIONING PLANT
ANGORE
MORAN
AGOGO
KUTUBU
AGOGO PRODUCTION FACILITY
CENTRAL PROCESSING FACILITY
GOBE MAIN
SE GOBE
GOBE PROCESSING FACILITY
KIMU
BARIKEWA
ELK-ANTELOPE
URAMU
KUMUL MARINE
TERMINAL
PNG LNG PLANT
PORT MORESBY
O I L S E A R C H A N N U A L R E P O R T 2 0 2 0
the PNG Parliament in October, with
further amendments planned to be
made in 2020.
The FEED contractor selection for the
upstream component of the Papua
LNG development commenced
shortly after the Gas Agreement
was ratified and competitive bids
were received.
T E R M S F O R P ’ N Y A N G
G A S A G R E E M E N T Y E T
T O B E F I N A L I S E D
Following completion of the
State’s review of the Papua LNG
Gas Agreement terms, discussions
resumed with the PNG Government’s
State Negotiating Team on the
P’nyang Gas Agreement. Despite
intense negotiations, led by operator,
ExxonMobil, agreement could not be
reached with the PNG Government
on the appropriate balance of value
and benefits distribution for the
project. Under the terms proposed
by the PNG Government, Oil Search
would not generate a rate of return
above its cost of capital and the
project would be unable to secure
sufficient project finance. Formal
negotiations on the P’nyang Gas
Agreement were suspended at the
end of January 2020.
Oil Search remains open to ongoing
dialogue with the PNG Government
during 2020. The Company is hopeful
that terms for the P’nyang field can be
agreed, to deliver an outcome that
is fair and reasonable for the State,
landowners and the people of PNG,
while ensuring that P’nyang is an
investable and financeable project
for the joint venture. Oil Search is
committed to achieving a fair and
responsible balance, to ensure the
long‑term viability of the project.
C O M M E R C I A L
A G R E E M E N T S
A D V A N C E D
During 2019, the PRL 15 Joint Venture
advanced all the key commercial
agreements required for the three‑
train LNG expansion:
X A Joint Venture Operating
Agreement, governing the
development and operating
phase of the Papua LNG
Project, was executed.
X Three agreements ‑ the Facilities
Access Agreement, Downstream
Operations and Cooperation
Agreement and Cost
Sharing Agreement ‑ which
collectively underpin Papua
LNG’s access to existing PNG
LNG Project infrastructure,
were largely completed.
X Negotiations advanced on
a Lifting and Tank Balancing
agreement between the
respective Joint Ventures.
This agreement regulates LNG
cargo liftings for the two existing
LNG trains and the planned new
trains, including ship scheduling
and resourcing.
The PRL 3 (P’nyang) Joint Venture
signed a binding Letter of Intent
with Santos, under which Santos will
acquire a 14.32% equity interest in PRL
3 from existing participants, including
a 1.65% interest from Oil Search
(pre‑State back in) for US$21.6 million.
This delivers a similar ownership
structure in PRL 3 and the PNG
LNG Joint Venture, strengthening
alignment between the parties.
33
33
P R E - F E E D W O R K
W E L L A D V A N C E D
In addition to the substantial
engineering and other pre‑FEED
work that took place during the year,
the basis of design for the integrated
three‑train downstream facilities and
Papua LNG upstream facilities was
largely completed, while permitting
and regulatory approval strategies
were matured.
Substantial work also took place on
environmental and social studies in
PRL 15, with an Environmental Impact
Statement submitted to the PNG
Conservation and Environmental
Protection Authority at the
end of 2019.
At PRL 3, early project definition
studies took place. In addition,
pre‑FEED work was largely completed
on the Associated Gas Expansion
project (AGX). This project, operated
by Oil Search, will increase the
capacity of the CPF and APF facilities
and enable the early tie‑in of the
APF to the PNG LNG infrastructure.
This will allow gas delivery from
the Kutubu, Agogo and Moran
fields to be accelerated to the PNG
G A S D E V E L O P M E N T
LNG/P’nyang expansion train, ahead
of the development of the P’nyang
field. As a low‑cost source of gas,
the AGX project allows for capital
optimisation and strengthens the
economics of the PNG LNG/P’nyang
LNG train and returns to the PNG
Government. Following an extensive
screening process, the preferred AGX
development concept for FEED entry
was selected, while subsurface and
facilities engineering work continued
in preparation for FEED award. This
included the technical design of
additional wells and workovers on
the Kutubu, Agogo and Moran fields,
together with required upgrades
at both the CPF and APF to achieve
higher processing capacity.
L N G M A R K E T I N G
O N G O I N G
Oil Search continued to engage with
LNG customers for its approximately
1.8 MTPA equity share of LNG from
the proposed new LNG trains.
Interest from established end‑users,
international oil and gas companies
and traders remains strong due to the
PNG LNG Project’s distinctive value
proposition as a reliable producer
L NG DE M A N D OU T LO OK
and seller of high heating value
LNG suitable for Asian reticulation
networks. This point of difference
has increased as the global supply
of rich LNG has declined as a
proportion of total supply. LNG from
PNG also benefits from competitive
shipping economics into North
Asian markets and a lower delivery
risk profile, avoiding shipping
pinch points such as the Panama
Canal and the Straits of Hormuz.
Notably, the central theme of the
Japanese Government’s Ministry of
Economy, Trade and Industry (METI)
Producer – Consumer Conference
in 2019 focused on reducing Japan’s
reliance on energy products from
the Middle East.
Buyers regard Oil Search as a new,
independent supplier in a dynamic
LNG market, increasingly influenced
and dominated by a small number
of large national and international oil
companies. At a time of increasing
portfolio sales, buyers and end‑users
support Oil Search as a point‑to‑point
seller of rich LNG from Papua LNG
and the PNG LNG expansion train.
700
600
500
400
A
P
T
M
300
200
100
0
2015
2020
2025
Japan, Korea, Taiwan
Japan, Korea, Taiwan
China
Emerging Asia
Europe
China
Emerging Asia
Europe
Other
Global LNG Supply
2030
Other
2035
Global LNG Supply
NOTES: Data interpreted from IHS Markit.
Global LNG supply includes projects that are operational and under construction.
34
L N G M A R K E T O U T L O O K
The LNG market continued to grow
in 2019, with demand increasing by
13% on the previous year, to 360 MT.
In the Asian region, government
policies continued to incentivise
the switch to gas.
Increasing demand spurred record
investment in LNG infrastructure in
2019, with 70 MTPA of new LNG
capacity sanctioned, led by new
developments in the US, Russia
and Mozambique. Traditionally,
projects have secured long‑term
contracts to underpin their Final
Investment Decisions. However, in
2019, 37 MTPA of new LNG capacity
was sanctioned without associated
long‑term contracts in place. This
paradigm shift, where producers take
open volume and price risk to position
themselves favourably for anticipated
future demand, is evidence of LNG’s
increasing commoditisation. It also
highlights the market’s confidence in
the ongoing role of LNG as a baseload
and bridging fuel in the global
energy complex. A consequence
of the larger LNG spot market has
been significantly more LNG spot
price volatility. In 2019, buyers also
endeavoured to increase their reliance
on spot procurement, particularly
when spot LNG prices dipped below
long‑term oil‑linked contract prices.
E X PI R I NG NORT H A SI A N CON T R ACTS
100
l
e
v
i
t
a
u
m
u
C
A
P
T
M
50
0
2020
2025
2030
Very Rich >1,100 Btu/scf
Very Rich >1,100 Btu/scf
Rich 1,050-1,100 Btu/scf
Rich 1,050‑1,100 Btu/scf
Lean 1,000-1,050 Btu/scf
Lean 1,000‑1,050 Btu/scf
NOTE: Data interpreted from IHS Markit.
Looking forward, it is anticipated
that environmental drivers will
support the continued growth of
LNG demand, which is forecast to
increase by more than 4% per annum
through to 2030. Consequently, it is
expected that additional liquefaction
capacity of approximately 110 MTPA
(above those projects currently
operational and under construction)
will be required by 2030. In addition,
approximately 90 MTPA of contracts
with North Asia1 will expire by
2030. Approximately 55 MTPA of
these contracts are from projects
with declining reserves of very
rich LNG. Oil Search expects this
supply is unlikely to be recontracted
with existing suppliers or, if it is,
it will be at lower volumes.
While competition remains strong,
with multiple proposed LNG projects
already sanctioned or poised to enter
FEED, the LNG expansion projects
in PNG remain uniquely positioned
to capture markets, due to PNG’s
strong track record of reliable
delivery of high heating value gas
and its proximity to Asian buyers.
2 0 2 0 O U T L O O K
X Agree terms for the P’nyang Gas Agreement with
the PNG Government, execute all commercial
agreements and enter the FEED phase of the
proposed three‑train LNG expansion.
X Continue to engage with LNG buyers for Oil Search’s
equity share of LNG from the LNG expansion projects
and enter into Heads of Agreement on LNG offtake.
1 North Asia = Japan, South Korea, China and Taiwan
35
OIL SEARCH ANNUAL REPORT 2020
P N G E X P LO R AT I O N
A N D A P P R A I S A L
After four years of strategic
acquisitions and farm-ins,
in 2019, Oil Search focused
on maturing its PNG
exploration portfolio.
The Company drilled two
exploration/appraisal wells
in the NW Highlands and
Central Foldbelt and acquired
more than 200 kilometres of
seismic, making it by far the
most active explorer in PNG
over the year.
P N G E X P LO R AT I O N
P O R T FO L I O
Oil Search’s exploration portfolio
in PNG is concentrated in four
highly prospective areas – the
NW Highlands, Central Foldbelt,
Eastern Foldbelt/Onshore Gulf
and the Deep‑water Gulf.
The Company estimates its
licences hold significant volumes
of gas, condensate and oil yet to
be discovered. Most of the leads
and prospects in its acreage are
extensions of proven hydrocarbon
plays, increasing the chance of
geological success. In addition, the
majority of the Company’s prospect
inventory is strategically located
near existing and planned LNG
infrastructure, ensuring that even
modest discoveries have the potential
to be commercially viable.
Oil Search’s exploration strategy is
to prioritise activities that create the
most value. As such, the Company
is targeting, at the appropriate time,
gas opportunities which have the
potential to add material backfill gas
for existing LNG facilities and those
that strengthen LNG expansion
economics or can underpin additional
LNG trains. In addition, subject to
the oil price, investments are being
made in activities designed to extend
the production life of the Company’s
maturing oil fields and consequently
defer abandonment costs. Limited
permit commitments within the
Company’s portfolio allow Oil Search
the flexibility to allocate capital to the
highest quality prospects.
Near‑term activities are likely to be
lower than in previous years, until the
PNG Government’s proposed review
of the Oil and Gas Act is completed.
36
37
OIL SEARCH ANNUAL REPORT 2020 OIL SEARCH’S EXPLORATION PORTFOLIO IN PNG
HAS SIGN I FICA N T H Y DRO CA R BON POTENTIAL
2 0 1 9 E X P L O R A T I O N
A C T I V I T I E S
N W H I G H L A N DS
During the year, the Muruk 2
appraisal well in PDL 9 (Oil Search
24.4%), which commenced drilling
in November 2018, was completed.
The objective of the well, located
12 kilometres northwest of the Muruk
1 gas discovery in PPL 402 (Oil Search
37.5%), was to reduce structural and
reservoir uncertainty and prove up the
extent of resource volumes within the
Muruk field.
Muruk 2 discovered gas with a
similar chemical composition
to Muruk 1. Pressure and well
testing proved that Muruk 2 is
in communication with Muruk 1.
However, the reservoir at the Muruk
2 location was encountered deeper
than expected. Testing of flow rates
was impacted by drilling‑induced
damage caused by mud and fluid
losses into the reservoir.
Based on the flow results, reservoir
modelling and pressure build up
data gathered to date, Oil Search
estimates that gross 1C and 2C
contingent recoverable gas resources
for the Muruk field are 453 and
843 bcf, respectively (114 and 211 bcf,
respectively, on a net basis). Gross 1C
contingent resources have increased
by 249% compared to initial estimates
following the drilling of Muruk 1
in early 2017, while the gross 2C
contingent gas resources have
increased by 23%.
The Company recently commenced
a 2D seismic survey over the field
and adjacent prospects, with
approximately 100 kilometres of
data planned to be acquired in 2020.
The survey will supplement seismic
data acquired in 2017 and enhance
structural definition. This data will
assist the Company to better assess
in‑place resources.
As Muruk 1 is located only
20 kilometres from the nearest Hides
producing well, the current resource
range has the potential to underwrite
commercial production, either to
support the PNG LNG Project or
an additional LNG train.
C E N T R A L F O L D B E LT
In late 2019, Oil Search commenced
drilling the Gobe Footwall 1
exploration well (Oil Search 65.5%)
in PDL 4, targeting a footwall structure
immediately west of the Gobe Main
field. To minimise capital outlay, the
38
CENTRAL FOLD BELTPDL 9 - Muruk 2HIDES GAS CONDITIONING PLANTKUMUL MARINE TERMINALCENTRAL PROCESSING FACILITYAGOGO GOBE PROCESSING FACILITYPORT MORESBYPNG LNG PLANTEASTERN FOLDBELT/ONSHORE GULFNW HIGHLANDSOFFSHORE PAPUAN GULF SHALLOW AND DEEP WATEROIL PIPELINECONDENSATE PIPELINEGAS PIPELINEFACILITIESLEGENDOSH INTERESTOSH OPERATED PRODUCTION FACILITY O I L S E A R C H A N N U A L R E P O R T 2 0 2 0
in 2020, in line with the Company’s
capital allocation strategy.
help the joint venture define an
exploration drilling schedule.
D E E P- WAT E R G U L F
During 2019, further work took
place on interpreting the extensive
2D seismic data acquired over Oil
Search’s deep‑water exploration
acreage in 2017. A 3D seismic survey
over the area commenced in the first
quarter of 2020, which will constrain
several large prospects defined by
the initial 2D survey.
E A S T E R N F O L D B E LT/
O N S H O R E G U L F
In mid‑2019, Oil Search completed
the second phase of a 2D seismic
acquisition programme, spanning
220 kilometres over PPLs 475 and
476, located in the Eastern Foldbelt/
Onshore Gulf. The seismic was
undertaken on behalf of the operator,
ExxonMobil, and follows promising
leads generated from the first
330 kilometre survey acquired over
these licences in 2018.
Provisional interpretation of the data
acquired has highlighted several
encouraging features, meriting further
investigation. Additional seismic will
be acquired, to mature identified
leads and prospects located near the
proposed Papua LNG infrastructure.
Subject to the results, the data will
well utilised an existing well pad in the
Gobe Main field, following a deviated
pathway around the hanging wall
to the footwall.
The objective of the well was to
deliver near term, value accretive
production through the existing Gobe
facilities, extending the production
life of the Gobe field and deferring
abandonment activities.
In early 2020, the well successfully
intersected the target Toro and Iagifu
reservoirs as planned. However,
based on analysis of samples,
pressure readings and logs acquired,
both reservoirs were found to be
water bearing, with minor oil shows.
Additional exploration prospects
have been identified adjacent to
existing oil production facilities.
The timing of the drilling of these
prospects will be further assessed
2 0 2 0 O U T L O O K
X Complete 2D seismic acquisition in the NW
Highlands and commence Eastern Foldbelt
seismic acquisition.
X Mature the Eastern Foldbelt prospect inventory
to prepare for a potential future drilling programme.
X Further mature the Central Foldbelt portfolio.
X Acquire and interpret deep‑water 3D seismic
and assess the potential for future drilling.
39
CENTRAL FOLD BELTPDL 9 - Muruk 2HIDES GAS CONDITIONING PLANTKUMUL MARINE TERMINALCENTRAL PROCESSING FACILITYAGOGO GOBE PROCESSING FACILITYPORT MORESBYPNG LNG PLANTEASTERN FOLDBELT/ONSHORE GULFNW HIGHLANDSOFFSHORE PAPUAN GULF SHALLOW AND DEEP WATEROIL PIPELINECONDENSATE PIPELINEGAS PIPELINEFACILITIESLEGENDOSH INTERESTOSH OPERATED PRODUCTION FACILITY A L A S K A
N O R T H S L O P E
In early 2019, Oil Search
completed its inaugural
Alaskan appraisal drilling
programme. A detailed
analysis of data gathered
over the year resulted in a
46% increase in gross 2C
oil resources. Following this
material upgrade and with
all necessary government
and community approvals in
place, Front-end Engineering
and Design (FEED)
activities on the Pikka Unit
Development commenced
in early 2020, with a Final
Investment Decision targeted
for the second half of 2020.
I N A U G U R A L A L A S K A N
D R I L L I N G P R O G R A M M E
S U C C E S S F U L L Y
C O M P L E T E D
In April 2019, Oil Search concluded
its first Alaskan North Slope appraisal
drilling programme. The two‑rig,
two well drilling campaign in the
Pikka Unit was completed without
any recordable injuries and within
budget, a commendable result given
the challenging Arctic conditions and
short winter drilling season.
The Company drilled two wells,
Pikka B and Pikka C, each comprising
a vertical hole and a side‑track.
All four reservoir penetrations
intersected hydrocarbons within
the targeted Nanushuk Formation.
The objectives of the Pikka B appraisal
well were to improve resource
definition in the southern end of
the fairway and establish reservoir
deliverability. The well successfully
intersected hydrocarbons in the
thickest Nanushuk reservoir section
encountered to date within the Pikka
Unit. The well flowed at a stabilised
rate of 2,410 bopd, with testing
restricted by equipment limitations.
Pikka C was aimed at reducing
uncertainty of reservoir deliverability
in the northern part of the field. The
well was designed as a prototype
for future development learnings
and included six stimulation stages
in a 1,158 metre (3,800‑foot)
lateral section. The well achieved
a stabilised flow rate of 800 bopd.
While the reservoir characteristics at
Pikka C well were broadly in line with
pre‑drill expectations, the flow test
was impacted by technical issues.
Lessons learned from the well have
been incorporated into the 2019/20
drilling programme.
Having achieved the programme’s
key objectives, both wells were
plugged and abandoned, with the
rigs safely demobilised.
40
“Wisdom inspires quae nq temporion plitiis acest officid es et quos
ius rerati omnihilit ommost quae niam qui temporion plitiis acest
officid es et quos ius rerati omnihilit ommost quae niam”
41
OIL SEARCH ANNUAL REPORT 2019 A L A S K A N O R T H S L O P E
“Pikka B appraisal
well, located on the
Alaska North Slope.”
https://www.dropbox.com/sh/uzmgic7eqr33avt/AABqZ9aeFa8PGLmqNprklbRla?dl=0
M A J O R R E S O U R C E
U P G R A D E
During 2019, Oil Search evaluated
the data gathered from the two Pikka
wells drilled in the 2018/19 appraisal
drilling programme and information
obtained through data trades from
wells adjacent to the Pikka Unit. In
addition, new reservoir maps resulting
from the merging and reprocessing
of several 3D seismic data sets were
integrated into Oil Search’s reservoir
models. The new data provided
clearer images of the Nanushuk
reservoir across the Pikka Unit and
an improved understanding of oil
recovery mechanisms.
This work underpinned a material
increase in Oil Search’s estimate
of the contingent resources in the
Pikka Unit Development, which was
reviewed and validated by Ryder
Scott Company, L.P., an independent
resource expert.
Ryder Scott’s certified 2C contingent
recoverable oil resources are
371 million barrels net to Oil
Search, or 728 million barrels on a
gross basis. The certified gross 2C
contingent resource is 46% higher
than Oil Search’s estimate of gross
2C contingent resources when the
Company acquired the interest in
late 2017.
The revised resource estimates are
based on the current Pikka Unit
development plan and do not include
several reservoirs within the Pikka
Unit and field extensions outside
the Unit that may be developed,
or other discovered resources that
potentially could be tied into the
development in the future. Work has
commenced on the evaluation of
these additional resources.
42
42
46%
upgrade in gross 2C
contingent oil resources
for the Pikka Unit, certified
by independent auditor,
Ryder Scott.
THETIS
PIKKA NORTH
HARRISON BAY
MILNE
POINT
ALPINE
KUPARUK RIVER
MITQUQ 1
PRUDHOE BAY
NUIQSUT
MITQUQ
ANTIGUA
Beaufort Sea
PRUDHOE
BAY
DEADHORSE
POINT THOMSON
WILLOW
OIL DISCOVERY
STIRRUP 1
HORSESHOE
ATLAS
A
ATLAS
B
KACHEMACH
GRIZZLY
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
SUPPLY BASE
EXPLORATION
PIKKA DEVELOPMENT
OIL FIELD
OIL PIPELINE
PIKKA UNIT
https://www.dropbox.com/sh/uzmgic7eqr33avt/AABqZ9aeFa8PGLmqNprklbRla?dl=0
M A J O R P R O G R E S S
O N P I K K A U N I T
D E V E L O P M E N T
In addition to the material resource
upgrade, substantial progress was
made on the Pikka Unit development
plan over the year.
In May 2019, Oil Search received
a permit and Record of Decision
(ROD) for the Pikka Unit development
from the United States Army Corps
of Engineers. The ROD confirmed
support for the Company’s proposed
infrastructure and environmental plan
and marked a significant step forward
for the project.
The granting of the permit
represented the conclusion of a
multi‑year evaluation process and
completion of an Environmental
Impact Statement. Prior to finalising
its development plan, the Company
worked closely with the communities
of Nuiqsut and Utqiagvik, to help
identify and address potential effects
of the project on their communities
and way of life. As a result, more than
20 amendments were made to the
original project plan prior to its final
submission.
The approved development plan
includes the following:
X Up to three drill sites for
production and injection wells.
X A central processing facility.
X An operations centre with a camp
plus office, warehouse and
maintenance facilities.
X Approximately 40 kilometres
(25 miles) of roads.
X Two bridges.
X Approximately 56 kilometres
(35 miles) of pipeline rights
of way.
ALASKA NORTH SLOPE LEASE POSITION
ALASKA
CANADA
THETIS
PIKKA NORTH
HARRISON BAY
MILNE
POINT
ALPINE
KUPARUK RIVER
MITQUQ 1
PRUDHOE BAY
NUIQSUT
MITQUQ
ANTIGUA
Beaufort Sea
PRUDHOE
BAY
DEADHORSE
POINT THOMSON
HORSESHOE
ATLAS
A
ATLAS
B
KACHEMACH
GRIZZLY
HUE
SHALE
EAST OF HUE
LEGEND
SETTLEMENT
SUPPLY BASE
EXPLORATION
PIKKA DEVELOPMENT
OIL FIELD
OIL PIPELINE
T
R
A
N
S
-
A
L
A
S
K
A
P
I
P
E
L
I
N
E
43
WILLOW
OIL DISCOVERY
STIRRUP 1
OIL SEARCH ANNUAL REPORT 2019PIKKA UNIT A L A S K A N O R T H S L O P E
During the year, Oil Search revised
the Pikka Unit development plan to
enhance value and reduce risk. The
Company undertook a major value
engineering exercise, with several key
design optimisations incorporated
into the planned development.
The Pikka Unit Development is now
targeting initial production in late
2022 from an Early Production System
(EPS) at rates of up to 30,000 barrels
of oil per day (bopd) from the Pikka
ND‑B drill site. The planned full field
development (FFD) includes the
construction of a new standalone
central processing facility and
associated infrastructure, with more
than 100 wells from three drill sites.
Production from the FFD is projected
to commence in 2025 with a plateau
production rate of up to 135,000
bopd. The phased development
approach will allow the Company to
incorporate learnings from the EPS,
in particular optimising drilling and
well completions, into the FFD.
In December, the North Slope
Borough Assembly approved Oil
Search’s Master Re‑zoning Plan for the
project and amended zoning maps to
allow for construction of Pikka gravel
roads and pads.
E A R LY PRODUCT ION SYST E M
BOAT RAMP PARKING AREA
ND-A
TIE-IN PAD
G&I
NDB-to-NPF Pipelines
NDA-to-NPF PIPELINES
Turnout with
Tundra Access
Ramp
MC7903
NPF-TIP PIPELINES
Make-up Water/Water Injection Pipeline
Make-up Gas Line
Multiphase Pipeline
INFIELD ROADS
NPF
PUMP HOUSE PAD
FRESHWATER PIPELINE
Miluveach
River Crossing
Turnout
NOP
NDC-to-NPF PIPELINES
ACCESS ROAD
Turnout
Turnout
Mustang Mine Site
(BRPC)
to Tie-In Pad
MUSTANG ROAD UPGRADES
BOAT RAMP
L9211
ND-B
NDB-to-NPF Infield Pipelines
Multiphase Pipeline
Water Injection Pipeline
Gas Injection Pipeline
Gas Lift Pipeline (Not in Use)
Kachemach
River Crossing
ND-C
Turnout with
Tundra Access
Ramp
Turnout with
Tundra Access
Ramp
Proposed
Gravel Roads/Pads
Existing
Gravel Roads/Pads
Fiber Optic/Power Cables
Fiber Optic
Existing Pipeline
Freshwater Withdrawal Pipeline
FU L L FI E L D DEV E LOPM E N T
ND-A
NDB-to-NPF PIPELINES
NDA-to-NPF Infield Pipelines
Multiphase Pipeline
Water Injection Pipeline
Gas Injection Pipeline
Gas Lift Pipeline
NDA-to-NPF PIPELINES
BOAT RAMP PARKING AREA
BOAT RAMP
G&I
L9211
ND-B
OIL SEARC H ALASKA LLC .
PIKKA DEVELOPMENT
EARLY PRODUCTION SCENARIO
Project L ocation
DATE: 02/05/2020
TIE-IN PAD
Turnout with
Tundra Access
Ramp
Turnout with
Tundra Access
Ramp
INFIELD ROADS
NPF
Turnout with
Tundra Access
Ramp
MC7903
PUMP HOUSE PAD
FRESHWATER PIPELINE
NPF-TIP PIPELINES
Miluveach
River Crossing
Turnout
NOP
NDC-to-NPF
PIPELINES
NDC-to-NPF Infield Pipelines
Multiphase Pipeline
Water Injection Pipeline
Gas Injection Pipeline
Gas Lift Pipeline
Turnout
Turnout
ACCESS ROAD
NPF-TIP Pipelines
Make-up Water Pipeline
Make-Up Gas Line
Multiphase/Sales Oil Export Pipeline
Mustang Mine Site
(BRPC)
to Tie-In Pad
MUSTANG ROAD UPGRADES
Proposed
Gravel Roads/Pads
Existing
Gravel Roads/Pads
Fiber Optic/Power Cables
Freshwater Withdrawal Pipeline
Fiber Optic
Existing Pipeline
OIL SEARC H ALASKA LLC .
PIKKA DEVELOPMENT
PERMANENT DEVELOPMENT SCENARIO
Project L ocation
44
DATE: 02/05/2020
NDB-to-NPF Infield Pipelines
Multiphase Pipeline
Water Injection Pipeline
Gas Injection Pipeline
Gas Lift Pipeline
Kachemach
River Crossing
ND-C
B U I L D I N G A L A S K A N
C A P A B I L I T Y
Oil Search continued to build a world‑class team of staff
and contractors in Alaska during 2019, to support the
delivery of the Pikka Unit Development and ongoing
exploration activity. By the end of 2019, the Alaskan
team had grown to 127 employees and 32 direct
contract workers, a 160% increase from the prior year,
with significant prior experience operating on the
North Slope.
In April 2019, Oil Search engaged a third party
to conduct a review of the Alaska Business Unit’s
organisational design, to ensure the business is
fit‑for‑purpose and compares well relative to other high
performing companies. The aim was to ensure that the
full potential of the talent that exists within the business
is realised, that the Business Unit’s structure
is flexible and scalable and that it is able to execute
to a consistently high standard. Additionally, assurance
was required that the organisation was ready for the
Pikka Unit Development FID and capable of delivering
an industry‑leading major project.
The review process was executed over an eight‑week
period and included multiple interviews, workshops
and benchmarking.
Based on an analysis of the data gathered from the
review, several optimisation opportunities were
identified and implemented. Oil Search believes that
the Alaska Business Unit is well positioned to deliver
the Pikka Unit Development and the many additional
growth opportunities identified.
45
OIL SEARCH ANNUAL REPORT 2019 A L A S K A N O R T H S L O P E
Signing ceremony for the Land Use Agreement with Kuukpik Corporation
M O V I N G I N T O F E E D
In early 2020, Oil Search and
partner Repsol commenced Front‑
end Engineering and Design
(FEED) activities on the Pikka Unit
Development. The Joint Venture
plans to use best practices and apply
the latest technologies to develop
the field, including employing high
resolution petrophysics, geophysics,
static and dynamic reservoir
models, water flood and miscible
gas enhanced oil recovery (EOR)
at start‑up to maximise recovery.
Oil Search is also assessing the
use of AI/machine learning for
production optimisation. All facilities
will be designed to minimise the
environmental footprint and ensure
safe and reliable operations in
the remote area where the field is
located. The Company will continue
to evaluate further enhancements,
to optimise long term recovery and
operational efficiency.
E X E R C I S E O F T H E
A R M S T R O N G /
G M T O P T I O N A N D
A L I G N M E N T O F
I N T E R E S T S W I T H
R E P S O L
In June 2019, based on the
encouraging drilling results and
major progress on the Pikka Unit
development plan, Oil Search elected
to exercise the US$450 million
Armstrong Energy/GMT option,
doubling its interest in the Pikka Unit,
Horseshoe area and surrounding
exploration lease areas. In conjunction
with exercising the option, Oil Search
and Repsol agreed to align interests
across their shared Alaskan portfolio.
The option exercise and re‑alignment
of interests has resulted in Oil Search
holding 51% and Repsol 49% in
co‑owned leases, ensuring the two
companies are commercially aligned.
To mitigate financial and operational
risk, Oil Search plans to divest
up to a 15% interest in its Alaskan
assets in 2020. The Company has
engaged Scotiabank to assist with the
sell‑down, with positive initial interest
from the market. The divestment is
targeted to take place once results
from the 2019/20 drilling season
are known and is expected to be
finalised in the second half of 2020.
I N C R E A S I N G A L A S K A N
F O O T P R I N T
During the year, leases covering
3,575 acres immediately adjacent to
the northern boundary of the Pikka
Unit, that Oil Search successfully
bid for in the 2018 Alaska Lease
round, were formally issued by the
State of Alaska. In line with existing
agreements, a share in these leases
was offered to, and accepted by,
Repsol. In addition, through pre‑
existing commercial agreements,
46
Oil Search acquired interests and
became operator of the leases Repsol
successfully bid on east of the Pikka
Unit, covering more than 17,000
acres. The joint venture commenced
drilling a high potential exploration
well, Mitquq 1, on this acreage in
late 2019.
In late 2019, Oil Search was the
successful bidder on 80,000 acres
of new lease tracts under the State of
Alaska’s December 2019 Lease Sale.
The leases surround the Lagniappe
area, south‑east of Deadhorse, and
complement the Company’s existing
high‑quality portfolio on the North
Slope. The leases are expected to
be formally issued in mid‑2020.
2 0 1 9 / 2 0 W I N T E R
P R O G R A M M E
The Company’s second Alaska
winter season programme
began in November 2019,
with the commencement of
construction of approximately
322 kilometres (200 miles) of ice
roads to support exploration drilling
and construction activities.
On 25 December, the Company
spudded the Mitquq 1 exploration
well within the Pikka East area,
approximately 10 kilometres (6 miles)
east of the proposed Pikka Unit
processing facility. In January, the well
penetrated the primary Nanushuk
objective, with preliminary analysis of
data collected indicating a saturated,
porous, 60 metre net hydrocarbon
column. A 16 metre net hydrocarbon
column was found in the secondary
objective, the Alpine C. Testing
to determine well deliverability is
expected to take place in early April
2020. Mitquq has the potential to be
a high value tie‑back to the planned
Pikka infrastructure, adding low‑cost
barrels to the Pikka Unit Development.
The Stirrup 1 exploration well, which
lies approximately 32 kilometres
(20 miles) south‑west of the Pikka
Unit, spudded in late January 2020.
The Stirrup well intersected the
Nanushuk reservoir with indications
of oil. The well will be flow tested
with results expected in early April
2020. Stirrup will help determine
whether there are sufficient resources
in the Horseshoe area to underwrite
a stand‑alone processing facility or
whether the resources in the area are
best developed as a satellite to the
proposed Pikka processing facilities.
In late December, gravel laying
operations commenced for the
road to the Pikka ND‑B well pad
and other early civil works required
for the Pikka Unit Development.
Planned 2019/20 development
work includes the construction of
more than 18 kilometres (11 miles) of
gravel roads, 56 acres of gravel pads
and a 59 metre (192‑foot) bridge.
S T A K E H O L D E R
E N G A G E M E N T
One of Oil Search’s core objectives
is to create shared value in the areas
in which it operates, to ensure the
long‑term wellbeing and sustainability
of communities near its operations.
Community engagement,
environmental protection and
compliance are of the utmost
importance for the Company.
In 2019, Oil Search continued to build
and strengthen its relationships with
the Nuiqsut, Utqiagvik and other
Alaskan communities. The Company
collaborated with local community
organisations and neighbouring
operators to deliver events and
activities supporting local youth,
economic development and capacity
building. Activities included the
delivery of outboard boat motors
to the Search and Rescue team
in Nuiqsut, progressing plans for
development of a boat ramp to
support subsistence fishing activities
on the Colville River and sponsorship
of cross‑country skiing and basketball
camps to promote healthy lifestyles.
Additionally, Oil Search participated
in the Nuiqsut health and job fair
and sponsored internships in
collaboration with the Alaska Native
Science and Engineering Program
and Alaska Clean Seas, a non‑profit
emergency response cooperative.
In late 2019, the Company secured
a key Land Use Agreement
with Kuukpik Corporation, the
Village corporation and business
representative for the community
of Nuiqsut. The agreement helps to
ensure the Pikka Unit Development
progresses in a balanced and
environmentally responsible manner,
respecting the lifestyles of the
people of Nuiqsut and Alaska Native
population. It underpins the long‑term
relationships between Oil Search
and the local communities of the
North Slope and lays the foundation
from which both parties can benefit
environmentally and economically.
2 0 2 0 O U T L O O K
X Maintain focus on safety and the environment.
U Preparation for a continuous development
X Test the Mitquq and Stirrup exploration wells and
integrate the results into plans and preparation
for the 2020/21 drilling season.
X Progress the Pikka Unit Development to FID and
continue to advance other key activities, including:
U Completion of the planned 2020 gravel
lay for pads, roads and bridges to support
the development.
U Preparation for a second season of gravel lay
for three winter seasons of pipeline and related
infrastructure construction.
drilling programme, starting with a single rig.
X Manage the Alaskan portfolio by divesting up to
15% of the Company’s 51% interest.
X Build on relationships with North Slope stakeholders
by demonstrating Land Use Agreement compliance
and continued constructive engagement with North
Slope communities.
X Prioritise portfolio prospects and acreage positions
to enable further growth of the Alaska business.
47
OIL SEARCH ANNUAL REPORT 2019 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
C O M M I T M E N T S T H AT C H A N G E L I V E S
Ensuring a stable environment
by operating responsibly
has underpinned Oil Search’s
success for 90 years.
During 2019, the Company
drew on decades of
knowledge, experience
and relationship-building to
continue making meaningful
contributions in communities
where it operates.
Oil Search aspires to be at the
forefront of working with local
communities and sustainable
development, to be a responsible
corporate citizen and to deliver
value to communities. As well as
maintaining a stable operating
environment, this approach is
a powerful way to improve social
and economic conditions in the
areas where we operate and provide
sustainable benefits to communities.
S T R O N G H E A L T H
S Y S T E M S
Since 1992, Oil Search, working
directly with and through the Oil
Search Foundation (OSF), has helped
PNG project area communities to
access health services. Given the
lack of public health services in rural
and remote areas, this is an important
investment that aligns with local
needs and assists with preserving
operational stability. In 2019, the
Company supported OSF with a
US$15 million contribution towards
multiple services, including funding
doctors’ salaries and providing
medical equipment.
Historically, Oil Search has
contributed significantly to expanding
and upgrading health services
infrastructure in PNG. During 2019,
the Company delivered critical
infrastructure, such as new X‑ray
units, and renovated earthquake‑
damaged health facilities. Through
OSF, Oil Search also supported the
refurbishment of tuberculosis (TB)
diagnostic and treatment facilities.
Altogether, 343 people completed
TB treatment courses in 2019, a 37%
increase from 2018.
As in previous years, OSF
partnerships expanded the reach
of health services. The ongoing
partnership with Rotarians Against
Malaria to improve malaria prevention
and treatment, helped to maintain
low malaria rates in project area
communities. The Foundation’s long‑
term collaboration with Marie Stopes
PNG resulted in national targets for
family planning services in all three
target provinces being exceeded.
In October, OSF launched an
Accelerated Immunisation project
with the new Gulf Public Health
48
49
OIL SEARCH ANNUAL REPORT 2019 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
Authority (PHA) and partners WHO
and UNICEF. OSF will manage this
project, working with the PHA to
improve vaccination rates for children
aged under five years.
Since it began operation in 2011,
OSF has built strong, collaborative
and transparent partnerships with
PHAs that support sustainable
government health services and
improve health indicators. OSF
directors chair the governance bodies
of Hela and Southern Highlands
PHAs. This support enabled them
to remain in the year’s top ten
PHAs despite having severely
earthquake‑damaged facilities.
The Gulf PHA was launched in July
2019 and is also chaired by the OSF.
Another OSF partnership, Wok Bung
Wantaim, further improved public
and community health. Working with
the PNG and Australian Governments
and other donors, OSF assisted local
communities achieve a number of
objectives. These included meeting
polio and measles vaccination targets
and assisting PHAs with increased
budget appropriations, executive
training, facility upgrade funding
and service level agreements.
Oil Search also provides medical
support directly to members of the
community in PNG by providing
access to on‑site clinics, including
emergency medivacs or patient
transfer to primary health care
facilities, if required. These services
are a critical lifeline to isolated
communities. In 2019, 3,651
community members, including
members of employees’ families,
were treated at an Oil Search clinic
and 96 medical evacuations or
transfers occurred.
I M P R O V E D
E D U C A T I O N A L
O P P O R T U N I T I E S
Supporting education is a long‑term
focus for Oil Search and OSF as it
contributes to sustainably improving
local employment prospects and
living standards.
Launched in partnership with Buk
bilong Pikinini, the number of
OSF‑funded early childhood literacy
libraries grew to three in 2019, with
the newest library in Fugwa in the
Hela Province completed in October.
Through attendance at these libraries
in 2019, 148 children learned to read.
OSF completed the full implementation
of its scholarship programme during
the year. This offers opportunities
to develop leadership skills through
structured training, mentoring and
work placements and focuses on
medicine, nursing, community health,
midwifery, education and business and
financial management.
In 2019, 25 students completed
their academic year through OSF
50
scholarships. Nine 2018 scholarship
recipients who graduated as medical
doctors in early 2019 took up residencies
in Provincial Hospitals across PNG.
R A I S E D F S V
A W A R E N E S S
PNG experiences high levels of
family and sexual violence (FSV).
Oil Search works with OSF to help
raise awareness of FSV and to ensure
families have access to information
and support so they can address this
issue and lead positive change.
During 2019, a baseline Oil
Search employee survey showed
a reasonably high level of FSV or
domestic violence awareness and
a high interest in learning about how
to seek help. The survey results will
assist OSF to tailor staff training and
awareness programmes.
In 2019, OSF supported the provision
of FSV training to police and village
court officials on dealing with family
violence within the law. OSF also
provide awareness sessions for
employees of companies subscribed
to the Bel isi PNG initiative.
Foundation funding enabled Hela
PHA’s Family Support Centre (FSC)
to expand its essential work with FSV
survivors by supporting a counsellor
and Health Extension Officer, and
two Public Health Officers to run
community awareness and training
O I L S E A R C H A N N U A L R E P O R T 2 0 1 9
sessions. As a result, Hela FSC
experienced a 100% increase in
new clients every month from April
onwards, with 1,250 new clients
accessing these services in 2019.
Oil Search and OSF aim to create
positive change through the
Champions of Change initiative. In
2019, 34 employees accessed small
grant funding, information and toolkits
to drive change in their communities
around topics such as natural disaster
preparedness and local FSV. This was
a 90% increase on 2018.
M A X I M I S E D
O P P O R T U N I T I E S F O R
L O C A L B U S I N E S S
Oil Search aims to engage with
local communities to maximise the
involvement of local businesses
in opportunities arising from
its operations.
In 2019, it conducted two
workshops with 16 PNG landowner
companies (Lancos) servicing Oil
Search operating areas, to discuss
performance and share experiences
and challenges.
In Alaska, Oil Search continued
developing a local business strategy to
maximise value and opportunities for
Kuukpik suppliers as well as residents of
Nuiqsut and the North Slope of Alaska.
During the year, Oil Search conducted
contractor workshops and facility visits
to discuss Oil Search’s values and
processes and manage opportunities
and processes collaboratively.
E X T E N S I V E D I SAST E R
R E COV E RY
Oil Search and OSF provided nearly
80% of all first responder aid to
local communities after the 2018
earthquake in the PNG Highlands.
In 2019, the Company focused
on recovery and rehabilitation
in partnership with OSF,
governments, business partners,
donors and communities.
Rebuilding homes, re‑establishing
schools and small businesses and
E X P E R I E N C E M A T T E R S
Responding effectively to a community catastrophe requires specialist
skills and expertise and, after 90 years, Oil Search is well‑placed to
lead such efforts. The Company and OSF provided comprehensive
earthquake recovery support to local communities in PNG during 2019.
One example is Yalanda, a small Southern Highlands village where
six villagers died, many were injured and more than 600 people were
relocated. Assisted by NGO and government partners, the support
from Oil Search and OSF included:
X Conducting health and environmental assessments and delivering
basic health services.
X Installing water tanks, constructing rainwater catchments and
repairing pit latrines.
X Distributing food.
X Providing temporary shelter kits, building tools and training.
X Conducting health awareness campaigns.
X Helping the Provincial Government and PHA to restore education
and health services.
X Assisting with enterprise development and infrastructure rebuilding.
Major projects progressed
In 2019, we progressed infrastructure
projects worth an estimated
US$6 million, including:
X Kupiano Hospital redevelopment:
Completed an administration
and a power generation building,
laundry and shower blocks. We
also began building general,
maternity, outpatient and
emergency wards, which are
scheduled for completion in 2020.
X Komo‑Ajakaiba road and bridges:
Completed five river crossings,
including two bridges, two
culverts and one causeway.
We expect this project to be
completed in early 2020.
X Mendi police housing:
Began working on police
housing in Mendi, Southern
Highlands Province, which
includes 20 houses and
two single‑person barracks.
This project is scheduled for
completion in 2020.
restoring water supplies were
prioritised. The myriad projects
ranged from renovating damaged
health and educational facilities to
installing containerised aid posts and
providing 100 water tanks.
E X P A N D E D P U B L I C
I N F R A S T R U C T U R E
Oil Search contributed to the
socio‑economic development of
PNG in 2019 by supporting regional
infrastructure development such
as roads, hospital and school
redevelopments and other projects,
in line with the PNG Government’s
national development priorities.
These developments were funded
under the Infrastructure Tax Credit
Scheme (ITCS) and the National
Infrastructure Tax Credit Scheme
(NITCS). Implementation guidelines
for this scheme are currently
under discussion within the PNG
Government. Some ITCS projects
are on hold until this process
is completed.
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
In addition to the ITCS, Oil Search also
supported OSF in delivering more
than US$4.5 million of infrastructure.
This included completing nurses’
accommodation and a kitchen mess
at Hela Hospital, starting work on an
Accident and Emergency Building
at Hela and constructing the Kikori
Literacy Library.
A S S E S S I N G P H Y S I C A L
C L I M A T E R I S K S
Oil Search recognises that its
assets, supply chains and project
area communities are exposed
to the future physical impacts of
climate change. The Company
committed to completing a Physical
Climate Change Scenario and
Risk Assessment (PSRA) in the
2017 Oil Search Climate Change
Resilience Report, which was
completed in 2019.
Phase 1 involved exploring the
availability of climate data and the
uncertainty inherent in climate models
and identifying the key geographic
climate change risks for PNG and the
North Slope of Alaska. Phase 2 involved
testing the identified geographic
climate change risks with internal
stakeholders, to assess potential
impacts on Company assets, supply
chains and communities. Phase 3
considered ways to embed the PSRA
findings into future design decisions.
The analysis demonstrated that under
a high emission scenario, a changing
climate is unlikely to have a material
impact on Oil Search’s PNG assets or
production. In Alaska, a high emission
scenario has been considered as part
of asset design.
While Oil Search’s operational assets
may be resilient, the communities
surrounding them may be more
exposed to climate change risk.
More than 90% of households in
Oil Search project area communities
depend on subsistence living. They
are vulnerable to natural disasters
or incremental changes caused
by climate change, such as higher
incidences of malaria, floods and
landslides. These could increase
threats to human settlements and
related ecosystems and infrastructure,
especially where water, sanitation and
health care are already poor quality.
C O M M U N I T Y C L I M A T E
A D A P T A T I O N
Oil Search is committed to helping
communities to adapt to climate
change. In 2018, it signed a
Memorandum of Understanding
with the PNG Climate Change and
Development Authority (CCDA) to
collaborate on climate adaptation
projects in PNG. Assessment and
planning for the first project – a small
Southern Highlands community
agriculture, food and water security
programme – began in 2019.
Oil Search is working with the
CCDA to develop a climate
vulnerability assessment tool, to
help identify critical climate change
risks impacting these communities
and the potential adaptation
opportunities. The tool will be used
as part of the Company’s normal
community assessment programmes
and key learnings will inform a
plan that identifies, conceptualises
and designs adaptation initiatives.
In 2019, OSF held a summit with
PNG agriculture experts to present
preliminary PSRA findings and discuss
different climate change scenarios
and risks. With this new information,
experts can develop agriculture
solutions that are robust under
a range of climate change pathways.
H U M A N R I G H T S
P R O T E C T I O N
Respect for human rights and the
desire to do no harm underpin Oil
Search’s commitment to sustainable
development and our approach to
operating responsibly.
Responsible supply chain (RSC)
management is a key part of Oil
Search’s commitment to operating
in alignment with the UN Guiding
Principles on Business and Human
Rights and its response to the
Australian Government’s Modern
Slavery Act (see Oil Search’s 2019
Modern Slavery Statement).
By adopting and improving
RSC management processes,
Oil Search aims to promote and
protect the wellbeing of supply
chain workers, local communities
and the environment. This approach
mitigates operational risk and builds
trust with stakeholders.
During 2019, the focus was on
improving internal alignment,
awareness and ownership of key
RSC management objectives and
progressing development of core
RSC elements. These included
convening the Company‑wide
Responsible Sourcing Steering and
Working Groups, clarifying our RSC
PH YSICA L CL I M AT E CH A NGE SCE NA R IO
A N D R ISK A SSE SSM E N T (PSR A)
P H AS E 1
P H AS E 2
P H AS E 3
G E O G R A P H I C R I S K
S C R E E N I N G FO R P N G
A N D A L AS KA
ASS E SS R I S KS FO R E X I ST I N G
ASS E TS , S U P P LY C H A I N S
A N D CO M M U N I T I E S
E M B E D F I N D I N G I N TO F U T U R E
D E S I G N D E C I S I O N S
52
O I L S E A R C H A N N U A L R E P O R T 2 0 1 9
In 2019, Oil Search again participated
in the Global Compact Network
Australia Modern Slavery Community
of Practice and the IPIECA Social
Responsibility, Human Rights and
Supply Chain Working Groups,
as well as the VPSHR Plenary.
These forums provide valuable
opportunities to discuss human
rights, modern slavery and supply
chain challenges with industry peers
and contribute to tools and guidance.
expectations and performance
standards, preparing data to conduct
supply chain mapping and developing
an RSC supplier risk framework.
3,055
hours training
on VPSHR to
security personnel
0
security-related
human rights
incidents recorded
A new Company‑wide external
stakeholder grievance management
procedure was developed, using
insights from the 2018 grievance
management review. A grievance
management system is being
rolled out in PNG. This will improve
the oversight and consistency of
stakeholder issues management from
receipt to resolution.
The Company‑wide Human Rights
Risk Assessment was completed in
2019 and showed that security in
PNG continues to be a human rights
priority. During 2019, Oil Search
conducted briefings and formal
training sessions with public and
private security providers to integrate
the Voluntary Principles on Security
and Human Rights (VPSHR) into
Company security practices (see the
Oil Search 2019 VPSHR Report).
2019 RECOGNITION
X Named in Strive
Philanthropy’s GivingLarge
Report as a leader for
socio‑economic
contributions to PNG.
X Achieved ‘Leading’
rating in Australian
Council of Superannuation
Investors’ annual review
of ESG reporting by
ASX 200 companies.
X Qualified for inclusion
in SAM’s Sustainability
Yearbook 2020, with
Oil Search’s performance
within the top 15%
of its industry.
2 0 2 0 O U T L O O K
X Continue to work with the PNG Climate Change
Development Authority on ways to strengthen
community resilience to changes in climate.
X Progress responsible sourcing supplier risk
assessment and performance standards
and procedures.
X Support the Oil Search Foundation to further literacy,
education and health outcomes in Hela, Southern
Highlands and Gulf Provinces.
53
S T R E N G T H E N E D
O R G A N I S A T I O N A L
C A P A B I L I T Y
L A Y I N G T H E F O U N D AT I O N S
F O R F U T U R E G R O W T H
One of the key reasons
Oil Search’s business has
been successful for nine
decades is its ability to
align how it operates with
changing market conditions
and new opportunities.
In 2019, a detailed
organisation redesign
broadened the Company’s
capabilities and aligned
them with ambitious growth
plans in PNG and Alaska,
capable of contributing
significant production
growth by the mid-2020s.
By establishing separate fully‑enabled
business units for PNG and Alaska,
each with its own Chief Operating
Officer, the redesign gave the two
business units greater empowerment
and accountability. This supports
timely, well‑informed decision‑making
and align to the Company’s core
values: Responsible, Diversity,
Respect, Caring, Excellence,
Integrity and Passion.
G R O W T H - F O C U S E D
S T R U C T U R E
The redesign included establishing
a Technology and Value Assurance
Group, which will support the next
phase of growth by bolstering
project execution capabilities and
the ability to leverage value‑creating
technologies. The newly created
Board Project and Technology
Committee will provide appropriate
levels of Board support.
The multi‑business unit structure
is headed by a streamlined and
refreshed Executive Leadership Team
with clearer accountabilities, ensuring
appropriate levels of corporate
oversight while supporting improved
performance and local accountability.
As well as reviewing Oil Search’s
business structure, the redesign
identified an opportunity to enhance
leadership bench‑strength to support
the Company’s growth strategy.
This led to several new hires, role
expansions, lateral moves and
promotions, including 14 external
appointments and 15 internal
appointments at Vice‑President level
and above. The changes expanded
the Company’s leadership skills
and capabilities, strengthened
our senior talent pipeline and
introduced fresh ideas.
54
55
OIL SEARCH ANNUAL REPORT 2019 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
appointment of full time PNG citizen
coaches, responsible for supporting
the development of CDP participants.
Achieving gender diversity objectives
can be challenging due to the time it
takes to develop leadership capability
and the under‑representation of
females in the oil and gas industry,
particularly for technical roles where
STEM qualifications are necessary.
Nearly one third of our high potential
employees are female. Another
targeted diversity and inclusion
initiative, Leading Our Way for
Women, continued to support
women in 2019 by maximising female
representation in succession plans.
The programme has strong senior
leader sponsorship and an active
alumni community. Participants
have benefited from an intensive
development experience, with
their managers and senior leaders
involved to promote greater
understanding and empathy for
the development barriers women
face and how best to address them.
The programme combines cohorts
from PNG and Australia and has
enhanced cultural understanding
and cemented constructive networks
across the business. Since it began,
11 programme participants have
progressed into new or more
senior roles.
Cumulatively, 67% of our leadership
roles in PNG are held by PNG citizens,
and we continue to make progress
towards our 2020 goal of 73%.
In addition, the percentage of females
in senior management increased from
23% in 2018 to 25%.
P R O T E C T I N G E M P L O Y E E
H E A L T H
Oil Search aims to create a healthy
workplace by helping to protect
employees’ physical and mental
health. Several gender‑based health
programmes during 2019 helped to
create awareness around common
health issues, and how to ensure
general health and wellbeing at
work and home.
In Alaska, Oil Search launched three
cross‑functional empowerment teams
in January 2019, to promote team
spirit, empowerment and innovation
across the business. Through these
teams, leadership development
opportunities were provided to three
high potential employees.
Several popular and well‑established
development programmes supported
the Company’s D&I goals, by
enriching the leadership capacity of
women and citizen employees across
the organisation to deliver a pipeline
of appropriately qualified, skilled and
diverse people at all levels.
D I V E R S E A N D
I N C L U S I V E W O R K P L A C E
39%
increase in the number of
women in senior leadership
roles since 2015
Since 2018, when the 2020 Diversity
and Inclusion (D&I) Strategy was
introduced, Oil Search has focused its
D&I efforts on gender diversity, PNG
citizen development and an inclusive
workplace. This focus continued in
2019, including a refresh of the D&I
Policy to ensure it remained updated.
Half our high potential employees are
PNG citizens. In place since 2016,
the Citizen DevelopmentProgramme
(CDP) has provided them with
clear development and
employment pathways.
A key CDP development during the
year was launching a scholarship
programme in November for young
PNG citizens with demonstrated
potential. It focused on early
identification and attraction of
technical and leadership talent in
skills shortage areas such as Science,
Technology, Engineering and
Mathematics (STEM). Implemented
by Oil Search in partnership with
the Oil Search Foundation (OSF)
and launched in November 2019,
the programme supported STEM
teaching at secondary and university
levels through funding and resources.
Another development was building
a local coaching team with the
56
O I L S E A R C H A N N U A L R E P O R T 2 0 1 9
D E L I V E R I N G AG A I N ST D I V E R S I T Y A N D I N C LU S I O N TA R G E TS
FOCUS AREA
2020 GOAL
2019 RESULTS
STATUS
At least 30% female Executive
Vice Presidents on the Executive
Leadership Team by 2020
Gender diversity
30% female representation at Senior
Manager level by 2020
50% female representation in graduate
intakes 2018‑2020
Citizen development
73% PNG citizens in leadership roles in
the PNG by 2020
Inclusive workplace
Consistently improve Inclusion Index
results compared to the 2017 baseline
* Employee survey to be undertaken in the first half of 2020.
14%
25%
83%
67%
NA*
Progressing,
action plans
in place
Progressing,
action plans
in place
Progressing,
action plans
in place
Progressing,
action plans
in place
Progressing,
action plans
in place
>500
employees attended
domestic violence
awareness sessions
>800
employees attended men’s
and women’s health
awareness sessions
C R E A T I N G C A R E E R P A T H W A Y S
83%
of 2020 graduate
intake are female
At the end of 2019, Oil Search had
carried out a number of initiatives
that will benefit the wider industry
and local communities as well as
the Company, by helping develop
clear pathways to employment
for local people.
In PNG, Oil Search partnered
with the OSF to deliver a
scholarship programme which
provides resources and student
opportunities at secondary and
university levels, including:
X Science resources for
secondary schools in local
community areas.
X Comprehensive pre‑
employment technician
training for trainees from
the local communities.
X Internships and final
year scholarships for
engineering students.
There is a focus on the early
identification and attraction of local
technical and leadership talent.
In Alaska, Oil Search partnered
with leading education and
industry training organisations
to commence a number of
initiatives aimed at fostering
career opportunities for local and
regional community members.
These included industry‑based
awareness and education
programmes at Trapper School
in Nuiqsut, internships at Alaska
Clean Seas and at Oil Search in
Anchorage, as well as support for
programmes executed through
and in partnership with the
University of Alaska. In late 2019,
Oil Search partnered with local
area operators to host an annual
job fair in Nuiqsut, providing a key
opportunity to capture interest
in short‑term and longer‑term
job opportunities.
57
Building on the success of the Better
Mental Health training programme
in 2018, during 2019 the Company
provided onsite counselling services
by qualified psychologists to support
mental health issues at Port Moresby,
Sydney and PNG field‑based
locations. A number of employees
used these services for topics ranging
from workplace stress to change
management and personal distress.
> 300
senior managers
completed Coaching
Our Way, including
in Anchorage and the
field in PNG
As part of the Company’s ongoing
focus on combatting Family and
Sexual Violence (FSV), employees
were offered training to increase their
domestic violence awareness and
knowledge and given information to
help with management and action.
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
L E A D E R S H I P
D E V E L O P M E N T
As Oil Search enters a new phase of
growth, developing future‑focused,
inclusive and innovative people
leaders is essential. During 2019,
several leadership development
programmes improved skills,
capabilities and the talent pipeline
across different organisational levels.
During 2019, design and development
for a new Technical Leadership
Framework began, to build and
enhance technical capability and help
Oil Search to better attract, develop
and retain talent in core technical
disciplines. The framework aims to
improve employee engagement by
recognising the value of technical
capability and provide opportunities
for development through a technical
career stream.
As in previous years, the Coaching
Our Way programme equipped
Oil Search’s leaders to create an
engaging work environment and
enhance the employee experience
through recognition, development,
learning and growth. So far, the
programme has been delivered to
more than 300 senior managers,
managers and supervisors. Following
its proven success in Sydney and Port
Moresby, in 2019 it was expanded
into Oil Search’s Anchorage and PNG
field teams.
The recruitment process for the
three‑year Graduate Development
Program, which includes job
placements, was improved during 2019
and attracted a strong pool of 2,011
applicants. Following the assessment
process, 12 graduates were recruited
for the 2020 GDP intake. A record
percentage of female graduates was
selected for the 2020 intake – 83%
of all candidates compared to 46% for
2019. Oil Search also strengthened
engagement with the PNG University
of Technology, a key source of
engineering talent in PNG. Its Heads
of Departments toured Oil Search field
facilities and met with early‑career and
experienced engineers to understand
work‑based requirements.
Oil Search’s Competence Assurance
Programme (CAP) complements
the technical career framework and
develops the technical capability
of our facility operations workforce.
Under this programme, competency
profiles and an assessment approach
underpin all stages of technician
development. As part of the CAP,
the apprentice programme was
redesigned using a renewed
selection methodology, with the first
year occurring at a world‑class oil and
J O U R N E Y T O O P E R A T I O N A L E X C E L L E N C E
A collaboration between Oil Search
and specialist consultants, Nambawan
Operational Excellence is an Oil Search
PNG transformation initiative that is building
deep operational excellence capability,
reducing risk and improving process
efficiency and productivity. Overseen by
the Nambawan Steering Committee, the
overall aim is to ensure the PNG BU is safer
and more productive.
Since early 2019, a dedicated Nambawan
team has been working with the PNG
business to focus on actions that will
realise high‑value opportunities in 2020
and beyond.
These include improving compressor
availability, to increase production
and revenue, and deploying robust
business process frameworks that
support achieving Oil Search’s short and
long‑term goals and enable sustainable
business improvement.
The Nambawan initiative has identified
several high‑gain opportunities, including:
X Building leadership capabilities through
senior leader and area transformation.
X Creating and implementing integrated
business management processes with
a rolling 24‑month plan.
X Strengthening process
safety management.
X Developing and deploying a clear
Maintenance and Reliability Strategy.
X Making project processes more robust.
X Developing supply chain
management capabilities.
The leadership training modules
deliver a shared understanding of what
operations excellence looks like and the
leadership practices required to achieve it,
including leading and managing change,
managing business performance,
courageous conversations, coaching
and feedback and Oil Search values
and behaviours.
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 9
gas training facility. The CAP currently
covers 434 people – about one third
of the total workforce.
C O D E O F C O N D U C T
In July 2019, the Corporations Act
2001 expanded its requirements
to provide greater protections
for whistle-blowers. Oil Search
therefore developed a Whistle-blower
Policy, which became effective on
21 October 2019.
This was one of several policies
that were refreshed during the
year to ensure we continued to meet
good governance expectations.
The others were our Share Trading,
Corruption Prevention and Public
Disclosure Policies.
In 2019, all Oil Search employees
underwent mandatory training on the
Code of Conduct through scenario-
based online training modules. This
was further supported by face-to-face
training to encourage discussion and
create awareness about the options
available for speaking out.
We investigate all reported and
suspected breaches of our Code
of Conduct. Following appropriate
investigations, 29 matters were
substantiated and resulted in
disciplinary action, including
coaching and training, records
of discussion, written warnings
and termination of employment.
The breaches related to conflict of
interest, harassment and bullying,
fraud, theft, breach of policy or
procedures and health, safety,
environment and security.
Eight reports were made through
our whistle-blower hotline.
These related to allegations of
discrimination, conflict of interest,
harassment and non-compliance with
Company policy. After thorough and
independent investigation, four were
found to be unsubstantiated and
four were substantiated. All these
whistle-blower cases have been
closed out in accordance with our
whistle-blower investigation process.
2 0 2 0 O U T L O O K
X Continue to work towards 2020 D&I objectives.
X Implement the new technical career framework,
X Undertake a D&I Strategy refresh.
X Continue our investment in developing emerging
female and citizen talent.
including a competency assessment and
development process.
59
2 0 1 9 R E S E R V E S A N D
R E S O U R C E S S T A T E M E N T
Ryder Scott Company, L.P. (Ryder
Scott). When combined with the
doubling of Oil Search’s working
interest in the Pikka Unit through the
exercise of the Armstrong Energy/
GMT option, the Company’s 2C
booked oil Resources in the Pikka
Unit rose by 291%. The booked 2C
Resources in Alaska only relate to
the current Pikka Unit development
plan and do not include several
other reservoirs within the Pikka Unit,
field extensions outside the Unit
and other discovered resources that
may be developed. The Company
will continue to assess these areas
during 2020, with revised Resource
estimates expected to be released
later in the year.
Preliminary results from the
exploration wells being drilled in
Alaska in the 2019/20 season are also
encouraging. The Mitquq exploration
well, located east of the Pikka Unit
in Alaska, discovered oil in both the
primary and secondary objectives.
The well intersected 60 metres of net
hydrocarbon pay in the Nanushuk
reservoir and 16 metres of net
hydrocarbon pay in the Alpine C
reservoir, both materially thicker than
pre‑drill estimates. A side‑track from
the Mitquq well bore penetrated the
Nanushuk reservoir and will be flow
tested. If successful, there is potential
further Resource upside in Alaska.
Over 2019, Oil Search’s total
booked 2P (Proved and
Probable) oil Reserves and
2C (Contingent) oil Resources
nearly doubled, increasing
from 253 million barrels
(mmbbl) to 497 mmbbl.
Total 2P gas Reserves and 2C
gas Resources at the end of
2019 were largely unchanged,
at 6,737 billion cubic feet (bcf).
Based on 2019 production of
27.9 mmboe, Oil Search has a
1P Reserves life of 15 years,
a 2P Reserves life of 17 years
and a 2P Reserves and 2C
Resources life of 60 years.
Oil Search’s total 2P Reserves plus
2C Resources increased by 17%
during 2019, driven by a material
upgrade to resources in Alaska as
well as increased bookings at Muruk
and the PNG LNG Project Associated
Gas fields.
The information gathered through
the inaugural 2018/19 Alaskan
appraisal drilling programme,
together with the incorporation of
other data acquired over the year,
resulted in a 46% lift in gross 2C oil
Resources, to 728 million barrels,
which has been certified by
independent resource auditor,
60
61
OIL SEARCH ANNUAL REPORT 2019 X Oil and gas associated
with the PNG LNG Project has
increased, after receipt of the draft
recertification results from NSAI in
2019. The increases in 1P Reserves
reflect higher certainty after three
years of stable production since
the previous assessment.
X There have been no changes to
the estimated ultimate recovery
(EUR) for oil in the Kutubu, Agogo,
and Moran fields. Reserves
are based on the NSAI 2017
recertification and, in both the
1P and 2P categories, reflect the
year‑end 2018 position less 2019
production volumes.
X There have been minor reductions
to the Gobe Main oil booking,
while remaining SE Gobe oil
and gas Reserves have been
moved to Contingent Resources.
This reflects revised Operator
forecasts, which incorporate
changes to production and
economic assumptions since
the last external audit in 2015.
X There were minor additions to the
Hides GTE 1P Reserve booking,
reflecting updates to the 2019 gas
nomination calculations under the
Hides Gas Sales Agreement.
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 are providing
sufficient gas volumes to meet the
LNG facility’s capacity.
Undeveloped oil Reserves are
associated with oil fields supplying gas
to the PNG LNG Project (Agogo and
Moran). These fields require further
investment to supply gas to PNG LNG,
which is planned for 2024 under the
existing PNG LNG agreements. As
such, the portion of oil production
associated with late life production is
captured as undeveloped Reserves.
The Stirrup 1 well in the Horseshoe
area, south‑west of the Pikka Unit,
also encountered oil in the target
Nanushuk reservoir and will be
flow tested.
In PNG, based on the flow results,
reservoir modelling and pressure
responses gathered to date from the
Muruk 2 well. Oil Search estimates
that gross 1C and 2C gas Resources
for the Muruk field are 453 and
843 bcf respectively (114 and 211 bcf,
respectively, on a net basis). Gross
1C Contingent Resources are 249%
higher than those estimated following
the drilling of Muruk 1 in early 2017,
with the data gathered increasing
the Company’s confidence level in
the Resource. Oil Search’s current
estimate of gross 2C gas Resources
increased by 23%. Further seismic
will be acquired over Muruk in 2020
and additional core work is ongoing,
which will enhance the Company’s
knowledge of the structure and
reduce uncertainties. Resource
estimates for Muruk are currently
being reassessed and will be
updated once this additional data
has been evaluated.
Following receipt of the draft
recertification report of PNG LNG
Project Resources by independent
auditor Netherland Sewell &
Associates, Inc. (NSAI), 1P gas
Reserves in the PNG LNG Project
increased by 50.3 bcf and oil
and condensate 1P Reserves rose
by 4.5 mmbbl. This reflected
increased certainty in the Project
Resource following three years of
stable production since the last
audit. 2P Reserves also increased,
by 8.8 bcf of gas and 3.9 mmbbl
of oil and condensate, reflecting
upgrades in the Moran and
Kutubu complex fields.
The Reserves and Resource base
at the end of 2019 provides a very
strong platform for the Company
and underpins current production
and the growth opportunities in
PNG and Alaska.
O I L A N D G A S R E S E R V E S
At 31 December 2019, the Company’s
1P Reserves were 53.9 mmbbl of oil
and condensate and 1,874.1 bcf of
gas. 2P Reserves were 67.1 mmbbl
of oil and condensate and
2,101.9 bcf of gas.
The key changes in 1P and 2P
Reserves since 31 December 2018,
which are summarised in Tables 1
and 2, are as follows:
X Reserves at 31 December
2019 have been adjusted for
net production of 4.7 mmbbl
of oil and condensate and
113.7 bcf of gas1.
1 Note that these production figures are based on Oil Search’s net 16.67% share of PDL 1 Hides GTE production.
62
RESERVES AND RESOURCES were 497.0 mmbbl, up from
253.5 mmbbl at the end of 2018.
The Company’s total 2P gas Reserves
and 2C Contingent Resources were
6,737.0 bcf, largely unchanged
from 6,742.2 bcf at the end of 2018.
P I K K A U N I T , A L A S K A
N O R T H S L O P E –
I N C R E A S E I N B O O K E D
2 C O I L R E S O U R C E S
During 2019, significant new Pikka
Unit geologic and engineering
data was gathered and analysed.
This included drilling, completion,
petrophysical and well test data
from the Pikka B, Pikka B ST1, Pikka C
and Pikka C ST1 wells, as well as
information obtained from wells
adjacent to the Pikka Unit through
data trades. Several 3D seismic
data sets, which provided clearer
images of the reservoir distribution,
were also merged, reprocessed
and incorporated into new reservoir
simulation models. The reprocessed
seismic tied consistently to all wells
across, and adjacent to, the Pikka
Unit area. Additional rock and fluid
sample testing and other engineering
analyses were performed to better
understand oil recovery mechanisms.
This data has been incorporated
into Oil Search’s reservoir models,
to provide an updated estimate of
the Contingent Resources for the
Pikka Unit Development. The results
of Oil Search’s internal studies
were validated by independent
consultant, Ryder Scott, in December
2019. Ryder Scott has estimated
2C oil Resources of 371.1 mmbbl
(727.6 mmbbl on a gross basis).
Note that these Resources are based
on the current Pikka Unit development
plan only and do not include several
other reservoirs within the Pikka Unit
and field extensions outside the Unit
that could be drilled from the existing
planned well pads. They also exclude
other discovered hydrocarbons
that could potentially be tied into a
larger Pikka development. Work has
commenced on the evaluation of
these additional Resources, which
will be the subject of a separate
independent Resource assessment.
In June 2019, Oil Search exercised
its option to acquire additional
working interests from Armstrong
Energy and GMT, increasing the
Company’s interest in the Pikka
Unit from 25.5% to 51%.
C O N T I N G E N T
R E S O U R C E S
At the end of 2019, the Company’s
2C Contingent Resources
comprised 4,635.1 bcf of gas, up
from 4,533.0 bcf at the end of
2018, and 430.0 mmbbl of oil and
condensate, up from 185.5 mmbbl.
The key changes in 2C Contingent
Resources since 31 December 2018,
which are summarised in Tables 1
and 2, are as follows:
X The addition of 243.6 mmbbl of
2C oil Resource in Oil Search’s
Alaskan North Slope assets,
which have been certified by
independent auditor, Ryder Scott.
This is attributable to:
U The addition of 127.5 mmbbl
following exercise of
the option to acquire an
additional 25.5% equity in the
Pikka Unit.
U The addition of 116.1 mmbbl
resulting from further
technical data obtained
from the Pikka B, Pikka B
ST1, Pikka C and Pikka C ST1
appraisal wells.
X The addition of 65.2 bcf gas
and 0.2 mmbbl condensate in
the PNG LNG Project, following
receipt of the draft report on the
recertification by independent
auditor, NSAI.
X The addition of 37.1 bcf gas and
0.7 mmbbl condensate at Muruk,
after initial interpretation of the
results from successful appraisal
drilling at Muruk 2.
X Minor movements in Contingent
Resources at Gobe Main and
SE Gobe, associated with
production beyond economic life
based on the updated forecasts
for these fields.
R E S E R V E S A N D
R E S O U R C E S
As highlighted in Table 4, at the
end of 2019, Oil Search’s total
2P oil and condensate Reserves
and 2C Contingent Resources
63
OIL SEARCH ANNUAL REPORT 2019 These Resources are considered
contingent on future appraisal
results, development studies and
project commerciality.
P N G L N G – I N C R E A S E
I N B O O K E D 1 P A N D
2 P R E S E R V E S A N D
2 C R E S O U R C E S
During 2019, NSAI was engaged
by the PNG LNG Project Operator,
ExxonMobil, to reassess Resources
in the PNG LNG Project fields
where significant development and
production activity has occurred since
their last detailed field certification
in 2016. Oil Search participated
extensively in the recertification
exercise and, in particular, assisted
the certifier with the assessment of the
Associated Gas fields.
For each field examined, NSAI
assessed the original gas‑in‑place
(OGIP) and estimated ultimate
recoveries (EUR) to subsequently
determine the portfolio OGIP and
EUR estimates. Three additional
years of PNG LNG field production
performance, well deliverability and
compositional modelling were also
considered. An independent flow
stream model was used to determine
probabilistic production forecasts.
Note that NSAI only undertook
a technical assessment and did
not conduct any review of project
economics or Reserves.
In its draft report, received in
December 2019, NSAI concluded
that the 1C OGIP has increased for all
the PNG LNG fields assessed, with
additional production and pressure
information reducing uncertainty.
For most of the PNG LNG fields, 2C
OGIP was largely unchanged from
the 2016 assessment, except for the
Associated Gas fields (Moran, Gobe
and Kutubu complex), where new
information has resulted in an increase
in both 1C and 2C OGIP.
Oil Search has elected to use the
estimates from NSAI’s draft report
of PNG LNG OGIP Resources as
the basis for the Company’s 2019
Reserves and Resources Statement.
Resource estimates, after historical
production and allowance for fuel,
flare and shrinkage, have been
adjusted for economic limit using Oil
Search’s corporate assumptions.
64
This has resulted in increases to
1P oil and condensate Reserves of
4.5 mmbbl and a 50.3 bcf increase
in 1P gas Reserves. 2P Reserves have
also increased, by 3.9 mmbbl of oil
and condensate and 8.8 bcf of gas,
while 2C Resources have increased by
0.2 mmbbl and 65.2 bcf.
The Contingent Resources associated
with PNG LNG are those beyond the
economic limit, calculated using Oil
Search 2019 corporate economic
assumptions. These are considered
to remain contingent on the
confirmation of a commercially viable
future development project and the
negotiation of, and commitment to,
future gas sales contracts.
M U R U K – I N C R E A S E
I N B O O K E D 1 C A N D
2 C C O N T I N G E N T
R E S O U R C E S
Following the successful Muruk 2
appraisal well completed in early
2019, Oil Search’s preliminary
estimate of gross 1C gas Resources
has increased by 249% to 453 bcf,
reflecting an increased confidence in
the production potential of the field,
while gross 2C gas Resources have
RESERVES AND RESOURCES risen by 23% to 843 bcf. As a result,
additional 2C Contingent Resources
of 37.1 bcf of gas and 0.7 mmbbl of
condensate have been booked in the
Muruk field at Oil Search’s net equity.
X Final statements are subject
to review and endorsement
by the Audit and Financial Risk
Committee prior to approval by
the Board.
made to again defer audit of these
fields in 2020. Note that the Gobe
Main gas Resources were examined
by NSAI as part of the PNG LNG
re‑certification during 2019.
The Muruk 2 well demonstrated
a significant increase in lateral
connectivity, compared to the
Resources booked after drilling
Muruk 1. However, the reservoir at the
Muruk 2 location was encountered
deeper than expected, limiting the
increase in the 2019 2C Resource
booking. A 2D seismic survey
has commenced over Muruk and
adjacent leads and prospects, with
approximately 100 kilometres of data
planned to be acquired. The results
will supplement seismic data acquired
in 2017 and enhance structural
definition. This, combined with Muruk
2 core analysis, continued monitoring
of the post well‑test pressure build
up and reservoir modelling, will allow
the Company to further refine the
assessment of Muruk volumes.
The Muruk Resource is considered
to remain contingent on several
factors, including the requirement
for additional technical studies, a
commercially viable development
project and future gas sales contracts.
G O V E R N A N C E A N D
2 0 2 0 A U D I T P L A N
The governance arrangements for the
reporting of hydrocarbon Reserves
and Resources are based on Oil
Search’s Resource Management and
Audit Process (RMAP), which at the
end of 2019, consists of the following:
X A Technical Reserves Committee
(TRC), which assesses all
proposed changes and additions
to the Company’s Reserves
and Resources database, using
advice and contributions from
peer review and subject matter
experts, where appropriate.
X 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.
Oil Search’s Reserves and Resources
are still reported subject to PRMS
2007. During 2020 the Reserve and
Resource bookings will be updated
to reflect PRMS 2018. At the same
time, RMAP will be updated to reflect
Oil Search’s new business structure,
as well as any changes required to
adhere to PRMS 2018 and/or any
updates to ASX Chapter 5.
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, NSAI. As
such, an external audit in 2020 would
normally be considered. However,
this audit has been deferred until
2021 due to:
X The potential for changes to gas
delivery requirements from the
Associated Gas fields, which
are being evaluated through
2020 and may impact ultimate
oil recovery.
X Ensuring that recent wells
drilled in Moran and Usano have
sufficient production and pressure
data history to ensure their impact
is appropriately captured by an
external auditor.
X Ensuring that the fields producing
to the APF are fully returned to
service after the 2018 earthquake.
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
was assessed under the Company’s
Reserves Management and Audit
Process in 2019 and the decision
65
P N G L N G P R O J E C T
A recertification exercise was
undertaken in 2019 on the PNG LNG
Project Resources by NSAI, and a draft
report was issued in December 2019.
The requirements for further external
audit will be assessed in 2020.
P R L 1 5
Two separate audits of the Resources
at Elk‑Antelope were undertaken
by NSAI and GCA in 2016 as part
of the First PAC Certification. 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 2020.
The Second PAC Certification will
occur one year after delivery of the
first commercial LNG cargo.
M U R U K
An independent certification of
the Muruk field may occur in 2020,
subject to the results of in‑depth
modelling incorporating the results
of the Muruk 1 and 2 wells.
O T H E R G A S F I E L D S
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.
A L A S K A – P I K K A U N I T
External audit of the Pikka Unit
Resources was obtained in 2019.
Further external assessment of other
discovered resources, including the
recent discovery of oil at the Mitquq 1
well, may be carried out in 2020.
OIL SEARCH ANNUAL REPORT 2019 TABLE 1: 2019 OIL AND CONDENSATE RESERVES AND RESOURCES RECONCILIATION WITH 2018
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 2018
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2019
RESERVES
11.3
6.1
0.0
0.0
–
36.7
54.1
1.4
0.1
0.0
0.0
–
3.2
4.7
–
–
0.0
0.0
–
4.5
4.5
–
–
–
–
–
–
–
9.9
6.0
0.0
–
–
38.0
53.9
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 2018
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2019
RESERVES
16.6
9.6
0.0
0.1
–
41.6
68.0
1.4
0.1
0.0
0.0
–
3.2
4.7
–
–
0.0
‑0.0
–
3.9
3.8
–
–
–
–
–
–
–
15.2
9.5
0.0
–
–
42.3
67.1
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 2018
2C RESOURCES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2019
2C RESOURCES
1.6
56.4
127.5
185.5
–
–
–
–
0.2
0.7
116.1
116.9
–
–
127.5
127.5
1.8
57.1
371.1
430.0
66
RESERVES AND RESOURCES TABLE 2: 2019 GAS RESERVES AND RESOURCES RECONCILIATION WITH 2018
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 2018
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2019
RESERVES
–
–
–
1.1
2.6
1,933.4
1,937.1
–
–
–
1.5
0.9
111.3
113.7
–
–
–
0.3
0.0
50.3
50.7
–
–
–
–
–
–
–
–
–
–
–
1.7
1,872.4
1,874.1
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 2018
RESERVES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2019
RESERVES
–
–
–
4.0
3.1
2,202.3
2,209.3
–
–
–
1.5
0.9
111.3
113.7
–
–
–
‑2.5
–
8.8
6.3
–
–
–
–
–
–
–
–
–
–
–
2.2
2,099.7
2,101.9
2C CONTINGENT GAS RESOURCES (BILLION STANDARD CUBIC FEET)
LICENCE/FIELD
PNG LNG PROJECT FIELDS GAS
OTHER PNG GAS
ALASKA GAS
TOTAL
END 2018
2C RESOURCES
PRODUCTION
DISCOVERIES/
EXTENSIONS/
REVISIONS
ACQUISITIONS/
DIVESTMENTS
END 2019
2C RESOURCES
60.0
4,473.0
–
4,533.0
–
–
–
–
65.2
36.9
–
102.1
–
–
–
–
125.2
4,509.8
–
4,635.1
67
OIL SEARCH ANNUAL REPORT 2019 TABLE 3: DEVELOPED AND UNDEVELOPED RESERVES
DEVELOPED RESERVES (NET TO OIL SEARCH)
OIL FIELDS AND HIDES GTE RESERVES
PNG LNG PROJECT RESERVES
29.0%
SUB-TOTAL DEVELOPED RESERVES
UNDEVELOPED RESERVES (NET TO OIL SEARCH)
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
GAS4,5,6
DEVELOPED
OIL AND
CONDENSATE3
DEVELOPED
GAS4,5,6
%
mmbbl
bcf
mmbbl
bcf
PROVED (1P)
PROVED AND PROBABLE (2P)
8.5
4.7
0.0
–
–
13.2
26.3
39.5
–
–
–
–
1.7
1.7
1,348.3
1,350.1
12.5
7.3
0.0
–
–
19.8
29.1
49.0
–
–
–
–
2.2
2.2
1,482.2
1,484.4
OIL SEARCH
INTEREST
UNDEVELOPED
OIL AND
CONDENSATE3
UNDEVELOPED
GAS4,5,6
UNDEVELOPED
OIL AND
CONDENSATE3
UNDEVELOPED
GAS4,5,6
%
mmbbl
bcf
mmbbl
bcf
PROVED (1P)
PROVED AND PROBABLE (2P)
1.4
1.3
–
–
–
2.7
11.7
14.4
–
–
–
–
–
–
524.1
524.1
2.7
2.2
–
–
–
4.9
13.2
18.1
–
–
–
–
–
–
617.5
617.5
60.0%
49.5%
10.0%
22.3%
16.7%
60.0%
49.5%
10.0%
22.3%
16.7%
OIL FIELDS AND HIDES GTE RESERVES
PNG LNG PROJECT RESERVES
29.0%
SUB-TOTAL UNDEVELOPED RESERVES
TOTAL DEVELOPED AND UNDEVELOPED RESERVES
53.9
1,874.1
67.1
2,101.9
68
RESERVES AND RESOURCES TABLE 4: TOTAL RESERVES AND RESOURCES SUMMARY
RESERVES AND RESOURCES AT 31 DECEMBER 20191,2 (NET TO OIL SEARCH)
OIL SEARCH
INTEREST
TOTAL OIL AND
CONDENSATE3
TOTAL
GAS4
TOTAL
OIL AND
CONDENSATE3
TOTAL
GAS4
%
mmbbl
bcf
mmbbl
PROVED (1P)
PROVED & 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 GTE7
60.0%
49.5%
10.0%
22.3%
16.7%
OIL FIELDS AND HIDES GTE RESERVES
PNG LNG PROJECT RESERVES6
29.0%
SUB-TOTAL RESERVES
CONTINGENT RESOURCES8
PNG LNG PROJECT FIELDS GAS, OIL AND CONDENSATE
OTHER PNG GAS, OIL AND CONDENSATE9
ALASKA GAS, OIL AND CONDENSATE10
SUB-TOTAL RESOURCES
9.9
6.0
0.0
–
15.9
38.0
53.9
1C
–
–
–
–
–
–
–
–
1.7
1.7
1,872.4
1,874.1
–
–
–
–
bcf
–
–
–
–
2.2
2.2
2,099.7
2,101.9
125.2
4,509.8
–
4,635.1
6,737.0
15.2
9.5
0.0
–
24.8
42.3
67.1
1.8
57.1
371.1
430.0
497.0
2C
TOTAL RESERVES AND RESOURCES
53.9
1,874.1
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 the
2019 draft report received from independent
auditor, NSAI. Gobe Main and SE Gobe 1P
and 2P Reserves are based on Oil Search 2019
technical estimates. All Reserves estimations use
Oil Search’s corporate assumptions to calculate
economic limit.
(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) Although technical volumes remain accessible,
SE Gobe is not expected to be cashflow positive
from 2020 using current Oil Search corporate
economic assumptions. All SE Gobe Reserves
have been moved to Contingent Resources,
contingent on a change in economic or
commercial assumptions.
(6) 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 2019
technical estimates.
(7) 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%).
(8) Contingent Resources are quantities of
petroleum estimated to be potentially
recoverable from known accumulations by
application of development projects, but which
are not currently considered to be commercially
recoverable owing to one or more contingencies.
There may be a chance that accumulations
containing Contingent Resources will not achieve
commercial maturity.
(9) 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.
(10) Alaskan gas, oil and condensate Resources
comprise the Company’s share in Alaskan
assets, incorporating the Nanushuk and satellite
reservoirs in the Pikka Unit, as certified by
Ryder Scott.
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. Dr J. Spilsbury‑Schakel, a full‑time employee
of Oil Search Ltd. 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 Ltd.
SPE, PESA, AAPG
A. Judzewitsch
Oil Search Ltd.
Oil Search Ltd.
SPE
SPE
D. Blazak
J. Rowse
M. Spiby
Oil Search Ltd.
SPE, PESA, PESGB
Oil Search Ltd.
SPE, PESA
M. Ireland
Oil Search Ltd.
SPE, SPEE, PE
69
69
QUALIFIED PETROLEUM RESERVES AND
RESOURCES EVALUATORS
NAME
EMPLOYER
PROFESSIONAL
ORGANISATION
S. Jonsson
Oil Search Ltd.
S. Hyde
A. Spark
Oil Search Ltd.
Oil Search Ltd.
ADDITIONAL NOTES
SPE
SPE
SPE
• The evaluation date for these estimates is
31 December 2019.
• 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.
OIL SEARCH ANNUAL REPORT 2019
L I C E N C E I N T E R E S T S
LICENCE INTERESTS AS AT 12 FEBRUARY 2020
LICENCE
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 111
APDL 132
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
PRL 39
APRL 413
PNG PETROLEUM PROSPECTING LICENCES (PPL)
PPL 3394
PPL 374
PPL 375
PPL 402
PPL 474
PPL 475
PPL 476
PPL 487
PPL 504
PPL 507
PPL 545
PPL 548
PPL 569
PPL 595
APPL 6085
ALASKA, UNITED STATES OF AMERICA6
Antigua7,8
Atlas A7,8
Atlas B7,8
Harrison Bay 7,8
Kachemach7,8
Thetis7
Pikka Unit7
Horseshoe Area7,8
Grizzly Area
Hue Shale Area7
East of Hue Area9
FIELD/PROJECT
OIL SEARCH INTEREST %
OPERATOR
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
Triceratops
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
71.25
38.51
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
25.00
100.00
35.00
40.00
40.00
37.50
25.00
25.00
25.00
37.50
100.00
37.50
40.00
100.00
50.00
100.00
100.00
38.76
38.76
38.76
38.76
38.76
51.00
51.00
51.00
51.00
75.00
50.00
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
ExxonMobil
Oil Search
Oil Search
ExxonMobil
ExxonMobil
Oil Search
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
Oil Search
Exxon Mobil
Oil Search
Oil Search
Exxon Mobil
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
Oil Search
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. The offer of the licence has been accepted and the licence is pending Ministerial grant.
4.
Kina’s proposed transfer to Santos of a 20% 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.
5. The offer of the Licence has been accepted and the licence is pending Ministerial grant.
6.
7.
8.
Includes US Government and State of Alaska leases.
In 2019, Oil Search exercised its option to acquire additional interest in each lease from Armstrong Energy, LLC and GMT Exploration Company, LLC.
In 2019, Oil Search and Repsol E&P USA Inc. entered into an agreement to align interests at 51% Oil Search ownership interest and 49% Repsol
ownership interest across their common leasehold.
In 2019, Oil Search acquired a 50% ownership interest in leases acquired by Lagniappe, Alaska, LLC, an Affiliate of Armstrong Oil and Gas, LLC in the
2018 lease sale.
9.
70
OPEN TO SEE LIC ENC E I NTEREST MA P
71
P’NYANG
APDL 13
PPL 507
PPL 545
MURUK
JUHA NORTH
JUHA
PPL 402
PDL 8 PPL 487
PDL 9
PDL 1
APPL 608
ANGORE
HIDES GAS CONDITIONING PLANT
HIDES
APDL 11
PDL 7
MANANDA
SE MANANDA
AGOGO PRODUCTION FACILITY
AGOGO
KUTUBU
CENTRAL PROCESSING FACILITY
PDL 6
PDL 5
MORAN
USANO
PDL 2
SE HEDINIA
PDL 4
GOBE MAIN
GOBE PROCESSING FACILITY
PDL 3
KIMU
PRL 8
BARIKEWA
SE GOBE
PRL 14
COBRA
PRL 9
BILIP
IEHI
Papua New Guinea
TRICERATOPS
PPL 475
RAPTOR ELK
PRL 39
PPL 475
PPL 339
PRL 15
PPL 476
PPL 548
ANTELOPE
PPL 475
PPL 339
PPL 339
PRL 10
URAMU
AUSTRALIA
KUMUL MARINE
TERMINAL
PPL 474
Gulf of Papua
PPL 504
PPL 595
APRL 41
HAGANA
FLINDERS
PIKKA NORTH
THETIS
HARRISON BAY
MILNE
POINT
Beaufort Sea
ALPINE
KUPARUK RIVER
MITQUQ 1
PRUDHOE BAY
NUIQSUT
MITQUQ
ANTIGUA
PRUDHOE
BAY
DEADHORSE
POINT THOMSON
PNG LNG PLANT
PORT MORESBY
LEGEND
WILLOW
OIL DISCOVERY
STIRRUP 1
HORSESHOE
ATLAS
A
ATLAS
B
KACHEMACH
GRIZZLY
T
R
A
N
S
-
A
L
A
S
K
A
ALASKA
CANADA
Alaska
P
I
P
E
L
I
N
E
ii
HUE
SHALE
EAST OF HUE
LEGEND
SETTLEMENT
SUPPLY BASE
EXPLORATION
PIKKA DEVELOPMENT
OIL FIELD
OIL PIPELINE
PPL 374
PPL 375
PPL 375
PPL 374
APPLICATION WITH OSH INTEREST
PPL 374
PPL 375
PPL 569
0
100
200km
GAS FIELDS
OIL FIELDS
OIL AND GAS 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
PRODUCTIONPIKKA UNIT P’NYANG
APDL 13
PPL 507
PPL 545
MURUK
JUHA NORTH
JUHA
PPL 402
PDL 9
PDL 1
PDL 8 PPL 487
APPL 608
ANGORE
HIDES GAS CONDITIONING PLANT
HIDES
PDL 7
APDL 11
PDL 6
MANANDA
SE MANANDA
AGOGO PRODUCTION FACILITY
PDL 5
MORAN
USANO
AGOGO
KUTUBU
PDL 2
SE HEDINIA
PDL 4
GOBE MAIN
GOBE PROCESSING FACILITY
PDL 3
CENTRAL PROCESSING FACILITY
SE GOBE
PRL 14
COBRA
TRICERATOPS
PPL 475
RAPTOR ELK
KIMU
PRL 8
BARIKEWA
PRL 9
BILIP
IEHI
PRL 39
PPL 475
PPL 339
KUMUL MARINE
TERMINAL
PPL 474
ANTELOPE
PPL 548
PRL 15
PPL 476
PPL 475
PPL 339
PPL 339
PRL 10
URAMU
Gulf of Papua
PPL 504
PPL 595
APRL 41
HAGANA
FLINDERS
PNG LNG PLANT
PORT MORESBY
LEGEND
GAS FIELDS
OIL FIELDS
OIL AND GAS FIELDS
OPERATED PDL
OPERATED PRL
OPERATED PPL
OPERATED APPLICATIONS
PDL WITH OSH INTEREST
PRL WITH OSH INTEREST
PPL WITH OSH INTEREST
PPL 374
APPLICATION WITH OSH INTEREST
PPL 374
PPL 375
PPL 375
PPL 374
PPL 375
PPL 569
FACILITIES
GAS PIPELINE
CONDENSATE PIPELINE
OIL PIPELINE
0
iii
100
200km
OIL SEARCH ANNUAL REPORT 2019 1
5
9
2
7
4
1. Mr RJ Lee (Chairman)
2. Mr PR Botten
3. Dr BS Al Katheeri
4. Sir KG Constantinou
5. Ms SM Cunningham
6. Dr EJ Doyle
7. Ms FE Harris
8. Dr AJ Kantsler
9. Sir MP Togolo
3
8
6
W I S D O M I n s p i r e s
G O V E R N A N C E
T H E B O A R D
72
C O R P O R A T E G O V E R N A N C E
C O M M I T M E N T T O G O O D G O V E R N A N C E
The Company is committed to
adopting and implementing rigorous
corporate governance practices
across all aspects of its business.
The Company recognises that
effective governance arrangements
drive informed decision making
within the business and contribute
to long‑term value for shareholders
in a socially responsible manner.
The Board and its Committees
regularly review the Company’s
governance arrangements to ensure
that they continue to align with best
practice and support the Board’s
strategic objectives.
The Company has reported against
the ASX Corporate Governance
Council’s Corporate Governance
Principles and Recommendations
(the Recommendations) each year
since their first release in 2003.
Oil Search’s Corporate Governance
Statement, which provides details
on the corporate governance
practices adopted by the
Company with reference to the
Recommendations, is released on
the ASX and also published on its
website, www.oilsearch.com. The
Company’s Code of Conduct, Board
and Committee charters, policies
and constitution are also available
on the website.
The table below provides a summary
of the Company’s compliance
with each of the 3rd edition
Recommendations, including the
location of relevant disclosures.
ASX CORPORATE GOVERNANCE COUNCIL RECOMMENDATIONS
HOW OIL SEARCH FOLLOWS THE RECOMMENDATIONS
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
1.1
Disclose:
•
the respective roles and responsibilities of the board and
management;
those matters expressly reserved to the board and those delegated
to management.
•
Compliant – disclosed in the Board and Committee charters on the
Company’s website. Also see the Corporate Governance Statement.
1.2
• 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 process. See 2020 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.
1.3
1.4
1.5
Have a written agreement with each director and senior executive
setting out the terms of their appointment.
Compliant – see Corporate Governance Statement for details on
director and senior executive contracts.
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;
• measurable objectives for achieving gender diversity, its progress
•
towards achieving those objectives;
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 and Inclusion Policy on the Company’s
website. The Company’s diversity objectives and progress towards
achieving them are disclosed in the Annual Report. A table disclosing
the proportions of females on the Board, in senior executive positions
and across the organisation is provided in the Corporate Governance
Statement.
73
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 FOLLOWS THE RECOMMENDATIONS
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
1.6
• 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 performance reviews is disclosed in the
Corporate Governance Statement.
A performance review was not required in 2019. The next performance
review is scheduled for 2020.
1.7
• Have and disclose a process for periodically evaluating the
performance of senior executives.
Compliant – process for senior executive performance reviews is
disclosed in the Corporate Governance Statement.
• Disclose whether a performance evaluation was undertaken in the
Senior executive performance reviews were undertaken in 2019.
reporting period in accordance with that process.
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
2.1
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 – the People and Nominations Committee has five members,
a majority of whom are independent (including Chair).
Committee charter is disclosed on the Company’s website. Committee
members, meetings held and attendances by members are disclosed in
the Directors’ Report.
2.2
2.3
2.4
2.5
2.6
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 – Board skills matrix is disclosed in the Corporate Governance
Statement.
Disclose:
•
•
the names of directors considered by the Board to be independent;
if a director has an interest, position, association or relationship
of the type in Box 2.3 but the Board is of the view that is does not
compromise the independence of the director, the nature of the
interest, position, association or relationship in question and an
explanation of why the board is of that opinion;
the length of service of each director.
•
Compliant – disclosed in the director independence section in the
Corporate Governance Statement.
A majority of the board should be independent directors.
Compliant – seven of nine directors are independent.
The chair of the board should be an independent director. The chair
should not be the same person as the CEO.
Compliant – the Board Chairman is independent.
Have a programme for inducting new directors and provide appropriate
professional development opportunities for directors to develop and
maintain the skills and knowledge needed to perform their role as
directors effectively.
Compliant – the Company has a comprehensive director induction
programme and an ongoing director education programme is provided.
PRINCIPLE 3 – ACT ETHICALLY AND RESPONSIBLY
3.1
Have and disclose a code of conduct for directors, senior executives and
employees.
Compliant – see Code of Conduct on the Company’s website.
PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING
Compliant – Audit and Financial Risk Committee has five members, all
of whom are non‑executive directors and a majority are independent,
including the Chair, who is not the Chair of the Board.
Committee charter is disclosed on the Company’s website. Committee
members, qualifications/experience, meetings held and attendances by
members are disclosed in the Directors’ Report.
Compliant – the CEO and CFO declarations are provided to the Board
before approving the 2019 half year financial statements and the 2019
full year financial statements.
4.1
Have an audit committee which:
• has at least three members, all of whom are non‑executive directors,
•
and majority of whom are independent directors;
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.
4.2
Before the board approves the financial statements for a financial period,
it receives from the CEO and CFO a declaration that, in their opinion,
the financial records of the entity have been properly maintained and
that the financial statements comply with the appropriate accounting
standards and give a true and fair view of the financial position and
performance of the company and that the opinion has been formed
on the basis of a sound system of risk management and internal control
which is operating effectively.
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 9
ASX CORPORATE GOVERNANCE COUNCIL RECOMMENDATIONS
HOW OIL SEARCH FOLLOWS THE RECOMMENDATIONS
PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING
4.3
Ensure that the external auditor attends the AGM and is available to
answer questions from security holders relevant to the audit.
Compliant – the Company’s auditor, Deloitte Touche Tohmatsu,
attended the 2019 Annual Meeting. Shareholders were invited to put
questions to the auditor relevant to the audit.
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 – see Public Disclosure Policy 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.
Disclose the policies and processes it has in place to facilitate and
encourage participation at meetings of security holders.
Give security holders the option to receive communications from,
and send communications to, the entity and the security registry
electronically.
Compliant – disclosed in the Corporate Governance Statement.
Compliant – security holders have the option to receive communications
from and provide communications to the Company electronically.
PRINCIPLE 7 – RECOGNISE AND MANAGE RISK
7.1
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.
Compliant in part. The Board has three Committees that oversee risk:
• Audit and Financial Risk Committee
• Health, Safety and Sustainability Committee
• Project and Technology Committee
Each Committee’s charter (see Company’s website) sets out its
responsibilities. The membership requirements for each Committee
is disclosed in their respective charter and summarised in the
Corporate Governance Statement. The Project and Technology
Committee’s membership requirements do not fully comply with the
recommendation – see Corporate Governance Statement.
Each Committee’s members, meetings held and attendances by
members are disclosed in the Directors’ Report.
Compliant – the Board reviews the risk management framework at least
annually. A review was undertaken in 2019.
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.
7.2
7.3
7.4
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 Directors’ Report and on the
Company’s website.
PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
8.1
Have a remuneration committee which:
• has at least three members, a majority of whom are independent
Compliant – the People and Nominations Committee has five members,
a majority of whom are independent (including Chair).
directors;
is chaired by an independent director.
Committee charter is disclosed on the Company’s website.
Committee members, meetings held and attendances by members are
disclosed in the Directors’ Report.
•
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.
8.2
8.3
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.
Compliant – see Remuneration Report.
Compliant – see Share Trading Policy on the Company’s website.
75
C O N S O L I D A T E D
C O N S O L I D A T E D
F I N A N C I A L R E P O R T
F I N A N C I A L R E P O R T
F o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 9
F o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 9
76
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Financial Statements
Statements of comprehensive income
Statements of financial position
Statements of cash flows
Statements of changes in equity
Notes to the financial statements
Directors’ Declaration
Independent Auditor’s Report
78
93
110
111
111
112
113
114
116
149
150
77
OIL SEARCH ANNUAL REPORT 2019CONSOLIDATED FINANCIAL REPORTCONSOLIDATED FINANCIAL REPORTfor the year ended 31 December 2019
D I R E C T O R S ’ R E P O R T
D I R E C T O R S ’ R E P O R T
for the year en ded 3 1 D ecemb er 2 019
The directors submit their report for the financial year ended
31 December 2019.
Abu Dhabi National Oil Company. Dr Al Katheeri is a member
of a number of industry Boards and committees in the UAE.
DIRECTORS
The names, details and shareholdings of the directors of the
Company in office during or since the end of the financial year
are included in this report.
Mr Richard J Lee
Independent Chairman
AM, BEng (Chem) (Hons), MA (Oxon), FAICD (70 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. He was the former Chairman of
Ruralco Holdings Limited and Salmat Limited, Deputy Chairman
of Ridley Corporation Limited and a director of Newcrest
Mining Limited, CSR 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 Peter R Botten
Managing Director
AC, CBE, BSc, ARSM (65 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: 2,625,296;
Performance Rights: 1,107,884;
Restricted shares: 480,936.
Dr Bakheet S Al Katheeri
Non-Executive Director
PhD, BASc, MSc, Executive MBA (Hons) (45 years)
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
Ordinary shares fully paid: nil.
Sir Kostas G Constantinou
Independent Non-Executive Director
OBE (62 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
Bank of South Pacific Limited, Air Niugini, Airways Hotel
and Apartments Limited, Lamana Hotel Limited and Lamana
Development Limited.
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, Honorary Consul for Greece and
Cyprus in Papua New Guinea, and Trade Commissioner for
Solomon Islands to Papua New Guinea.
Ordinary shares fully paid: 10,000.
Ms Susan M Cunningham
Independent Non-Executive Director
BA Geol & Geog (64 years)
Ms Cunningham joined the Board on 26 March 2018. She
has more than 35 years of oil and gas industry experience
including senior executive roles at Amoco, Statoil, Texaco,
and Noble Energy, where her last role was Executive Vice
President responsible for EHSR (Environment, Health, Safety
and Regulatory), global exploration and business innovation.
Ms Cunningham is also a director of Enbridge Inc. Recently
Ms Cunningham was an advisor for Darcy Partners, a research
company connecting oil and gas companies with emerging
technologies. Ms Cunningham served on the Board of the
Offshore Technology Conference (OTC) from 2003 to 2008
and was Chair of the OTC from 2009 to 2011. She was also
a director of Cliffs Natural Resources Inc from 2005 to 2014.
Ordinary shares fully paid: nil.
Dr Eileen J Doyle
Independent Non-Executive Director
BMath (Hons), MMath, PhD, FAICD (65 years)
Dr Doyle joined the Board on 18 February 2016. Dr Doyle’s
career spans the building materials, infrastructure, 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 Boral Limited,
Hunter Angels Trust and SWOOP Analytics. 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 GPT Group Limited and the Knights Rugby
League Pty Ltd.
Ordinary shares fully paid: 36,050.
78
OIL SEARCH ANNUAL REPORT 2019 D I R E C T O R S ’ R E P O R T
D I R E C T O R S ’ R E P O R T
for the year en ded 3 1 D ecemb er 2 019
Ms Fiona E Harris
Independent Non-Executive Director
BCom, FCA (Aust), FAICD (59 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 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.
GROUP SECRETARY
Mr Michael Drew
Group Secretary and EVP Corporate & General Counsel
LL.B (Hons) (51 years)
Mr Drew joined Oil Search in 2014 and has over 24 years’
international oil and gas experience, including leadership
roles based in Russia, Canada, UK and US. He began his
legal career in private practice at Linklaters, London. In 2001,
Mr Drew joined BP PLC and, in 2010, he was appointed
Associate General Counsel BP responsible for global upstream
businesses. He holds a Bachelor of Law LL.B (Hons) and is
admitted to practice in Australia and England and Wales.
Mr Drew was appointed as the Group Secretary of Oil Search
in August 2019 assuming this role and responsibilities from
Mr Stephen Gardiner, Chief Financial Officer.
Ordinary shares fully paid: 31,961.
Dr Agu J Kantsler
Independent Non-Executive Director
BSc (Hons), PhD, GAICD, FTSE (68 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 Mel P Togolo
Independent Non-Executive Director
CBE, BEcon (Hons), MA (Econ), MA (Geography) (73 years)
Sir Mel joined the Board on 1 October 2016. He has more than
25 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 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.
Ordinary shares, fully paid: nil;
Performance Rights: 198,959;
Restricted shares: 82,133.
RESULTS AND REVIEW OF OPERATIONS
The Oil Search Limited Group (the Group) delivered
a consolidated net profit of US$312.4 million
(2018: US$341.2 million) for the year, after providing for
income tax of US$136.3 million (2018: US$166.2 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 4.5 cents
per ordinary share (2018: US 8.5 cents final dividend)
to ordinary shareholders in respect of the financial year
ended 31 December 2019. The due date for payment is
24 March 2020 to all holders of ordinary shares on the Register
of Members on 4 March 2020. The Company’s dividend
reinvestment plan will remain suspended for the final dividend.
Dividends paid and declared during the year are recorded in
note 10 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
those 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.
79
OIL SEARCH ANNUAL REPORT 2019 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 reportable incidents
in PNG. The Group experienced four minor incidents that
were reported to regulatory authorities in relation to Group’s
operations in the USA. The Group did not incur any fines for
environmental infringements.
CORPORATE INFORMATION
Oil Search Limited is a Company limited by shares and is
incorporated and domiciled in Papua New Guinea. The Group
had 1,607 employees as at 31 December 2019 (2018: 1,410).
Oil Search Limited is listed on the ASX and PNGX.
SHARE BASED PAYMENT TRANSACTIONS
There were 1,485,180 share rights (2018: 983,042) granted
under the Employee Share Rights Plan. There were 1,463,836
performance rights (2018: 1,833,601) granted under the
Performance Rights Plan and 561,823 restricted shares
(2018: 640,174) granted under the Restricted Share Plan
during the year.
As at 31 December 2019, there were 2,913,524 share
rights (2018: 2,206,192), 3,963,856 performance rights
(2018: 3,924,765) and 1,188,420 restricted shares
(2018: 1,300,928) 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 22 for further details).
COMMITTEES OF THE BOARD
The Committees of the Board and their membership of
directors during the year ended 31 December 2019 were:
Audit and Financial Risk Committee:
Ms FE Harris (Committee Chair), Dr BS Al Katheeri1, Sir KG
Constantinou, Ms SM Cunningham2, Dr EJ Doyle, and Sir MP
Togolo. Mr RJ Lee is an ex-officio member of this Committee.
Corporate Actions Committee:
Mr RJ Lee (Committee Chair), Mr PR Botten, Ms FE Harris and
Dr AJ Kantsler.
Health, Safety and Sustainability Committee:
Dr EJ Doyle (Committee Chair), Dr BS Al Katheeri,
Ms SM Cunningham and Dr AJ Kantsler. Mr RJ Lee is an ex-officio
member of this Committee.
People and Nominations Committee:
Dr AJ Kantsler (Committee Chair), Dr BS Al Katheeri1,
Sir KG Constantinou, Ms SM Cunningham2, Ms FE Harris
and Sir MP Togolo. Mr RJ Lee is an ex-officio member of
this Committee.
Project and Technology Committee:
Dr BS Al Katheeri1 (Committee Chair), Ms SM Cunningham2,
Dr EJ Doyle3 and Dr AJ Kantsler4. Mr RJ Lee is an ex-officio
member of this Committee.
INDEPENDENT COMMITTEE MEMBERS
The Board may appoint independent committee members to
certain Committees, with the objective of providing suitably
qualified PNG citizens with the opportunity to contribute to the
effective functioning of the relevant Committee, while receiving
training and exposure to the Company’s governance practices.
While independent committee members, do not count for
quorum purposes and do not have a vote, they are encouraged
to contribute to the discussions and decision making of the
Committee. The independent committee members do not
serve as members of the Oil Search Board.
The independent committee members during the year were:
Mr Richard L Kuna, BBus, CPA, Audit Partner, KTK
Accountants and Advisors and President of CPA Papua
New Guinea. Mr Kuna was appointed as an independent
committee member of the People and Nominations
Committee on 1 October 2018.
Ms Mary E Johns, LL.B, Company Secretary, Bank of South
Pacific Limited. Ms Johns was appointed as an independent
committee member of the Audit and Financial Risk Committee
on 1 October 2018.
Ms Winifred K Amini, MBus, BSc CS, AAICD, Head
of Projects at Kina Bank. Ms Amini was appointed as an
independent committee member of the Audit and Financial
Risk Committee on 1 October 2018.
Mrs Jennifer M Baing-Waiko, BAppSc (Fisheries), AAICD.
Ms Baing-Waiko was appointed as independent committee
member of the Health, Safety and Sustainability Committee on
1 October 2018.
Mr Ganjiki D Wayne, LLB (Hons, UPNG), LLM (Dist, London),
AAICD, Principal with Kessadale Lawyer and Founder/Speaker
with Attitude Plus. Mr Wayne was appointed as an independent
committee member of the Health, Safety and Sustainability
Committee on 1 October 2018.
Mr Des W Yaninen, BBus, PGDipFin, CPA, MPNGID, AAICD,
Chief Executive Officer at NDB Investments Limited. Mr Yaninen
was appointed as an independent committee member of the
People and Nominations Committee on 1 October 2018.
1
Dr BS Al Katheeri ceased to be a member of the Audit and Financial Risk Committee on 11 July 2019. He became Chair and member of the Project and Technology
Committee and a member of the People and Nominations Committee on 11 July 2019.
2 Ms SM Cunningham became a member of the Audit and Financial Risk Committee and the Project and Technology Committee on 11 July 2019. She ceased to be a
member of the People and Nominations Committee on 11 July 2019.
3 Dr EJ Doyle became a member of the Project and Technology Committee on 11 July 2019.
4 Dr AJ Kantsler became a member of the Project and Technology Committee on 11 July 2019.
80
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTfor the year ended 31 December 2019 ATTENDANCES AT BOARD AND COMMITTEE MEETINGS
The number of Board and Committee meetings held during the year and the attendance by each director (and Committee member)
are set out in the table below.
DIRECTORS
Number of meetings held
Number of meetings attended
BS Al Katheeri
PR Botten
KG Constantinou
SM Cunningham
EJ Doyle
FE Harris
AJ Kantsler
RJ Lee
MP Togolo
DIRECTORS’
MEETINGS
AUDIT &
FINANCIAL RISK
HEALTH,
SAFETY &
SUSTAINABILITY
PEOPLE &
NOMINATIONS
PROJECT &
TECHNOLOGY
CORPORATE
ACTIONS
8
7/8
8/8
7/8
8/8
8/8
7/8
8/8
8/8
8/8
4
2/2
–
3/4
2/2
4/4
4/4
–
4/4
4/4
4
4/4
–
–
4/4
4/4
–
4/4
4/4
–
5
3/3
–
4/5
2/2
–
5/5
5/5
5/5
5/5
1
1/1
–
–
1/1
1/1
–
1/1
1/1
–
2
–
2/2
–
–
–
2/2
2/2
2/2
–
Note: There were changes in Committee memberships for the Audit and Financial Risk Committee and the People and Nominations Committee to accommodate the
membership of the Project and Technology Committee. Details on Committee memberships during 2019 are disclosed in the Committees of the Board section of
this report.
This Report is made in accordance with a Resolution of the Directors of the Company.
RJ LEE
Chairman
PR BOTTEN
Managing Director
Sydney, 24 February 2020
81
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTfor the year ended 31 December 2019 1. OVERVIEW
1.1 Summary of Financial Performance
YEAR ENDED 31 DECEMBER
Production and Sales Data
Production (mmboe1)
Sales (mmboe)
Average realised oil and condensate price (US$/bbl2)
Average realised LNG and gas price (US$/mmBtu3)
Financial Data (US$ million)
Revenue
Production costs
Other operating costs
Other income
EBITDAX4
Depreciation and amortisation
Exploration costs expensed
Impairment
Net finance costs
Share of net profit from investments in joint ventures
Profit before tax
Taxation
Net profit after tax
Net debt
Note: Numbers may not add due to rounding.
2019
2018
% CHANGE
27.95
27.79
62.86
9.58
1,584.8
(348.7)
(157.4)
67.2
1,145.9
(413.7)
(47.2)
(5.9)
(231.0)
0.6
448.7
(136.3)
312.4
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
2,983.2
2,693.0
+11
+11
-11
-5
+3
+20
+8
+600
+3
+27
-29
NA
+10
NA
-12
-18
-8
+11
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
3
4
bbl = barrel of oil.
mmBtu = million (106) British thermal units.
EBITDAX (earnings before interest, tax, depreciation/amortisation, non-core activities, impairment and exploration) is a non-IFRS measure 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.
Production and Revenue
Oil Search’s total net production in 2019 of 27.95 million barrels of oil equivalent (mmboe) was 11% higher than net production of
25.21 mmboe in 2018, which was impacted by the PNG Highlands earthquake in late February 2018 and resulted in a complete
production shut-in of both the PNG LNG project and operated facilities.
Total revenue of US$1,584.8 million was 3% higher than the prior year, in line with the higher hydrocarbon sales volumes, partially
offset by lower average realised prices reflecting weaker global oil prices in 2019. The average price realised for LNG and gas sales
decreased by 5%, compared to the prior year, to US$9.58/mmBtu. The average realised oil and condensate price for 2019 was
US$62.86 per barrel, 11% lower than the prior year. The Group remained unhedged to oil price movements in 2019.
LNG delivered sales volumes totalled 124,589 billion Btu in 2019, 12% higher than in the prior year, with the delivery of 111 LNG
cargoes (2018: 99 cargoes). Liquids volumes delivered in 2019 totalled 5.08 million barrels (mmbbl), 3% higher than the
4.94 mmbbl delivered in 2018.
Other revenue, consisting mainly of rig revenue, electricity, refinery and naphtha sales, and infrastructure tariffs, decreased to
US$43.0 million in 2019 from US$49.7 million in 2018.
82
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review
Production and other operating costs
Net finance costs
Production costs increased by 20% from US$290.0 million in
2018 to US$348.7 million in 2019. This was mainly driven by
higher work programmes in the oil fields, repairs to the offshore
liquids loading facility, and ongoing earthquake remediation
activities pending assessment for insurance recoveries. As
a result of higher costs and production curtailment resulting
from damage to the offshore liquids loading facility, production
costs on a per barrel of oil equivalent (boe) basis increased from
US$11.51 per boe in 2018 to US$12.48 per boe in 2019.
US$ MILLION
PNG LNG
PNG oil and gas
PRODUCTION COSTS
2019
179.9
168.8
348.7
2018
171.0
119.0
290.0
Other operating costs in 2019 of US$157.4 million, were
US$12.0 million higher than the prior year. This was mainly due
to higher royalties, gas purchases, brownfield studies for PNG
LNG expansion, higher corporate expenditures and lower
value of hydrocarbon stock at hand at the end of 2019, partially
offset by a decrease in lease costs as a result of adopting
IFRS 16 Leases from 1 January 2019.
Other income
Other income of US$67.2 million in 2019 was US$57.6 million
higher than the prior year, predominantly due to recoveries
from JV partners relating to assets capitalised under IFRS 16
Leases, the recognition of PNG LNG insurance recoveries
for earthquake remediation costs incurred in the prior year,
and a one-off adjustment in 2019 relating to the release of
a prior year provision.
Depreciation and amortisation
Depreciation and amortisation increased from US$326.1 million
in 2018 to US$413.7 million in 2019. The increase of US$87.6
million was driven by higher production volumes in 2019 and
higher depreciation and amortisation for right-of-use assets
recognised from 1 January 2019 in line with the requirements
of IFRS 16 Leases. On a cost per boe produced basis, the
average amortisation rate for the production assets in 2019
was US$12.67, compared to the 2018 rate of US$12.40.
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$47.2 million (2018: US$66.7 million). The exploration costs
expensed during the year included seismic acquisition and
geological, geophysical and general administration expenses
in PNG and Alaska.
Further details on exploration activities during the year are
included in Section 2 ‘Overview of operations’.
Net finance costs of US$231.0 million in 2019 were
US$21.1 million higher than the prior year and were impacted
by higher debt drawn from the corporate facilities in the
period and higher financing charges due to the recognition
of additional leased assets under IFRS 16 Leases.
Taxation
Tax expense on statutory profit in 2019 was US$136.3 million,
compared to US$166.2 million in 2018. This resulted in an
effective tax rate of 30.4% for 2019, against an effective
tax rate of 32.8% in 2018.
1.2 Summary of Financial Position
Investment expenditure
Total investment expenditure for 2019 was US$870.7
million driven by the Company’s investment in major growth
opportunities, including pre-FEED activities for the Group’s
LNG expansion projects in Papua New Guinea and the
exercise of an option to acquire additional Alaskan assets on
28 June 2019. The components of investment expenditure for
the year were:
US$ MILLION
Exploration and evaluation1
Development
PNG LNG Project
Biomass
Producing assets
Other plant and equipment2
Total investment expenditure
2019
700.0
45.0
8.8
81.0
35.8
870.7
2018
714.8
36.8
10.7
21.7
51.4
835.4
1
2
Includes Alaska acquisition costs of US$450.0 million (2018: US$415.4
million) and exploration costs expensed during the year of US$47.2 million
(2018: US$66.7 million).
Excludes right of use assets capitalised as other plant and equipment under
IFRS 16 Leases.
Exploration and evaluation expenditure for 2019 totalled
US$700.0 million (2018: US$714.8 million), comprising
US$159.9 million (2018: US$231.0 million) and US$539.8
million (2018: US$483.5 million) of expenditures in PNG and
the USA respectively. Major programmes in PNG during 2019
included US$64.6 million of pre-FEED activity for the PRL 15
and PRL 3 expansion projects, US$57.8 million on PDL 9 and
PDL 4 appraisal and exploration drilling and US$13.8 million
on seismic acquisition activities for Eastern Foldbelt licences.
Expenditures incurred in Alaska of US$539.8 million included
US$450.0 million to acquire additional equity upon exercise
of the Armstrong option, appraisal drilling costs incurred in
early 2019, and seismic acquisition and preparatory works for
exploration drilling that commenced in December 2019.
Development expenditure for 2019 was US$53.8 million
(2018: US$47.5 million). This included Oil Search’s share of
PNG LNG Angore development costs of US$45.0 million and
US$8.8 million incurred on progressing the Biomass project.
83
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review Expenditure on producing assets totalled US$81.0 million
in 2019 (2018: US$21.7 million) and largely comprised the
successful completion of two development wells at Moran and
PDL 2, as well as sustaining capital expenditure for PNG LNG
and PNG oil and gas assets.
The decrease in other plant and equipment expenditure
from US$51.4 million in 2018 to US$35.8 million in 2019 was
mainly driven by the phasing of implementation costs for the
Company’s new Enterprise Resource Planning system.
Net debt
At 31 December 2019, Oil Search had net debt (total
borrowings excluding lease liabilities, less cash) of
US$2,983.2 million, a US$290.2 million increase on the
prior year net debt position of US$2,693.0 million, largely
due to the all-cash acquisition of licence interests in Alaska.
A reconciliation of the movement in net debt between year-end
balance dates is as follows:
Net debt at 31 December 2018
Net repayment – PNG LNG Project finance facility
Net drawdown - corporate facilities
Decrease in cash balances
Net movement in 2019
Net debt at 31 December 2019
US$ MILLION
2,693.0
(354.2)
440.0
204.3
290.2
2,983.2
At 31 December 2019, the Group had US$2,939.4 million
and US$440 million of debt outstanding under the PNG LNG
Project finance and corporate credit facilities respectively.
Oil Search remained in a sound liquidity position at
31 December 2019, with cash of US$396.2 million, including
US$232.1 million in PNG LNG escrow accounts, and
US$755.7 million available under the Group’s corporate
facilities. In late June 2019, the Company arranged for an
additional US$300.0 million of corporate credit facilities with
a one year term, increasing its total corporate credit facilities
to US$1,200 million.
1.3 Operating cash flows
YEAR TO
31 DECEMBER
(US$ MILLION)
Net receipts
Net interest paid
Tax paid
Operating cash in flow
Net investing cash outflow
Net financing cash outflow
Net cash outflow
2019
1,005.0
(220.0)
(32.7)
752.4
(813.3)
(143.4)
(204.4)
2018 % CHANGE
1,129.9
(190.4)
(84.9)
854.6
(811.0)
(458.3)
(414.7)
-11
+16
-62
-12
+3
-69
-51
Note: Numbers may not add due to rounding.
Operating cash flow decreased by 12% to US$752.4 million
in 2019, impacted by the lower average realised hydrocarbon
prices in 2019, higher production costs and amounts due from
joint venture partners.
During 2019, Oil Search’s net investing cash flow included
expenditures of:
¸ US$650.6 million on exploration and evaluation
(US$647.6 million in 2018);
¸ US$78.6 million of capital investment on production
activities (US$26.2 million in 2018);
¸ US$39.5 million on hydrocarbon developments
(US$36.9 million in 2018);
¸ US$36.4 million on other plant and equipment
(US$56.4 million in 2018); and
¸ US$6.3 million on payments made in respect of power
assets (US$41.7 million in 2018).
The Group distributed US$205.7 million to shareholders
by way of the 2018 final dividend and the 2019 interim
dividend during the year. During 2019, borrowings of
US$354.2 million (2018: US$331.9 million) were repaid under
the PNG LNG Project finance facility, in accordance with the
repayment schedule.
1.4 Reserves and Resources
As at 31 December 2019, the Company’s Proved Reserves (1P)
were 53.9 million barrels (mmbbl) oil and condensate, down
from 54.1 mmbbl in 2018 and 1,874.1 billion cubic feet (bcf) gas,
down from 1,937.1 bcf in 2018.
The Company’s total Proved and Probable Reserves (2P)
plus Contingent Resources (2C) for oil and condensate were
497.0 mmbbl, up 96% compared to 2018. The movement
reflected the addition of 243.6 mmbbl of Alaskan Pikka Unit
oil to 2C Contingent Resources after incorporating the results
of the Pikka appraisal wells and the increase in the Company’s
equity following the exercise of the Armstrong/GMT option.
There was also an addition of 4.5 mmbbl of PNG LNG
condensate to 1P and 3.9 mmbbl of PNG LNG condensate
to 2P reserves, following the receipt of a draft recertification
report by NSAI. These additions were partially offset by net
production of 4.7 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 6,737.0 bcf, down 0.1% from
2018. The movements reflected an additional 37.1 bcf of 2C
gas at Muruk, incorporating preliminary results from the Muruk
2 appraisal well results, as well as the addition of 50.3 bcf
of 1P, 8.8 bcf of 2P and 65.2 bcf of 2C gas after the NSAI
draft recertification report. Those increases were offset by
net production of 113.7 bcf, as well as minor changes to the
SE Gobe field 2P gas Reserves.
For further details, please see the 2019 Reserves and Resources
Statement on page 60.
84
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review
2 OVERVIEW OF OPERATIONS
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 producing oil fields and
the Hides Gas-to-Electricity Project. It also has a 29% interest in
the PNG LNG Project, a world class liquefied natural gas (LNG)
development, operated by ExxonMobil PNG Limited.
In 2019, Oil Search produced a total 27.9 million barrels of
oil equivalent (mmboe) from the PNG LNG Project and the
Company’s PNG operated oil and gas assets. Production was
impacted between August and October due to reduced rates
of liquids loading following the detection of damage to one
of the mooring chains at the Oil Search-operated offshore
liquids loading facility in the Gulf of Papua. Repair work on the
damaged chain and preventative maintenance on the remaining
five chains, was completed in October.
Despite the curtailment of production due to the mooring chain
issue and planned plant maintenance, the PNG LNG Project
produced at a record annual rate of 8.5 MTPA in 2019, 23%
above nameplate capacity. 111 cargoes of LNG were sold to
markets in Asia. Oil Search-operated oil and gas production
was 6% lower than in 2018, reflecting natural field decline
and compression system outages at the Agogo and Central
Processing Facilities related to the Highlands earthquake
in 2018, as well as the temporary curtailment of production
resulting from the mooring chain issue.
In 2019, Oil Search and its joint venture partners continued
to work on the proposed three-train LNG expansion project
in PNG. Key commercial agreements to support downstream
integration and participant alignment with the PNG LNG
Project were largely completed.
A landmark Gas Agreement was executed for the Papua
LNG Project in April 2019. Following a change to the
PNG Government leadership team in May, a review of this
agreement took place. In September, the PNG Government
validated the terms of the Papua LNG Gas Agreement. This
allowed negotiations to recommence on the terms for the
PRL 3 (P’nyang) Gas Agreement. Unfortunately, agreement
on appropriate terms for the P’nyang Gas Agreement was
not reached and formal talks were suspended on 31 January
2020. The project proponents believe that the optimal way
of developing the P’nyang field is through the integrated
development, which creates substantial value for all
stakeholders. It is anticipated that discussions will recommence
in 2020, aimed at reaching a P’nyang Gas Agreement that is
balanced and fair for the State and people of PNG, while still
allowing the developers to earn an appropriate return.
In Alaska, Oil Search made good progress on the proposed
Pikka Unit Development. The Company completed its maiden
North Slope appraisal drilling programme safely in April, with
the two rig/two well programme comprising four reservoir
penetrations achieving its objectives. Over the year, the Pikka
Unit development plan was optimised and all necessary
environmental and Government permits, including the Record
of Decision from the US Army Corps of Engineers, were
received. Towards the end of the year, analysis of the drilling
results, combined with data from adjacent wells, 3D seismic
remapping and detailed reservoir modelling, led to a 46%
increase in 2C gross contingent oil resources compared to
Oil Search’s original acquisition case.
In June, Oil Search decided to exercise its option with
Armstrong Energy LLC (Armstrong) and GMT Exploration
Company (GMT), thereby doubling its interest in its key
Alaskan assets.
Oil Search and its joint venture partner, Repsol, commenced
FEED activities for the engineering works in early 2020 and
began construction of gravel roads and well pads to support
the development. First oil is targeted for late 2022 through an
early production system (EPS), followed by full field production
in 2025.
2.1 Production Activities
2.1.1 PNG LNG Project (29%, non-operator)
The PNG LNG Project produced 25.0 mmboe net to Oil Search
in 2019, comprising 111.4 bcf of LNG and 3.2 mmbbl of liquids.
Gross LNG production from the Project was 8.5 MT, 14% higher
than in 2018 and 23% above nameplate capacity, the highest
annual production achieved since the Project commenced
operations in 2014. Record production was achieved despite
scheduled downtime in the second quarter and the temporary
curtailment of production volumes in the third quarter, due to
the mooring buoy issue.
In 2019, 111 LNG cargoes were exported, with 81 sold under
long-term contract, 19 sold under mid-term sale and purchase
agreements and 11 cargoes sold on the spot market. 14 cargoes
of Kutubu Blend and 11 cargoes of naphtha were also sold.
In April 2019, the PNG LNG Project operator, ExxonMobil,
contracted the final medium-term tranche of LNG volumes
on offer to Unipec Singapore Pte Ltd, committing to supply
approximately 0.45 MTPA of LNG over four years from 2019 to
2023. Completion of this agreement increased total PNG LNG
volumes contracted under medium and long-term agreements
to approximately 7.9 MTPA.
2.1.2 Operated oil and gas production
Kutubu (PDL 2 – 60.0%, operator)
Gross production from the Kutubu complex in 2019 averaged
6,353 bopd, down 15% from 2018 levels.
Lower production reflected natural field decline, combined
with the curtailment of Kutubu production and the shut-in of
the Agogo field from late August to mid-October due to the
mooring buoy issue. The production of liquids from the PNG
LNG Project was prioritised during this period, as required
under the contractual obligations with the PNG LNG Project.
Production was progressively brought back up to full rates over
the fourth quarter of 2019.
Moran (49.5%, based on PDL 2 – 60.0%, PDL 5 – 40.7% and
PDL 6 – 71.1%, operator)
Gross production from Moran in 2019 averaged 730 bopd,
down 57% from 2018 levels.
The Moran field was shut-in for 202 days, primarily to preserve
reservoir pressure given extended high compression outages
at the Agogo Processing Facility. Production resumed late in the
fourth quarter, following the completion of maintenance work
on the compressors and the removal of production restrictions
relating to the mooring buoy issue.
85
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review In late December, Oil Search and NW Moran landowners reached an agreement allowing Oil Search to access the site after it was
restricted following the 2018 earthquake due to tribal conflicts within the area that were unrelated to the Company’s activities. This
will allow Oil Search to undertake repairs related to the 2018 earthquake. Subject to ongoing access and the successful completion
of repairs, the Company expects production from the NW Moran area to be brought back on-stream in the second half of 2020.
Gobe Main (PDL 4 - 10%, operator) and SE Gobe (PDL 3 – 36.4% and PDL 4 - 10%, operator)
In 2019, gross production from the Gobe Main field declined 8% to 368 bopd, while production from the SE Gobe field was 5%
lower, at 411 bopd, reflecting natural field decline.
Production from both fields benefitted from stable operations at the Gobe Processing Facility during the year. Scheduled
maintenance was successfully completed in July, with production from both fields shut in for 10 days during this period.
In 2019, 21.0 bcf of gas (gross) was supplied to the PNG LNG Project from the Gobe Main and SE Gobe fields, compared to 17.9 bcf
(gross) in 2018.
Hides Gas to Electricity (GTE) Project – 100%, operator (PDL 1 – 16.7%)
The Hides GTE Project produced 5.1 bcf of gas in 2019, 27% higher than in 2018, and 96,338 barrels of liquids, up 16% on 2018
levels, as production volumes recovered from the 2018 earthquake. However, three unscheduled interruptions occurred during the
year due to vandalism of the power lines between the Barrick-operated electrical generation facility and the Porgera Joint Venture
mine site. Operations were also shut in for five days due to the mooring buoy issue.
2019 Production Summary1, 2
YEAR TO 31 DECEMBER
Oil Production
Kutubu
Moran
Gobe Main
SE Gobe
Total PNG Oil
PNG LNG Project Liquids
Hides Liquids4
Total Liquids
GAS PRODUCTION
PNG LNG Project LNG
PNG LNG Gas to Power
Hides Gas Production4
SE Gobe Gas to PNG LNG
Total Gas
Total Production3
2019
2018
% CHANGE
GROSS DAILY
PRODUCTION
(BOPD)
NET TO OSH
(MMBBL)
GROSS DAILY
PRODUCTION
(BOPD)
NET TO OSH
(MMBBL)
GROSS DAILY
PRODUCTION
NET TO OSH
6,353
730
368
411
7,862
29,824
264
37,950
MMSCF/D
1,046
6
14
18
1.392
0.132
0.013
0.033
1.571
3.157
0.096
4.825
MMSCF
110,768
598
5,088
1,470
7,451
1,715
400
432
9,998
27,900
228
38,126
MMSCF/D
915
6
11
17
1.633
0.310
0.015
0.035
1.993
2.954
0.083
5.030
MMSCF
96,826
674
4,000
1,400
1,084
117,923
949
102,900
-15%
-57%
-8%
-5%
-21%
+7%
+16%
0%
+14%
-11%
+27%
+6%
+14%
-15%
-57%
-8%
-5%
-21%
+7%
+16%
-4%
+14%
-11%
+27%
+5%
+15%
BOEPD
250,491
MMBOE
27.947
BOEPD
224,231
MMBOE
25.206
+12%
+11%
Prior period comparatives updated for subsequent changes.
1.
2. Numbers may not add due to rounding.
3. 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.
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 include approximately 2% unrecovered process gas.
2.2 Gas Development
Work on the proposed expansion of LNG capacity in PNG continued during 2019. The integrated development comprises the
construction of three new LNG trains adjacent to the two existing LNG trains at the PNG LNG plant site. Two of the new trains will be
dedicated to the Papua LNG Project and supplied with gas from the Elk/Antelope fields in PRL 15, while one train is planned to utilise
gas from the existing PNG LNG Project fields and the P’nyang gas field in PRL 3.
Pre-FEED work was largely completed on the proposed downstream facilities. Key areas of focus included finalising the design
basis, progressing permitting and regulatory approval strategies and moving towards completing the National Content Plan.
Upstream, pre-FEED work advanced for PRL 15 and the development concept for accelerated gas supply from existing PNG LNG
Project fields was selected and approved by the PNG LNG Joint Venture and basic engineering progressed. At P’nyang in PRL 3,
early project definition studies, primarily focused on the Gas Conditioning Plant, took place.
86
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review In April 2019, the PRL 15 (Papua LNG) Joint Venture and the PNG
Government signed a Gas Agreement for the development of
the Papua LNG Project. This agreement, the outcome of many
months of negotiations, delivered a range of new benefits
to the Government and landowners, while ensuring that the
Papua LNG Project remains competitive in the global LNG
market. The contractor selection and engineering contracting
process for the upstream development commenced shortly
afterwards. Following a change in the PNG Government
leadership team in May, the newly appointed Cabinet, led by
Prime Minister James Marape, commenced a review of the
Papua LNG Gas Agreement as part of its handover activities.
The Government upheld the Gas Agreement in early August,
however, shortly after announced a further review of certain
terms of the Agreement. Negotiations between the PNG
Cabinet and Total, the operator of the Papua LNG Project,
concluded in September, with the Government validating the
terms of the Agreement as originally executed in April. Ten key
legislative changes required under the Agreement were passed
by the PNG Parliament in mid-October, with further legislative
changes scheduled to occur in 2020.
Discussions between the PRL 3 Operator, ExxonMobil and the
State, which had made good progress early in 2019, resumed
on the P’nyang Gas Agreement in the fourth quarter of 2019.
Unfortunately, despite intense negotiations, appropriate terms
could not be agreed and formal negotiations were suspended
on 31 January 2020. Since then, the project participants have
indicated their support for renewed discussions with the
Government, as the existing proposed three-train development
is the most efficient way to develop Papua LNG and P’nyang
and creates the most value for stakeholders, including the PNG
Government and the people of PNG. Once the P’nyang Gas
Agreement is signed, the project participants are largely ready
to progress into the FEED phase. Oil Search anticipates that
discussions will recommence in 2020, aimed at finalising terms
that are acceptable to both the State and the developers.
During the year, key commercial agreements supporting the
integration of Papua LNG with existing PNG LNG Project
infrastructure were essentially completed. These included a
new PRL 15 Joint Venture Operating Agreement and various
other agreements to facilitate integrated operations.
In addition, the PRL 3 (P’nyang) Joint Venture signed a binding
Letter of Intent (LOI) with Santos, broadly aligning ownership
between the PRL 3 and PNG LNG joint ventures prior to the
development of the P’nyang gas field. Under the LOI, Oil Search
will sell 1.65% (pre-State back-in) of its equity holding in PRL
3 to Santos, for a total consideration of US$21.6 million. If
the integrated three train development proceeds, the fully
termed Sales and Purchase Agreement (SPA) is expected to be
executed ahead of FEED entry for the three-train development.
2.3 PNG Exploration and appraisal activities
NW Highlands
The Muruk 2 appraisal well in PDL 9 (Oil Search – 24.4%),
which commenced drilling in 2018, reached a total depth of
3,820 metres in early 2019, after intersecting gas in the target
Toro Sandstone reservoir. Testing confirmed the presence of
gas on the same pressure gradient as Muruk 1 ST3, with the
well flowing at a maximum rate of 16.5 million standard cubic
feet per day (mmscf/d) on a 52/64” choke, similar to the 16
mmscf/d equipment-constrained rate recorded at Muruk 1 ST3.
Flow rates were limited by drilling-induced formation damage,
caused by mud and fluid losses into the reservoir.
Muruk 2 is located 12 kilometres northwest of the original
Muruk 1 discovery well and was designed to reduce structural
and reservoir uncertainty and prove up the extent of resource
volumes within the Muruk field. Following the conclusion of
well testing in April, pressure gauges were installed down-hole
and the well was plugged and abandoned, with the pressure
build-up monitored. Based on reservoir modelling, flow rates
and pressure responses gathered to date, Oil Search estimates
gross 1C, 2C and 3C contingent recoverable gas resources of
455, 842 and 3,059 bcf (116, 214 and 777 bcf respectively on
a net basis) for the Muruk field.1
Oil Search commenced a 2D seismic survey across PDL 1, PDL 9,
PPL 402 and PPL 545. The survey, covering approximately 100
kilometres over Muruk and adjacent prospects, will supplement
seismic data acquired over the region in 2017. The seismic data,
combined with Muruk 2 core analysis, continued monitoring
of the post well-test pressure build up and reservoir modelling,
will allow the Company to further refine its assessment of
volumes. Due to the proximity of Muruk to existing Hides
infrastructure, the current resource range has the potential to
be sufficient to underwrite commercial production through the
PNG LNG Project.
Central Foldbelt
In late 2019, Oil Search commenced drilling the Gobe Footwall
1 exploration well (Oil Search 65.5%) in PDL 4, targeting a
footwall structure immediately west of the Gobe Main field.
In January 2020, the well reached the target Iagifu and Toro
reservoirs, which both proved to be water wet, which was
recognised, pre-drill, as a key risk. The well was subsequently
plugged and abandoned.
Eastern Foldbelt/Onshore Gulf
During the year, Oil Search completed the second phase of 2D
seismic acquisition covering approximately 200 kilometres over
PPLs 475 and 476 (Oil Search – 25%) in the Eastern Foldbelt and
Onshore Gulf, on behalf of the operator, ExxonMobil.
The survey followed up leads generated from the first 330
kilometres survey acquired in 2018. Provisional interpretation
of the new data acquired has highlighted several interesting
features, meriting further investigation. Additional surveys are
being planned for late 2020, to further mature prospects, which
lie close to the planned Papua LNG infrastructure, for a potential
future drilling campaign.
1
Best estimate – The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to
undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation is
required to determine the existence of a significant quantity of potentially moveable hydrocarbons.
87
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review Deep-water Gulf
Preparations took place in 2019 for a 3D seismic survey which
Oil Search plans to acquire over its deep-water exploration
portfolio in the first half of 2020. This followed the positive
interpretation of an extensive 2D dataset acquired in 2017.
Results from the 3D survey will constrain several large prospects
defined by the initial 2D survey and help de-risk potential future
drilling prospects.
2.4 Power
In February 2019, Niu Power Ltd, an entity held 50:50 by
Oil Search and Kumul Petroleum, completed the construction
of a 58 MW gas-fired power station in Port Moresby, with
commissioning activities finalised in early April. In late 2019,
a production licence was granted to the power station by the
PNG Government and operations have since commenced.
The power station, which is located adjacent to the PNG LNG
plant, receives all its source gas from the PNG LNG Project and
is capable of supplying approximately 75% of Port Moresby’s
base power requirements at full capacity. At the end of the year,
the plant was producing approximately 10 MW and is expected
to reach its full dispatch load of 58 MW in 2020, following
recent completion of a new 80 MW transmission line linking
the power station to the grid.
During 2019, FEED commenced on Oil Search’s PNG Biomass
Project, a proposed 30 MW power plant which will use
dedicated sustainable forestry plantations located close to Lae
to generate electricity for the Ramu Grid. A Financial Investment
Decision is targeted to be made on the project in mid-2020.
If it proceeds, the Biomass Project will be the first utility-scale
renewable power generation project in PNG.
2.5 Alaska
In April, Oil Search successfully completed its inaugural
2018/2019 appraisal drilling programme in Alaska.
The campaign comprised drilling two vertical wells, Pikka B
and Pikka C, each with an associated sidetrack, allowing for
four Nanushuk reservoir penetrations. The Pikka B appraisal
well was designed to constrain the resource potential in the
southern part of the field, while Pikka C was intended as a
“proof of concept” development-type well, aimed at reducing
uncertainty on well deliverability, as well as constraining
resources in the northern area.
Pikka B, which spudded in late December 2018, was drilled
through the Nanushuk reservoir to a total depth of 1,476
metres and 146 metres of cores were cut in the vertical section.
A sidetrack, Pikka B ST1, was drilled at a 71-degree angle
to a depth of 2,621 metres and 91 metres of oil saturated
cores were acquired. The sidetrack was tested and achieved
stabilised flow rates of 2,410 barrels of oil per day (bopd),
restricted by equipment limitations, with productivity
calculations indicating that an unimpeded flow rate of
3,800 bopd could have been achieved.
Pikka C spudded in late January 2019 and was drilled through
the Nanushuk formation to a depth of 1,601 metres. A sidetrack,
Pikka C ST1, was kicked off from 978 metres and was drilled to
a total depth of 2,772 metres. Flow testing took place over six
stimulation stages, with rates stabilising at 860 bopd, restricted
by technical issues. Higher peak rates were established when
unloading the well and subsequent modelling of downhole
geological properties indicated the potential for much
higher flow rates. Both Pikka B and Pikka C were plugged and
abandoned, as planned.
Following the completion of appraisal drilling, detailed reservoir
modelling was undertaken incorporating data from the two
Pikka wells, information acquired through data trades from
wells adjacent to the Pikka Unit and reprocessed 3D seismic
data sets, as well as additional rock and fluid sampling carried
out to improve the Company’s understanding of oil recovery
mechanisms. This work resulted in a 46% increase in gross
recoverable 2C oil resources to 728 million barrels for the Pikka
Unit, validated by independent reserves auditor, Ryder Scott.
The increase in Oil Search’s ownership and estimated resources
resulted in a net increase in booked 2C contingent resources of
192%, from 127 million barrels to 371 million barrels.
Substantial progress was made on the Pikka Unit development
plan over the year, with the development optimised to reduce
risk and maximise value. The revised plan comprises a two-
phase development, including an Early Production System (EPS)
and the Full Field Development (FFD). The EPS is targeted to
commence in late 2022 at rates of up to 30,000 barrels of oil
per day (bopd). Processing of the oil will take place at facilities
owned by an adjacent operator. The EPS will allow key learnings
to be incorporated into the FFD design. The FFD includes the
construction of a new standalone central processing facility
and associated infrastructure, with production from more than
50 wells, each paired with a water injector well. Production
from the FFD is projected to commence in 2025 at a plateau
production rate of up to 135,000 bopd.
In May 2019, Oil Search received a permit and Record of
Decision (ROD) for the Pikka Unit Development from the
United States Army Corps of Engineers, approving the
Company’s proposed infrastructure and environmental plan.
Prior to finalising its plans, the Company worked closely with
indigenous communities to help identify and address potential
effects of the project on their activities and way of life and
amended the development plan accordingly. In December, the
North Slope Borough Assembly approved Oil Search’s Master
Plan for the project and amended zoning maps required for the
construction of Pikka Unit Development infrastructure.
In early 2020, Front-End Engineering and Design activities
commenced and construction of gravel roads and well pads to
support the full field development began as part of the 2019/20
winter season field programme. The Company is targeting a
Final Investment Decision for the development in the second
half of 2020.
Based on the positive results from the appraisal drilling
campaign and progress on the proposed Pikka Unit
Development plan, in June Oil Search elected to exercise
its US$450 million Armstrong/GMT option, doubling the
Company’s interests in the Pikka Unit, Horseshoe Block and
surrounding exploration acreage. In conjunction with the
option exercise, Oil Search and joint venture partner Repsol
aligned ownership interests across their shared Alaskan assets.
This resulted in a net payment of US$64.3 million from Repsol
to Oil Search, with the Company retaining a 51% interest in the
Pikka Unit and all co-owned leases.
88
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review In late 2019, Oil Search acquired 80,000 acres of new lease
tracts under the State of Alaska’s December 2019 Lease
Sale. The leases surround the Lagniappe area, south-east of
Deadhorse and are expected to be issued in mid-2020.
¸ Provide any assistance required by operator ExxonMobil
to re-engage with the PNG Government and negotiate
a P’nyang Gas Agreement that is fair and balanced for the
Project proponents and the State.
¸ Work with the Papua LNG and PRL 3 project partners
to progress into the FEED phase of the proposed
three-train expansion.
¸ Progress Pikka Unit Development FEED activities and
achieve a final investment decision by the end of 2020.
¸ Undertake a partial sell-down of equity interests in core
North Slope development areas on value accretive terms.
Prioritise the exploration portfolio
¸ Acquire seismic in the Muruk region, Eastern Foldbelt and
Deep-water offshore licence areas.
¸ Complete Alaskan exploration drilling activities before the
end of the winter season and assess potential avenues for
commercialisation.
Optimise value from producing assets
¸ Meet gas delivery obligations from operated fields to the
PNG LNG Project and operate the liquids export system
efficiently and reliably.
¸ Optimise oil production by undertaking a coil tubing
programme at Kutubu and Moran and drill a development
well at Kutubu.
¸ Complete earthquake remediation programmes and
maximise insurance recoveries where possible.
In early 2020, Oil Search commenced a group-wide strategic
review targeted at resetting the Company’s strategic
objectives. The review will focus on the following:
¸ Oil Search’s long-term vision, strategic focus and path for
delivering superior shareholder returns.
¸ Proactive management of risk to deliver the potential
in the PNG assets.
¸ Ensuring sustainable, environmentally responsible,
profitable operations and flawless project execution.
¸ Position Oil Search to be solution-oriented as global trends
and ESG considerations evolve and a model for the energy
and investment community.
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.
In late 2019, Oil Search commenced the 2019/2020 winter
programme with construction of the ice roads to the Pikka East
and Horseshoe area drilling sites. The Mitquq 1 exploration
well in Pikka East, located approximately nine kilometres (six
miles) from the planned Nanushuk Central Processing Facility,
commenced drilling on 25 December. In early 2020, the well
encountered oil in both the primary (Nanushuk) and secondary
(Alpine C) objectives, with 60 metres of net oil pay and
10 metres of net gas pay identified. The well will be flow-tested
in 2020 to establish deliverability.
The Stirrup 1 exploration well in the Horseshoe Block
commenced drilling in late January 2020. Stirrup is a key well
to help determine whether there are sufficient resources in the
Horseshoe Block to underwrite a standalone processing facility.
Towards the end of 2019, a process to divest up to 15% of
the Company’s 51% interest in the Pikka Unit and adjacent
exploration leases commenced, utilising investment bank,
Scotiabank. The sale is targeted to be finalised in the second
half of 2020.
3 BUSINESS STRATEGY AND OUTLOOK
3.1 Business Strategy
During 2019, Oil Search focused on delivering the key strategic
objectives established in the 2018 Strategy Refresh, including:
¸ Optimising the value of existing Oil Search oil and gas
assets by drilling two value accretive development wells
and maintaining safe, reliable and sustainable operations.
¸ Progressing plans to commercialise the proposed
three-train LNG expansion development in PNG.
¸ Maturing exploration prospects in PNG through a
significant seismic acquisition campaign and drilling
the nearfield exploration Gobe Footwall well aimed at
extending Gobe field life.
¸ Maintaining Oil Search as a leading corporate citizen in
PNG and promoting a stable operating environment.
¸ Progressing plans to commercialise the Pikka Unit
Development in Alaska, preparing to drill two exploration
targets and continuing equity selldown activities.
¸ Strengthening engagement with the Company’s key
stakeholders in Alaska, including local communities and
the Government.
¸ Optimising capital and liquidity management to support
continued investment and reward shareholders.
¸ Enhancing organisational capabilities to deliver the
Company’s strategic commitments.
3.2 Outlook
In 2020, Oil Search plans to continue to deliver against the
objectives described above with focus across the following
key areas:
Deliver major hydrocarbon development programmes
89
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review 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.
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. Retention of licences can also
be impacted when Government development expectations
are unmet. Changes in government policy, the fiscal regime,
regulatory regime or the legislative framework could impact the
Group’s business, results from operations, asset valuation or
financial condition and performance. The PNG Government’s
consideration of a Production Sharing Agreement regime is a
current example of these risks.
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 domestic
market obligations 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.
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, whilst
progress was made with communities in which Oil Search
operates, limiting disruption in 2019, a heightened threat
continues into 2020. 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, including major projects.
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.
Oil Search operates under its External Affairs standards
and policies which require transparent, open, pro-active
communication and cooperation between the Company,
communities and government at all levels. Oil Search operates
dedicated teams to manage government and community
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 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
suppliers and contractors. The Group’s human rights risk profile
is updated regularly. Operational governance groups oversee
the Company’s management of human rights risks as they relate
to security providers and suppliers more broadly. The Company
continues to strengthen its human rights management
framework by embedding appropriate procedures, and
by providing supporting tools including focused training
programmes.
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; restrictions on capital
deployment to carbon intensive industries; 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.
90
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review 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 risks associated
with exploration success and capital intensive programmes.
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, and by
representation project assurance reviews. Commercial
and legal agreements are also in place across all joint
associations which bind the joint venture participants to certain
responsibilities and obligations.
The external and stakeholder risks outlined above are overseen
by the Board and various Board Committees, depending on the
nature of the risk and its relevance to that Committee.
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 and mid term sales and purchase
agreements for the supply and sale of the majority of its LNG
production with pricing mechanisms established under these
agreements. Standard provisions are included in the long-term
LNG contracts to review prices at a given point in time, with the
review outcomes potentially impacting on the Group’s revenue
and cash flows.
The Group’s financial risk management strategy to address
commodity price risk is outlined in note 28 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
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 28 in the financial statements.
The Group also institutes regular short, medium and long-
term forecasts to assess any implications for future liquidity
and profitability.
Operational risks
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 meet
production targets could compromise the Group’s production
and sales deliverability obligations, impact operating cash flows
through loss of revenue and/or from incurring additional costs
needed to reinstate production to required levels.
Health, 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.
The Group manages the above described operational
risks 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. The Group’s Health, Safety and Sustainability Risk
Committee is responsible for reviewing the policies, processes,
practices and reporting systems covering the Group’s exposure
to operational risks.
91
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review 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.
The Group has implemented physical and logistical controls,
polices, processes and procedures, supported by an external
specialist to manage its cyber security. The Group has recently
implemented a Project and Technology Committee with
responsibility for monitoring the Group’s technology strategy
and projects, including the Group’s exposure to technology
and cyber security risks.
Reserves and resources
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 can be more challenging in a volatile 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 and assets transition to abandonment. 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 maximises 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.
Estimates
Underground oil and gas reserve and resource estimates are
expressions of judgement 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 risk
To achieve continual growth, Oil Search and its partners commit
significant capital to the initiation, development and delivery
of major projects. A number of factors influence the successful
delivery of large-scale projects thereby rendering them exposed
to commercial, political, engineering, execution and operational
risk amongst others. Oil Search has a number of significant
projects across its PNG and Alaskan business units at various
stages of maturity with each project presenting its own set of
substantial risks that may ultimately affect the Company’s value.
In line with the Group’s Opportunity Delivery Framework, the
Group has a defined process, for both operated and non-
operated projects, by which it develops and executes capital
projects under the oversight and guidance of its project value
assurance team and dedicated project managers. 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. The Group has recently implemented
a Project and Technology Committee with responsibility for
monitoring the Group’s project portfolio, including the Group’s
exposure to project risks.
92
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTOperating and Financial Review 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
Ch air of the People & N omin at ion s Commit tee
Dear Fellow Shareholders,
On behalf of the Board, I am pleased to present Oil Search Limited’s 2019 Remuneration Report.
The purpose of this introductory letter is to summarise responses to feedback on the 2018 report, changes to Executive KMP
reporting structures during 2019, key remuneration outcomes for 2019, and explain how those outcomes are aligned with company
performance.
Upon review, your Board is confident that Oil Search’s remuneration strategy and practices were appropriate and that they:
¸ ensured alignment between shareholders and executives;
¸ provided a clear link between performance and remuneration outcomes; and
¸ ensured remuneration outcomes which are consistent with Oil Search’s long-term strategic objectives and which incentivise
the delivery of long-term sustainable shareholder wealth.
Response to feedback on the 2018 remuneration report
Some stakeholders expressed support for capping the upper limit that can be achieved for each Executive KMP STI scorecard
measure. This would mean that overachievement on one measure could theoretically result in a maximum STI payment, even if
threshold performance levels were not achieved on other scorecard measures.
The Board resolved to adopt a change to the STI scorecard methodology by agreeing to cap each of the two major elements of the
scorecard. This change has been applied to the 2019 STI scorecard and will also be implemented for the FY 20 performance period.
The capping of individual performance measures will be considered as part of the ongoing remuneration review during FY 20.
Other feedback expressed a preference for a non-binding vote on the remuneration report. Although this is not required for
companies incorporated in Papua New Guinea, the Board resolved to address this after trialing the FY19 remuneration report
to meet Australian as well as Papua New Guinea compliance standards and considering shareholder feedback on this new report
format. Hence, we will not submit this report to a vote this year. We are reviewing the remuneration framework and policies as part
of an overall strategic review of the Company coinciding with the appointment of a new Managing Director in February 2020.
On completion of this work, we will seek further shareholder feedback through a resolution which will be put to the Annual Meeting
in 2021.
Changes in management structure
As part of Managing Director succession planning, it was decided to streamline the organisation structure. Subsequently, human
resources, stakeholder relations and legal services were subsumed under one Executive Vice President (EVP) position reporting
to the Managing Director. In addition, the technical services function was incorporated into a broader Technology and Value
Assurance function overseen by an EVP, in part as a result of the company preparing to invest in two major new development
projects. As a consequence, the number of executive KMP positions reduced during 2019 from 8 to 7. This did not significantly
impact individual remuneration in the year.
A new Board committee, Chaired by Dr Bakheet Al Katheeri, has been established to provide Board oversight of activities within the
Technology and Value Assurance space.
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report
Changes to KMP fixed remuneration during 2019
Senior Management received modest increases in fixed remuneration during 2019 (generally 3.5%), and this was broadly in line
with the salary review budget approved for other Australian based employees.
Grants of LTI 2019
Grants to executive KMP, including the Managing Director, were made in May 2019. Performance conditions and grant terms were
unchanged from the prior period.
In recognition of the appointment of Keiran Wulff as the Chief Executive Officer Designate on 30 September 2019 and what this
entailed for his engagement in financial and operational Managing Director transitional planning for FY2020, an additional and
incremental LTI grant was made in October 2019 to Dr Wulff on the same terms and conditions applicable to earlier 2019 KMP LTI
grants. Dr Wulff’s Total Fixed Remuneration was increased to A$1,250,000 with the increase delivered via a grant of Restricted
Shares which vest on 1 April 2020, subject to further trading restriction under the Minimum Shareholding Policy.
Short Term Incentive outcome for 2019
The significant earthquake which occurred in the PNG Highlands in February 2018 continued to have an impact on both operated
and non-operated production during 2019. Operationally, Oil Search achieved better than target personal and process safety
performance but suffered further production and financial performance shortfalls arising from a CALM buoy mooring line fault.
While investigations are yet to be finalised, the Board is satisfied that the fault lay outside of management influence and control, that
their decision to prioritise safety ahead of production was entirely appropriate and that their production recovery efforts were better
than anticipated. In addition, non-operated production was adversely impacted by maximum daily production being restricted to
licence limits during part of December.
Growth initiatives were executed well, so that 2C resources exceeded our most optimistic forecasts. Over the recently ended
five year Strategy Period Oil Search’s 2C resources grew from 666 MMboe1 at the end of 2014 to 1,202 MMboe at the end of 2019
– a 181% increase.
Consistent with prior years, the Board reviewed the scorecard results for consideration of discretion. The review took into account
the conditions under which the results were obtained and whether the scorecard adequately reflected how well management
responded to any unexpected factors to ensure that the interests of shareholders and employees were appropriately aligned and
balanced. As a result of these deliberations, the Board, while fully appreciating the success of management for 2C reserves growth,
capped the Growth component contribution to the STI pool, but increased some elements of the Operations component to better
recognise management’s response to events outside of their control, their prioritization of safety, and the rapid return to production
once the underlying issues were identified and addressed.
These adjustments when combined have resulted in an overall STI outcome for 2019 of 60% of Opportunity. Consistent with prior
years, 50% of STI outcomes for KMP executives are awarded in the form of Restricted Shares which are subject to a further two-year
deferral period.
Vesting of Long-Term Incentive awards from 2017
Performance Rights granted under the 2017 Long Term Incentive awards were tested based on Total Shareholder Return (“TSR”)
performance over the period 1 January 2017 to 31 December 2019.
Oil Search’s TSR was in the lower quartile for the ASX50 peer group and in the second quartile against the international Oil & Gas
peer group.
This resulted in 41.67% of the 2017 Performance Rights vesting.
LNG expansion project incentive
No payments vested in regard to the LNG expansion project, as project sanction was not given. The incentive remains on foot.
In conclusion, 2019 was a difficult year for production operations whereas the Company continued to build its 2C resources
position and establish a solid basis for production growth in coming years. The 2020 year will be a year of transition, with a new
Managing Director and the development of a new long term strategy for the company. The remuneration framework for 2021 and
beyond will reflect the new priorities for the company emerging from this strategic review.
Thank you for taking time to review our Remuneration Report and we look forward to welcoming you to our 2020 Annual Meeting.
Dr Agu Kantsler
Chair, People and Nominations Committee
1 Gas volumes converted to boe at 6000 scf/boe based on industry standard conversion rates. Note that Oil Search uses 5100scf/boe for the PNGLNG gas
reserves because of their higher energy density.
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report REMUNERATION REPORT OVERVIEW
The directors of Oil Search Limited present the Remuneration Report (the Report) for the Company and its controlled entities for the
year ended 31 December 2019. The Report forms part of the Directors’ Report and has been prepared and audited in accordance
with the Section 300A of Australian Corporations Act 2001. Although it is not a requirement for PNG companies to prepare,
Oil Search has voluntarily complied with Section 300A of the Australian Corporations Act 2001 to ensure it meets best practice
remuneration reporting and practices for ASX listed companies.
Key Management Personnel
Key management personnel (KMP) covered in this report are detailed below:
Non-Executive Directors and Executive Directors (see page 78 for details of each director).
NAME
Mr Rick Lee AM
Mr Peter Botten AC, CBE
Dr Bakheet Al Katheeri
Sir Kostas Constantinou OBE
Ms Susan Cunningham
Dr Eileen Doyle
Ms Fiona Harris
Dr Agu Kantsler
Sir Melchior Togolo CBE
Other key management personnel
Mr Michael Drew
Mr Stephen Gardiner
Mr Bart Lismont
Mr Ian Munro
POSITION
Chairman
Managing Director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Executive Vice President Corporate & General Counsel
Chief Financial Officer
TERM AS KMP
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Executive Vice President Technology & Value Assurance
From 7 August 2019
Executive Vice President Portfolio Management, Gas and Marketing
Ms Elizabeth (Beth) White
Executive Vice President Gas Project Delivery
Dr Keiran Wulff
Executive Vice President & President Alaska and CEO Designate
Full year
Full year
Full year
Former Key Management Personnel
Mr Gerea Aopi CBE
Mr Paul Cholakos
Dr Julian Fowles
Mr Michael Herrett
Executive General Manager Stakeholder Engagement
Executive General Manager Technical Services
Executive General Manager PNG Business Unit
Until 31 May 2018
Until 1 July 2019
Until 7 November 2018
Executive General Manager Human Resources, Health & Administration
Until 1 July 2019
Remuneration Governance
The People and Nominations Committee (the Committee) provides advice and recommendations to the Board regarding human
resources matters.
The Committee’s responsibilities include, inter alia:
¸ Ensuring the Company has coherent People and Culture and remuneration policies and practices informed by market best practice
which are observed, and which enable it to attract, retain and motivate the talent necessary to create value for shareholders;
¸ providing advice and recommendations to the Board regarding the skills needed and available to the Board to discharge its
duties and add value to the Group;
¸ considering and recommending to the Board, plans and candidates for Non-Executive Director and senior executive succession;
¸ fairly and responsibly rewarding directors having regard to the responsibilities of the Board and fee levels in an appropriate peer
group, while observing that no element of Board fees are performance related;
¸ reviewing and overseeing the implementation of the Group Code of Conduct;
¸ reviewing and overseeing the key processes employed to identify and develop key talent across the Group;
¸ fairly and responsibly rewarding executives and other employees having regard to the performance of the Group, the general
pay environment and the individual performance of each executive and employee;
¸ overseeing the establishment and monitoring of strategies to promote diversity and inclusion, setting objectives on diversity
and reviewing achievements against those objectives; and
¸ considering indicators of organisational culture and identifying material or systemic issues or cultural concerns arising under
People and Culture processes.
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report A copy of the charter of the Committee is available on
Oil Search’s website in the Corporate Governance section.
Members of the Committee during 2019 were:
¸ Dr Agu Kantsler – Independent Non-executive Director
(Chairman);
¸ Dr Bakheet Al Katheeri – Independent Non-executive
(from 11 July 2019);
¸ Sir Kostas Constantinou OBE – Independent Non-executive
Director;
¸ Ms Fiona Harris – Independent Non-executive Director;
¸ Sir Melchior Togolo CBE – Independent Non-executive
Director;
EXECUTIVE REMUNERATION
Remuneration Strategy
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;
¸ Ensure a continual focus on safe and reliable operations;
¸ Ensure alignment between shareholders and executives;
¸ Provide a clear link between performance and remuneration
¸ Ms Susan Cunningham – Independent Non-executive
outcomes;
Director (to 11 July 2019);
¸ Mr Richard Kuna – Outside Independent Appointee; and
¸ Mr Desmond Yaninen – Outside Independent Appointee.
Oil Search Board Chairman Mr Rick Lee attends all Committee
meetings in an ex-officio capacity.
Mr Richard Kuna and Mr Desmond Yaninen were appointed on
1 October 2018 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 rationale 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 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 and other
relevant managers 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 three times
a year. The Committee formally met five times during 2019.
The Committee also met informally on a number of occasions to
progress issues on foot and consider other matters as they arose.
The Committee engages external advisors as required. External
advisers provide information on market remuneration levels and
mix, market trends, incentives and performance measurement,
governance, taxation and legal compliance.
None of the Committee’s engagements were for work which
constituted remuneration recommendations for the purposes
of the Australian Corporations Act 2001 and findings were
reported directly to the Committee or the Board.
¸ Ensure remuneration outcomes are consistent with
Oil Search’s long-term strategic objectives and the delivery
of long-term shareholder wealth creation; 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.
The remuneration framework is structured to promote long-
term sustainable growth of the Company by the delivery of
a significant portion of remuneration in equity, aligning the
senior leadership team with shareholders. The outcomes of
the remuneration framework help the Company achieve its
vision to generate top quartile returns for shareholders through
excellence in socially responsible oil and gas exploration
and production.
Table 1 Company Performance
YEAR ENDED 31
DECEMBER
Net profit/(loss) after tax
(US$m)
Diluted Earnings per
share (US cents)
Dividends per share
(US cents)
2015
2016
2017
2018
2019
(39.4)
89.8
302.1
341.2
312.4
(2.59)
5.89
19.77
22.32
20.41
10.0
3.50
9.50
10.50
9.50
Share Closing price (1)
A$6.70
A$7.17
A$7.79
A$7.16
A$7.25
Oil Search Three Year
TSR (AUD)(2)
6.1%
(12.7%)
(6.9%)
8.4%
9.4%
(1) 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 five-year period
(31 December 2014) was $7.89.
(2) 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.
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Remuneration Framework
Oil Search’s Executive KMP remuneration structure for 2019
comprised four elements:
¸ Total Fixed Remuneration (TFR);
¸ Short-Term Incentive (STI);
¸ Long-Term Incentive (LTI); and
¸ Other benefits in line with local practices e.g. insurances
and foreign service premium where appropriate
Total Fixed Remuneration (TFR)
Remuneration information is derived from relevant remuneration
surveys conducted by independent third parties.
TFR includes Company superannuation contributions and other
salary sacrificed benefits. For Executive KMP, TFR is targeted
between median and the 62.5th 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 additional
superannuation contributions; however, any costs arising from
Fringe Benefits Tax (FBT) on salary packaged items are borne
by the executive.
An annual TFR review budget, agreed by the Board each year,
is used to adjust TFR 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)
Executive KMP have 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.
Annual Executive KMP performance is set and assessed
through a balanced scorecard which includes a range of key
measures that directly affect shareholder value and are clearly
linked to the Oil Search Strategic Plan.
The overall STI pool available is capped at 100% of the
aggregate STI maximum opportunity for all employees.
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.
Each scorecard metric is weighted according to its importance,
and is assessed quantitatively.
At the start of each year, the Board determines the hurdles and
minimum, target and maximum levels of performance which
form the STI scorecard.
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.
It is possible that the actual achievement level could exceed
the maximum set for each measure. This was considered highly
improbable, except for the 5-year reserves growth measure
set for the period 2015 to 2019. In measuring results across the
5-year period, actual results on each measure were not capped
in the belief that overachievement should be recognised if it
contributed to overall shareholder value or employee safety
outcomes significantly in excess of maximum expectations.
In response to stakeholder feedback, the mechanism in 2020
will cap the contributions of each category to its defined
maximum, even if achievement is above this maximum.
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
overall business performance and scorecard outcomes,
including clawing back previous awards where appropriate, or
permitting an award to pay out at maximum.
For Executive KMP the STI provides a maximum incentive
opportunity of 180% of TFR for the Managing Director and
100% of TFR for other Executive KMP. Table 2 discloses the
vesting scales for the STI:
Table 2 – Short Term Incentive vesting scale
OPPORTUNITY
Threshold
Target
Maximum
STI OUTCOME AS A % OF TFR
MANAGING
DIRECTOR
OTHER
EXECUTIVE
KMP
0%
90%
180%
0%
50%
100%
Payments from threshold to maximum opportunity
are on a straight-line basis consistent with the level of
performance attained.
The target pay-out under the STI provides for a payment of 50%
of the maximum opportunity.
For all Executive KMP, 50% of their STI award is paid in cash and
the other 50% is converted to restricted shares. 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.
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Table 3 – Short Term Incentive scorecard measures
CATEGORY
Operational
MEASURE
Safety
Production
Costs
PERFORMANCE AND REWARD ALIGNMENT
WEIGHING
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.
Rewards the achievement of the operated and non-operated production volumes – the largest
contributors to short term financial performance.
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.
Growth measures
2C Gas Resources
2C Oil Resources
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.
2019 EQUITY PLANS
Deferred STI – Restricted Share Plan
Name of plan
Years of grant
Participants
Instruments issued
Deferred STI – Restricted Shares.
2019 STI, 2018 STI and 2017 STI.
All Executive KMP.
Restricted Shares.
Maximum value of equity to be granted
50% of the STI awarded.
10%
20%
20%
5%
15%
15%
15%
Vesting
Acquisition of shares
Treatment of dividends
Restriction on hedging
Forfeiture
Cessation of Employment
2 years from performance period end.
Restricted shares are issued by the company and held by the participant subject to the satisfaction of the vesting
conditions.
Restricted Shares have voting and dividend rights.
Hedging of entitlements by executives is not permitted.
Any unvested Restricted Shares will be forfeited by participants who are considered by the Board to have acted
fraudulently, dishonestly or are in breach of their obligations to the Company.
Board discretion for restricted shares to remain on foot in cases of death, disability, total and permanent disablement,
bona fide redundancy or other reason determined by the Board. If a participant ceases employment for any other
reason all unvested restricted shares are forfeited.
Change of control
Vesting is subject to board discretion, taking into account service to the change in control.
Performance Rights
Participants
Years of grants
Instruments issued
Maximum value of equity
to be granted
All Executive KMP and senior managers.
2017, 2018, and 2019.
Performance Rights (PRs) which are rights to acquire ordinary shares in the Company for nil consideration, conditional on
the achievement of pre-determined performance hurdles within defined time restrictions.
100% of TFR for the Managing Director and 60% of TFR for other Executive KMP.
Performance period
Three years.
Performance measurement date
31 December.
PRs vest
In May following the performance measurement date.
Performance conditions
There are three equally weighted performance conditions based on relative total shareholder return (TSR) as follows:
¸ The ASX 50 (excluding property trusts and non-standard listings) (1/3); and
¸ The constituents of the Standard & Poor’s Global 1200 Energy Index (S&P Global 1200 Energy Index):
· Measured in a US dollar base for Oil Search and each constituent company (1/3);
· Measured in the local currency of the country of main listing for Oil Search and each constituent company (1/3).
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Vesting Scale
Oil Search TSR ranking
Percentage of PRs that qualify for vesting
<50th percentile
50th percentile
Above 50th and below 75th
0%
50%
Pro-rata so that 2% of PRs vest for every 1 percentile increase
between the 50th percentile and the 75th percentile
75th percentile and above
100
Acquisition of PRs and shares
PRs are issued by the company and held by the participant subject to the satisfaction of the vesting conditions.
The number of rights held may be adjusted pro-rata, consistent with ASX adjustment factors for any capital restructure.
Treatment of dividends
Restriction on hedging
Lapsing of Rights
Cessation of Employment
PRs do not have voting rights or accrue benefits.
Hedging of entitlements by executives is not permitted.
Any unvested Performance Rights will lapse where participants are considered by the Board to have acted fraudulently,
dishonestly or are in breach of their obligations to the Company.
Board discretion for performance rights to remain on foot in cases of death, disability, total and permanent disablement,
bona fide redundancy or other reason determined by the Board. If a participant ceases employment for any other reason
all unvested performance rights lapse.
Change of control
Vesting is subject to board discretion, taking into account performance to the date of change in control.
Long Term Incentives
The purpose of the Long-Term Incentive delivered through equity plans is to align executive and employee accountability and
remuneration with the long-term interests of shareholders by rewarding the delivery of sustained performance over the long term.
Each permanent employee, including Executive KMP, can participate in the Oil Search Long Term Incentive Plan if they have
demonstrated an acceptable level of personal performance. The Long-Term Incentive for Senior employees, including Executive
KMP, is delivered via the Performance Rights Plan described above. The Long-Term Incentive for other employees is delivered via
Share Rights described below.
Share Rights (General Employee Share Plan)
Share Rights 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 Share Rights, and therefore the number of shares which will be delivered on the vesting date, is
determined at the grant date.
None of the current Executive KMP is participating in this plan.
Retention and Sign-on Awards of Share Rights
In order to assist the Company in attracting and retaining key executives and other employees, the Company may issue Share
Rights. Shares Rights vest after the employee has completed a specified period of future service with the Company and no
additional performance conditions apply.
Unless the Board otherwise determines, unvested Share Rights will be forfeited when a participant ceases employment before the
vesting date. Share Rights do not attract voting rights or dividends.
Retention awards are rare and made only where the Board determines that a significant retention risk exists. Sign on awards
are made only in certain cases for senior new hires, where awards of Share Rights are made in lieu of equity forgone with
previous employers.
None of the current Executive KMP holds Share Rights.
REMUNERATION OUTCOMES FOR 2019
Table 4 below sets out the ‘Realised Remuneration’ of Executive KMP for 2018 and 2019 in Australian dollars. It is included to
complement the Statutory Remuneration disclosures (in US dollars) to better illustrate the remuneration received by Executives over
time as Oil Search benchmarks remuneration in Australian dollars.
In Table 4, Fixed Remuneration represents the level of base pay, superannuation and expatriate allowances paid to the Executive.
The Cash Short Term Incentive is the cash component of the STI earned by the Executive in respect of the year (even though it is
paid to the Executive in the March following the year) and represents 50% of the total STI earned. Deferred STI vesting in the year
shows the value on the vesting date (31 December) of restricted shares awarded under the Deferred Short Term Incentives from two
years prior.
The Long Term Incentive vesting in the year is the proportion of PRs that were granted three years prior and have met the relative
TSR performance measures as at 31 December. The value has been determined at the measurement date and the PRs vest in the
following May.
While this disclosure is non-statutory it has been audited.
99
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Table 4 – Realised Remuneration Executive Key Management Personnel Remuneration (Australian Dollars)
KMP
Peter Botten
Managing Director
Michael Drew
EVP Corporate & General Counsel
Stephen Gardiner
Chief Financial Officer
Bart Lismont(1)
EVP Technology & Value Assurance
Ian Munro
EVP Portfolio Management, Gas & Marketing
Elizabeth White
EVP Gas Project Delivery
Keiran Wulff(2)
Executive Vice President & President Alaska
and CEO Designate
YEAR
FIXED
REMUNERATION
CASH
SHORT TERM
INCENTIVE
IN RESPECT
OF YEAR
DEFERRED STI
VESTING IN
YEAR
LONG TERM
INCENTIVE
VESTING IN
YEAR
TOTAL
2019
2018
2019
2018
2019
2018
2019
2019
2018
2019
2018
2019
2018
2,656,006
2,283,414
1,282,366
1,625,013
–
5,563,385
1,890,667
1,782,936
516,557
6,473,574
735,383
698,356
889,063
828,353
235,625
321,244
253,500
400,095
60,357
–
1,031,365
–
25,513
1,045,113
357,450
305,197
–
1,500,013
115,340
1,648,985
345,928
96,000
–
195,609
331,966
346,523
299,985
–
–
441,928
1,304,487
114,536
1,506,135
238,875
329,090
308,180
390,094
–
–
–
21,486
974,881
1,031,921
368,419
338,047
–
1,959,798
121,778
1,869,573
762,355
759,648
736,006
681,345
1,283,199
1,019,654
(1) Remuneration for Mr Lismont is for the period from 7 August 2019 to 31 December 2019.
(2) Remuneration for Dr Wulff included a Foreign Service Premium whilst his role was based in Anchorage. It does not include the additional fixed pay salary sacrificed
into restricted shares following his appointment as CEO Designate on 1 October 2019.
For all remuneration reporting stated in US Dollars, the exchange rates set out in Table 5 have been used:
Table 5 – Exchange rates used in the remuneration tables where disclosure is in US Dollars
EXCHANGE RATE
AUD/USD
PGK/USD
2018
0.7059
0.2970
2019
0.7005
n/a
Table 6 sets out the remuneration of Executive KMP for the 2019 Financial Year and has been prepared in accordance with the
requirements of Section 300A of the Australian Corporations Act 2001 and associated accounting standards.
100
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report %
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OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report
Table 7 – Analysis of STI earned
KMP
Directors
Peter Botten
Executives
Michael Drew
Stephen Gardiner
Bart Lismont
Ian Munro
Elizabeth White
Keiran Wulff
INCLUDED IN
REMUNERATION
(US$)
% OF MAXIMUM
STI OPPORTUNITY
CASH
DEFERRED(1)
1,796,594
60%
898,297
898,297
330,111
355,154
134,496
274,049
334,664
431,760
65%
60%
60%
50%
65%
65%
165,055
177,577
67,248
137,024
167,332
215,880
165,055
177,577
67,248
137,024
167,332
215,880
(1) 50% of the STI is deferred via the allocation of Restricted Shares that will vest on 1 January 2022.
STI BALANCE SCORECARD OUTCOME
MEASURE
WEIGHTING
OPERATIONAL MEASURES (55%)
2019
OUTCOME OUTCOME COMMENTARY
Safety
Production
Costs
EBITDAX
10%
20%
20%
5%
GROWTH MEASURES (45%)
2C Gas Resources
15%
2C Oil Resources
15%
Achievement for the Safety measure was close to target. The Personal Safety element was close to
the target level of performance and leading Process Safety indicators were above target. The overall
outcome was close to target.
Production for operated assets did not meet threshold impacted by the CALM buoy and earthquake
restoration activities. Production for non-operated assets was between target and stretch.
Overall achievement for the Production measure was close to target.
Achievement of the operated asset Costs did not meet threshold. Costs associated with non-
operated assets were just below threshold. Both impacted by earthquake restoration and
CALM buoy costs. Overall the cost measure was between threshold and target.
Achievement of the EBITDAX measure was below threshold driven by lower volume and higher
production costs impacted by CALM buoy and earthquake recovery remediation costs.
The Gas Resource discovery measure has been beyond stretch for several years and there was a
further increase in the current period relating to Muruk. Under the phased approach to recognising
resource additions for Short Term Incentive purposes, the outcome continues to exceed stretch
The Oil Resource discovery measure has been beyond stretch for the last two years and there was a
large addition in the current period relating to Alaska. Under the phased approach to recognising
resource additions for Short Term Incentive purposes, the outcome continues to exceed stretch
Strategic and growth
initiatives
15%
Achievement on the strategic and growth initiatives was between target and stretch reflecting
achievement of key milestones in Alaska, diversity and inclusion, and climate change.
No achievement (below threshold)
B/w threshold and target
Close to target
B/w target and stretch
At or beyond stretch
102
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report
LTI OUTCOME
Table 8 shows the outcome of the LTI granted in 2017 against the relative TSR performance metrics.
Table 8 – Analysis of LTI vesting
RELEVANT EXECUTIVE KMP LTI MEASURE – RELATIVE TSR
PERFORMANCE OUTCOME
Peter Botten
Michael Drew
Stephen Gardiner
Ian Munro
Elizabeth White
Keiran Wulff
ASX 50 Peer Group
S&P Global 1200
9.43% TSR in AUD
Ranked 14.6th percentile
-0.3% TSR in USD
Energy Index Peer Group (USD)
Ranked 52.8th percentile
S&P Global 1200
9.43% TSR in AUD
Energy Index Peer Group (Local Currency)
Ranked 59.7th percentile
%
WEIGHTING
% OF LTI
TRANCHE
THAT VESTED
33.3%
Nil
33.3%
55.6%
33.3%
69.4%
Overall
41.67%
KEY TERMS OF EXECUTIVE KMP EMPLOYMENT CONTRACTS
Table 9 sets out for the contractual provisions for current Executive KMP.
Table 9 – contractual provisions for current Executive KMP
EXECUTIVE
KMP
Peter Botten
Managing Director
CONTRACT
DURATION
NOTICE PERIOD
COMPANY
NOTICE PERIOD
EMPLOYEE
TERMINATION PROVISION
Terminates 25 August 2020
Not applicable*
Not applicable*
18 months TFR**
Other Executive KMP On-going
6 months
6 months
4 weeks per year of service (minimum 8, maximum 52)
*
This reflects the latest contractual arrangement with Mr Botten after both his termination date and the appointment of his successor were determined and the
notice period is no longer valid.
** Represents six months TFR as a termination benefit and an aggregate payment of 12 months TFR paid monthly, in consideration for complying with post-
employment restraint obligations.
EXECUTIVE EQUITY OWNERSHIP
Prior year equity grants to Executive KMP still on foot from other equity plans
2018 LNG Expansion Incentive (Cash and equity)
Name of plan
Year of grant
Participants
Instruments issued
LNG Expansion Incentive.
2018.
All Executive KMP and senior managers.
Performance Rights 75%, cash 25%.
Maximum value of equity to be granted
90% of TFR for the Managing Director and 50% of TFR for other Executive KMP.
Performance period
Vesting quantum reflects timing of Final Investment Decision; rights convert to shares after a further 2 years.
Performance measurement date
Variable, on achievement of scorecard objectives up to 3 years from grant.
PRs vest
Two years after investment sanction is achieved.
Performance conditions
See table below.
Vesting scale
Acquisition of share rights
Treatment of dividends
Restriction on hedging
Terminating executives
Change of control
Dependent upon achievement of performance requirements.
PRs are issued by the company and held by the participant subject to the satisfaction of the vesting conditions. The
number of rights held may be adjusted pro-rata, consistent with ASX adjustment factors for any capital restructure.
If the PRs vest, executives can exercise them to receive shares. Such shares are normally acquired on-market.
PRs do not have voting rights or accrue benefits.
Hedging of entitlements by executives is not permitted.
Incentives remain on foot unless an executive resigns or is terminated by the company for cause.
Vesting is subject to board discretion, taking into account performance to the change in control.
103
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Performance conditions for the LNG Incentive Plan
SCOPE OF ACCOUNTABILITY
DELIVERABLES
Equity and project financing
METRICS CENTRED ON:
¸ Funding arrangements with financiers
¸ Construction risk management
Delivery of
Oil Search investment sanction
pre-requisites
LNG Sales and purchase agreements
¸ Equity marketing arrangements in place
Commercial agreements
¸ Shipping arrangements
¸ Integration agreements negotiated
FEED execution and licencing for AGX
¸ AGX FEED studies delivered on schedule
Support
Operators to achieve their
investment sanction pre-requisites
Engineering, design and contracting
Reserves
Licencing
Project financing
Commercial agreements
¸ Licencing 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
EXECUTIVE KMP SHARE AND OTHER EQUITY HOLDINGS
Minimum Shareholding Requirements
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 Executive KMP 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 TFR for the Managing Director
and (ii) half of the average annual TFR for the other Executive KMP.
Table 10 summarises the current applicable Minimum Shareholding required under this Policy.
Table 10– Minimum Shareholding requirements
INDIVIDUAL COVERED BY THIS POLICY
Managing Director
Executive KMP
MINIMUM SHAREHOLDING
(NUMBER OF SHARES)
320,000
52,500
The Policy operates by restricting the disposal of relevant Oil Search Shares acquired under the Company’s Long Term Incentive
Plans. It does not require the Managing Director or Executive KMP 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) 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 or (ii) if approved by
the Board (or its delegate) at its sole discretion. 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.
104
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Table 11: Movements in Share and other Equity Holdings for Executive KMP
ORDINARY SHARES
RESTRICTED SHARES
PERFORMANCE RIGHTS
BALANCE AT
1 JANUARY
2019
NET
CHANGE
BALANCE AT
31 DECEMBER
2019
BALANCE AT
1 JANUARY
2019
NET
CHANGE
BALANCE AT
31 DECEMBER
2019
BALANCE AT
1 JANUARY
2019
NET
CHANGE
BALANCE AT
31 DECEMBER
2019
2,347,330
277,966
2,625,296
530,660
(49,724)
480,936
1,148,084
(40,200)
1,107,884
KMP
Peter Botten
Michael Drew
Bart Lismont
Ian Munro
Elizabeth White
Keiran Wulff
FORMER KMP
Gerea Aopi
Paul Cholakos
Julian Fowles
Michael Herrett
Stephen Gardiner
483,749
50,345
534,094
2,984
(2,984)
–
–
–
77,934
65,799
–
–
–
40,949
–
–
77,934
106,748
51,854
101,769
–
92,830
25,740
103,377
30,279
(2,046)
–
(8,731)
39,727
22,051
511,687
366,326
166,020
129,020
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
86,841
89,572
91,289
79,969
(47,930)
(10,980)
(50,385)
(5,705)
82,133
99,723
–
84,099
65,467
125,428
38,911
78,592
40,904
74,264
160,996
241,010
–
226,143
140,964
240,448
37,963
(6,100)
22,958
(8,543)
40,958
485
64,716
229,075
96,375
(43,590)
(151,185)
(55,229)
194,880
(128,606)
198,959
234,910
22,958
217,600
181,922
240,933
21,126
77,890
41,146
66,274
No options were granted by the Company nor exercised in 2019. The net change in Ordinary Shares follows from the vesting of
Restricted Shares granted in 2017 and detailed in Table 13. For current KMP the following disposals occurred: Mr Drew sold 11,485
shares; Mr Munro sold 48,806 shares; and Dr Wulff sold 10,941 shares to meet US withholding tax obligations.
Table 12– Details of movements of Performance Rights and LNG Expansion Incentive Rights during 2019
Movements during the year
GRANT
DATE
BALANCE AT
1 JAN 2019
RIGHTS
GRANTED
RIGHTS
EXERCISED
RIGHTS
LAPSED
BALANCE AT
31 DEC 2019
% VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
Directors
Peter Botten
16/05/2016
22/05/2017
21/05/2018
21/06/2018
21/05/2019
326,900
315,000
302,200
203,984
–
Total
1,148,084
Executives
Michael Drew
16/05/2016
22/05/2017
21/05/2018
21/06/2018
21/05/2019
14,537
56,300
55,500
34,659
–
Total
160,996
Stephen Gardiner 16/05/2016
22/05/2017
22/05/2018
21/06/2018
21/05/2019
67,300
66,800
65,800
41,110
–
Total
241,010
Bart Lismont
20/10/2019
Ian Munro
Total
16/05/2016
22/05/2017
21/05/2018
21/06/2018
21/05/2019
65,243
62,900
60,300
37,700
–
Total
226,143
–
–
–
–
286,700
286,700
–
–
–
–
52,500
52,500
–
–
–
–
61,200
61,200
22,958
22,958
–
–
–
–
56,700
56,700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
–
–
–
–
100%
–
–
–
–
100%
–
–
–
–
–
100%
–
–
–
–
2019
2020
2021
2021(1)
2022
2019
2020
2021
2021(1)
2022
2019
2020
2021
2021(1)
2022
2022
2019
2020
2021
2021(1)
2022
(326,900)
–
–
–
–
–
315,000
302,200
203,984
286,700
(326,900)
1,107,884
(14,537)
–
–
–
–
–
56,300
55,500
34,659
52,500
(14,537)
198,959
(67,300)
–
–
–
–
–
66,800
65,800
41,110
61,200
(67,300)
234,910
–
–
(65,243)
–
–
–
–
22,958
22,958
–
62,900
60,300
37,700
56,700
(65,243)
217,600
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
105
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report
GRANT
DATE
BALANCE AT
1 JAN 2019
RIGHTS
GRANTED
RIGHTS
EXERCISED
RIGHTS
LAPSED
BALANCE AT
31 DEC 2019
% VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
Elizabeth White
16/05/2016
22/05/2017
21/05/2018
21/06/2018
21/05/2019
12,242
40,808
54,100
33,814
–
Keiran Wulff
Total
140,964
16/05/2016
22/05/2017
21/05/2018
21/06/2018
21/05/2019
1/10/2019
69,365
66,900
64,100
40,083
–
–
Total
240,448
Former KMP
Gerea Aopi
16/05/2016
22/05/2017
Total
Paul Cholakos
16/05/2016
22/05/2017
21/05/2018
21/06/2018
43,590
21,126
64,716
66,087
63,700
61,100
38,188
Total
229,075
Julian Fowles
16/05/2016
22/05/2017
21/05/2018
Total
Michael Herrett
16/05/2016
22/05/2017
21/05/2018
21/06/2018
55,229
31,801
9,345
96,375
56,203
54,200
52,000
32,477
Total
194,880
–
–
–
–
53,200
53,200
–
–
–
–
61,400
8,450
69,850
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12,242)
–
–
–
–
–
40,808
54,100
33,814
53,200
(12,242)
181,922
(69,365)
–
–
–
–
–
–
66,900
64,100
40,083
61,400
8,450
(69,365)
240,933
(43,590)
–
(43,590)
(66,087)
(19,110)
(38,493)
(27,495)
(151,185)
(55,229)
–
–
(55,229)
(56,203)
(16,260)
(32,760)
(23,383)
–
21,126
21,126
–
44,590
22,607
10,693
77,890
–
31,801
9,345
41,146
–
37,940
19,240
9,094
(128,606)
66,274
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
–
–
–
–
100%
–
–
–
–
–
100%
–
100%
30%
63%
72%
100%
–
–
100%
30%
63%
72%
2019
2020
2021
2021(1)
2022
2019
2020
2021
2021(1)
2022
2022
2019
2020
2019
2020
2021(1)
2021
2019
2020
2021
2019
2020
2021(1)
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.
106
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report
Table 13 – Details of movements of Restricted Shares – two years’ service contingent from grant date
Movements during the year
GRANT
DATE
BALANCE AT
1 JAN 2019
RESTRICTED
SHARES
GRANTED
RESTRICTED
SHARES
VESTED
RESTRICTED
SHARES
FORFEITED
BALANCE AT
31 DEC 2019
% VESTED IN
THE YEAR
%
FORFEITED
IN THE YEAR
FINANCIAL
YEAR OF
VESTING
Directors
Peter Botten
19/05/2017
21/05/2018
21/05/2019
277,966
252,694
–
–
–
228,242
(277,966)
–
–
Total
530,660
228,242
(277,966)
Executives
Michael Drew
19/05/2017
21/05/2018
21/05/2019
Total
Stephen Gardiner 19/05/2017
Ian Munro
21/05/2018
21/05/2019
Total
19/05/2017
21/05/2018
21/05/2019
Total
Elizabeth White
21/05/2018
Keiran Wulff
21/05/2019
Total
19/05/2017
21/05/2018
21/05/2019
20/10/2019
8,501
43,353
–
51,854
50,345
51,424
–
101,769
48,806
44,024
–
92,830
25,740
–
25,740
51,890
51,487
–
–
Total
103,377
Former KMP
Gerea Aopi
19/05/2017
21/05/2018
Total
Paul Cholakos
19/05/2017
21/05/2018
21/05/2019
Total
Julian Fowles
19/05/2017
21/05/2018
Total
Michael Herrett
19/05/2017
21/05/2018
21/05/2019
Total
47,930
38,911
86,841
49,437
40,135
–
89,572
50,385
40,904
91,289
42,044
37,925
–
79,969
–
–
38,780
38,780
–
48,299
48,299
–
–
40,075
40,075
–
39,727
39,727
–
–
47,092
26,849
73,941
–
–
–
–
–
38,457
38,457
–
–
–
–
–
36,339
36,339
(8,501)
–
–
(8,501)
(50,345)
–
–
(50,345)
(48,806)
–
–
(48,806)
–
–
–
(51,890)
–
–
–
(51,890)
(47,930)
–
(47,930)
(49,437)
–
–
(49,437)
(50,385)
–
(50,385)
(42,044)
–
–
(42,044)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
252,694
228,242
480,936
–
–
–
100%
43,353
38,780
82,133
–
–
–
100%
51,424
48,299
99,723
–
–
–
100%
44,024
40,075
84,099
25,740
39,727
65,467
–
51,487
47,092
26,849
125,428
–
38,911
38,911
–
–
–
–
100%
–
–
–
–
–
–
100%
40,135
38,457
78,592
–
40,904
40,904
–
–
–
–
–
100%
37,925
36,339
74,264
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
2020
2021
2019
2020
2020
2021
2019
2020
2019
2020
2021
2019
2020
2019
2020
2021
107
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report
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$3 million in any calendar year which was set by shareholders at the 2019 Annual Meeting.
Fees for Non-Executive Directors are fixed and are not linked to the financial performance of the Company. Non-Executive Directors
are not entitled to retirement benefits.
Table 14 sets out the fee structure which has applied since 1 January 2019. The Project & Technology Committee was established in
July 2019.
Table 14 – 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
Additional fees
Chairman Audit and Financial Risk Committee
Chairman Health, Safety and Sustainability Committee
Chairman People and Nominations Committee
Chairman Project & Technology Committee
Member Audit and Financial Risk Committee
Member Health, Safety and Sustainability Committee
Member People and Nominations Committee
Member Project & Technology Committee
ANNUAL FEE
A$550,000
A$190,000
A$49,500
A$49,500
A$49,500
A$24,750
A$25,500
A$25,500
A$25,500
A$12,750
(1) The fees paid to the Chairman of the Board are inclusive of any Committee Fees.
Each Australian and PNG based Non-Executive Director also receives a travel allowance of A$35,000 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. Non-Executive Directors based further afield receive a travel allowance of A$45,000 per annum.
In addition to Board and Committee fees, Non-Executive Directors are entitled to be reimbursed for all reasonable travel,
accommodation and other expenses incurred in attending meetings of the Board, Committees or shareholders or while engaged
on Oil Search business.
Table 15 shows the annual component of remuneration for Non-Executive Directors in line with their respective committee
memberships.
Table 15 – Annual Components of Board Committee Fees for Non-Executive Directors in Australian dollars
DIRECTOR
Rick Lee
Bakheet Al Katheeri
Kostas Constantinou
Susan Cunningham
Eileen Doyle
Fiona Harris
Agu Kantsler
Melchior Togolo
BASE
ANNUAL FEE
AU$
AUDIT &
FINANCIAL
RISK AU$
HEALTH,
SAFETY &
SUSTAINABILITY
AU$
PEOPLE &
NOMINATIONS
AU$
PROJECT &
TECHNOLOGY
RISK AU$
TRAVEL
ALLOWANCE
AU$
550,000
190,000
190,000
190,000
190,000
190,000
190,000
190,000
–
–
25,500
25,500
25,500
49,500
–
25,500
–
25,500
–
25,500
49,500
–
25,500
–
–
25,500
25,500
–
–
25,500
49,500
25,500
–
24,750
–
12,750
12,750
–
12,750
–
35,000
45,000
35,000
45,000
35,000
35,000
35,000
35,000
There are no performance-based plans for Oil Search Non-Executive Directors. All Fee amounts indicated above represent annual
fees and therefore do not correspond with the following table 16 which indicates actual fees paid.
On 11 July 2019: Dr Al Katheeri joined the People & Nominations Committee and ceased to be a member of the Audit & Financial
Risk Committee; and Ms Cunningham joined the Audit & Financial Risk Committee and ceased to be a member of the People &
Nominations Committee.
108
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report Table 16 – Oil Search Limited Non-Executive Directors Remuneration (US$)
US$
YEAR
SALARIES
FEES AND
ALLOWANCES
SHORT TERM
NON-
MONETARY
BENEFITS
Non-Executive Directors
POST-
EMPLOYMENT
LONG TERM
EQUITY
OTHER
TOTAL
SHORT TERM
INCENTIVE
COMPANY
CONTRIBUTION
TO SUPER
LONG
SERVICELEAVE
ACCRUAL
SIGN ON /
TERMINATION
BENEFITS
Rick Lee
Bakheet Al
Katheeri(1)
Kostas
Constantinou
Susan
Cunningham(1)
Eileen Doyle
Fiona Harris
Agu Kantsler
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Melchior Togolo 2019
2018
409,793
384,865
201,788
133,654
193,338
173,245
201,087
131,753
210,894
185,462
210,150
190,756
210,894
182,992
193,338
173,816
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
409,792
384,865
201,788
133,654
193,338
173,245
201,087
131,753
210,894
185,462
210,150
190,756
210,894
182,992
193,338
173,816
1
Dr Al Katheeri and Ms Cunningham were appointed to the Oil Search Board on 26 March 2018.
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 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 the annual base fee received by
Non-Executive Directors.
Table 17 summarises the current applicable Minimum Shareholding required under this Policy.
Table 17 – Minimum Shareholding requirements
INDIVIDUAL COVERED BY THIS POLICY
Chairman of the Board
Other Non-Executive Directors
Table 18– Non-Executive Director shareholdings
DIRECTOR
Bakheet Al Katheeri
Kostas Constantinou
Susan Cunningham
Eileen Doyle
Fiona Harris
Agu Kantsler
Rick Lee
Melchior Togolo
109
MINIMUM SHAREHOLDING
(NUMBER OF SHARES)
75,000
25,000
BALANCE AT
1 JANUARY
2019
NET
MOVEMENT
DURING 2019
BALANCE AT
31 DECEMBER
2019
–
–
–
36,050
31,961
45,736
96,829
–
–
–
10,000
10,000
–
–
–
–
–
–
–
36,050
31,961
45,736
96,829
–
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ REPORTDIRECTORS’ REPORTRemuneration Report 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
24 February 2020
The Directors
Oil Search Limited
Level 22, 1 Bligh Street
Sydney NSW 2000
Dear Directors,
Oil Search Limited
I am pleased to provide the following declaration of independence to the directors of Oil Search Limited
and its controlled subsidiaries.
As lead audit partner for the audit of the financial statements of Oil Search Limited and its controlled
subsidiaries for the financial year ended 31 December 2019, 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 Asia Pacific
110
OIL SEARCH ANNUAL REPORT 2019AUDITOR’S INDEPENDENCE DECLARATIONfor the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Other income
Other expenses
Profit/(loss) from operating activities
Net finance (costs)/income
Share of net profit from investments in joint ventures
Profit before income tax
CONSOLIDATED
PARENT
NOTE
2019
$’000
2018
$’000
2019
$’000
2018
$’000
3
4
5
6
7
27
1,584,808
1,535,761
(833,770)
(698,262)
751,038
837,499
–
–
–
67,169
(139,143)
679,064
9,579
205,746
(129,836)
717,242
(8,126)
197,620
(230,961)
(209,850)
627
–
228
–
–
–
–
114,273
(7,495)
106,778
(166)
–
448,730
507,392
197,848
106,612
Income tax (expense)/benefit
8
(136,310)
(166,190)
(3,532)
1,630
Net profit after tax
312,420
341,202
194,316
108,242
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation differences for foreign operations
Total comprehensive income for the year
Basic earnings per share
Diluted earnings per share
(2,085)
310,335
CENTS
20.50
20.41
(2,005)
339,197
CENTS
22.39
22.32
9
9
–
–
194,316
108,242
The statements of comprehensive income should be read in conjunction with the accompanying notes.
111
OIL SEARCH ANNUAL REPORT 2019STATEMENTS OF COMPREHENSIVE INCOMESTATEMENTS OF COMPREHENSIVE INCOMEfor the year ended 31 December 2019
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
CONSOLIDATED
PARENT
NOTE
2019
$’000
2018
$’000
21(a)
396,232
272,087
104,038
19,867
–
600,557
228,705
90,428
12,302
–
792,224
931,992
81,450
67,939
83,416
59,408
2019
$’000
–
792
–
1,504
1,352
3,648
–
–
2018
$’000
–
57,150
–
826
1,352
59,328
–
–
2,998,021
2,344,818
117,067
112,153
6,124,358
6,240,567
488,300
248,768
–
–
–
–
–
54,443
966,118
–
3,319,803
2,764,803
3,958
–
–
760,964
24,547
28,489
10,780,629
9,741,899
3,461,417
2,905,445
11,572,853
10,673,891
3,465,065
2,964,773
337,022
28,523
654,513
100,663
1,120,721
326,484
499,805
19,317
356,739
68,433
770,973
–
–
–
1,157
228
–
–
499,805
1,385
10,331
688,395
23,394
569,694
3,140,069
3,068,035
1,354,926
1,076,177
5,193,721
4,737,300
6,314,442
5,508,273
–
–
11,924
10,389
–
6
11,930
511,735
–
–
10,389
11,774
5,258,411
5,165,618
2,953,330
2,952,999
3,158,390
3,152,443
3,158,390
3,152,443
(1,719)
(5,448)
13,495
7,681
2,101,740
2,018,623
(218,555)
(207,125)
5,258,411
5,165,618
2,953,330
2,952,999
11
12
13
14
15
16
16
27
27
8
17
18
19
17
18
19
8
20
20
The statements of financial position should be read in conjunction with the accompanying notes.
112
OIL SEARCH ANNUAL REPORT 2019STATEMENTS OF FINANCIAL POSITIONSTATEMENTS OF FINANCIAL POSITIONas at 31 December 2019 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
Net cash from operating activities
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
CONSOLIDATED
PARENT
NOTE
2019
$’000
2018
$’000
2019
$’000
1,632,493
1,570,768
–
–
–
205,746
(568,994)
(360,999)
17,561
14,884
(237,562)
(205,273)
(32,659)
(40,663)
(17,822)
(84,940)
(63,150)
(16,658)
(7,656)
430
–
–
(44)
–
2018
$’000
–
114,273
(9,885)
–
(45)
–
(35)
–
21(b)
752,354
854,632
198,476
104,308
(36,401)
(650,686)
(39,540)
(78,648)
(6,282)
(56,404)
(647,617)
(36,945)
(26,211)
(41,653)
–
–
(3,809)
(28,408)
–
–
–
–
–
–
–
–
(555,000)
(470,000)
Advances made to third party in respect of investing activities
(1,750)
(2,167)
–
–
Net cash used in investing activities
(813,307)
(810,997)
(558,809)
(498,408)
Cash flows from financing activities
Dividend payments
Purchase of treasury shares
Contributions received for employee share schemes
Repayment of borrowings
Proceeds from borrowings
Loan provided to third party
Establishment fee on credit facility
Lease payments
Loans from/(to) related entities
(205,746)
(114,273)
(205,746)
–
2,287
(8,239)
4,246
(1,064,200)
(331,901)
1,150,000
(1,750)
–
(23,963)
–
–
(2,167)
(3,759)
(2,231)
–
(114,273)
(8,239)
–
–
–
–
–
–
–
–
–
–
–
–
–
566,079
360,333
516,612
394,100
Net cash (used in)/from financing activities
(143,372)
(458,324)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
21(a)
(204,325)
(414,689)
600,557
396,232
1,015,246
600,557
–
–
–
–
–
–
The statements of cash flows should be read in conjunction with the accompanying notes.
113
OIL SEARCH ANNUAL REPORT 2019 STATEMENTS OF CASH FLOWS STATEMENTS OF CASH FLOWSfor the year ended 31 December 2019
CONSOLIDATED
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 income for the year
Transactions with owners, recorded directly
in equity
Transfer of vested shares
Employee share-based remuneration
Purchase of treasury shares
Trust distribution
Total transactions with owners
Balance at 31 December 2018
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$’000
RESERVE FOR
TREASURY
SHARES
$’000
EMPLOYEE
EQUITY
COMPENSATION
RESERVE
$’000
RETAINED
EARNINGS
$’000
TOTAL
$’000
(17,157)
3,663
7,060
1,791,745
4,937,754
SHARE
CAPITAL
$’000
3,152,443
–
–
–
–
–
–
–
–
–
–
–
(2,005)
(2,005)
–
–
–
–
–
3,152,443
(19,162)
–
–
–
–
7,545
–
(8,239)
–
(694)
2,969
–
–
–
–
(114,273)
(114,273)
341,202
341,202
–
(2,005)
341,202
339,197
(7,545)
11,230
–
–
3,685
10,745
–
–
–
(51)
(51)
–
11,230
(8,239)
(51)
2,940
2,018,623
5,165,618
Balance at 1 January 2019
3,152,443
(19,162)
2,969
10,745
2,018,623
5,165,618
Impact of change in accounting policy (Note 29)
–
–
–
–
(23,447)
(23,447)
Restated balance at 1 January 2019
3,152,443
(19,162)
2,969
10,745
1,995,176
5,142,171
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
–
–
–
–
–
(2,085)
Total comprehensive income for the year
–
(2,085)
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
–
–
5,947
–
5,947
–
–
–
–
–
Balance at 31 December 2019
3,158,390
(21,247)
–
–
–
–
–
–
–
(205,746)
(205,746)
312,420
312,420
–
(2,085)
–
312,420
310,335
9,513
–
(5,947)
–
3,566
6,535
(9,513)
11,761
–
–
2,248
–
–
–
(110)
(110)
–
11,761
–
(110)
11,651
12,993
2,101,740
5,258,411
The statements of changes in equity should be read in conjunction with the accompanying notes.
114
OIL SEARCH ANNUAL REPORT 2019STATEMENTS OF CHANGES IN EQUITYSTATEMENTS OF CHANGES IN EQUITYfor the year ended 31 December 2019 PARENT
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 income for the year
Transactions with owners, recorded
directly in equity
Transfer of vested shares
Employee share-based remuneration
Purchase of treasury shares
Net exchange differences
Total transactions with owners
Balance at 1 January 2019
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
Shares issued for the share purchase plan
Net exchange differences
Total transactions with owners
SHARE
CAPITAL
$’000
AMALGAMATION
RESERVE
$’000
RESERVE FOR
TREASURY
SHARES
$’000
EMPLOYEE
EQUITY
COMPENSATION
RESERVE
$’000
RETAINED
EARNINGS/
(LOSSES)
$’000
TOTAL
$’000
3,152,443
(2,990)
6,283
1,398
(201,095)
2,956,039
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,545
–
(8,239)
–
(694)
5,589
–
–
–
(114,273)
(114,273)
108,242
108,242
108,242
108,242
(7,545)
11,230
–
(1)
3,684
5,082
–
–
–
1
1
–
11,230
(8,239)
–
(2,991)
(207,125)
2,952,999
3,152,443
(2,990)
5,589
5,082
(207,125)
2,952,999
–
–
–
–
–
5,947
–
5,947
–
–
–
–
–
–
–
–
–
–
–
9,513
–
(5,947)
–
3,566
9,155
–
–
–
(9,513)
11,761
–
–
2,248
(205,746)
(205,746)
194,316
194,316
194,316
194,316
–
–
–
–
–
–
11,761
–
–
11,761
7,330
(218,555)
2,953,330
Balance at 31 December 2018
3,152,443
(2,990)
Balance at 31 December 2019
3,158,390
(2,990)
The statements of changes in equity should be read in conjunction with the accompanying notes.
115
OIL SEARCH ANNUAL REPORT 2019STATEMENTS OF CHANGES IN EQUITYSTATEMENTS OF CHANGES IN EQUITYfor the year ended 31 December 2019 1 SIGNIFICANT ACCOUNTING POLICIES
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 2019
comprises the parent entity and its controlled entities (together,
‘the Group’).
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.
The financial statements were authorised for issue by the Board
of Directors on 24 February 2020.
(a) Basis of preparation
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 2019.
The Group amended its accounting policy as a result of
adopting IFRS 16 Leases.
The transition approach and the impact of adopting IFRS 16
Leases is described in note 29. Note 1(l) details the accounting
policy applied.
There have been no other new standards or amendments
that were mandatory for adoption for the year ended
31 December 2019.
(ii) New accounting standards not yet effective
Certain new accounting standards and interpretations have
been published that are not mandatory for the 31 December
2019 reporting period and have not been early adopted by the
Group. These standards are not expected to have a material
impact on the Group in the financial years commencing 1
January 2020.
(b) Principles of consolidation
The consolidated financial statements comprise the financial
statements of Oil Search Limited and its controlled subsidiaries,
after elimination of all inter-company transactions.
(i) Business combinations
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.
(ii) Subsidiaries
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.
(iii) Joint arrangements
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 27.
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
(i) Functional and presentation currency
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.
116
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ii) Transactions and balances
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.
(iii) Group companies
The results and financial position of foreign operations (none
of which has the currency of a hyperinflationary economy)
that have 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.
(d) Revenue recognition
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.
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.
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.
(e) Borrowing costs
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.
(f) Share-based remuneration
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
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.
117
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(g) Income tax
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.
(h) Inventories
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.
(i) Exploration and evaluation assets
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.
118
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(k) Other plant and equipment
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.
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:
Transport and Logistics
4% - 33%
Corporate plant and equipment
14% - 33%
The depreciation on rigs is computed using drilling days based
on a ten year drilling life.
(l) Leases
A lease arrangement is one that conveys the right to control the
use of an identified asset for a period of time in exchange for
consideration. The Group’s right to control an asset is defined
by whether the arrangement allows the Group to:
¸ use an identified asset. This may be specified explicitly or
implicitly, and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset.
If the supplier has a substantive substitution right, then the
asset is not identified;
¸ obtain substantially all of the economic benefits of the asset
throughout the period of use; and
¸ direct the use of the asset thereby changing how the asset is
used and the purpose for which it is deployed. The right to
direct the use of the asset will also exist if the Group:
· has the right to operate the asset; or
· designed the asset in a way that predetermines its
deployment and purpose.
The Group does not recognise lease arrangements in respect
of intangible assets. The payments associated with short-
term lease arrangements and leases of low value assets
are recognised on a straight line basis in the Statement of
Comprehensive Income. Short term leases are leases with a
lease term of 12 months or less. The lease arrangements that
contain identifiable non-lease components are separated and
accounted for separately. The Group applies the requirements
of the leasing standard on a lease by lease basis.
(i) Leased assets
The Group recognises a right of use asset and a lease liability at
the commencement date of the lease arrangement. The right of
use asset is initially measured at cost, which comprises the initial
amount of the lease liability adjusted for any lease payments
made at or before the commencement date, plus any initial direct
costs incurred and estimates of costs to dismantle or remediate
the underlying asset, less any lease incentives received.
Subsequent to initial recognition, the assets are accounted for in
accordance with the accounting policy applicable to that asset.
In addition, the right of use asset may be adjusted periodically
due to re-measurements of the lease liability.
(ii) Lease Liabilities
The lease liability is initially measured at the present value of
the outstanding lease payments at the commencement date of
the arrangement, discounted using the borrowing rate implicit
in the lease or, if that rate cannot be readily determined, the
Group’s incremental borrowing rate.
The lease liability is subsequently measured through increasing
the carrying amount to reflect interest on the lease liability, less
lease payments made. It is remeasured when there is a change
in future lease payments arising from a change in an index or
rate or if the Group changes its assessment of whether it will
exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount
of the right of use asset, or is recorded in the profit and loss
if the carrying amount of the right of use asset has been
reduced to zero.
(m) Impairment of assets
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.
119
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expected future cash flows are the basis for determining
the recoverable amount, however, market values are also
referenced where appropriate.
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.
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.
(n) Employee benefits
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
(i) Investments
Investments in subsidiaries are accounted for at cost in the
parent entity financial statements.
(ii) Other financial assets
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.
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 that there has been no historical credit loss
experience for trade receivables, no additional loss allowance
was recognised.
(p) Borrowings
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 15 to 16.
120
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 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
27(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 27(d).
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
(a) Information about reportable segments
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.
In 2019, the Group amended its reportable segments to reflect
the creation of a multi-business unit structure following on
from the Group’s organisation re-design implemented in the
year. The new operating model consists of two fully enabled
business units, being the PNG BU and the Alaska BU, each
comprising specific assets, departments and disciplines.
The comparative balances have been restated to reflect the
updated reportable segments.
PNG Business Unit (PNG BU)
The PNG BU includes exploration, development, production
and sale of hydrocarbons and abandonment activities from the
Group’s interest in operated and non-operated assets in PNG.
In addition, this segment also includes investments in power
generation assets, forestry assets and ownership of drilling rigs
in PNG.
Alaska Business Unit (Alaska BU)
The Alaska BU includes exploration, evaluation and
development of hydrocarbons in the United States of America.
Centre
Comprises corporate activities needed to shape, safeguard and
service the business units and the Group.
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 judgements 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 18.
Reserve estimates
The estimated reserves are management assessments and
take into consideration reviews by an independent third party,
Netherland Sewell and Associates and Ryder Scott Company,
L.P., 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 15.
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
121
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 2 SEGMENT REPORTING (CONTINUED)
(b) Segment information provided to the executive 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.
PNG BU
ALASKA BU
CENTRE
TOTAL
2019
2018
2019
2018
Selling and distribution costs
(34,462)
(51,523)
$’000
External revenues
Costs of production
Rig operating costs
Corporate
Foreign currency (losses)/gains
Power costs expensed
Profit on disposal/sale of assets
Other income
Other expenses
EBITDAX
1,584,386
1,535,155
(407,532)
(326,275)
(1,363)
(1,147)
–
(1,116)
(969)
889
37,712
–
(706)
(4,182)
260
7,776
(21,384)
(15,511)
–
–
–
–
–
249
–
–
2,815
–
1,156,161
1,143,847
3,064
–
–
–
–
–
–
–
–
–
–
–
–
2019
422
–
2018
2019
2018
606
1,584,808
1,535,761
–
(407,532)
(326,275)
(1,526)
(1,131)
(35,988)
(52,654)
–
–
(1,363)
(37,597)
(31,571)
(37,597)
(1,081)
(1,864)
(1,948)
–
–
26,642
(186)
–
–
1,803
(1,691)
(969)
889
67,169
(1,147)
(31,571)
(2,570)
(4,182)
260
9,579
(21,570)
(17,202)
(13,326)
(33,848)
1,145,899
1,109,999
(14,087)
(7,908)
(413,710)
(326,094)
(370)
–
(316)
(47,260)
(66,663)
–
(5,865)
–
Depreciation and amortisation
(395,024)
(318,186)
(4,599)
Exploration costs expensed
(24,417)
(52,093)
(22,473)
(14,254)
(4,694)
–
(1,171)
–
Impairment
EBIT
732,026
773,568
(25,179)
(14,254)
(27,783)
(42,072)
679,064
717,242
Net finance costs
(206,430)
(202,599)
Share of investment in joint ventures
627
–
(103)
–
42
–
(24,428)
(7,293)
(230,961)
(209,850)
–
–
627
–
Profit before income tax
Income tax expense
Net profit after tax
Investment expenditure
448,730
507,392
(136,310)
(166,190)
312,420
341,202
Exploration and evaluation assets
159,894
230,967
539,776
483,517
Oil and gas assets - development
and production
126,147
58,520
–
–
Other plant and equipment
13,088
12,773
6,208
7,445
299,129
302,260
545,984
490,962
340
–
25,271
25,611
312
–
700,010
126,147
714,796
58,520
41,829
42,141
44,567
62,047
870,724
835,363
Geographical segments
The Group operates primarily in Papua New Guinea, 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.
When 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 $966.1 million (2018: $760.9 million).
REVENUE
NON-CURRENT ASSETS(1)
2019
2018
2019
2018
1,584,386
1,535,155
8,556,705
8,305,847
–
422
–
–
606
–
999,311
114,898
143,597
477,169
64,603
133,316
1,584,808
1,535,761
9,814,511
9,980,935
122
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 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
Transport and logistics
Rig assets
Total cost of sales
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 $227.2 million or 14% of the Group’s total revenue (2018: $240.0 million, 16%).
Revenue from one customer represents approximately $253.1 million or 16% of the Group’s total revenue (2018: $240.6 million, 16%).
Revenue from one customer represents approximately $297.5 million or 19% of the Group’s total revenue (2018: $257.7 million, 17%).
Revenue from one customer represents approximately $190.8 million or 12% of the Group’s total revenue (2018: $157.3 million, 10%).
Revenue from one customer represents approximately $159.9 million or 10% of the Group’s total revenue (2018: $186.7 million, 12%).
Drilling rig and camp lease revenue
13,251
13,363
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
2019
$’000
2018
$’000
1,201,388
1,124,929
295,506
326,007
44,961
29,702
35,144
36,318
1,571,557
1,522,398
1,584,808
1,535,761
–
–
–
–
–
–
–
–
–
–
–
–
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
2019
$’000
2018
$’000
(348,742)
(290,027)
(15,098)
(22,888)
(15,514)
(5,290)
(13,207)
(16,911)
(5,657)
(473)
(407,532)
(326,275)
(35,988)
(1,363)
(52,654)
(1,147)
(354,119)
(29,444)
(5,324)
(309,979)
(7,051)
(1,156)
(833,770)
(698,262)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 5 OTHER INCOME
Cost recoveries (including from leased assets)
Insurance receipts relating to prior year
Provisions written back
Dividend
Other
6 OTHER EXPENSES
Corporate(1)
Exploration costs expensed
Power costs expensed
Impairment
Depreciation
Profit on disposal/sale of assets
Other expenses
Foreign currency gain/(loss)
Total other expenses
(1) Includes business development costs of $5.5 million (2018: $2.0 million) on a consolidated basis.
7 NET FINANCE COSTS
Interest income
Finance charge on lease liabilities
Borrowing costs
Unwinding of discount on site restoration
Net finance (costs)/income
CONSOLIDATED
PARENT
2019
$’000
47,262
8,737
7,585
–
3,585
67,169
2018
$’000
5,334
–
–
–
4,245
9,579
2019
$’000
2018
$’000
–
–
–
–
–
–
205,746
114,273
–
–
205,746
114,273
CONSOLIDATED
PARENT
2019
$’000
(37,597)
(47,260)
(969)
(5,865)
(24,823)
889
(21,570)
(1,948)
2018
$’000
(31,571)
(66,663)
(4,182)
–
(7,908)
260
(17,202)
(2,570)
(139,143)
(129,836)
2019
$’000
(7,314)
(44)
–
–
–
–
(768)
–
(8,126)
2018
$’000
(5,881)
(35)
–
(563)
–
–
(1,016)
–
(7,495)
CONSOLIDATED
PARENT
2019
$’000
24,342
(38,004)
(201,419)
(15,880)
2018
$’000
19,405
(17,700)
(196,014)
(15,541)
(230,961)
(209,850)
2019
$’000
430
–
–
(202)
228
2018
$’000
–
–
(45)
(121)
(166)
124
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 8
INCOME TAX
The major components of tax expense are:
Current tax expense
Adjustments for current tax of prior periods
Deferred tax (expense)/benefit
Income tax (expense)/benefit
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
(47,487)
(2,188)
(86,635)
(136,310)
(29,392)
(9,641)
(127,157)
(166,190)
2019
$’000
–
(18)
(3,514)
(3,532)
2018
$’000
–
(7)
1,637
1,630
Reconciliation of income tax expense to prima facie tax payable:
Profit/(loss) before tax
448,730
507,392
197,848
106,612
Deferred tax (expense)/benefit recognised in net profit/(loss) for each type of
temporary difference:
Exploration, development and production
(171,939)
(153,389)
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
Exempt dividends
Income tax (expense)/benefit
Other assets
Provisions and accruals
Other items
Tax losses recognised
Deferred tax (expense)/benefit
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
(134,619)
(152,218)
(59,354)
(31,984)
(2,099)
(436)
(6,767)
(1,341)
–
–
–
–
(137,154)
(160,326)
(59,354)
(31,984)
(2,188)
(4,881)
4,777
3,101
35
(9,641)
(3,556)
1,559
5,774
–
(17)
(235)
61,724
(5,650)
–
(136,310)
(166,190)
(3,532)
7,362
35,573
(19,341)
61,710
(86,635)
246,514
2,815
214,610
140,916
101,022
260,241
966,118
2,323
(7,386)
1,025
30,270
(127,157)
227,597
6,251
219,834
6,260
46,088
254,934
760,964
(141)
–
521
(8)
(3,886)
(3,514)
20,970
–
3,577
–
–
–
(7)
(495)
34,282
(166)
–
1,630
136
–
34
–
1,467
1,637
20,879
–
3,185
–
4,425
–
24,547
28,489
1,205,674
1,024,674
1,158
148,034
60
1,412
41,930
8,161
1,354,926
1,076,177
–
–
–
6
6
–
–
–
–
–
125
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 9 EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
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
CONSOLIDATED
2019
CENTS
20.50
20.41
NO.
2018
CENTS
22.39
22.32
NO.
1,524,330,095
1,523,631,192
2,988,868
1,764,126
3,551,037
3,549,532
1,530,870,000 1,528,944,850
Basic earnings and diluted earnings per share have been calculated on a net profit after tax of $312.4 million (2018: $341.2 million).
There are 2,988,868 share rights (2018: 1,764,126) and 3,551,037 performance rights (2018: 3,549,532) 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 2019, the Restricted Share Plan Trust held 14,469 (2018: 4,953) 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.
10 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
2019
$’000
68,614
68,614
129,509
76,237
205,746
2018
$’000
129,509
129,509
83,800
30,473
114,273
2019
$’000
68,614
68,614
129,509
76,237
205,746
2018
$’000
129,509
129,509
83,800
30,473
114,273
(1) As Oil Search Limited is a Papua New Guinea incorporated company, there are no franking credits available on dividends.
(2) On 24 February 2020, the Directors declared a final unfranked dividend of US 4.5 cents per ordinary share for the current year (2018: US 8.5 cents final dividend)
to be paid on 24 March 2020. The proposed final dividend for 2019 is payable to all holders of ordinary shares on the Register of Members on 4 March 2020
(record date). The proposed final dividend has not been included as a liability in these financial statements.
(3) On 19 August 2019, the Directors declared an interim unfranked dividend of US 5 cents per ordinary share (2018: US 2 cent interim dividend), paid to the holders
of ordinary shares on 24 September 2019.
11 RECEIVABLES
Current
Trade debtors(1) (2)
Other debtors(1)
Amounts due from subsidiary entities(3)
CONSOLIDATED
PARENT
2019
$’000
146,352
125,735
–
2018
$’000
151,372
77,333
–
2019
$’000
2018
$’000
–
792
–
–
–
57,150
272,087
228,705
792
57,150
(1) During 2019, no current receivables have been determined to be impaired and no related impairment loss has been charged to the statement of comprehensive
income (2018: nil).
(2) Credit sales are on payment terms between 8 and 30 days.
(3) Receivables from related entities are payable on call.
126
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
12 INVENTORIES
Current
Materials and supplies
Petroleum products
13 OTHER ASSETS
Non-current
Deposits
Prepayments - other
Prepayments made to third party(1)
(1) Refer to note 14 Other financial assets for further explanation.
14 OTHER FINANCIAL ASSETS
Non-current
Loan receivable
CONSOLIDATED
PARENT
2019
$’000
97,319
6,719
104,038
2018
$’000
77,416
13,012
90,428
2019
$’000
2018
$’000
–
–
–
–
–
–
CONSOLIDATED
PARENT
2019
$’000
1,100
4,787
75,563
81,450
2018
$’000
860
8,743
73,813
83,416
2019
$’000
2018
$’000
–
–
–
–
–
–
–
–
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
2019
$’000
2018
$’000
67,939
59,408
–
–
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.
127
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
15 EXPLORATION AND EVALUATION ASSETS
At cost
Less impairment
Balance at start of year
Additions(1)
Exploration costs expensed
Impairment
Changes in restoration obligations
Net exchange differences
Balance at end of year
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
2019
$’000
3,650,351
2,991,283
140,859
(652,330)
(646,465)
2,998,021
2,344,818
(23,792)
117,067
2,344,818
1,672,352
700,010
(47,260)
(5,865)
10,485
(4,167)
714,796
(66,663)
–
26,387
(2,054)
112,153
3,853
(44)
–
1,104
–
2018
$’000
135,945
(23,792)
112,153
83,543
28,684
(350)
–
276
–
2,998,021
2,344,818
117,067
112,153
(1) During the period, the Group exercised the Armstrong option to double its interests in the Pikka Unit, Horseshoe Block and other exploration leases in Alaska, for
US$450 million. In conjunction with exercising the Armstrong option, Oil Search and Repsol entered into arrangements to align ownership interests resulting in a
contribution to Oil Search of US$64.4 million which has been offset against the acquisition costs.
Exploration and evaluation assets include $1,920.3 million (2018: $1,556.9 million) of licence acquisition costs that are classified as
intangible assets.
16 PROPERTY, PLANT AND EQUIPMENT
2019
At cost
Accumulated amortisation,
depreciation and impairment
Balance at 1 January 2019
Adjustment for change in
accounting policy
Additions
Transfers
Disposals
CONSOLIDATED
OIL AND GAS
CONSOLIDATED
OTHER PLANT AND EQUIPMENT
DEVELOPMENT
$’000
PRODUCING
$’000
TOTAL
$’000
TRANSPORT
AND
LOGISTICS1
$’000
RIGS
$’000
CORPORATE
$’000
TOTAL
$’000
123,907
9,297,562
9,421,469
316,034
94,192
351,506
761,732
–
(3,297,111)
(3,297,111)
(53,528)
(75,975)
(143,929)
(273,432)
123,907
6,000,451
6,124,358
262,506
18,217
207,577
488,300
65,818
6,174,749
6,240,567
113,936
19,644
115,188
248,768
–
65,818
45,039
–
–
–
–
6,174,749
6,240,567
81,108
126,147
159,252
273,188
18,762
–
19,644
3,897
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70,953
186,141
49,754
–
230,205
478,973
72,413
–
(4,000)
(4,000)
–
505
–
505
(354,119)
(354,119)
(29,444)
(5,324)
18,217
(24,823)
(59,591)
207,577
488,300
Changes in restoration obligations
13,050
98,713
111,763
Net exchange differences
Amortisation and depreciation
–
–
Balance at 31 December 2019
123,907
6,000,451
6,124,358
262,506
128
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
16 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
CONSOLIDATED
OIL AND GAS
CONSOLIDATED
OTHER PLANT AND EQUIPMENT
DEVELOPMENT
$’000
PRODUCING
$’000
TOTAL
$’000
TRANSPORT
AND
LOGISTICS1
$’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
2018
At cost
Accumulated amortisation,
depreciation and impairment
Balance at 1 January 2018
28,961
6,506,782
6,535,743
120,987
Additions
Transfers
Disposals
Changes in restoration obligations
36,797
60
–
–
21,723
(60)
–
58,520
–
–
(43,717)
(43,717)
Net exchange differences
–
–
–
–
–
–
–
–
Amortisation and depreciation
–
(309,979)
(309,979)
Balance at 31 December 2018
65,818
6,174,749
6,240,567
(7,051)
113,936
(1,156)
19,644
(1) Previously referred to as Marine assets.
Reconciliation of right-of-use-assets by asset class
(70,651)
19,644
18,703
2,097
–
–
–
–
(119,106)
115,188
(213,841)
248,768
66,011
59,950
–
(8)
(78)
(2,779)
(7,908)
115,188
205,701
62,047
–
(8)
(78)
(2,779)
(16,115)
248,768
Right-of-use-assets recognised upon transition
Right-of-use-assets pertaining to finance leases at transition date
Balance at 1 January 2019
Lease arrangements entered into during the period
Depreciation expense
Net exchange differences
OTHER PLANT AND EQUIPMENT
$’000
TRANSPORT
& LOGISTICS1
CORPORATE
TOTAL
159,252
113,936
273,188
18,762
(29,444)
–
70,953
230,205
–
70,953
113,936
344,141
8,388
(6,690)
(726)
27,150
(36,134)
(726)
Balance at 31 December 2019
262,506
71,925
334,431
(1) Previously categorised as Marine assets.
The expense recognised in the income statement for short term and low value leases for the year totalled $18.1 million.
129
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
17 PAYABLES
Current
Payables and accruals(1)
Deferred lease liability
Amounts due to subsidiary entities
Non-current
Other payables
Deferred lease liability
(1) Trade creditors are normally settled on 30 day terms.
18 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
2019
$’000
2018
$’000
2019
$’000
337,022
–
–
2018
$’000
321,536
4,948
–
337,022
326,484
1,003
–
498,802
499,805
10,331
–
10,331
10,294
13,100
23,394
–
–
–
1,157
–
–
1,157
–
–
–
CONSOLIDATED
PARENT
NOTE
(i)
(ii)
(i)
(ii)
2019
$’000
10,786
17,737
–
28,523
2018
$’000
7,570
11,556
191
19,317
12,524
675,871
–
11,836
557,332
526
688,395
569,694
2019
$’000
2018
$’000
–
–
–
–
–
11,924
–
11,924
–
228
–
228
–
10,389
–
10,389
CONSOLIDATED
PARENT
2019
$’000
19,406
10,014
(6,110)
23,310
2018
$’000
18,860
6,395
(5,849)
19,406
2019
$’000
2018
$’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, PNG and Alaska. 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
2019
$’000
568,888
126,662
(17,822)
–
15,880
693,608
2018
$’000
594,157
(19,808)
(16,658)
(4,344)
15,541
568,888
2019
$’000
10,617
1,105
–
–
202
11,924
2018
$’000
10,892
(396)
–
–
121
10,617
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.
130
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
19 BORROWINGS
Current
Lease liability
Corporate facilities(1)
Secured loan from joint operation(1)
Non-current
Lease liability
Corporate facilities(1)
Secured loan from joint operation(1)
(1) Details regarding borrowings are contained in Note 28(f).
20 SHARE CAPITAL AND RESERVES
Issued 1,524,746,985 (2018: 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
2019
$’000
32,286
300,000
322,227
654,513
2018
$’000
2,539
–
354,200
356,739
382,939
140,000
2,617,130
3,140,069
128,678
–
2,939,357
3,068,035
2019
$’000
2018
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
2019
$’000
2018
$’000
3,158,390
3,152,443
3,158,390
3,152,443
NOTE
(i)
(ii)
(iii)
(iv)
CONSOLIDATED
PARENT
2019
$’000
(21,247)
–
6,535
12,993
(1,719)
2018
$’000
(19,162)
–
2,969
10,745
(5,448)
2019
$’000
–
(2,990)
9,155
7,330
13,495
2018
$’000
–
(2,990)
5,589
5,082
7,681
(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.
131
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 21 STATEMENT OF CASH FLOWS
(a) 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
2019
$’000
370,689
13,543
12,000
396,232
2018
$’000
429,336
9,221
162,000
600,557
2019
$’000
2018
$’000
–
–
–
–
–
–
–
–
(1)
Includes $232.1 million (2018: $308.6 million) escrowed in the PNG LNG Project account. Refer to Note 28 for further details.
(2) Includes $12.0 million (2018: $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.
(b) Reconciliation of cash flows from operating activities
Net profit/(loss) after tax
Add/(deduct):
Share of net profit from investments in joint ventures
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 in receivables
(Increase)/decrease in inventories
(Decrease)/increase in payables
Decrease in current and non-current assets
Increase/(decrease) in provisions
Net cash from operating activities
CONSOLIDATED
PARENT
2019
$’000
312,420
(627)
5,865
–
413,710
15,880
11,761
466
117,175
(63,677)
(13,610)
(56,766)
2,581
7,176
439,934
752,354
2018
$’000
341,202
–
–
(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
2019
$’000
194,316
2018
$’000
108,242
–
–
–
–
202
–
–
3,948
(677)
–
687
–
–
4,160
198,476
–
563
–
–
121
–
–
(2,806)
(2,995)
–
1,854
–
(671)
(3,934)
104,308
132
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 21 STATEMENT OF CASH FLOWS (CONTINUED)
(c) Changes in liabilities and financial assets from financing activities
CONSOLIDATED
Liabilities with cash flows from financing activities
Borrowings
Corporate facilities
Lease liabilities
Financial assets with cash flows from financing activities
Contribution receivable for employee share scheme
Loan receivable
PARENT
Financial assets with financing activities cash flows
Loans (to)/from related entities
CONSOLIDATED
Liabilities with cash flows from financing activities
Borrowings
Lease liabilities
Financial assets with cash flows from financing activities
Contribution receivable for employee share scheme
Loan receivable
PARENT
Financial assets with financing activities cash flows
Loans (to)/from related entities
22 EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS
Salaries and short-term benefits
Post-employment benefits
Employee share-based payments
Total
CASH
(OUTFLOWS)
/ INFLOWS
$’000
2018
$’000
OTHER
CHANGES
$’000
3,293,557
(354,200)
–
440,000
–
–
131,217
3,424,774
(25,119)
60,681
309,127
309,127
2019
$’000
2,939,357
440,000
415,225
3,794,582
(4,374)
(59,408)
(63,782)
2,287
(1,750)
537
–
(6,781)
(6,781)
(2,087)
(67,939)
(70,026)
(57,150)
(57,150)
8,348
8,348
–
–
(48,802)
(48,802)
CASH
(OUTFLOWS)
/ INFLOWS
$’000
OTHER
CHANGES
$’000
2018
$’000
(331,901)
(2,231)
(334,132)
–
–
–
3,293,557
131,217
3,424,774
2017
$’000
3,625,458
133,448
3,758,906
(4,565)
(52,045)
(56,610)
4,246
(2,167)
2,079
(4,055)
(5,196)
(9,251)
(4,374)
(59,408)
(63,782)
(582,243)
(582,243)
516,612
516,612
8,481
8,481
(57,150)
(57,150)
CONSOLIDATED
PARENT
2019
$’000
187,214
6,358
11,761
205,333
2018
$’000
147,509
4,961
11,229
163,699
2019
$’000
2018
$’000
–
–
–
–
–
–
–
–
133
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 22 EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS (CONTINUED)
Employee Share Rights
Share Rights are granted for $nil consideration. A Share Right is a right to an allocation of ordinary shares in Oil Search Limited (at no cost)
subject to continued employment at the vesting date. On the vesting date, the number of Share Rights that have vested will be
automatically exercised and converted to ordinary shares in Oil Search Limited.
There are currently 1,090 (2018: 975) participants in the Employee Share Rights.
GRANT DATE
SHARE PRICE AT
GRANT DATE
FAIR VALUE
EXERCISE
DATE
EXERCISE
PRICE
BALANCE AS AT
1 JAN 2019
GRANTED
DURING YEAR
FORFEITED
EXERCISED
BALANCE AT
BALANCE AT
GRANTED
FORFEITED
EXERCISED
BALANCE AT
PRICE AT DATE
DURING YEAR
DURING YEAR
31 DEC 2019
1 JAN 2018
DURING YEAR
DURING YEAR
DURING YEAR
31 DEC 2018
OF EXERCISE
AVG. SHARE
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2017
2017
2016
21 Oct 19
21 Oct 19
21 Oct 19
20 May 19
7 May 19
7 May 19
7 May 19
7 May 19
13 Feb 19
13 Feb 19
13 Feb 19
13 Feb 19
13 Feb 19
13 Feb 19
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
21 May 18
21 May 18
21 May 18
21 May 18
21 May 18
21 May 18
7 Mar 18
8 Aug 17
22 May 17
16 May 16
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
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
27,770
25,000
25,000
25,000
5,800
5,800
798,769
4,375
2,266
653,427
535,002
35,698
63,644
39,202
1,297,008
2,186
2,186
2,623
2,623
5,616
5,616
6,943
6,943
7,446
7,446
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A$7.16
A$7.16
A$7.16
A$7.70
A$7.44
A$7.44
A$7.44
A$7.44
A$7.91
A$7.91
A$7.91
A$7.91
A$7.91
A$7.91
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.50
A$8.50
A$8.50
A$8.50
A$8.50
A$8.50
A$7.12
A$6.52
A$7.38
A$6.70
A$6.82
A$6.95
A$7.07
A$7.29
A$7.16
A$7.03
A$7.16
A$7.03
A$7.64
A$7.50
A$7.58
A$7.44
A$7.58
A$7.44
A$8.24
A$8.40
A$8.26
A$8.42
A$8.26
A$8.43
A$8.43
A$8.19
A$8.35
A$8.05
A$7.89
A$8.04
A$8.20
A$8.28
A$8.45
A$8.01
A$6.94
A$6.31
A$7.14
A$6.61
20 May 22
21 May 21
22 May 20
20 May 22
21 May 21
21 May 22
21 May 21
21 May 22
1 Dec 20
1 Dec 21
16 May 20
16 May 21
21 May 21
21 May 22
12 Sep 20
12 Sep 19
23 Jul 20
23 Jul 19
12 Jul 20
12 Jul 19
1 Jul 19
1 Jan 21
1 Jan 20
21 May 21
1 Mar 22
1 Mar 21
1 Mar 20
1 Sep 19
1 Sep 19
21 May 21
18 May 20
22 May 20
22 May 20
17 May 19
134
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(35,577)
(5,616)
(8,350)
(8,350)
(73,381)
(49,040)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,833)
(19,518)
(3,000)
(2,500)
(5,800)
(5,800)
(535,002)
35,698
63,644
39,202
1,261,431
2,186
2,186
2,623
2,623
–
5,616
6,943
6,943
7,446
7,446
7,833
19,518
3,000
–
–
–
–
–
–
–
–
–
27,770
25,000
25,000
25,000
725,388
4,375
2,266
604,387
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,833
7,833
19,518
19,518
3,000
3,000
2,500
8,350
8,350
27,770
25,000
25,000
25,000
5,800
5,800
816,540
4,375
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,833
7,833
19,518
19,518
3,000
3,000
2,500
8,350
8,350
27,770
25,000
25,000
25,000
5,800
–
798,769
4,375
2,266
653,427
535,002
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A$7.30
A$6.95
A$7.40
A$7.15
A$6.54
A$6.54
A$7.75
2,266
688,090
593,294
(5,800)
(17,771)
(34,663)
(58,292)
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 22 EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS (CONTINUED)
Employee Share Rights
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.
There are currently 1,090 (2018: 975) participants in the Employee Share Rights.
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2017
2017
2016
21 Oct 19
21 Oct 19
21 Oct 19
20 May 19
7 May 19
7 May 19
7 May 19
7 May 19
13 Feb 19
13 Feb 19
13 Feb 19
13 Feb 19
13 Feb 19
13 Feb 19
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
18 Oct 18
21 May 18
21 May 18
21 May 18
21 May 18
21 May 18
21 May 18
7 Mar 18
8 Aug 17
22 May 17
16 May 16
A$7.16
A$7.16
A$7.16
A$7.70
A$7.44
A$7.44
A$7.44
A$7.44
A$7.91
A$7.91
A$7.91
A$7.91
A$7.91
A$7.91
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.56
A$8.50
A$8.50
A$8.50
A$8.50
A$8.50
A$8.50
A$7.12
A$6.52
A$7.38
A$6.70
A$6.82
A$6.95
A$7.07
A$7.29
A$7.16
A$7.03
A$7.16
A$7.03
A$7.64
A$7.50
A$7.58
A$7.44
A$7.58
A$7.44
A$8.24
A$8.40
A$8.26
A$8.42
A$8.26
A$8.43
A$8.43
A$8.19
A$8.35
A$8.05
A$7.89
A$8.04
A$8.20
A$8.28
A$8.45
A$8.01
A$6.94
A$6.31
A$7.14
A$6.61
20 May 22
21 May 21
22 May 20
20 May 22
21 May 21
21 May 22
21 May 21
21 May 22
1 Dec 20
1 Dec 21
16 May 20
16 May 21
21 May 21
21 May 22
12 Sep 20
12 Sep 19
23 Jul 20
23 Jul 19
12 Jul 20
12 Jul 19
1 Jul 19
1 Jan 21
1 Jan 20
21 May 21
1 Mar 22
1 Mar 21
1 Mar 20
1 Sep 19
1 Sep 19
21 May 21
18 May 20
22 May 20
22 May 20
17 May 19
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
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
27,770
25,000
25,000
25,000
5,800
5,800
798,769
4,375
2,266
653,427
535,002
35,698
63,644
39,202
1,297,008
2,186
2,186
2,623
2,623
5,616
5,616
6,943
6,943
7,446
7,446
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
GRANT DATE
SHARE PRICE AT
GRANT DATE
FAIR VALUE
EXERCISE
DATE
EXERCISE
BALANCE AS AT
GRANTED
PRICE
1 JAN 2019
DURING YEAR
FORFEITED
DURING YEAR
EXERCISED
DURING YEAR
BALANCE AT
31 DEC 2019
BALANCE 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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17,771)
–
–
(34,663)
(58,292)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,800)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,833
7,833
19,518
19,518
3,000
3,000
2,500
8,350
8,350
27,770
25,000
25,000
25,000
5,800
–
798,769
4,375
2,266
653,427
535,002
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A$7.30
–
A$6.95
–
A$7.40
A$7.15
–
–
–
–
–
–
A$6.54
A$6.54
–
–
–
–
A$7.75
–
–
–
(35,577)
–
–
–
–
(5,616)
–
–
–
–
–
–
–
–
–
–
–
–
(8,350)
(8,350)
–
–
–
–
–
–
(73,381)
–
–
(49,040)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,833)
–
(19,518)
–
(3,000)
(2,500)
–
–
–
–
–
–
(5,800)
(5,800)
–
–
–
–
–
(535,002)
35,698
63,644
39,202
1,261,431
2,186
2,186
2,623
2,623
–
5,616
6,943
6,943
7,446
7,446
7,833
–
19,518
–
3,000
–
–
–
–
27,770
25,000
25,000
25,000
–
–
725,388
4,375
2,266
604,387
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,266
688,090
593,294
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,833
7,833
19,518
19,518
3,000
3,000
2,500
8,350
8,350
27,770
25,000
25,000
25,000
5,800
5,800
816,540
4,375
–
–
–
135
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 22 EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS (CONTINUED)
Share Rights were priced using a binomial option pricing model with the following inputs:
Volatility
Dividend yield
Risk-free interest rate
2019
24.00%
1.85%
1.23%
2018
32.00%
1.98%
2.19%
2017
28.00%
1.10%
1.76%
2016
30.00%
0.70%
1.57%
2015
30.00%
2.20%
2.10%
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 peer groups are:
¸ the ASX50 (excluding property trusts and non-standard listings); and
¸ the constituents of the Standard and Poor’s Global Energy Index in both US dollar base currency and separately in local currency
to exclude the impact of foreign exchange.
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 PRs
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 67
(2018: 56) employees participating in the Performance Rights Plan.
Grant date
Share price at grant date
Fair value
Exercise date
Exercise price
Number of rights
Balance at 1 January 2019
Granted during year
Forfeited during year
Exercised during year
Balance at 31 December 2019
Average share price at date of exercise
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
2019
2019
2018
2018
2017
2016
21 Oct 2019
20 May 2019
21 Jun 2018
21 May 2018
22 May 2017
16 May 2016
A$7.16
A$3.24
A$7.70
A$3.83
A$8.50
A$8.50
A$8.50
A$5.23
A$7.38
A$4.68
A$6.75
A$3.59
20 May 2022
20 May 2022
Note 1
21 May 2021
22 May 2020
17 May 2019
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
–
–
462,015
1,269,935
1,100,711
1,092,104
107,471
1,356,365
–
–
–
–
(30,575)
(68,170)
(50,878)
(118,752)
(64,266)
(1,092,104)
–
–
–
–
–
76,896
1,288,195
411,137
1,151,183
1,036,445
–
–
–
–
–
–
–
–
1,184,700
1,127,316
500,935
1,332,666
–
–
(38,920)
(62,731)
(83,989)
(35,212)
–
–
–
462,015
1,269,935
1,100,711
1,092,104
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
136
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
Exercise date
Exercise price
Number of shares
Balance at 1 January 2019
Granted during year
Forfeited during year
Vested during year
22 EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS (CONTINUED)
Volatility
Dividend yield
Risk-free interest rate
2019
24%
1.85%
1.23%
2018
32%
1.98%
2.19%
2017
28%
1.10%
1.76%
2016
30%
0.70%
1.57%
Note 1: Awards vest two years after achievement of Financial Sanction of the Papua LNG Project and the PNG LNG Expansion Project.
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 11 (2018: 12)
employees participating in the Restricted Share Plan.
Restricted shares were priced at the closing share price at the grant date.
EXECUTIVES
Grant date
2019
2019
2018
2018
2017
2016
1 Oct 2019
20 May 2019
21 May 2018
21 May 2018
19 May 2017
12 Jul 2016
Share price at grant date
A$7.19
A$7.70
A$8.50
A$8.50
A$7.25
A$6.80
1 Apr 2020
1 Jan 2021
1 July 2020
1 Jan 2020
1 Jan 2019
10 Jul 2019
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
A$ nil
–
13,577
626,597
627,304
33,450
26,849
534,974
–
–
Balance at 31 December 2019
26,849
534,974
Balance at 1 January 2018
Granted during year
Balance at 31 December 2018
–
–
–
–
–
–
23 KEY MANAGEMENT PERSONNEL REMUNERATION
–
(13,577)
–
–
–
–
–
–
–
–
(627,304)
(33,450)
626,597
–
–
–
627,304
33,450
13,577
13,577
626,597
626,597
–
–
627,304
33,450
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
(1)
Includes salaries, allowances and other benefits for the Managing Director.
DIRECTORS(1)
EXECUTIVES
2019
$
2018
%
2019
$
2018
$
4,920,517
5,096,175
8,121,876
7,012,364
75,463
14,547
(164,278)
171,000
37,426
111,922
17,198
124,587
2,677,733
2,834,583
6,130,733
3,156,987
–
263,771
1,386,431
138,386
7,688,260
8,067,677
15,921,962
10,449,522
137
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 24 KEY MANAGEMENT PERSONNEL TRANSACTIONS
The directors and other key management personnel of Oil Search Limited during the year to 31 December 2019 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)
2019
2018
2019
2018
2019
2,625,296
2,347,330
1,107,884
1,148,084
480,936
2018
530,660
10,000
36,050
31,961
45,736
96,829
–
–
–
–
–
–
534,094
–
–
106,748
–
77,934
–
–
36,050
31,961
45,736
96,829
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
511,687
21,126
64,716
38,911
86,841
366,326
166,020
483,749
129,020
–
65,799
2,984
77,934
–
77,890
41,146
234,910
66,274
217,600
240,933
198,959
181,922
22,958
229,075
96,375
241,010
194,880
226,143
240,448
160,996
140,964
–
78,592
40,904
99,723
74,264
84,099
125,428
82,133
65,467
–
89,572
91,289
101,769
79,969
92,830
103,377
51,854
25,740
–
DIRECTORS
Mr Peter Botten
Sir Kostas Constantinou
Dr Eileen Doyle
Ms Fiona Harris
Dr Agu Kantsler
Mr Richard Lee
Sir Melchior Togolo
Ms Susan Cunningham
Dr Bakheet Al Katheeri
Mr Gerea Aopi(2)
OTHER KEY MANAGEMENT PERSONNEL
Mr Paul Cholakos(3)
Dr Julian Fowles(4)
Mr Stephen Gardiner
Mr Michael Herrett(3)
Mr Ian Munro
Dr Keiran Wulff
Mr Michael Drew
Ms Elizabeth White
Mr Bart Lismont
(1) Refer to note 22 for key terms.
(2) Resigned as a director effective 31 May 2018.
(3) Resigned as an executive effective 1 July 2019.
(4) Resigned as an executive effective 7 November 2018.
Sir Kostas Constantinou holds positions in other entities that may result in him having control or joint control over those entities.
The Group transacted with four of these entities in the reporting period. The terms and conditions of these transactions 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
2019
$’000
251
6
4
740
2018
$’000
504
42
62
22
(1) The Group acquired hotel, conference facility and accommodation services in 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.
138
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 25 COMMITMENTS
Expenditure commitments
Capital expenditure commitments
Other expenditure commitments
26 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
2019
$’000
2018
$’000
142,637
89,800
232,437
175,644
112,399
288,043
2019
$’000
3,545
–
3,545
2018
$’000
16,109
–
16,109
CONSOLIDATED
PARENT
2019
$’000
2018
$’000
2019
$’000
2018
$’000
389
214
603
361
33
394
139
–
139
101
–
101
The audit fees are paid in Australian dollars and are translated at 0.6953 (2018: 0.7452).
27 SUBSIDIARIES AND INTERESTS IN JOINT ARRANGEMENTS
(a) Subsidiaries
OWNERSHIP
INTEREST %
2019
OWNERSHIP
INTEREST %
2018
COUNTRY OF
INCORPORATION
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 (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(1)
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
PNG
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
(1) 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.
139
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 27 SUBSIDIARIES AND INTERESTS IN JOINT ARRANGEMENTS (CONTINUED)
(b) Interests in joint operations
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
PRINCIPAL PLACE
OF BUSINESS
PPL 339(3)
PPL 374
PPL 375
PPL 487
PPL 395(4)
PPL 507
PRL 3(1)
PRL 9(3)
PPL 474
PPL 475
PPL 476
PRL39
PPL 569
Antigua(3)
Atlas A(3)
Atlas B(3)
Grizzly(3)
Harrison Bay(3)
Kachemach(3)
East of Hue Area(2)(3)
Thetis(3)
Horseshoe(3)
Hue Shale(3)
Pikka Unit(3)
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
PNG
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
% INTEREST
2019
35.00
40.00
40.00
37.50
–
37.50
38.51
45.11
25.00
25.00
25.00
25.00
50.00
38.76
38.76
38.76
51.00
38.76
38.76
50.00
51.00
51.00
75.00
51.00
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
(1) Subject to regulatory approval.
(2) US licences acquired in 2019.
(3) Operated by an Oil Search Group entity.
(4) Licence relinquished during the year.
(II) PRODUCTION ASSETS AND OTHER ARRANGEMENTS
PNG LNG Project
Papua New Guinea Liquefied Natural Gas Global Company LDC
(c) Interests in joint ventures
NiuPower Limited
NiuEnergy Limited
PNG
Bahamas
29.00
29.00
29.00
29.00
PRINCIPAL PLACE
OF BUSINESS
PNG
PNG
% INTEREST
2019
50.00
50.00
2018
50.00
50.00
140
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 27 SUBSIDIARIES AND INTERESTS IN JOINT ARRANGEMENTS (CONTINUED)
The Group’s share of joint venture entities’ results, assets and liabilities are as follows:
Revenue
Expenses
Net profit/(loss) for the year/period
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
2019
$’000
2,666
(2,039)
627
7,736
48,974
56,710
(1,564)
(703)
(2,267)
2018
$’000
–
(185)(1)
(185)
4,059
1,866
5,925
(1,891)
(76)
(1,967)
Group’s share of joint venture entities’ net assets at reporting date
54,443
3,958
(1) Share of net loss from joint venture entities for financial year 2018 was included in other expenses in statement of other comprehensive income.
(d) Interests in other arrangements
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:
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
2019
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
–
37.50
60.71
100.00
62.56
22.84
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
(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.
141
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 28 FINANCIAL AND CAPITAL RISK MANAGEMENT
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.
(a) Foreign exchange risk
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 required. Where these currencies are purchased in advance of requirements,
A$ and PGK cash balances do not exceed three months’ requirements.
As at 31 December 2019, there were no foreign exchange hedge contracts outstanding (2018: nil).
No currency sensitivity analysis is provided as there were no derivative financial instruments in place to hedge residual foreign
exchange exposure.
(b) Interest rate risk
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. Some of the Group’s borrowings are on a fixed interest rate
basis as shown in the table below. 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 floating term debt facilities, whichever is the longer. In addition cash held in
deposit by the Group at floating interest rates provide a natural hedge against interest rate risk.
As at 31 December 2019, there was no interest rate hedging in place (2018: 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 (2018: 25 basis points) higher or lower and all other variables were
held constant, the Group’s net profit after tax would decrease/increase by $4.5 million (2018: $5.0 million).
At the reporting date, if interest rates had been 25 basis points (2018: 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 (2018: nil).
142
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 28 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
2019
Financial assets
Cash and cash equivalents
384,232
12,000
–
–
67,939
–
–
–
–
–
452,171
12,000
Trade debtors
Other debtors
Loan receivable
Non-current deposits
Total financial assets
Financial liabilities
Payables and accruals
Other payables
Finance leases
Corporate facilities
Secured loan from Joint operations
–
–
–
–
–
32,286
106,562
276,377
440,000
2,389,403
–
–
–
–
Total financial liabilities
2,829,403
32,286
106,562
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
549,954
826,331
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,222
–
14,222
114,456
616,225
730,681
–
146,352
125,735
–
–
396,232
146,352
125,735
67,939
–
272,087
736,258
337,022
10,331
–
–
–
347,353
–
151,372
77,333
–
860
229,565
321,536
10,294
–
–
331,830
337,022
10,331
415,225
440,000
2,939,357
4,141,935
600,557
151,372
77,333
59,408
860
889,530
321,536
10,294
131,217
3,293,557
3,756,604
2018
Financial assets
Cash and cash equivalents
438,557
162,000
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
–
–
59,408
–
–
–
–
–
497,965
162,000
–
–
–
2,677,332
2,677,332
–
–
2,539
–
2,539
143
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 28 FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
Parent
FINANCIAL INSTRUMENTS
2019
Financial assets
Other receivable
Total financial assets
Financial liabilities
Payables and accruals
Amounts due to subsidiary entities
Total financial liabilities
2018
Financial assets
Non-current receivables
Total financial assets
Financial liabilities
Payables and accruals
Total financial liabilities
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
792
792
792
792
1,003
498,802
499,805
1,003
498,802
499,805
57,150
57,150
1,157
1,157
57,150
57,150
1,157
1,157
(c) Commodity price risk
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.
In the normal course of business, sales are made under long-term LNG contracts. Standard provisions are included in these LNG
contracts to review prices at a given point in time. Where the new pricing formula is not agreed by the time the contract enters a
price review period, revenue is recognised at the amount to which the Group expects to be entitled.
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 2019, there was no oil price hedging in place (2018: nil). No commodity price sensitivity analysis is required as
there was no hedging in place.
(d) Credit risk
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.
144
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 28 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.
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 14).
At 31 December 2019 there was no significant concentration of credit risk exposure to any single counterparty (2018: 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
2019
$’000
2018
$’000
2019
$’000
2018
$’000
21(a)
21(a)
21(a)
11
13
14
370,689
429,336
13,543
12,000
272,087
668,319
1,100
67,939
69,039
9,221
162,000
228,705
829,262
860
59,408
60,268
–
–
–
792
792
–
–
–
–
–
–
57,150
57,150
–
–
–
(e) Liquidity risk
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.
The table below shows the Group’s non-derivative financial liabilities in relevant maturity groupings based on their contractual
maturities. The amounts disclosed in the table are the contractual undiscounted cash flows.
NON-DERIVATIVE FINANCIAL LIABILITIES
2019
Payables and accruals
Other payables
Corporate facilities
CONTRACTUAL CASH FLOWS
CARRYING
AMOUNT
$’000
TOTAL
$’000
LESS THAN
1 YEAR
$’000
1 TO 5 YEARS
$’000
MORE THAN
5 YEARS
$’000
337,022
337,022
337,022
10,331
10,331
10,331
–
–
440,000
459,267
308,060
151,207
–
–
–
Secured loan from joint operation
2,939,357
3,456,554
462,432
2,196,125
797,997
Lease liabilities
Total
415,225
779,496
66,378
262,353
450,765
4,141,935
5,042,670
1,184,223
2,609,685
1,248,762
145
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019
28 FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
NON-DERIVATIVE FINANCIAL LIABILITIES
2018
Payables and accruals
Other payables
Secured loan from joint operation
Lease liabilities
Total
Working capital
CARRYING
AMOUNT
$’000
321,536
10,294
3,293,557
131,217
TOTAL
$’000
321,536
10,294
4,128,171
325,151
CONTRACTUAL CASH FLOWS
LESS THAN
1 YEAR
$’000
1 TO 5 YEARS
$’000
MORE THAN
5 YEARS
$’000
321,536
10,294
539,103
19,931
–
–
–
–
2,249,950
79,724
1,339,118
225,496
3,756,604
4,785,152
890,864
2,329,674
1,564,614
As at 31 December 2019, the Group’s current liabilities exceed current assets by $328.5 million (31 December 2018: current assets
exceeded current liabilities by $161.0 million), primarily as a result of a decision to draw down short term corporate facilities during
the year as these facilities had lower interest rates compared to the longer term facility rates.
As at 31 December 2019, the parent company’s current liabilities exceed current assets by $496.2 million (31 December 2018:
current assets exceeded current liabilities by $57.9 million), primarily as a result of current payables to subsidiary entities of
$498.8 million.
The Group has prepared a cash flow forecast for the period to March 2021, which includes a number of assumptions, including
that the Group will enter FEED, reach FID and receive proceeds from a farm down of its interest in the Pikka development in Alaska.
The Group continues to generate strong operational cash flows and, as at 31 December 2019, Oil Search has access to committed,
un-drawn bank facilities of $755.7 million (31 December 2018: $900.0 million). The un-drawn bank facilities have maturity dates
beyond 31 December 2020. The Group continually monitors the working capital position, and expects to be able to manage its
cash flows by, amongst other means, controlling uncommitted expenditure to ensure that adequate liquidity is maintained, and all
obligations are satisfied as and when they fall due.
(f) Financing facilities
Corporate facilities
(i) 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
was undrawn at 31 December 2019. 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.
(ii) 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.
In September 2019, the group also arranged an additional US$300.0 million of bilateral facilities with a one year term expiring in
September 2020. The facilities are on an unsecured basis and without the requirement for political risk insurance.
146
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 28 FINANCIAL AND CAPITAL RISK MANAGEMENT (CONTINUED)
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 2019 is 29.0% (December 2018: 29.0%)). Oil Search
(LNG) Limited and Oil Search (Tumbudu) Limited are the Group’s participants in the PNG LNG Project (the “OSL Participants”).
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 6.5 years remaining on
the facility as at 31 December 2019.
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.
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.
(g) Capital management
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.
(h) Fair values
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.
147
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 29 TRANSITION APPROACH AND IMPACT OF ADOPTING IFRS 16 LEASES
The Group has adopted IFRS 16 using the simplified transition approach and has not restated comparative amounts. The Group has
measured its lease liabilities at the present value of the remaining lease payments, discounted using the appropriate incremental
borrowing rates as of 1 January 2019. The associated right-of-use-assets were measured on transition as if the new Standard had
been applied since the commencement date of the lease. The adjustments arising from the new leasing rules are recognised in the
opening balance of retained earnings on 1 January 2019.
For leases previously classified as finance leases the Group recognised the carrying amount of the lease asset and lease liability
immediately before transition as the carrying amount of the right-of- use asset and lease liability at the date of initial application.
The Group has made the following practical expediency elections under its transition to IFRS 16:
¸ The right-of-use-assets were adjusted for onerous leases previously recognised.
¸ Assessment as at transition date was used to determine the lease term for contracts with extension or termination options.
¸ Initial direct costs were excluded from the measurement of the right-of-use asset at transition date.
(a) Adjustments to the Statement of Financial Position at 1 January 2019
Right-of-use-assets recognised
Lease liabilities recognised
Deferred tax assets (net) recognised
Reversal of deferred lease liabilities, onerous provision and other balances
Retained earnings reduction
(b) Reconciliation of non-cancellable operating lease commitments to lease liabilities at 1 January 2019
Operating lease obligations 31 December 2018
Less:
Short-term and low value leases
Commitments reassessed as having no leasing arrangements
Add:
Reasonably certain extension clauses
Undiscounted lease liabilities at 1 January 2019
Discounted lease liabilities at 1 January 2019(1)
Of which are:
Current lease liabilities
Non-current lease liabilities
$’000
230,205
(282,055)
11,350
17,053
(23,447)
$’000
304,917
(11,997)
(6,068)
208,579
495,431
282,055
17,456
264,599
(1) The weighted-average incremental borrowing rate for lease liabilities initially recognised as of 1 January, 2019 was 7.30%.
30 EVENTS OCCURRING AFTER THE REPORTING PERIOD
Subsequent to balance date, the Directors declared an unfranked final dividend of US$4.5 cents per share, to be paid on
24 March 2020. The proposed final dividend for 2019 is payable to all holders of ordinary shares on the Register of Members on
4 March 2020.
There were no other significant events after balance date.
148
OIL SEARCH ANNUAL REPORT 2019NOTES TO THE FINANCIAL REPORTSNOTES TO THE FINANCIAL REPORTSfor the year ended 31 December 2019 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 2019, 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 2019.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
RJ LEE
Chairman
149
OIL SEARCH ANNUAL REPORT 2019DIRECTORS’ DECLARATIONDIRECTORS’ DECLARATIONfor the year ended 31 December 2019 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 financial report 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 2019, 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.
In our opinion
(i) the accompanying financial statements give a true and fair view of the Group and the Company’s
financial positions as at 31 December 2019 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 (amended 2014); and
(ii) proper accounting records have been kept by the Group and the Company.
Basis for Opinions
We conducted our audits 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.
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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Asia Pacific
150
OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
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 2019 is $2,998 million.
Refer note 15 for further details. The Group’s
accounting policy in respect of Exploration and
Evaluation assets is outlined in note 1(i).
The assessment as to whether there are
indicators of impairment requires management
to exercise significant judgement including in
respect of the right of tenure, and where
relevant, the likelihood of licence renewal or
extension, the success of exploration and
including drilling and
appraisal activities
geological and geophysical analysis and the
Group’s intention to proceed with a future work
programme for a licence.
Carrying Value of Producing and
Development Assets
carrying
and
value of
The
Development assets at 31 December 2019 is
$6,124 million. Refer note 16 for further details.
Producing
to exercise
The assessment of the carrying value of
Producing and Development assets requires
management
in
identifying indicators of impairment (including
significant adverse changes in oil and gas prices,
costs or reserve estimates) for the purpose of
determining the recoverable amount.
judgement
Our procedures included, but were not limited to:
• evaluating and testing the key controls management
has in place to analyse and identify indicators of
impairment for Exploration and Evaluation assets.
• evaluating the status of
licences and, where
applicable, obtaining evidence of
lodged
the
applications for licence renewals or extensions and
assessing on a case by case basis,
the
reasonableness of management’s expectation that
the licence will be extended upon their expiry, as well
as the right of tenure.
for
licence,
• obtaining,
each material
an
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 referencing to the allocation
of future budgeted expenditures.
• corroborating the results of exploration and appraisal
activities to market announcements.
• evaluating the appropriateness of the disclosures in
note 15.
Our procedures included, but were not limited to:
• evaluating and testing the key controls management
have in place to identify indicators of impairment for
Producing and Development assets.
• 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.
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OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
Accounting for Income Tax
The income tax expense for the year ended 31
December 2019 is $136 million and the balances
of deferred tax assets and deferred tax liabilities
at 31 December 2019 are $966 million and
$1,355 million respectively. Refer note 8 for
further details.
Tax applicable to hydrocarbon exploration and
production activities in Papua New Guinea is
based on tax ring-fencing, on a licence-by-
licence basis.
is required
Judgement
the
application of tax legislation, as well as to assess
the recoverability of deferred tax assets.
to determine
• 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 discussions with management’s internal
experts to understand field operational performance
in the year, and any significant reserve upgrades or
downgrades.
• evaluating the appropriateness of the disclosures in
note 16.
Our procedures included, but were not limited to:
• evaluating and testing the key controls over the
allocation of costs to ring-fences and preparation of
tax calculations.
in conjunction with our tax specialists, challenging
management’s judgments regarding the application
of tax legislation.
•
• 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 the assumptions
included in management’s forecasts were consistent
with board approved assumptions and prevailing
PNG tax legislation.
• 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 to tax
returns lodged with tax authorities.
• evaluating the appropriateness of the disclosures in
note 8.
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OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
Applicable to The Parent Only
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 2019 is $117
million. Refer note 15 for further details. The
Company’s accounting policy in respect of
Exploration and Evaluation assets is outlined in
note 1(i).
The assessment as to whether there are
indicators of impairment requires management
to exercise significant judgement including in
respect of the right of tenure, and where
relevant, the likelihood of licence renewal or
extension, the success of exploration and
appraisal activities
including drilling and
geological and geophysical analysis and the
Company’s intention to proceed with a future
work programme for a licence.
Our procedures included, but were not limited to:
• evaluating and testing the key controls management
has in place to analyse and identify indicators of
impairment for Exploration and Evaluation assets.
• evaluating
the status of
licences and, where
applicable, obtaining evidence of
lodged
the
applications for licence renewals or extensions and
assessing on a case by case basis, the reasonableness
of management’s expectation that the licence will be
extended upon their expiry, as well as the right of
tenure.
• obtaining, for each material licence, an 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 referencing to the allocation
of future budgeted expenditures.
• corroborating the results of exploration and appraisal
activities to market announcements.
• evaluating the appropriateness of the disclosures in
note 15.
Carrying Value of Investments in
Subsidiaries
The Company has investments in subsidiaries
at 31 December 2019 of $3,320 million. Refer
to note 27 for further details.
Our procedures included, but were not limited to the
following:
in
The assessment of the recoverable amount of
requires
investments
management to exercise judgement in respect
of the performance of the underlying assets
held in each of the subsidiaries.
subsidiaries
• evaluating management’s assessment of indicators of
impairment for investments at 31 December 2019,
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.
o for subsidiaries that primarily hold Exploration
and Evaluation assets, evaluating management’s
assessment of whether indicators of impairment
(including the Company’s intention to proceed
with a future work programme for a licence, the
right of tenure, and where relevant, the likelihood
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OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
of licence renewal or extension, and the success
of exploration and appraisal activities, including
drilling and geological and geophysical analysis)
exist
the underlying Exploration and
for
Evaluation assets.
• evaluating the appropriateness of the disclosures in
note 27.
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 independent auditor’s report, and the following additional
documents which will be included in the annual report: 2019 Highlights, Letter from Richard Lee, Chairman,
Update from Peter Botten, Managing Director, Letter from Keiran Wulff, Chief Executive Officer Designate,
Financial Overview, Production, Gas Development, PNG Exploration and Appraisal, Alaska North Slope,
Promoting a Stable Operating Environment, Strengthened Organisational Capability, 2019 Reserves Report,
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 2019 Highlights, Letter from Richard Lee, Chairman, Update from Peter Botten, Managing
Director, Letter from Keiran Wulff, Chief Executive Officer Designate, Financial Overview, Production, Gas
Development, PNG Exploration and Appraisal, Alaska North Slope, Promoting a Stable Operating
Environment, Strengthened Organisational Capability, 2019 Reserves Report, 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 (amended 2014) and for such internal control as the directors determine 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.
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OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
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.
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.
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OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 93 to 109 of the directors’ report for the year
ended 31 December 2019.
In our opinion, the Remuneration Report of Oil Search Limited for the year ended 31 December 2019, 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, 24 February 2020
Benjamin Lee
Partner
Chartered Accountants
Registered under the Accountants Act, 1996
Port Moresby, 24 February 2020
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OIL SEARCH ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORTfor the year ended 31 December 2019
OIL SEARCH LIMITED
ARBN 055 079 868
Distribution of shareholding at 12 February 2020
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
19,213
17,388
3,932
2,473
9,194,794
42,360,943
28,246,433
52,902,188
0.60
2.78
1.85
3.47
157
1,392,042,627
43,163 1,524,746,985
91.30
100.00
At 12 February 2020 there were 1,992 holders of less than a marketable parcel of shares.
20 largest holders of ordinary shares at 12 February 2020
SHAREHOLDER
NUMBER OF
SHARES
% OF ISSUED
CAPITAL
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
AUST EXECUTOR TRUSTEES LTD
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