Oil Search Cuts Capex by 38% Amid Market Turmoil
Papua New Guinea-focused Oil Search has cut its investments in 2020 by 38% in response to the steep decline in oil prices this month and the continuing spread of the coronavirus (Covid-19) pandemic.
"Apart from work programmes required to ensure ongoing reliable and safe operations, all discretionary activities within the Company’s control that have not yet commenced are being suspended or deferred," the company said in a statement on March 18. "Where possible, some projects that have commenced have also been suspended safely."
As a result of these steps, Oil Search expects its investment expenditure in 2020 to fall to $440-530mn, down from a previous guidance of $710-845mn. Capital spending for the year from April is forecast to drop to $200-300mn, from $400-500mn.
Oil Search has a 29% stake in the $13bn PNG LNG expansion project operated by ExxonMobil and also involving France's Total.
"At present, we have assumed that activity on the LNG expansion are minimal," Oil Search said, adding that ExxonMobil had informed it that it was also taking steps to reduce discretionary spending. The US major recently said it too planned to "significantly" cut its spending in response to the market downturn.
"While Oil Search is fortunate to have world-class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty," Oil Search's managing director Keiran Wuff explained.
The Sydney-listed operator has also decided to suspend the sale of a 15% interest in its Alaskan assets, although discussions continue with several potential buyers.
The Covid-19 crisis has led to significant demand uncertainty, as countries across the world impose travel bans to slow the virus' spread. Putting further pressure on prices, OPEC+ producers failed to agree on an extension to output cuts earlier this month, prompting Saudi Arabia cut its prices and announce it would ramp up production. Month-ahead Brent is currently traded at around $28.3/barrel, while West Texas Intermediate is at $26.3.