SYDNEY--Decades of investment in Papua New Guinea is continuing
to pay off for Australia's Oil Search Ltd., which said Tuesday that
first-half net profit rose by a third.
Oil Search is partners with Exxon Mobil Corp. in Papua New
Guinea's first liquefied-natural-gas, or LNG, project, which
shipped its maiden cargo of the fuel to Japanese buyers in May,
about three months ahead of plan.
LNG is natural gas super-cooled in large refrigeration units so
it can be exported by tanker to places not connected by
pipeline.
Taking more than four years to build, the US$19 billion LNG
facility has transformed Oil Search, once a small regional oil
producer, into a significant global energy exporter.
Oil Search's shares have risen tenfold in the past decade,
partly in anticipation of the LNG project starting up this year,
giving it a market value of A$14.4 billion.
Rising profit means the company will now have to decide whether
to pay out more cash to shareholders in the form of higher
dividends, or conserve capital to fund other ventures it is tending
in Papua New Guinea and Iraqi Kurdistan.
Net profit in the six months through June rose 34% to US$152.5
million, beating the US$141 million average of six analyst
forecasts compiled by The Wall Street Journal.
Earnings are set to rise further for the full year, given the
LNG project had only been operational for around five weeks in Oil
Search's fiscal first half, and wasn't yet firing on all
cylinders.
The company kept its first-half dividend the same at two
Australian cents a share, but added it would crank up payouts in
the second half after it completes a strategic review later in the
year.
Goldman Sachs last week predicted that Oil Search would keep its
dividend steady, before progressively raising it to A$0.07 for the
second half of 2014, then to A$0.19 in 2015 and A$0.22 in 2016.
"The appropriate future balance between reinvestment of cash
flows to finance high-returning growth opportunities and capital
returns to shareholders is being analysed as part of the strategic
review," said Peter Botten, Oil Search's long-serving chief
executive.
Exxon, Oil Search and other partners have probably found enough
gas now to expand the LNG project's size by at least 50%, but won't
know that for sure until further exploration drilling is completed
by the end of the year, Mr. Botten told The Wall Street Journal in
July.
The prospect of adding new refrigeration units to LNG projects,
known in the industry as trains, is appealing to producers because
costly infrastructure, such as pipelines, roads and storage tanks,
has already been installed at the premises.
Expanding processing capacity is relatively cheap, since it is a
matter of connecting the infrastructure to the new trains to
significantly boost production.
Oil Search also owns part of the Elk and Antelope natural-gas
discoveries in Papua New Guinea, alongside Total SA and InterOil
Corp. A decision on whether to build another standalone LNG project
in the country underpinned by those fields will hinge on the
results of further exploration drilling later in the year.
Write to Ross Kelly at ross.kelly@wsj.com
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