By Ross Kelly 
 

SYDNEY--Oil Search Ltd. (OSH.AU) warned Friday its revenue will slip in the second quarter of its fiscal year, as tumbling oil prices start to weigh on contract prices for liquefied natural gas.

The Australian company is a partner of Exxon Mobil Corp. (XOM) at the US$19 billion PNG LNG project in Papua New Guinea, which started shipping its first cargoes of the cleaner-burning fuel to Asian customers in May last year.

Due to a roughly three-month time lag between spot oil prices and LNG contract prices, Oil Search's revenue remained relatively robust during the first quarter of 2015, Chairman Rick Lee told the company's annual shareholder meeting in Port Moresby.

But he added the company's LNG revenue is expected to fall in the second quarter, as an oil-price slump that commenced in late 2014 starts to have an impact. "While the oil price has since rallied a little, it is still trading some 40% lower than the average price realized in 2013," he said.

Oil Search's balance sheet is relatively strong, owing to revenue from the start of LNG shipments earlier this year. The company said the Exxon-led venture may make a final decision on an 50% expansion in the size of PNG LNG by 2017.

A separate LNG venture in the country between Oil Search, Total SA (TOT), and Interoil Corp. (IOC) hopes to make a final investment decision on the country's second LNG project in 2017, too, Oil Search said.

Write to Ross Kelly at ross.kelly@wsj.com

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