A rise in sales volumes were not enough to offset lower liquefied natural gas prices as Australia-listed company Oil Search saw revenues slide in the September quarter.

Oil Search generated US$189 million over the third quarter of 2020, a sharp decrease on the US$361.1 million generated in the same quarter a year ago, as a result of the steep deterioration in commodity prices in the wake of the Covid-19 pandemic.

Slightly offsetting the fall in prices was a 7.2% rise in output, to 7.3 million barrels of oil equivalent, while sales volumes jumped 16.7%, to nearly 7.55 million boe.

Helping drive production was the sustained overperformance of the ExxonMobil-led PNG LNG project, which operated at an annualised rate of 8.9 million tonnes per annum during the quarter and delivering the the highest first nine months of production since the project commenced in 2014, producing at record levels of 8.8 million tpa.

The strong performance of PNG LNG helped offset unplanned downtime at Oil Search’s Kutubu processing facility and Agogo production facility, as well as scheduled maintenance at the Gobe production facility.

Oil Search noted that its output also remained affected by the shut-in of the Hides gas-to-electricity operation following the temporary closure of the Barrick-operated Porgera Gold mine.

However, it added that mining operations have now reportedly recommenced following negotiations between the PNG government and Barrick.

LNG price lag impacts quarter-on-quarter performance

Third quarter output was relatively stable compared to the June quarter, while sales volumes increased 11.2%, however revenue was down 29%, compared to the US$266.2 million generated in the June quarter.

While oil prices have improved since their collapse earlier this year, Oil Search noted that there was a two-to-three month lag on LNG contract pricing, resulting in the fall in revenue.

Reflecting this was the 58% jump in average oil and condensate prices, to US$36.52 per barrel, while the average realised LNG price tumbled 42% to US$4.23 per million British thermal units, capturing the oil price weakness seen in April and May.

Also impacting Oil Search’s September quarter revenues were an increased portion of spot market sales volumes at historically low North Asian prices.

Still pursuing LNG growth

Despite the collapse in LNG prices and demand following the Covid-19 pandemic, the company is still pursuing potential expansion opportunities in Papua New Guinea.

“Discussions are also ongoing between all parties on progressing LNG expansion opportunities in PNG,” Oil Search managing director Kieran Wulff confirmed.

“This coincides with a strengthening in demand and a potential improvement in the LNG price outlook, despite the Covid-19 impact on global energy and LNG demand pushing back the demand window to around 2027.”

Oil Search noted in its quarterly report that discussions were continuing between P’nyang operator ExxonMobil and the PNG government over securing “fair and balanced terms” for the P’nyang gas agreement.

PNG Prime Minister James Marape recently took a swipe at ExxonMobil and Oil Search, stating the country had been "unfairly held to ransom" by the two companies over the instance P’nyang be part of the Papua LNG project, which will develop the Elk-Antelope fields.

P'nyang project negotiations were suspended in January as ExxonMobil's insistence of similar fiscal terms as those granted for the PNG LNG project met resistance, according to Marape.

Marap’s government is looking to push through fiscal reform which, among other policy directives, will see the state take a 60%-65% share of revenue from future projects, up from 40% on recent petroleum ventures.

The state also wants to secure early revenues; between 5%-10% of oil, gas and minerals for domestic use; and for developers to commit to using local labour, goods and services in their operations.

LNG

Price lag: LNG prices hit Oil Search's revenues despite strong sales