oil search - commercialising gas resources …...oil search gas strategy png is a prospective area...

OIL SEARCH LIMITED | ARBN 055 079 868 | ASX: OSH | POMSoX: OSH | US ADR: OISHY

www.oilsearch.com

COMMERCIALISING

GAS RESOURCES IN

PNG –

WHERE TO NOW?

December 2018

15TH PNG MINING & PETROLEUM

INVESTMENT CONFERENCE

WHILE EVERY EFFORT IS MADE TO PROVIDE ACCURATE AND COMPLETE INFORMATION, OIL SEARCH LIMITED DOES

NOT WARRANT THAT THE INFORMATION IN THIS PRESENTATION IS FREE FROM ERRORS OR OMISSIONS OR IS

SUITABLE FOR ITS INTENDED USE. SUBJECT TO ANY TERMS IMPLIED BY LAW WHICH CANNOT BE EXCLUDED,

OIL SEARCH LIMITED ACCEPTS NO RESPONSIBILITY FOR ANY LOSS, DAMAGE, COST OR EXPENSE

(WHETHER DIRECT OR INDIRECT) INCURRED BY YOU AS A RESULT OF ANY ERROR, OMISSION OR

MISREPRESENTATION IN INFORMATION IN THIS PRESENTATION. ALL INFORMATION IN THIS PRESENTATION

IS SUBJECT TO CHANGE WITHOUT NOTICE.

THIS PRESENTATION ALSO CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO PARTICULAR

RISKS ASSOCIATED WITH THE OIL AND GAS INDUSTRY. OIL SEARCH LIMITED BELIEVES THERE ARE REASONABLE

GROUNDS FOR THE EXPECTATIONS ON WHICH THE STATEMENTS ARE BASED. HOWEVER ACTUAL OUTCOMES

COULD DIFFER MATERIALLY DUE TO A RANGE OF FACTORS INCLUDING OIL AND GAS PRICES, DEMAND FOR OIL,

CURRENCY FLUCTUATIONS, DRILLING RESULTS, FIELD PERFORMANCE, THE TIMING OF WELL WORK-OVERS AND

FIELD DEVELOPMENT, RESERVES DEPLETION, PROGRESS ON GAS COMMERCIALISATION AND FISCAL AND OTHER

GOVERNMENT ISSUES AND APPROVALS.

DISCLAIMER

COMMERCIALISING GAS RESOURCES IN PNG | PAGE 2DECEMBER 5, 2018

❖ PNG has established an excellent reputation for financing, delivery and operation of a

world class LNG Project – PNG LNG

❖ The Country has the opportunity to more than double LNG production over the next 5

years by developing Papua LNG and expansion of PNG LNG – development

characterised by cooperation and efficient use of capital to deliver highly competitive

outcomes

❖ Growing demand for LNG provides a conducive environment for new developments,

especially for delivery into Asia

❖ Significant competition from other project developments exist, making meeting project

delivery timelines absolutely essential

❖ Markets may be taken – costs will escalate if we obfuscate

SUMMARY

DECEMBER 5, 2018COMMERCIALISING GAS RESOURCES IN PNG | PAGE 3

❖ Substantial discovered gas remains to be commercialised in PNG and

significant volumes remain to be found:

− What are the commercialisation pathways?

− Where and when do we need gas to deliver optimal value to all

stakeholders?

❖ Successful future developments must provide a value balance between

investors, the State and Communities’ growing social challenges

❖ New partnerships between Developers, Government and Communities are

necessary to address these challenges

SUMMARY


❖ Conventional LNG project, tried and tested, highly reliable technology, with

very high uptime

❖ Globally competitive production costs:

– Cooperative brownfield expansion with shared common facilities

downstream, economies of scale from sequential construction of LNG trains

❖ High heating value gas:

– Suitable for Asian reticulation networks

– Global average heating value in decline as newer leaner projects come

online

❖ Geographic proximity to key Asian LNG markets:

– 50% round trip shipping days to North Asia vs US Gulf Coast LNG

❖ Good source of diversification for LNG buyers

❖ Top tier operators, ExxonMobil and Total, augmented by local in-country

experience

COMPETITIVE ADVANTAGES OF LNG FROM PNG


POTENTIAL GLOBAL LNG SUPPLY SHORTFALL

COMMENCING IN EARLY 2020’S

LNG LIQUEFACTION CAPACITY BY FID YEAR

30

25

20

15

10

5

0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: IHS Markit Aug 2018

MT

PA

PNG

~25 MT

❖ Significant fall in new LNG capacity

sanctioned:

– Only 8.8 MTPA sanctioned since

2016

❖ To meet supply-demand gap in

2025, ~40 MTPA of additional

supply required (9 x 4.5 MTPA LNG

trains):

– New projects would need to take

FID by ~2020

❖ By 2030, a further 135 MTPA of

new supply required (30 x 4.5

MTPA LNG trains)

❖ Proposed new LNG capacity

development in PNG in strong

position to capture markets


GLOBAL LNG SUPPLY BUILD-UP30+ CREDIBLE LNG PROJECTS COMPETING FOR A LIMITED WINDOW

❖ Industry forecasters expect that by 2030, 150 MTPA of new LNG supply will be required to meet growing LNG demand.

Projects must approve FIDs in the next two years to meet the market for the 2023-24 timeframe as the supply gap widens

❖ There are 300+ MTPA of credible supply projects competing to attract buyers and financing

❖ Project participants are in a race against time to lock in all the necessary agreements to advance in the queue

❖ PNG JVs also have competing projects trying to reach FID, i.e. Exxon Mobil Operator of 15.2 MTPA Rovuma LNG in

Mozambique and 10 MTPA Golden Pass LNG in the US. Total in the 20 MTPA Artic-2 LNG project in Russia

200

250

300

350

400

450

500

550

2018 2020 2022 2024 2026 2028 2030

MT

PA

LNG exports by status vs. LNG demand

EXISITING

PROJECTS

UNDER

CONSTRUCTION

SUPPLY

GAP

0

50

100

150

200

250

300

2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

MT

PA

Proposed LNG Exports by Announced Start Date

PNG

Other

Russia

Qatar

Canada

Africa

US

Supply Gap

There is DOUBLE the

required capacity of

projects to meet the

Supply Gap


OIL SEARCH GAS STRATEGY THERE ARE COMPELLING REASONS FOR CONTINUED INVESTMENT

IN PNG GAS EXPLORATION

There is a

strong

investment

case for

further

exploration in

PNG

• Post Papua LNG & PNG LNG expansion, OSH will have

US$8Bn+ invested in LNG infrastructure in PNG

• >9 tcf of discoveries required by 2050, 3 tcf by 2025 to extend

production lift

Investment

footprint in

PNG

1

• Estimated 30 tcf of Yet-to-Find gas in Western Foldbelt and

Papuan Basin

• Other Supermajor PNG operators continuing to invest in gas

exploration activities

PNG remains

a prospective

basin for

exploration

2

• Proposed exploration prospects offer a commercial return on

investment

• Drilling and seismic acquisition experience is necessary to

maintain to cost competitiveness.

Competitive

Returns and

Capability

Growth

3

BUT……..

Security, JV alignment and operating stability risks must be considered4


OIL SEARCH GAS STRATEGYOSH HAS A STRONG INFRASTRUCTURE FOOTPRINT IN PNG

REQUIRING FUTURE INVESTMENT

Capital

Investment

Available

Ullage

Value ‘on the

table’

• Post PNG LNG expansion and Papua LNG

development, US$8 bn invested by Oil Search in

LNG infrastructure in PNG

• Additional 9 tcf required to extend PNG LNG and

Papua LNG plateau to 2050, 3 tcf required by 2025

• Possible to extend production PNG LNG and

Papua LNG developing what we have and by

finding more reserves

Compelling

economic

reasons

remain for

further

exploration

in PNG


OIL SEARCH GAS STRATEGYPNG IS A PROSPECTIVE AREA FOR EXPLORATION, EXTERNAL

PARTIES AGREE

• 2015 ‘Yet-To-Find’ study concluded that 30tcf still remains to be found in the

Western / Eastern / Deepwater areas in PNG

• >100tcf of gross mean unrisked gas in the current OSL exploration portfolio

• >15tcf of gross risked EMV positive leads and prospects

• 2012 study by the US Geological Survey investigated Yet-to-Find volumes in the

wider PNG area

• USGS estimates ~25tcf remaining to be discovered in the Foldbelts and

Deepwater

• Estimates ~10Bnbbl of in-place oil yet to be found in PNG

Internal and

external views

agree that PNG

is still a

prospective area

to explore for

gas


OIL SEARCH GAS STRATEGY EXPLORATION OFFERS COMPETITIVE RETURNS AND COULD

UNDERPIN FUTURE EXPANSION

Competitive

Returns

Future Growth

Potential

• Over 20 commercial, drillable prospects in the

OSH portfolio with >15tcf risked volume

• Forecasted finding costs are competitive with

global benchmarks

• Identified prospects and leads are of potential

size to enable further LNG expansion

• Future expansion projects likely offer competitive

breakeven economics

Exploration in PNG

offers future

production and

capability growth

potential for OSH

PNG Operations

Important

• Drilling and seismic capabilities are part of the

OSH PNG competitive advantage


EXPANSION DRIVES NEW GROWTH PROGRAMMES

Indicative LNG Growth Profile

Gas R

ate

[M

Mscf/

d]

PNG LNG Trains 1 and 2

Papua LNG

Additional trains growth target

Tra

ins 1

an

d 2

T3

Tra

ins 4

an

d 5

T6

+

PNG LNG

Expansion

Note: Indicative only, not to scale

❖ PNG LNG currently comprises two trains producing at

~8.9 MTPA (3Q18)

❖ Papua LNG Project combined with expansion of PNG

LNG underpinned by P’nyang field, will add ~8 MTPA

of new capacity

❖ On combined plateau, PNG will be using ~1 tcf per

year by mid-2020s

❖ Measured and targeted strategic investment in

exploration over next five years to:

❖ Expand through additional LNG capacity

❖ Optimise sequence and fill high-value backfill

opportunities


EXPANSION DRIVES NEW GROWTH PROGRAMMES

T1T2

T4 T3T5

P’nyang

Kutubu

Gobe

Hides

Juha Muruk Karoma

Elk/Antelope

EASTERN FOLDBELT

Priority area targeting

further expansion

FORELAND and NEARSHORE

Positive appraisal of Kimu and

Barikewa

DEEPWATER

‘Game changer’ exploration prospects

for standalone development

WESTERN FOLDBELT

High value optimisation/growth

opportunities

❖ Key strategic areas of OSH

portfolio assessed

❖ Onshore Gulf (Eastern Foldbelt)

identified as priority areas for LNG

expansion – “chasing Antelopes”

❖ Foreland and Nearshore areas

potential following successful

appraisal (concept phase) – Kimu,

Barikawa

❖ Western Foldbelt remains priority,

to optimise development sequence

and fill significant capacity in

addition to growth - Muruk

❖ Offshore Gulf of Papua a potential

‘game-changer’ for standalone

development


MEASURED INVESTMENT IN EXPLORATION TO

FEED GROWTH

❖ OSH has excellent

spread of acreage

❖ Recent seismic bolstering

robust portfolio with 30 tcf

yet to find

❖ Measured exploration

investment focus on

expansion opportunities

with strategic investment

in high priority and

gamechanger areas to

firm up new potential

Seismic / Gravity / MT

Exploration / Appraisal Wells

PRL10: Resource definition• Uramu 2 well preparations for

late 2019 or 2020 appraisal well

EFB Licences: Non OperatedProspect Definition• Ph2 OSH to acquire ~ 220km of

2D seismic on behalf of Exxon

Greater Juha – Prospect Definition• 102km of 2D seismic (PPL 402 &

surrounds) 4Q18/ 1H19

PDL9: Resource definition• Muruk 2 well 4Q18 / 1H19

PDL4: Prospect Definition• Gobe FW well 3Q 2019

dependent on Gobe seismic results

PPL 374/375: Non OperatedProspect Definition• 3D Seismic 2019-20

Oil Field

Gas Field

Oil Pipeline

Gas Pipeline

Oil Facility

Gas Facility

OSL Operated

OSL Interest

Condensate

Pipeline

EFB Drilling• Likely 2020-21

exploration drilling following seismic

Highlands Drilling• Likely 2020-21 exploration drilling

following 2019-20 Seismic


MURUK 2 APPRAISAL PROGRAMME

❖ Spudded on 10 November 2018

❖ OSH drilling well on behalf of ExxonMobil- operated PDL

9 joint venture

❖ ~11km step-out from Muruk 1 discovery well

❖ Base case: ~80 day well with expected total depth

~3,500m

❖ Objective is to narrow 1-3 tcf potential in Muruk

discovery to support development

❖ Success case: Extended Well Test to prove up

connected hydrocarbon volume

❖ Contingent success case: downdip sidetrack to evaluate

extent of hydrocarbon column

❖ Additional 2D seismic planned for later in 2019 after

drilling of Muruk 2 to further constrain Muruk and

adjacent Karoma lead

Muruk 2SW NE


KIMU 2 AND BARIKEWA 3 -

SUCCESSFUL APPRAISALS

❖ Both wells encountered gas in line with pre-drill expectations but

with better than expected reservoir quality

❖ Drill stem tests conducted on both wells to constrain fluid type

and reservoir producibility

❖ Core and logs acquired and being evaluated

❖ Pre-drill objectives of constraining volume range and gas

composition achieved

❖ Field volumetrics being refined and commercialisation options

being progressed

❖ Barikewa immediately adjacent to PNG LNG Gas Export

Pipeline

Kimu 1

PPL 452

PRL 8

Kimu 2

OSH Operated

PPL 375


THE NEED FOR NEW PARTNERSHIPS -

NEW WAYS OF WORKING

❖ PNG LNG has been an outstanding success in putting the country on the LNG

market map and building international financing and investment sentiment

❖ Lessons on project structure, benefits distribution, taxation balance and full

stakeholder involvement have been learnt – reflected in recent MOU for Papua

LNG

❖ A dynamic environment remains:

−PNG population growth – we add one Hela Province a year

−Over 50% of population under 25 years

−Life of 20 year LNG contract – population will close to double

❖ New ways of addressing these social challenges are needed


THE NEED FOR NEW PARTNERSHIPS -

NEW WAYS OF WORKING

❖ Government, Private Sector and other stakeholders must develop new

partnerships to leverage respective skills and address social sensitivities

❖ Focus on improving what we do:

− Improve efficiency and transparency of benefits sharing

− Partner with Governments on delivery of important infrastructure. To include

facilitation of local participation in new industries such as power, refinery,

downstream developments

− Facilitate sustainable non-project related activities and skills training to

specifically address the youth bulge

o Agricultural programmes

o Focus on craft training, carpentry, electrical and plumbing

o Engage the whole population, Women and Men

❖ What worked in the past will not work in the future


CONCLUSIONS

❖ PNG has built a strong positive reputation for reliable LNG delivery to Asian markets, positively impacting investor and

financing sentiments:

− Provides a tremendous platform for further development

❖ World LNG supply competition is very strong requiring PNG to meet development timing objectives or miss out

❖ PNG has substantial discovered gas resources and material further exploration upside:

− Further appraisal taking place in Western Foldbelt but focus moving to Eastern Foldbelt, onshore and offshore

− Investment of over US$700m is required in appraisal and exploration over the next 5 – 7 years to underwrite expansion

❖ Need to commercialise ~9tcf to support production plateau to 2050, more to drive further expansion

❖ Timing of exploration driven by need to replenish high levels of production and development of other downstream industries

❖ Other industry development, power, petrochemicals etc are important, based on sensible commercial parameters:

− Need to refocus efforts on addressing important social inclusion issues, with partnerships with Governments, development

partners and communities, new programmes, new ways to engage communities to focus on young people


OIL SEARCH LIMITED | ARBN 055 079 868 | ASX: OSH | POMSoX: OSH | US ADR: OISHY

www.oilsearch.com

THANK YOU

PNG Mining & Petroleum Investment Conference

December 2018

oil search - commercialising gas resources …...oil search gas strategy png is a prospective area...

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