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Oil Search Lowers 2018 Production Forecast After PNG Earthquake

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04/17/2018 | 01:47 am

By Robb Stewart and Mike Cherney

MELBOURNE, Australia--Oil Search scaled back its annual production forecast after oil and gas operations in Papua New Guinea were halted by a powerful earthquake in late February.

Production this year is now forecast to be between 23 million and 26 million barrels of oil equivalent, Oil Search said Tuesday. That marks a sharp cut to previous guidance of 28.5 million-30.5 million barrels, and will mean a drop in production from 30.3 million barrels in 2017.

With the expected reduction in output, the energy company said unit production costs would be between US$10.50 to US$13.50 per barrel of oil equivalent in 2018, higher than the previous forecast of US$8.50 to US$9.50. The company said it would narrow the range once there is more certainty about the production outlook for the year.

A magnitude 7.5 quake struck Papua New Guinea's Highlands region on Feb. 26, causing landslides that damaged roads and other infrastructure. Local police reported that at least 125 people were killed by the earthquake and a series of aftershocks over the following days. Papua New Guinea's government in March declared a state of emergency in the Hela, Southern Highlands, Western and Enga provinces.

Operations in the Highlands and the US$19 billion PNG LNG gas-export facility outside the capital of Port Moresby were shut down by Oil Search and its partners shortly after the first quake hit.

Oil Search said on Tuesday that work is continuing to restore damaged facilities, and that 80% of company-operated oil production would be returned to pre-earthquake levels over the course of the second quarter.

Oil Search operates all of Papua New Guinea's producing oil fields, though these are dwarfed by output from Exxon Mobil liquefied natural gas operation, in which Oil Search has a 29% interest. Port Moresby-based Oil Search also has stakes in a number of undeveloped gas fields in Papua New Guinea, including assets operated by France's Total SA.

Last week, Exxon said the natural-gas resource at the P'nyang field owned by Oil Search had increased 84% to 4.36 trillion cubic feet, which supported talks between venture partners on plans to develop another production line at the PNG LNG facility and two lines at Total's proposed Papua LNG project.

Dented by the earthquake, Oil Search said its output in the first quarter of the year was down 36% on the prior three months at 4.8 million barrels. Sales revenue for the quarter was 24% lower at US$295 million.

"The first quarter of 2018 was one of the most challenging in Oil Search's and PNG's history," said Peter Botten, managing director of Oil Search.

In bid to balance a portfolio heavily weighted to gas operations in a single country, Oil Search late last year struck a US$400 million deal to buy interests in assets in Alaska's North Slope, including the promising Nanushuk oil field sandwiched between two established fields controlled by ConocoPhillips.

-Write to Robb Stewart at Robb.Stewart@wsj.com and Mike Cherney at mike.cherney@wsj.com

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