Corporate Seminar Objectives Seminar Presentation a first step in 2002 Review Project Fundamentals and Outlook Strategic Direction and Organisational Review Full Timely Disclosure Access to Management Q&As The Next Step
Corporate Seminar Agenda Summary of OML Merger and Scheme Overview (Garry Marsden) Production and Reserves Overview (Mark Wilson) Exploration Overview (Jon Pattillo) New Ventures Overview (Keiran Wulff) Gas Commercialisation (Peter…
The Merger The Boards of Oil Search and Orogen have announced a proposed merger of the two companies Merger will create a significantly enlarged oil & gas company Merger will be affected by a Scheme of Arrangement in Orogen Merged…
Rationale and Benefits of Merger for Oil Search Attractive Value for Oil Search Shareholders Competitive reserves acquisition Strong EPS and operating CFPS accretion Material production growth Improved financial position Strong…
Timetable for Scheme First Court Hearing 20 February Documentation released 21 February Documents despatched to OML shareholders EST 27 February Scheme Meeting 26 March Second Court Hearing 3 April OML Shares trading as OSH 19 April
Overview of Scheme Documentation Information Memorandum Company Descriptions Merged Company Outlook Independent Experts Report Company Valuation : Production Assets : Development Interests : Exploration Assets Summary
Independent Experts Report Base Case Valuation Value of OSH share range A0.97 to A1.57 per share (fully diluted) Mid Point Valuation A1.27 per share Merged Company Valuation Range A1.25 to A1.75 per share (fully diluted)
Valuation Methodology Production Assets Range of reserves and production scenarios Oil Price range US19 to US21/bbl OSH WACC of 9% to 10% Additional subjective discount for PNG risk Development Interests DCF for PNG Gas Project…
Summary of Report OML Directors voted unanimously in favour of merger Experts opinion that merger is in the best interest of shareholders delivers significant premium and prospect of re-rating will become a significant oil company with…
Oil Search Limited Production & Development 2002 Activities Summary Reserves Production Outlook Value Issues Resource Commercialisation
Focus in 2002 Value capture from producing assets Finalise development of Moran & appraise NW Moran extension Continue Kutubu infill well programme Drill Gobe sidetracks & complete facility debottlenecking Conduct Saunders EWT Net…
Moran Infield Road Progress Ch22910 C h2 2 Moran 4 Pad Moran Beta Pad Moran Project 00 0 0 1 00 h2 C PDL-5 PDL-2 Cost to Jan-02 = US92 million 0 Ch2000 Moran 1X/ 2X Pad Original project budget = 195 00 0…
2002 Production Activities Moran Focus Areas Complete construction phase for gas injection start-up mid year Continue to maximise existing well production pre- and post- start of field injection Minimise production interruptions…
2002 Production Activities Kutubu Focus Areas Production optimisation operations, workovers, and producing zone changes Maximise Agogo liquids production during blowdown into Moran Arrest production decline to 10% in 2002 Drill IDT…
2002 Production Activities PDL3/4 Gobe Focus Areas - Gobe Main & SE Gobe Optimise well production thru workovers, artificial lift & capacity debottlenecking Complete gas compression & water handling capacity upgrades Drill 2 SEG…
Saunders Discovery Saunders 1X well Intersected 40 metre net oil column in good quality Upper Iagifu sands (similar to SEG) Confirmed continuation of oil pools along structure from Gobe & likely through to Bilip Prospect OSH Mapping…
Reserve Audit 2001 Annual Audit recently conducted by Netherland, Sewell & Associates on behalf of Bank syndicate Provides independent review Supports debt financing Corporate governance Conducted assessment of oil reserves in…
Oil Search 2001 Statistics Reserves 2001 Production = 6.4 million stb Proved Reserves Replaced 181% of 2001 production at US2.10 / bbl Proved & Probable Reserves Replaced 139% of 2001 production at US2.70 / bbl
PNG Oil Fields Valuations PetroVals range of reserve cases represented their view of a Base Case and a High Case OML & OSH provided documentation as requested and believe PetroVals cases relate to our Most Likely (2P) and our Upside…
Kutubu Significant Strategic Value Exists Upside acknowledged is minimal Grant Samuel Infrastructure has strategic value 2 Low (450) High (500) Opex sharing will be further enhanced with additional reserves (Moran, SE Mananda &…
PNG Gas Project Opportunities for Enhancement Focus Areas Cost reduction initiatives Aim to achieve major capital cost reduction during FEED (eg. contingencies, integrated deck construction et al) Gas Project cost integration…
Gas Project Foundation Fields (Proved Reserves = 5.0 Tcf)
PNG Gas Project Opportunities for Further Commercialisation PNG gas resources are significantly greater than the base volumes anticipated to be contracted to Qld Gas Project Base volume = 5.0 Tcf (1.2 Billion BOE) Incrl volume = 8.3…
PNG Gas Project Opportunities for Commercialisation Qld Market Growth Marginal value of gas is significantly higher Cost to commercialise incremental reserves is minimal (2P existing and proximal fields - Angore et al) 20% growth…
Gas Project Stranded Gas (Proved & Probable = +4.9 Tcf)
PNG Gas Project Nominal Growth Scenarios 800 700 Gas Volumes (MMscfd) 600 500 400 300 200 100 0 0 5 10 15 20 25 30 35 Foundation Contracts Incremental Growth A Incremental Growth B Early Capacity Pipeline Capacity
PNG Gas Project Opportunities for Commercialisation Offshore GTLs GTL study completed Methanol most prospective for dry gas fields Kimu, Uramu, Barikewa Synergies with GTQ being examined utilising early available capacity 5-20…
Oil Search Limited Exploration & New Ventures Commentary
Outline PNG Exploration New Ventures Budget forecasts Valuation Summary
Exploration Exploration Strategy: Key drivers 1. Exploration to support reserve and production growth in PNG 2. Selective testing of high upside, exploration plays 3. Maintain a sustainable, high value forward drilling program 4.…
Exploration Current activity Major exploration program ongoing in Foldbelt: 2001: Moran-6, Saunders-1x, 2002: Bakari-1, NW Moran-1, Bilip-1 Integrated Exploration and Development for rig optimisation Drilled Marabou-1 in…
Exploration/Development 2002 Drilling Schedule
Major Foldbelt prospects and 2001-2002 Drilling Program Bakari-1 2002 NW Moran 2002 Moran-6 2001 Saunders-1X 2001 Bilip 2002
Exploration Bakari-1 PPL 138 Well Results: Well encountered unprognosed limestone section at 2383mRT Minor C1-C4 gas shows in Limestone repeat limestone section. SFTs recovered formation water Revised Toro/Digimu reservoir…
Exploration Bakari-1 PPL 138 Reason for well failure: Low angle thrust, sub parallel to bedding not imaged by seismic Presence of repeat section therefore not detected by seismic Presence of surface volcanics may impede…
Exploration Bakari-1 PPL 138 NW/SE Paua and Paua FW Toro/Digimu reservoir involvement Mananda Area: Toro involved in structure NW/SE Moran Toro/Digimu reservoir involvement Hides and Angore Structures on trend with Bakari…
Exploration Scorecard to date PROSPECT STATUS/RESULT IMPLICATIONS Moran 6 oil discovery extends Moran to NW (possibly into PPL219) Saunders 1 oil discovery extends proven oil trend to SE into PPL190 (Bilip) Marabou 1 P&A possible oil…
Exploration 2002 2004 exploration program: 1. Focus on near-field opportunities complimented by.. 2. Selective drilling of high value exploration tests 2002 2003 2004 Prospect Rig Licence 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Bakari…
Exploration Foldbelt Seismic Program 2002 Quality and current cost/km supports continued use of seismic as a value-added de-risking tool: Hides-4, Moran-6, Saunders-1, wells all influenced by seismic data SE/NW Moran, Arakubi,…
Exploration Outlook Low risk and material PNG drilling program will continue to end 2002, with focus on near-field opportunities: NW Moran, Bilip HW and FW Emphasis on reserve growth OSHs PNG exploration portfolio has the capacity to…
OSHs New Venture Strategy OSH is reviewing new venture opportunities in targeted proven petroleum provinces with activity that is complimentary to our PNG program that: 1. Provides for a balance of near, medium & long term…
Comparison of Exploration Acreage Valuations (EMVs) 700 Net OSH EMV USD (mm) 600 500 400 300 576 467 441 200 300 270 100 215 91 0 Petroval Petroval OSH Top Operators 3 year 3 year OSH P & L Low High 24 Top 24 drilling…
Possible 3 year drilling program (EMVs based on OSH reserves & risks) 2002 2003 2004 Prospect Licence 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Bakari PPL138 0.00 NW Moran PPL219 23.08 Bilip PPL190 12.01 Commitment Iehi (Iagifu) PPL190…
Conclusions OSH has a very robust & developing exploration prospects & leads inventory Potentially 10-13 wells over the next 3 years out of top 25 prospects will be tested OSHs value is spread amongst a variety of licenses and play…
Oil Search Limited Gas Commercialisation
Gas Commercialisation PNG to Queensland Gas Project Project proceeding with new vigour Fiscal terms agreed with PNG Government Strong commitment by Operator New management agreement allows progress without unanimous vote
Gas Commercialisation PNG to Queensland Gas Project Project focus delivery of gas sales agreements competitive terms being offered for supply to southern states advanced negotiations with a number of customers clear customer demand…
Gas Commercialisation PNG to Queensland Gas Project Changed competitive landscape PNG now only volume supplier focus on major power and resource projects active participation in Townsville power bidding major push to sign…
Gas Commercialisation PNG to Queensland Gas Project Market Definition: Townsville, Gladstone, Brisbane Mt Isa, Moomba 175PJ/a identified establishment potential, 40-110PJ/a initial growth potential Queensland marketing onslaught…
Gas Commercialisation PNG to Queensland Gas Project Why PNG PNG Gas able to deliver to: All major resource projects across the State Power generation customers to meet 13% rule Most cost effective supply alternative Massively…
Gas Commercialisation PNG to Queensland Gas Project Key Next Steps Non-Queensland Gas Sales Confirmation Resolution of Townsville Power Bidding Further Queensland Market Confirmation Progress PNG Government Options for…
Oil Search Limited Debt Management
DEBT MANAGEMENT STRATEGY Current Status 12 Month Strategy Corporate Gas Summary
CURRENT STATUS Very robust Balance Sheet Post merger debt US215m drawn plus US25m standby Post merger cash US45m Gearing 25%
STRATEGY CORPORATE DEBT Raise US25m standby under terms of MIA 364 day OML Oil borrowing base Review US215m facility Consider consolidation Enlarged borrowing base Scope for improved terms Consider impact of gas financing…
STRATEGY GAS FINANCING Enlarged company holds 37% of gas assets Potential cost of US400m + including debt and capitalised interest of US300m + Project finance and/or project bonds likely base Around 12 year tenor, debt:equity of 70:30…
SUMMARY Robust Balance Sheet with modest gearing Strong bank group with appetite for further PNG opportunities
ACCOUNTING ISSUES Merger accounting will lead to revaluation of OML assets High book value in OML may lead to write down of assets, and lower amortisation base Successful gas project may lead to revaluation of future tax liabilities…
Oil Search Limited Strategic Direction and Organisation Review
Strategic Direction and Organisation Review Primary Objective: Top Quartile Performer amongst industry piers Performance Matrix: Total Shareholder Return Reserve Replacement and Cost Production Growth Cashflow and Earnings per…
Strategic Direction and Organisation Review Oil Search/Orogen merger provides a unique opportunity for PNG focused companies to drive investment in key assets for the first time: activities in past 3 years clearly inadequate to…
Share Price Performance Index ACTIVE OSL v OML Share Price Performance - Indexed Prices 200 EXPLORATION MORAN 180 DISCOVERY ACQUISITION BY GAS PROJECT GAS PROJECT OML ANNOUCE 160 OIL SEARCH DRAFT DELAYS GOVT REVIEW OF BPS ASSETS…
Strategic Direction and Organisation Review Primary objective of merged group is to increase influence and operating capabilities Co-operative approach recognising equity position and various corporate sensitivities
Strategic Direction and Organisation Review Three Areas of Review now taking place: Utilising outside resources - Bain International and others Dedicated internal expertise Phase I: Integration plan and implementation strategy for…
Strategic Direction and Organisation Review Phase 3 Full Potential Vision Strategy and Organisation for Oil Search Strategy Diagnostic
Strategic Direction and Organisation Review Value drivers Example tools and analyses (by asset / geography) Revenue Production profiles over time, by hydrocarbon / Key outputs mineral group Commodity prices over time Full working…
Strategic Direction and Organisation Review Essential Output: Full definition of the operating upside of the business and available growth options. Prioritised initiatives and implementation plan. Key Deliverables: Diagnostic…
Value Capture Focus for 2002 Production and Development Optimisation of Moran Development : facilities : appraisal programme Gobe Saunders Development : early EWT : appraisal programme Operating Process Review and Cost Reduction…
Value Capture Focus for 2002 Gas Project Oil and gas operations integration Optimise liquids cycling Review development costs Other development options
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