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Oil Search indicates big boost to PNG gas reserves

Oil SearchFINANCIAL REVIEW

OIL Search has lifted the lid on a likely significant increase in its gas resources, fuelling optimism about the case for expanding its liquefied natural gas (LNG) position in Papua New Guinea despite delays in talks on the project.

The PNG-focused player said early indications from an independent assessment of fields that supply the PNG LNG project was likely to result in higher reserves figures, to be revealed in February's annual reserves report.

Gas was also found in December at the Muruk-1 well, while the undeveloped P'nyang and Elk-Antelope fields add to the basket of resources available to feed an expansion.

Managing director Peter Botten said the resources support Oil Search's view that there is more than enough gas discovered in PNG to supply "at least two, and possible three, expansion trains" of LNG production in addition to the two units at the PNG LNG venture.

The news came in what analysts described as a "strong" production report for the December quarter, which allowed Oil Search to beat its guidance for output in 2016.

Botten also signalled success in reducing production costs, while guidance for 2017 production was also marginally upgraded.

Work towards a keenly awaited expansion of LNG capacity in PNG has been delayed by the stalling of ExxonMobil's takeover bid for InterOil, the original operator of the Elk-Antelope gas venture, due to a Canadian court ruling.

But the US major has since make a revised offer for InterOil, with shareholders to vote on the sweetened bid on 14 February. The takeover will bring ExxonMobil into the Elk-Antelope venture, opening up scope for a more cost-effective expansion of LNG production.

Botten said that once the deal is completed, talks on cooperation and integration of the next phase of LNG development would "commence, on an accelerated basis, in early 2017".

Bernstein Research, which is bullish on Oil Search stock, said the outlook for expansion in PNG "has never looked better".

"Oil Search has the most attractive growth portfolio of any E&P [exploration and production company] within the Asia-Pacific region as confirmed by this operating update," analyst Neil Beveridge said.

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