All key metrics in Oil Search’s March-quarter production report were in line with Ord Minnett's expectations, with the PNG LNG plant continuing to run well and management believing it can operate sustainably above nameplate capacity following the recent recertification of reserves.
Production of 7.57 million of barrels of oil equivalent (mmboe) was 4% ahead of our estimate despite scheduled and unscheduled outages during the quarter. PNG LNG operated at an annualised rate of 8.3 million tonnes per annum or 20% above name-plate capacity.
Meanwhile, revenue, sales and realised pricing all met expectations. Reported revenue of US$344 million on sales volumes of 7.22mmboe was in-line with our estimates. Sales volumes fell 9% from the prior quarter due to the timing of cargo liftings. Realised pricing of US$7.40 per million British thermal units was up 9% from the prior quarter.
Incremental news in the quarter, however, was slightly negative. The protracted Exxon Mobil takeover of InterOil appears to have resulted in a delay to final investment decision for the expansion project; and exploration drilling into Antelope Deeps was unsuccessful.
Nonetheless, these minor points have not changed Ord Minnett’s positive longer-term view on the stock. We expect catalysts to come through later in CY17 when more detail comes through on the size and cost of the expansion project. We believe these announcements could de-risk the project and lead the stock to be rerated.