OIL SEARCH expects its second quarter revenues to suffer with the downturn in global oil prices, with the group’s cost saving measures to continue.

Speaking at the company’s annual general meeting in May, Oil Search chairman Richard Lee said the extent and speed of the price fall took the industry by surprise.

“These moves have not only affected the price we receive for our oilfield production but also our gas and LNG sales prices, which are closely linked to the oil price,” he said.

“Due to an approximate three month lag between the spot oil price and LNG contract prices, our LNG revenues remained relatively buoyant during 2014 and into the first quarter of 2015, but are expected to fall in the second quarter, as lower oil prices flow through to LNG pricing.”

As a result, Oil Search was assuming that lower prices would prevail for some years, with the company’s 2015 budgets cut by about 20 per cent.

“In addition, we have recently commenced a business optimisation program, aimed at improving the Company’s efficiency and streamlining its processes, which we expect will result in a much stronger Oil Search going forward,” Mr Lee said.

“We see this period of low pricing as a real opportunity to improve our cost structure and to add value to our business, through strengthened fiscal discipline.”

Final investment decisions for the potential construction of a third train at PNG LNG and for the development of the Elk/Antelope resource are targeted for 2017, Mr Lee added.

In February Oil Search lost arbitration proceedings surrounding InterOil’s sale of part of its interest in PRL 15, where Elk/Antelope is situated, to French major Total, failing to win pre-emptive rights over the deal.

“While disappointed with the outcome, we decided not to dispute this decision and interests in the licence have subsequently been transferred to Total, which has now been elected as operator,” Mr Lee said.

“We have a very high regard for Total, which is an existing partner of Oil Search in PNG and internationally, as a world class LNG operator.”

“The Joint Venture is working together closely and collaboratively and is fully aligned in moving forward with the potential development of this material gas resource as PNG’s second major LNG project,” he said.

With most construction on the PNG LNG project completed, company capital expenditure obligations had fallen away, with Oil Search enjoying a strong cash balance in the March quarter as a result.

Despite this, Oil Search revenues were down 16 per cent during the March quarter, with US$472.3 million earned, down from the US$562.1 million earned in the December quarter of 2014.

This came on the back of a 5% fall in production, to 6.91 million barrels of oil, down from 7.2 million the previous quarter, which Oil Search said reflected scheduled maintenance.

Oil Search said it remained on track to deliver between 26 million and 28 million barrels of oil in 2015, of which much would come from the PNG LNG project.