OIL SEARCH has targeted the addition of up to three more trains on the PNG LNG project as it investigates the potential to more than double production by 2022.

The company will look to reduce bottlenecks at the project with at least two new trains and said “moderate drilling success” at current exploration and appraisal targets may lead to the commissioning of a third.

Chief executive Peter Botten said if joint venture partners were “sufficiently aligned” by late-2016 he was confident the first expansion train could be delivered by the end of the decade.

“As of today there is sufficient undeveloped gas in the portfolio to deliver two near term expansion trains,” he said.

“Through 2015 a drill bit will determine whether there’s enough for three expansion trains.”

Senior Oil Search executives made the announcement at the company’s strategic review in October, where they also attempted to provide assurances of Oil Search’s ability to weather the impacts of a plummeting oil price.

“We have the potential to double production again between 2015 and the early 2020s,” Mr Botten said at the review presentation.

Strategy and commercial executive general manager Matt Kay said Oil Search was looking to capitalise on the expected doubling of demand for LNG in Asian and Middle Eastern markets by 2030.

In the case of a further three trains being commissioned, revenues of over US$40 billion could flow into PNG, Mr Kay said.

“Clearly our projects are in fantastic proximity to this burgeoning market,” he said.

“PNG importantly is now a proven supplier of LNG. That means we have credibility with the market place.

“We’re very well placed with our existing relationships in Asia and our existing customers to leverage the growth that is at our doorstep.”

The company would target optimal production of already-built assets but said it wanted to go further by expanding the LNG business in the highlands and developing a Gulf LNG hub in the south.

“The opportunity to shape these developments is critical over the next 12 months or so as various projects come together,” Mr Botten said.

Mr Botten said the review identified further exploration upside and said infrastructure already delivered into the highlands would be important for the company’s future.

“The discovery of the resource base in PNG is substantial,” executive general manager of gas business development Ian Munro said.

Mr Munro said there was in excess of 11 trillion cubic feet of undeveloped gas available for expansion.

“Much of this gas is in the vicinity of the two hubs that I referred to – the northwest hub and the gulf hub,” he said.

“We’ve committed to a number of high impact wells that will be drilled or are drilling currently and will be drilled as we move into 2015.”

For the Gulf Hub, Mr Munro said that the appraisal wells Antelope 4, 5 and “possibly” 6 would determine whether there was a need for a further one or two trains.

“Additionally in PRL 15 there is a sizeable exploration target – Antelope Deep – which is likely to spud during the first half of 2015,” he said.

In terms of the north west hub, Mr Munro said an ongoing resource evaluation study on P’nyang may be followed by additional drilling.

“The results from the recently completed Hides development drilling are being evaluated by Oil Search and also the joint venture to determine whether there is sufficient gas to underpin or front end expansion and also contribute to debottlenecking,” Mr Munro said.

“The Hides Deep exploration well spudded last month and we’ll be expecting results from that well early in 2015.”

Oil Search said these technical activities would better define the resource space that was available to the company.

Hides drilling success story

Mr Botten described recent drilling at Hides as an “outstanding success”, saying the wells drilled would boost the company’s proven reserves.

“I would be confidently saying it’s going to increase it…that work’s being undertaken now to understand what that number is,” Mr Botten said.

“Obviously Hides is very much then a focus on what we can contribute, just as a review of what the gas we have in our oil fields.”

Mr Botten said there was upside for the company in Hides Deep but it would be a couple of years before success was proven.

“The results give us, again, a layer of confidence about the level of gas that can underwrite expansion and de-bottlenecking,” he said.

Executive general manager of exploration and business development Julian Fowles said the company was targeting resource replacements of 150% over the next five years.

“We see the space in PNG to support that,” Mr Fowles said.

Mr Fowles said Oil Search expects to spend about $350 million per year on exploration and appraisal activity in PNG over the next several years.

The money would be spent on the appraisal effort in the Antelope field, data acquisition in PRL 15, work in Hides Deep, and additional appraisal work, the company said.

He said internal and external estimates of reserves in PNG showed there may be up to five billion barrels of oil still undiscovered.

Arbitration pending

Oil Search said the PRL 15 arbitration process with InterOil would determine the rollout of any new trains, including their location, the timing of their commissioning, and their size.

The company is currently contesting InterOil’s selling of a stake in PRL 15 to French major Total, claiming it had pre-emptive rights to the sale.

“The binding decision from the arbitration panel which will meet in late November is expected early in the first quarter of 2015 and it’s an eagerly anticipated decision by a multitude of stakeholders,” Mr Munro said.

He said PRL 15 would be appraised during 2015 to confirm whether the Elk and Antelope fields could supply two trains.

“We’re confident there is enough gas for one train; the question we’re looking to determine in 2015 is whether there is sufficient for two expansion trains,” Mr Munro said.

He said expansion of the project would be made easier by infrastructure already in place.

“The opportunity to accelerate the schedule clearly is if there is sufficient gas in the foundation project, particularly in the Hides field,” he said.

“Evaluation is ongoing at the moment and will tell us, and there is an opportunity there to front end new trains using fields that are already in production.

“There is significant running room in exploration in country… That gas that we believe is out there should keep these four or five trains full for decades to come and hopefully trigger additional trains through time.”

“I think we’re comfortable a train can be delivered at the back end of this decade. I think that’s very doable.”

Oil price reassurance

Mr Kay acknowledged the threat of the growing US oil and gas export market but downplayed the significance of its impact, citing competitors’ lack of proximity to Asian and Middle Eastern markets and their lack of comparable stability in terms of relationships with government and joint venture partners.

“While we believe that there is potentially a few hundred million tonnes of supply coming from the US for example, in reality by 2025 we only think around 70 million tonnes will hit the market but we are well prepared,” Mr Kay said.

He acknowledged that there was likely to be a further softening of the oil price in the short term but said the tide would turn.

“We think that the market will turn to around a US$90 f loor price in the near term and we do see longer term growth,” he said.

Comparing Oil Search’s interests with about 40 other projects currently running in Australia, Mr Kay explained that Oil Search was best placed to ride out a further price downturn.

“We believe that others will either have to shelve projects, defer projects or go back to the debt markets. We’re not in that position,” he said.

“We see substantial growth for our products remembering that Oil Search is now predominantly an LNG provider into Asia and we continue to believe that for the next five to seven year strategic window.”

Botten’s future

When asked to put a specific timeline on his continuation with the company, Mr Botten said he expected to remain chief executive for the next 18 months to two years.

“I think I am still adding value to the business and still very much enjoying what I am doing,” he said.

“I haven’t made a decision to go and I am still here. I am still fighting and firing.”

Mr Botten said the most important aspect was the augmentation of the company’s management team and the deepening of relationships in PNG.

“I have a large part of my own superannuation fund tied up in Oil Search so you know whenever I do leave I am absolutely uniquely incentivised to make sure that there is a minimum preservation when I do go,” he said.

“I think the next two years is really exciting in the organisation as we move to front end engineering design and an final investment decisions and I think [there is] a lot of interesting and challenging work to do in that period of time.”