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Oil Search shares drop after failed exploration

Staff Reporter | 7:42 PM | |||
OIL Search and Santos have suffered a setback with their gas ambitions in Papua New Guinea with the news that an exploration well targeting a potential large new gas discovery that could have been used for a cost-effective expansion of the project found water instead of gas.
The Hides Deep well was targeting a deep reservoir underneath the existing Hides field, in Hela, that feeds the PNG LNG project, but the sands were “water-bearing”, Oil Search said last Friday.
Oil Search shares, which went ex-dividend last Friday, lost as much as 4.2 per cent to A$7.74 (K15.82), while Santos, which has a stake in the well, shed 1 per cent to A$7.77 (K15.88).
The deep exploration part of the well will now be abandoned and the shallower section used as a development well for the PNG LNG venture.
Had Hides Deep been successful, the discovery of gas right beneath the existing field supplying PNG LNG could have led to a cheaper expansion of the project.
However, Oil Search had already flagged its focus for an expansion had switched to the P’nyang field to the west, for which a memorandum of understanding was signed in January for development, both for local power generation and for the LNG expansion.
A spokeswoman for Oil Search described the Hides Deep well result as “disappointing” but not unexpected given the company had put a one-in-three chance of success at the well.
“It’s always disappointing when exploration doesn’t work out, but not totally unsurprising,” she said.
The spokeswoman said the failure of Hides Deep did not have implications for the immediate expansion of PNG LNG because ExxonMobil, the venture operator, and Oil Search had already designated P’nyang (Western) to underpin a third LNG train at the project.
Had Hides Deep been successful, it still would have required about two years for appraisal drilling and so was not in line as a gas source for the first expansion phase, she said. – Sydney Morning Herald