Oil Search to Book US$360-400mn Impairment

Sydney-listed Oil Search expects to recognise a non-cash, pre-tax impairment charge of US$360-400mn (US$250-300mn on a post-tax basis) in its half-yearly results, which are scheduled to be released in August, it said on July 13.

The company said it has taken into account the potential longer-term impact of prevailing economic conditions and the outlook for oil and gas prices. The impairments that are expected to be recognised largely relate to Papua New Guinea (PNG) exploration licences. Oil Search has a stake in the PNG LNG expansion project operated by ExxonMobil and also involving France's Total.

Oil Search said that a number of exploration and evaluation assets in PNG have been identified as being of reduced priority due to lower prospectivity or sub-optimal economics. “As there is no current intention to pursue activities on these assets, the full value of these exploration assets is expected to be written down. An immaterial impairment relating to exploration leases in Alaska, which are scheduled to be relinquished, also is anticipated,” it said.

Given the ongoing gas supply uncertainties resulting from the recent suspension of mining activities at the Porgera project, the carrying value of the Hides gas-to-electricity project is also expected to be fully impaired, it added. The Porgera gold mine is located in the Enga Province of PNG. The project is operated by a joint venture comprising Barrick Gold Corporation of Canada and Zijin Mining Group Company of China. 

The final impairment expense to be recognised is subject to the finalisation of the half-year accounts and completion of the half-year review. Earlier this month, Oil Search announced it has reduced its workforce by about 34% to tackle the slowdown created by Covid-19 pandemic. The company said other steps were being coordinated to cut costs further. It had cut its capital expenditure budget in March by 38%.