Exploration Activity

Oil Search’s exploration strategy in PNG is as follows:

Increase activity levels in core areas

In recent years, limited exploration activity has been undertaken in PNG due to the preferential use of rigs to drill the many appraisal/development opportunities in and around the existing fields which, in a high oil price environment, have been able to generate very high returns. However, with the acquisition of new rigs, Oil Search is now refocusing on exploration in PNG.   During 2005 and 2006, the Company completed a multi-licence seismic programme over a range of prospects in the core areas of the PNG Foldbelt and in the Forelands area.  A number of near-field and wildcat exploration targets were drilled over 2007 and an active programme is ongoing in 2008.  The focus is both on oil exploration and on gas exploration and appraisal.

Continued focus on reducing PNG drilling costs

Despite considerable upwards pressure on drilling costs, due to global shortages of drilling equipment and supplies, Oil Search has managed to keep its drilling costs relatively stable.  This has been achieved by a range of initiatives including reducing non-productive time by better planning, contract renegotiations and using more fit-for-purpose drilling rigs.  Given the very tight rig market, a key strategy adopted by Oil Search has been to acquire its own rigs within PNG.  An existing Company-owned rig has been extensively refurbished and recommenced operations in the fourth quarter of 2007.  The first of two new-build rigs arrived in-country in late 2007 and commenced operations in early 2008.  The second new-build rig is expected to be delivered in the second half of 2008.   

Actively manage the exploration portfolio

Oil Search’s strategy is to maintain an exploration portfolio that is capable of supporting an active and quality drilling programme, which, together with acquisitions, can meet the Company reserves growth objective of replacing production plus 15% on a three year rolling average basis.  Oil Search is developing a portfolio with a balance of higher and lower cost drilling targets and expects to replenish the portfolio through regular acquisitions.