PNG oil firms' merger tipped to revive exploration

The search for oil in the rugged but resource-rich forests of Papua New Guinea is set to be pursued with new vigour following the proposed merger of the country's two biggest energy companies.

PNG's largest oil explorer Oil Search Ltd last week launched a A$1.4 billion offer for Orogen Minerals Ltd, which analysts said would give it more muscle to pursue exploration in the recently neglected but promising region.

"I think they are going to be able to influence the pace of exploration and development and reform operating costs a lot more," Merrill Lynch energy analyst Stuart Smith said.

"Oil Search have been pretty open about the fact that their partners haven't wanted to drill as many wells as they have and there has been a bit of a history where not all the wells actually programmed ended up going down."

PNG oil output averaged around 58,000 barrels per day of light, sweet crude in 2001, produced from the Kutubu, Gobe and Moran fields in the rugged PNG Highlands, which are operated by a unit of the recently merged ChevronTexaco Corp.

But production is sliding after reaching around 140,000 bpd in the early 1990s. Kutubu and the Gobe are in decline, while there has been no significant exploration activity in the highlands since 1997.

The drilling lull is attributed by analysts to low oil prices in the late 1990s and PNG's lesser appeal to multinationals compared to opportunities elsewhere in the world that offer better tax deals and less difficult geology.

ChevronTexaco PNG country manager Isikeli Taureka said PNG was "bread and butter" for Oil Search, which was more exploration focussed in the area and which took a more optimistic view.
"Our way of assessing prospects to try and reduce the risk and uncertainty is probably a little different from the way Oil Search would see it," he said.

Oil Search has recently made a modest oil discovery with the Saunders well and is currently drilling the Bakari prospect operated by ExxonMobil Corp, in an area considered highly prospective northwest of the Moran field.

Analysts said the merged Oil Search was also likely to put more pressure on joint ventures to pursue development and appraisal drilling around the known discoveries.

A merged Orogen and Oil Search would have a 52.5 per cent stake in the Kutubu and Moran PDL2 and PDL5, 45 per cent of South East Gobe and 57.3 per cent of Gobe Main, raising the prospect of the company taking a higher profile as project operator.