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___________________________________________________________________________
2015/IEG/WKSP/010 Session: 3
Promoting Sustainable Overseas Investment
Submitted by: Oil Search Limited
Workshop on the Best Practice of the Sustainable Investment in APEC Region
Beijing, China9 February 2015
Oil Search LimitedARBN 055 079 868
Michael Uiari, General Manager, PNG Commercial,
Legal & Stakeholder Management
Promoting Sustainable Overseas
Investment
ASX: OSH | US ADR: OISHY
www.oilsearch.com
Disclaimer
While every effort is made to provide accurate and complete information, Oil Search Limited does not
warrant that the information in this presentation is free from errors or omissions or is suitable for its
intended use. Subject to any terms implied by law which cannot be excluded, Oil Search Limited accepts
no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a
result of any error, omission or misrepresentation in information in this presentation. All information in
this presentation is subject to change without notice.
This presentation also contains forward-looking statements which are subject to particular risks
associated with the oil and gas industry. Oil Search Limited believes there are reasonable grounds for
the expectations on which the statements are based. However actual outcomes could differ materially
due to a range of factors including oil and gas prices, demand for oil, currency fluctuations, drilling
results, field performance, the timing of well work-overs and field development, reserves depletion,
progress on gas commercialisation and fiscal and other
government issues and approvals.
2Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Agenda
Item 1 Who is Oil Search?
Item 2 Sustainability is a core strategy
Item 3 Our Programmes
Item 4 Case Study | PNG LNG Benefits
Management
3Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Agenda
Item 1 Who is Oil Search?
Item 2 Sustainability is a core strategy
Item 3 Our Programmes
Item 4 Case Study | PNG LNG Benefits
Management
4Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
» Established in Papua New
Guinea (PNG) in 1929
» Market capitalisation ~A$13bn
(US$12bn)
» Listed on ASX and POMSOX
(Share Code OSH) plus ADR
programme (Share Code
OISHY)
» ASX 50
» Operates all PNG’s currently
producing oil fields
» 29% interest in PNG LNG
Project, world scale LNG
project operated by
ExxonMobil. First LNG sales
commenced May 2014
» Exploration interests in PNG,
Middle East/North Africa
Oil Search Profile
PAPUA
NEW
GUINEA
AUSTRALIA
Brisbane
Sydney
Port Moresby
(Head Office)
Kutubu Ridge Camp
Dubai
TunisErbil
Sulaymaniyah
Sana'a
TUNISIA IRAQ
YEMEN
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 5
Share Register as @ 31 Dec 2014
Shareholder % City
International
Petroleum
Investment
Company
12.9 Abu Dhabi
Capital Group 10.1 Los Angeles
Fidelity Worldwide
Investment
4.7 Combined
Commonwealth
Bank of Australia
3.8 Sydney
UBS 3.4 Sydney
PNG corporates 3 Port Moresby
Perpetual 3 Sydney
BT Investment
Mngt
2.4 Sydney
JP Morgan Chase 2,.4 London & others
AMP Capital 2 Sydney
Shareholder % City
JCP Investment
Partners
2 Melbourne
Cooper Investors 1.9 Melbourne
Vanguard Group 1.9 Combined
Standard Life 1.8 Combined
Black Rock Inc 1.5 Combined
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 6
1
1 Does not reflect the PNG Government’s full beneficial holding of 149.4m (9.8%) stake in OSH, via NPCP Investments.
PNG Licence Interests
7
PNG LNG Project
Gas Fields
PNG LNG Project
Facilities
Non PNG LNG
Gas/Oil Fields
Oil Field
Gas Field
Oil Pipeline
Gas Pipeline
Oil Facility
Gas Facility
OSH Operated
OSH Interest
Condensate Pipeline
PPL260
Juha
Kutubu
Proposed Juha
Facility
Hides
Angore
LNG Facility
Gobe MainHides Gas
Conditioning Plant
& Komo Airfield
Uramu
P’nyang
Kimu
SE Gobe
Hagana
Flinders
Juha North
Barikewa
Elk/Antelope
Moran
Agogo
Papua New Guinea
Hides
Kutubu
Port Moresby
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Our Operating Environment
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 8
Historic Metrics
185.6202.5
175.8205.7
152.5
0
50
100
150
200
250
2010 2011 2012 2013 HY2014
Net Profit After Tax (US$M)
4 4 4 4
2
0
1
2
3
4
5
2010 2011 2012 2013 HY2014
DPS (US cents)
7.76.7 6.4 6.7
5.4
0
2
4
6
8
10
2010 2011 2012 2013 HY2014
Production (mmboe)
76
117 114 108 112
0
20
40
60
80
100
120
140
2010 2011 2012 2013 HY2014
Oil Price (US$/bbl)
9Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
9 months to 30 Sep 14:
12.0 mmboe
9 months to 30 Sep 14:
US$107/bbl
0
2
4
6
8
10
12
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
2002 to 2014 | Significant share price appreciation
Acquisition of
ChevronTexaco’s
PNG assets.
Assume
Operatorship
Manage transition to PNG LNG Project
PNG LNG FID
PNG LNG
production
commencesPRL 15
acquisition
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Sh
are
Pri
ce
(A
$)
2002 Strategic
Review
2010 Strategic
Review2007 Strategic
Review
10
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
0 50 100 150 200 250 300 350
Cu
mu
lati
ve D
isco
vere
d P
50
Re
co
ve
rab
le V
olu
me
(m
mb
oe
)
Well Number
• Hides is largest field found to date
• Future field sizes likely smaller but still
material
Hides
Antelope
Based on OSH estimates
The Future | only ½ of PNG’s full resource
potential has been discovered
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
» Internal and external
assessments indicate only half
of PNG’s full resource potential
has been discovered
» Significant remaining gas
potential in Highlands and Gulf
areas
~10
bnboe
PNG Resource Base
Producing
Fields
Discovered
Undeveloped
Resources
Exploration
Yet-to-Find
(full potential)
YTF = USGS P50 & IHS Estimates
0
5
10
15
20
25
30
050
10
015
020
025
030
035
040
045
050
055
060
065
070
075
080
085
090
095
010
00
Fre
qu
en
cy
Size (mmboe)
Field Size Distribution
Hid
es
Ante
lope
Field count = 41
* OSH estimates
** Cumulative numbers based on arithmetic sum of P50 resource
11
Agenda
Item 1 Who is Oil Search?
Item 2 Sustainability is a core strategy
Item 3 Our Programmes
Item 4 Case Study | PNG LNG Benefits
Management
12Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Vision, Objective and Strategies
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Sustain and optimise
oil and gas assets
through safe and
reliable operations
Commercialise
additional LNG trains
resourced from NW
Highlands and Gulf
hubs
Explore for and
appraise high value oil
and gas accumulations
in PNG and progress
high value global new
venture opportunities
Maintain Oil Search as
a leading corporate
citizen in PNG. Protect
value and enable
growth by mitigating
risks and promoting a
stable operating
environment
Optimise capital and
liquidity management
to support investment
and reward
shareholders
Enhance
organisational
capabilities to deliver
our strategic
commitments
Achieve top quartile value growth performance versus peer group over next five years,
by pursuing the following strategies:Objective
Optimise value
of existing
assets
Commercialise
gas in PNG
Pursue high
value
opportunities
Lead PNG
sustainability
Optimise capital
management
Enhance
organisational
capability
To generate top quartile returns for shareholders through excellence in
socially responsible oil and gas exploration and productionVision
13
Sustainability is the key to historic &
future success
» Majority of OSH value growth over next 5-7 years will come from
assets in PNG
» Dynamic social environment, combined with significant economic
changes, requires active management
» Social responsibility, sustainable development and enduring
government and community relationships integral to OSH’s
historic and future success
» OSH has a comprehensive series of social programmes to help
government and communities address social and economic
challenges across infrastructure, education and health, including:
– Working with Govern’t to lead development of PNG’s oil and gas sector
– Ensuring PNG LNG benefits commitments are delivered
– Facilitating delivery of key infrastructure projects (OSH manages
>US$200m of projects on behalf of Government)
– Oil Search Health Foundation (health service provider)
– Delivery of power solutions in PNG
» Managing PNG country issues critical to preserving OSH value,
generating growth and maintaining our social licence to operate
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 14
Agenda
Item 1 Who is Oil Search?
Item 2 Sustainability is a core strategy
Item 3 Our Programmes
Item 4 Case Study | PNG LNG Benefits
Management
15Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Our Programmes | Balancing
financial return and social good
» Collaboration with national and sub national government
– Tax Credit Scheme as a mode of project delivery
– PNG LNG benefits (contractual and statutory)
management
– Transformation of institutions including our industry regulator
– Health outcomes through Oil Search Health Foundation
http://www.oilsearchhealthfoundation.org/
– Supporting infrastructure delivery
– Progressing EITI in PNG
» Local communities
– Participation in business opportunities through local
landowner businesses
– Tertiary sponsorships
– Community development projects
– Workforce and community healthcare
– Developing skills for food security across PNG
– Targeted Donations
– Understanding biodiversity
– Improving social impact measurement
– Human Rights risk review
» Promoting good governance
– Corporate standards on preventing corruption
– Board Committee provides oversight of Sustainability
strategy
– Corruption prevention through Internal standards,
enforcing internal Code of Conduct and educating
Suppliers on our standards
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 16
Agenda
Item 1 Who is Oil Search?
Item 2 Sustainability is a core strategy
Item 3 Our Programmes
Item 4 Case Study | PNG LNG Benefits
Management
17Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
PNG LNG Project
18
PNG LNG Project
Gas Fields
Juha
Kutubu
Proposed Juha
Facility
Hides
Angore
LNG Facility
Gobe Main
Hides Gas
Conditioning Plant
& Komo Airfield
Moran
Agogo
Gas Pipeline
Oil Field
Gas Field
Oil Pipeline
Gas Pipeline
Oil Facility
Gas Facility
OSH Operated
OSH Interest
Condensate Pipeline
Papua New Guinea
Hides
Kutubu
Port Moresby
Hides Drilling
LNG shipped to
Asian buyers
LNG Plant
TEG unit
HGCP
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
» 6.9 MTPA, 2 train development, operated by ExxonMobil
» Expected to produce more than 9 tcf of gas and 200+ million barrels of associated liquids
over its 30 year life
» Equity Interests:
– ExxonMobil (33.2%), Oil Search (29.0%), National Petroleum Company of PNG (PNG Govt) (16.8%),
Santos (13.5%), Nippon Oil (4.7%), MRDC (PNG Landowners) (2.8%)
» 6.6 MTPA contracted to Asian buyers:
– Sinopec (China) ~2.0 MTPA
– TEPCO (Japan) ~1.8 MTPA
– Osaka Gas (Japan) ~1.5 MTPA
– CPC (Taiwan) ~1.2 MTPA
» Development delivered slightly below US$19bn revised budget
1919
PNG LNG Project Overview
19Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
PNG LNG Facilities
20
Associated GasLNG Plant
LNG Tanker at Jetty Hides GCPHides GCP
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Source: ExxonMobil
First PNG LNG shipment arrived in Japan in
early June 2014
21
Unloading of first PNG LNG cargo at TEPCO
Futtsu-2 Terminal
Source: ExxonMobil
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015
Balancing financial return with social
good | PNG LNG Benefits Management
Factors
» PNG LNG will be transformational for PNG
» Oil production over the last 20 years represents a
lost opportunity to translate benefits into
development outcomes for our host communities,
host Provinces and host country
» Our investment in PNG LNG must translate into
benefits for our host communities, host Provinces
and host country
» Expectations within PNG for basic service delivery
– schools, hospitals, roads, power etc – has never
been higher
» Capacity of National and Provincial Governments
to deliver core services are challenged
» Important that OSH plays a role to facilitate and
augment Government capacity to deliver services
Strategic Approach
» Shared Responsibility with Host
Government
» Transparency is mandatory
» Follow the money trail
– While in FEED in 2008, we recognised the
need to-
• map all benefits streams
• negotiate a shared responsibility approach with our
host Government
• encourage the introduction of governance
mechanisms around each benefits stream
• translate non cash benefits into social infrastructure
• assist Government develop business plans for
cash benefits
– Covers tax and non-tax benefits
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 22
A substantial share of PNG LNG benefits will
accrue to Government
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 23
62.6%
37.4%
PNG LNG Project Government Take vs Company Take
% of Project NPV
Gov't Take
Company Take
ACIL Tasman Economic Benefits Study
indicated benefits bigger than annual GDP
Over 25% of PNG LNG revenues will
be allocated to local stakeholders
National Goverment
(Taxation and NPCP Equity)
74.41%(rest of PNG)
PNG LNG Project - National Government v Project Area Stakeholders
(Benefits Sharing %)
Various Project
Area Stakeholders
25.59%
- 5 impacted
provincial
governments
- landowners
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 24
Non Tax Benefits | Shared
Responsibility with Government
Benefits Stream Quantum Beneficiary Type Governance
Approach
Royalty 2% of wellhead
value
Landowners Statutory Cash 40% cash to
landowners, 30%
each to CIT & FGT
Development Levy 2% of wellhead
value
5 Impacted
Provincial
Governments ie.
sub national level
Statutory Cash Mobilising funds
against defined
goals and assist
implementation
Business
Development
Grant
K120m Landowners Contractual Cash Distributed in 2010
– too late
Infrastructure
Development
Grant
K1.2bn released
@ K120m pa from
2010
5 Impacted
Provinces
Contractual Cash Lost 2010 – 2013
Infrastructure
delivery
partnership with
Gov’t forward plan
High Impact
Infrastructure
Projects (next
slide)
Project list –
unrealistic
designated cost
5 Impacted
Provinces
Contractual Non Cash Infrastructure
delivery
partnership with
Gov’t
Landowner equity Landowners Statutory & extra
equity is
contractual
Non Cash Managed by a
corporate trustee
per royalty
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 25
Non Tax Benefits | Help to deliver
High Impact Infrastructure Projects
Project Designated
Kikori-Kutubu-Tari-Koroba-Kopiago North Coast Road
(Tax Credit Scheme*)
K100m
Komo to Tari road sealing K 90m
Hela City Development (first phase) K100m
International airport at Tari (first phase) K 90m
Komo Township K 15m
Magarima Township K 15m
Kutubu Township K 15m
Koroba Township (including hospital) K 20m
Nogoli Growth Centre K 15m
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 26
*The Tax Credit Scheme is a legislated infrastructure delivery model that
permits the mobilization of 0.75% - 2% of a Developer’s taxable income to
fund project delivery by the Developer
Taxation | Shared Responsibility with
Government to deliver national priorities
National Priorities Oil Search Prioritisation Project List
A. Planning Framework
• Vision 2050 (2010-50)
• 20 Year PNG DSIP (2011-
2030)
• 5 year MTDP (2011-15)
• Annual Budget Priorities
• Sector plans and
provincial plans
1. Criticality Analysis:
2. Capability/Capacity Analysis
• Organisational Capability
current and future
3. Funding Constraints
4. Policy/Law: evolution
eg tax credit/NITCS?
5. Operating models- best fit
• Level A
• Large Projects
• Level B
• Small Projects
• Initial List
• Short List
B. External Influences
• Millennium Development
Goals
• (now called Sustainable
Development Objective)
• Aid Agency programmes
• Australia, Japan, Multi-
laterals
Examples
• Hospital
• Power Solution
• Road
• HIIPs projects
C. UBSA/LBSA Commitments
D. NEC Decision(s)
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 27
Thank You
Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 28