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Edited Transcript of OSH.AX earnings conference call or presentation 25-Feb-20 12:00am GMT

Full Year 2019 Oil Search Ltd Earnings Presentation

PORT MORESBY Feb 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Oil Search Ltd earnings conference call or presentation Tuesday, February 25, 2020 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bruce Dingeman

Oil Search Limited - President of Alaska

* Keiran John Wulff

Oil Search Limited - MD & Director

* Stephen W. Gardiner

Oil Search Limited - CFO

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Conference Call Participants

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* Adrian Prendergast

Morgans Financial Limited, Research Division - Senior Analyst

* Daniel Butcher

CLSA Limited, Research Division - Research Analyst

* James Redfern

BofA Merrill Lynch, Research Division - VP

* Mark Samter

MST Marquee - Energy Analyst

* Saul Kavonic

Crédit Suisse AG, Research Division - Research Analyst

* Tim Gerrard;Janus Henderson Investors;Analyst

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Presentation

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Keiran John Wulff, Oil Search Limited - MD & Director [1]

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Okay. Good morning, everyone. If we can just make sure all the phones are turned off, it would be great. Look, firstly, thank you for -- very much for joining us for the 2019 full year results webcast, and it's a pleasure to be here with you, and thank you for joining us in person or also those people through the worldwide web.

Today is an end of an era, and it's the beginning of a new chapter for Oil Search being the first time in really 25 years that Peter Botten isn't delivering the full year results. It was Peter's last day as Managing Director yesterday, but importantly, he's still involved with the company, and in actual fact, he's working in PNG at the moment with Beth, and I'll get on to that a little bit more shortly.

Oil Search has become a multidimensional entity with world-class assets and performance from our PNG LNG foundation project. We've got mature but still very valuable PNG oil production, and we're still working with our joint venture partners to advance the PNG LNG expansion and Papua LNG Project.

In addition, our investment in Alaska is turning out very, very well. We've had significant resource upgrades, material progress in Alaska with the Pikka Unit development and negotiations there as well as recent exploration success, which Bruce will go through in the presentation.

In this climate -- economic climate with a number of firm growth projects, we're very, very focused on capital prioritization, capital management, driving our cost into the lowest quartile and ensuring we deliver superior results and value for our shareholders. Clearly, the last 6 months has been challenging for all of us, with the uncertainty on the PNG LNG expansion, the global economy related to coronavirus and we're seeing what that's been doing to markets over the last 2 days. And importantly, PNG is not an orphan. The slowdown has impacted most projects globally, and it's also provided us a window of opportunity for continuing progress with our projects.

I'll leave the disclaimer for you to read at your leisure, but, obviously, that has to be part of every presentation. Importantly, for those who are present today, there are no planned emergencies. So if we hear alarms, this will be a real event. There's a cascading series of alertness that begins with a warden advising us over the PA that there is an issue. If it increases to a beep, beep, beep over the PA system, at that stage, the warden will ask us to follow the instructions. And if it really cascades quickly to a whoop, whoop, whoop, then we will evacuate the auditorium immediately following the warden's directions. You'll follow the exodus through the exit at the back of the stage. And if you can make sure that you follow to the master area at the junction of Young & Bent Street, then please don't wander off because people will be looking for you, and we don't want to create any issues.

Now getting on to the agenda of today's presentation. Really, going forward, it's really my intention for you all to meet all of our senior executives who are responsible for core areas of the business. But today, in the interest of time, I'll cover the highlights, safety and social responsibility before handing over to Stephen Gardiner, our CFO, who many of you know will cover the financial overview. It was our intention for Beth White, who until recently was responsible for the gas and development, but following the integration of the LNG expansion into the PNG business unit is now our new President of PNG business unit, and she is actually currently, as I said, up in Papua New Guinea with Peter, facilitating ongoing discussions related to the LNG expansion. So I'll cover Beth's areas in the presentation.

I'm also very pleased to introduce you to Bruce Dingeman. He is President of Alaska BU, and he'll cover all things Alaska, which is proceeding very well. And then I'll wrap up with our strategic review, objectives for 2020. We also have Diego Fettweis here in the first aisle, and he's our acting Vice President in -- Executive Vice President in charge of commercial and strategies and also in charge of gas marketing. And Diego and I went around Asia, particularly in Japan, last week talking to our market, so we're very clear and knowledgeable on exactly where the markets are and where PNG sits in that process.

But firstly, I'll start off with the operational highlights, and Stephen will go into more detail, but this really captures the highlights for 2019. Our net PAT for the year was $312.4 million, which was down 8% on 2018 and was primarily a result of the lower oil and gas prices realized and also the adoption of the new IFRS accounting standards, and Stephen will go through that.

Our total production across our LNG and operated oil assets was 27.9 million barrels of oil equivalent, which was at the lower end of the guidance and primarily due to the outage of our oil production and capping of the LNG in September due to the CALM buoy incident, which necessitated the fixing of one of the 5 chains. I'm very pleased to say that, that issue has now been fully resolved.

PNG produced at an annualized rate of 8.5 million tonnes per annum, and production was impacted by planned downtime in the first half and also, as I just said, during loading -- during the fixing of the CALM buoy in the second half. We focused the loading on the PNG LNG project and reduced -- and cut back the oil production to ensure that LNG offtake was impacted as minimally as possible.

We have had incredibly positive resource upgrades with a 96% increase in our 2P and 2C reserves, primarily -- resources primarily driven by Alaska, and Bruce will cover that in more detail. We've also had an increasing focus on unit operating costs. And for 2019, we averaged $12.48 and that included all the upstream pipeline and liquefaction costs.

We continued to be a strong supporter of community projects, and we are very pleased to announce that we're paying $0.045 a share, taking the full year dividend to $0.095 per share, which represents a 46% payout ratio, which is at the top end of our range.

Moving on to safety. We started off the year, if you remember from Peter's presentation back in August talking about the first half year results, with a less-than-stellar safety performance. I'm very pleased to say that the team in Papua New Guinea and Alaska has very much turned that around. In the second half of the year, we were able to achieve significant improvements in safety, which was driven by increased engagement and oversight of our seismic operations in Papua New Guinea.

We're acquiring seismic and land acquisitions in probably one of the most challenging environments in the world. And we've also changed to a new contract, but this was no excuse for the safety incidents we saw. We modified our own management oversight, and we are now pleased with the commitment of all involved. Safety performance in all areas -- other areas of the business has been world class, which is especially pleasing considering the extensive activities in Alaska. I was in Alaska 2 weeks ago and the temperatures in the North Slope were minus 50. So these are incredible conditions in which to operate.

If you move forward to the -- our reserves and resources. We've had a very, very positive increase in our corporate resource base in 2019, as I said, with resources -- reserves and resources rising 96% to 497 million barrels. Our 2P and 2C gas resources have also increased 17% to 1,682 million barrels of oil equivalent.

The 243.6 million barrel increase in Alaska 2C resource was related to an additional 116 million barrels following technical work, including the 2019 appraisal wells and that was confirmed by our independent auditor, Ryder Scott. There was also 127 million barrels increase related to our exercising of the option in July last year of the Armstrong/GMT option following our confirmation of the positive results of the original drilling.

Based on 2019 production, we had 27.9 million barrels. Our 1P reserves life is 15 years. Our 2P reserves life is 17 years. And our 2P and 2C resources life is 60 years. We now have an incredible solid platform with significant further additions in both regions, but Oil Search is very, very well placed with respect to our resource base supporting our growth long term.

I just want to show the management team because there's been a number of changes and very positive changes that have occurred in our management team, and these have been in preparation for Peter's succession. We undertook a major review of the optimum business model that saw us go to a business unit with clear accountabilities and capital management as well as ensuring that the leadership had the right balance and focus to deliver on our potential in a changing world. We've really struck the balance of younger, more dynamic professionals with more experienced executives who have a greater relevant international experience with enhanced accountabilities in a business unit model with corporate center being focused on strategy, capital management and capability. We have a great balanced team, and I'm very excited to work with this group to drive the assets forward in a coordinated manner, very focused on capital efficiency.

The next slide relates to our social license and responsibility and this links to ESG. And this is something that is at the core of the DNA in Oil Search. We believe that's not only the right thing to do, but it's a clear differentiator relative to our peers in the energy industry. It's especially in an industry that's being required to be held to a higher social environmental standard than ever before. We're looking to build on our social responsibility skills to continue to be a leader in this area. As everyone is aware, we've been a major socioeconomic contributor in PNG for many years, and we continue to provide multiple services in health, education, power, infrastructure across PNG, both directly and through our Oil Search Foundation. Going forward, as part of our strategic review, we'll actually look to see how we evolve our community engagement and support in PNG to reflect the change in dynamic and focus on long-term capability building off PNG entities.

The same corporate ethos has been applied in Alaska, and we've quickly been recognized as a leader in community engagement there. And importantly, it's reflected in how quickly we've got the community to support our projects and get our necessary approvals to progress our field operations.

In Alaska, we signed long-term access agreements that have benefit sharing and support for local corporations as well as building long-term sustainable businesses with a major focus on long-term community well-being that transcends and goes beyond the period of oil production and also looking at opportunity creation for future generations. It's been a fantastic outcome of collaboration with the local community there.

The growing focus globally on climate change presents challenges but also presents opportunities for us. Our extensive gas portfolio with infrastructure is ideally placed to support long-term transition and our proposed oil developments adjacent to existing facilities ensure that we're in the lowest cost for new developments. It is a core tenet for any growth that we're focused on in Oil Search.

We have established -- we've also established dedicated carbon reduction teams to minimize emissions and our environmental footprint. This is -- occurs across the company and has been led by our corporate. When combined with one of our initiatives, being the potential Biomass project in PNG, where we've already planted over 4 million trees, it has the potential to offset over 4 million tonnes of CO2 over its 25-year project life. To put that into context, it is equivalent to offsetting the Pikka development over that period.

Oil Search is focused on developing tangible initiatives to align our company with the expectations of our shareholders and financiers. This is a core area of focus for our strategic review, which will look to position Oil Search as a leader in the socio-enviro responsibility to make Oil Search a preferred choice for shareholders, investors and joint venture partners.

We test our business on all climate change scenarios, and our current business is very robust on the 2018 Climate Change Resilient Report, which indicates long-term resilience in a 2-degree Celsius world. In 2019, we also commenced detailed base-lining and carbon mapping across our entire business, which will be the basis for prioritizing our initiatives. Our commitment to operate sustainably to date has also been recognized globally by several international institutions, which are listed on the slide.

I'm going to hand over to Stephen, who will go through the financial performance, and then we'll move over to Bruce.

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Stephen W. Gardiner, Oil Search Limited - CFO [2]

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Good morning, ladies and gentlemen, and let me add my congratulations to Keiran on taking the helm. I'm very excited to work with Keiran. I've known him for many years, and I think he's going to do a fantastic job of taking this company forward.

So let me provide a quick whirlwind tour through the financial performance of the company. So as Keiran mentioned, our net profit was down on the prior year, down, in fact, by $29 million due to a number of factors. One of them was the introduction of a new lease accounting standard in 2019. The net overall impact of that was a reduction in our profit of USD 11 million. I'll highlight some of the other areas that's impacted our components of our financial results as I walk you through the waterfall chart to highlight some of the other key drivers. Our production and sales volumes for the year increased by 11%, which was good news, mostly from the PNG LNG project delivering a record production for the year. However, revenue was only up 3% or USD 49 million, was held back by an 11% decline in realized liquids prices and a 5% decline in gas and LNG prices.

Our production costs were 20% higher on 2018, and I'll cover those reasons in a lot more detail on the next slide. We also had higher depreciation and amortization driven not only by increased LNG production, but also a 29% -- a USD 29 million depreciation of assets that were brought on the balance sheet for the first time as part of the new leasing standard.

We enjoyed lower exploration costs expensed compared to the prior year, really in line with lower exploration activity in Papua New Guinea. Our effective tax rate just over 30% was in line with the PNG corporate tax rate. We did have some other positive impacts on net profit largely due to higher joint venture recoveries on capitalized assets, some insurance recoveries related to prior year work that we couldn't book against those costs, but had to take as other income. And offsetting that, though, was a small write-down of leases that we relinquished during the year, both in Papua New Guinea and Alaska.

Now turning to our production costs. As mentioned, our production costs were higher, both in absolute terms and on a unit basis, impacted by a number of one-off factors, such as the residual effects of the 2018 earthquake and the loading buoy damage that occurred in August last year. The loading buoy repair prevented the maintenance costs incurred in the second half of the year spread across all of our projects, including PNG LNG.

Our insurance recoveries were booked in 2019 only against the work done by the PNG LNG project on earthquake repairs. We weren't able to book any recoveries against the ongoing remediation work that we did in the oil fields unlike 2018. Our oil projects also took higher maintenance -- undertook a higher maintenance and production optimization work programs during 2019, including activities carried over from 2018 that were delayed due to the disruption from the earthquake. Normalizing for those issues does show our better unit cost position but not an acceptable one. And as Keiran mentioned, we're very focused on identifying opportunities to reduce our operated oil and gas production costs. We need to ensure that these operations are sustainable over a longer term and such -- and it's a very high priority for 2020 to bring those costs down.

Moving on to our cash and liquidity position. We generated just over USD 750 million of operating cash flow in the year, again, supported by a very solid contribution from PNG LNG. Of that amount, $363 million was invested across a successful Alaskan appraisal drilling program and Pikka pre-FEED activities, completion of the Muruk 2 appraisal well, acquisition of seismic data in both PNG and Alaska, oilfield development and exploration drilling, progression of LNG expansion activities and ongoing implementation of our ERP program.

We also used up money to repay $354 million of PNG LNG project finance debt and also returned $206 million to our shareholders in the form of dividends. As Keiran mentioned, the Armstrong option exercise and alignment arrangement with Repsol resulted in a net cash outlay of $386 million during the second half of the year. The result of that was to double our interest in the main Alaska licenses.

In summary, the overall liquidity position at the end of the year was USD 1.15 billion, including cash of just over USD 400 million. The proposed sell-down of about 15 percentage points of Alaskan license interest acquired under the Armstrong option is now planned to occur in the second half of this year closer to the FID for the Pikka development that will certainly help rebuild our liquidity position later in the year.

And finally, just turning to the full year guidance. Our production and operating cost guidance ranges are unchanged from those that we released in the December quarterly report in late January. And Keiran will provide some more color on the production outlook. So I'll focus on CapEx guidance.

Our CapEx guidance range, excluding the impact of any Alaskan license sell down interest, is necessarily very wide at this point. We're showing a low of around $700 million to a high of $850 million. It reflects the current uncertainty we're facing on the timing of moving into FEED and/or FID on our expansion projects in PNG, in particular, and also Alaska. For PNG, until we have that certainty, we'll be controlling our spend on growth activities, particularly until we have clear line of sight on progressing our 3-train integrated LNG expansion. But that spend, once we do have that line of sight, can be ramped up very quickly. Our production CapEx guidance includes a Kutubu development well we hope to spud in March, production-enhancing well workovers, work on rebuilding our refinery that was severely damaged by the earthquake and ongoing reliability and risk reduction programs.

Our development spend largely relates to the Pikka development, including major early works and long lead item commitments, with FID targeted in the second half of this year. It also includes a ramp-up of Angore field development activities this year.

And finally, our exploration and evaluation includes 2 Alaskan exploration wells that are currently underway, unfortunately, unsuccessful Gobe Footwall well, seismic acquisition in both PNG and Alaska and considerable pre-FEED and FEED expenditures to progress the Pikka Unit development and also LNG expansion in PNG.

And on that note, I'll hand back to Keiran.

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Keiran John Wulff, Oil Search Limited - MD & Director [3]

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Okay. Thank you very much, Stephen. Again, Beth White, who is our President of our PNG business unit was going to present this, but as I said, she's doing more important things in Papua New Guinea at the moment, so you'll have to bear with me.

In terms of the production 2019, we're finally getting on top of the impact of the earthquake in 2018, which actually took a lot longer than originally planned to get on top of. 2019 production of 27.9 million barrels. So oil equivalent was 11% higher than 2018 when it was impacted by the earthquake, but still we were impacted by the CALM buoy incident in the third quarter.

Our 2019 highlights included the 8.5 million tonnes average rate, which is the highest in a start-up, but importantly, we recorded a daily record of 9.25 million tonnes per annum equivalent for the project. The swift and efficient response for the Oil Search recovery team, together with excellent collaboration with the PNG LNG operator, allowed us to fix the CALM buoy and subsequent repairs as quick as possible, but it did mean that the impact on PNG LNG production was minimized and full production was restored well ahead of the initial expectations. The company's oil production continued to be impacted by the prolonged return to service during -- following the earthquake. But by year-end, and as you will see in 2020, we've completed a substantial amount of this work and we had successfully completed and production is now ramping up, especially being boosted by the successful recent workovers and drilling operations, which were undertaken during the latter part of the year.

In regard to our Oil Search-operated fields, we've successfully completed workovers in 2 development wells in Kutubu and Moran, and they've been achieved with excellent safety record with no recordable instances. We've actually added over 10 million barrels gross, which is 6 million barrels net incremental oil volumes, and they're currently contributing about 4,500 barrels a day gross or 2,500 barrels a day net and probably most pleasing was the costs were 10% below AFE.

The Moran development well M15 Sidetrack 2 also commenced production in January 2020 at very encouraging rates, and the Kutubu development well and UDT 15 has also commenced production in January '20 also at good rates.

Moving forward, we still have the Kutubu development wells despite in first quarter '20, which is targeting the Iagifu reservoir. We have a coil tubing program in the second half of 2020, which is targeting cost-effective and incremental production at Moran and Agogo. We are only allocating capital to those projects that have rapid paybacks and robust at low oil prices.

In regard to the 2020 production outlook, overall oil production is expected to be similar to 2019 despite scheduled maintenance in one of the LNG trains in the second quarter 2020. In regard to our operated production, where we've substantially and successfully ramped up production in the first quarter this year, we're now achieving rates of over 15,000 barrels a day. We still have not been able to access the Northwest Moran area, which is limiting our production, but plans are certainly underway to access the area and recommence production by year-end. And these are obviously subject to landowner approvals and access.

We've taken the opportunity post the earthquake to really look at our reliability across all of our facilities, a program to understand where the key reliable issues -- key reliability issues are and their recourses and a path to establish operational excellence has been in progress since early 2019. And we're now seeing the strong production ramp-up towards the end of last year and early this year, which is encouraging in that respect. In regard to our nonoperated production, obviously, the PNG LNG production is forecast to be somewhere between 8.3 million and 8.5 million tonnes per annum, and that allows for the rate reductions to accommodate the scheduled turbine and pipeline maintenance. So our total net production guidance for the year of 2020 is in the range of 27.5 million to 29.5 million barrels of oil equivalent.

Just to kind of now touch on -- again, Beth would have covered this section in terms of the gas development and PNG exploration. But Diego and I, as I said earlier, had the pleasure of going through our markets over the last 2 weeks and talking to a number of our customers. So we're actually very well placed to be able to deal with this section. As everyone aware -- as everyone is aware, the pathway to moving forward on PNG LNG expansion and the Papua LNG Project has been challenging over the last 8 months. Whilst the Papua gas agreement had been signed and approved by the PNG government, the P'nyang gas agreement has not been agreed and formal negotiations were suspended at the end of January. Importantly, informal discussions are ongoing to find a resolution to the differences and all parties acknowledge the considerable value and savings associated with an integrated 3-train project, especially in the current global economic environment and oversupply of gas projects. Both Exxon and Total have publicly stated that they remain focused on finding a solution. And as I indicated earlier, Peter and Beth are both in PNG this week continuing informal discussions and exploring solutions to the current impasse.

PNG's proximity to growing markets in Asia and its advantage over other suppliers in terms of costs is high heating value. The fact that this is an effectively a brownfield expansion means the PNG LNG really remains a high priority for all stakeholders, and we're still working to find a mutually acceptable solution for it to proceed.

This slide really demonstrates the considerable success and progress that's been achieved in advancing the PNG expansion over 2019, which allows the projects to move smoothly into FEED on the basis of getting an agreeable P'nyang gas agreement. Clearly, that's the priority right now and finding a solution which is acceptable to all parties on benefit sharing is a priority.

Everyone is very aware of the market and the supply. LNG Project is trying to secure contracts for their -- for the LNG, but this slide actually is an important one because it really just shows in great detail just how niche the PNG LNG and how superior it is relative to others for getting into the Japan market. As I said earlier, I've just returned from the marketing trip, and where I've met senior executives in Japan, and we're really encouraged by the feedback that we got from the people there. It also highlighted the uniqueness of PNG's gas relative to other suppliers given our proximity to market, low regional security issues, high heating value gas and ideal specs for power generation. There is a continued very high level of interest in participating and securing LNG for our PNG expansion projects in the 2025 time frame.

This slide shows just how niche PNG LNG is relative to other volumes coming to the market. Most of the new volumes are substantially leaner with a lower heating value than PNG. This is shown on the graph on the left, which displays the relative heating value for the various LNG suppliers worldwide. It highlights just how well PNG LNG and, indeed, with Papua LNG, even though it is a little bit leaner, is still materially higher than the majority of the gas coming to market.

The gas on the right shows the lower heating value gas increasing in supply relative to the availability of high heating gas through to 2025, and it really does highlight why the Japanese markets, particularly, are still very focused on PNG LNG as a viable option. When you combine these with the materially shorter transportation distances and the fact that PNG LNG expansion, Papua LNG are predominantly brownfield expansions utilizing existing downstream facilities, the PNG LNG expansion is very well placed.

Moving forward into PNG exploration. Exploration spend going forward in PNG will be limited until there's clarity on the fiscal terms completing -- following the completion of the government's review on the fiscal terms for the Oil and Gas Act. Importantly, our 2020 activity is limited to completing our existing seismic obligations and activity around Muruk. And as I said, any future activity will be focused in the near term on the Eastern Fold Belt areas where recent seismic supports very good prospectivity for gas east of the Antelope area. In 2020, we'll be processing and interpreting the seismic that's been acquired over the area during the last 2 field seasons to determine the viability of any future drilling activity.

Due to our recent high levels over the past few years, we have very limited firm commitments, and we don't need to drill any further wells to support PNG LNG expansion. So we're in a very good place to control our exploration spend.

I'm now going to hand over to Bruce Dingeman, who will cover the Alaskan assets.

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Bruce Dingeman, Oil Search Limited - President of Alaska [4]

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Thank you, Keiran. This introductory slide includes a quote from Wood Mackenzie, and it talks about Oil Search becoming a reliable operator in the region of Alaska. And it's really an affirmation of our progress since assuming operatorship in March 2018. It's -- the arc of Oil Search's progress in Alaska has really been quite remarkable. Since assuming operatorship, we are in our second season of drilling with early civil works now underway.

I'd like to now shift gears and talk a little bit about some specific 2019 highlights and accomplishments. We've built a quality Alaska team. We've had a successful 2018/'19 appraisal program entering the year. This was our Pikka B and C wells. Completion of the Pikka appraisal really indicates that all future drilling will be development in nature in the core field area.

Exiting 2019, we'll have a 2-rig program as well that's currently in progress with the Mitquq and Stirrup wells. We've engaged in civil works totaling 40 kilometers of gravel and pads, and this early civil works will be a key part of our early production system.

In addition to this, we've done these activities while performing exemplary safety and environmental -- environmentally. Moving on, Keiran mentioned earlier the resource increase, which was basically from 500 million gross to 728 million gross, which is underpinned by a reserve report from Ryder Scott. This represents a 46% increase in gross 2C volumes and excludes the potential from our Horseshoe and other areas where we're doing exploration activities.

The next point speaks to our land use agreement with the community landowner. This is a life of field surface access agreement, and it assures a sustainable future for all stakeholders.

In addition, we've had several regulatory milestones and approvals that we've met. We spoke earlier about the Armstrong option. This is where we increased our working interest from 25.5% to 51%. In addition, we aligned interest in our common holdings with Repsol at a 41%, 49% working interest share, respectively. We also realized a key record of decision from the U.S. core of engineers. On the heels of this, we had a North Slope master plan rezone approval, which was granted to allow us to conduct our civil works this winter. And then we had a plethora of approvals from the state and other regulatory agency for 2019 and '20 exploration and drilling programs.

Additionally, we're maximizing cooperation with offset operators. We've had key data exchanges on subsurface information. We've done a number of community initiatives that are involving both our Alaska native cooperations in villages and have focused on the areas of contracting and community support.

Our FEED activities are under way, and we continue to target FID in the second half of this year. Finally, on this slide, another key activity is, we've commenced our divestment process seeking to sell down 15% working interest share and have had positive initial response from the market in that regard.

So moving on to our Pikka Unit development. As mentioned previously, we're targeting the 728 million barrels in the core development area from the 3 drill sites shown on this display: Nanushuk A in the north, B in the middle and C in the south. This targets the Nanushuk 3 and also some Alpine C reservoirs underlying it.

The next point talks about the timing and volumes expected from our development activities. We continue to see EPS targeting in the range of 30,000 barrels a day with first oil in late 2022, utilizing the backbone of the road system, which is the middle road out to the ND-B pad location. Full field development, we're targeting 135,000 barrels a day in early 2025 from the 3 well pads. We've elected to change the planned main first oil date from late 2024 to early 2025 for several key reasons, first being to align equipment purchase orders with our FID decision gate; the second is to realize a higher confidence of shipping fully complete modules in our sail away so we minimize a high-cost labor and tie-in risks on the slope; and finally, thirdly, to ensure that we have ease of tie-in or expansion for our future satellites, much like the Mitquq's success for tie-in purposes.

I'd like to make one other point before clearing this slide in terms of our project returns. We've shared previously that our breakeven return on capital is about $45 per barrel for the project, which remains our current view. Additionally, our breakeven cash cost is about $15 a barrel once we reach plateau. Another ancillary point is that for projects like Mitquq, where we build new drill sites that will ultimately tie back to facilities, they have a breakeven cost of capital of around sub-$30, around $27, $28 per barrel. So some compelling and robust economics for our project.

Okay. Moving on to our winter activities. This is the 2019/2020 winter season. As I mentioned, we've commenced our civil works. This includes gravel bridge installation and other gravel-hauling activities. We're building out the infrastructure for this in service of both the early and main production periods. We're also doing a drilling program that includes 2 exploration wells. As you can see on that map, the Mitquq is east of the core Pikka area and Stirrup is to the Southwest, separated by some 150 kilometers of distance. The focus of this winter's program will include not only the road and pad to ND-B, but also pads for our operations facility and also for our processing center. If the winter season allows, we'll consider additional scope running up towards our ND-A pad.

Just a few highlights for your interest. This is the largest gravel program undertaken in over 20 years in the North Slope. We're pulling from 2 mine sites, running over 40 trucks from 1 mine site and 25 trucks from the other site. So continuous operation activity. Additionally, for the drilling activities, we beat last year's record of spudding the earliest in 43 years with this year's well. And we've done this with exemplary safety and environmental performance. Just for clarity, also, the EPS, the early production system, utilizes a subset of wells, drill sites, facilities and pipelines and roads that are required for full development. It also helps us level our activity in anticipation of installation of the main facilities.

Going into a bit more detail on the winter program. The Mitquq 1 mother bore was drilled. We spudded that well in December 25. The results are -- have been previously disclosed and are included here with over 55 meters in net oil pay and 5 meters in net gas pay at the mother bore. And an additional 10 meters of net oil pay and 6 meters of net gas pay in the underlying Alpine C interval.

It's interesting to note that the gas encountered aids our future needs for fuel and also can help with our enhanced oil recovery needs. We've then after completing the mother bore, logging and acquiring that information, we sidetrack to the -- about 500 meters away and encountered the same Nanushuk 9 reservoir. We're currently undergoing evaluation of that zone, and have mobilized for completion and testing activities.

The final point under that is that it's about 10 kilometers from our plant central processing facility. So it represents a relatively straightforward tie-back opportunity. At Stirrup, we spudded the well about a month later, and this is because it required a more extensive ice road to reach that location. We intersected the Nanushuk 9, 0 and we've encountered hydrocarbon shows. Currently, we're coring, logging and evaluating the zone of interest. However, we have seen enough encouragement that supports a well test decision. So we are mobilizing to undertake that. Okay.

So what are the implications of Mitquq? This slide is quite involved. I'd like to point first to the map. If you look at the map, the Kuparuk River unit, the large field to the east and then the Alpine Field to the west, represent the eastern and western boundaries, respectively, of our acreage, which lies in between with the Pikka field. You can see the Nanushuk play fairway highlighted. Additionally, there's a prime line that indicates a cross-section and a schematic of that cross-section is shown at the bottom of the display. It runs from west to east. So you can see the Willow and other top set plays to the far west. You can see where our projected Horseshoe block lies with the Stirrup well location. Then moving east, you come into our Nanushuk 2 to and Nanushuk 3 sequences that comprise the main Pikka field. So we number each of these top set intervals from west to east. Moving further east, the orange color ones identify prospective zones of interest, showing the Nan 5, Nan 6 and Nan 7 zones before you get over to the Mitquq, which is actually a Nan 9 interval. So the point I'd like to make is that we see a rich set of opportunities within the field bounds of our project. Additionally, you can see the colors on the Mitquq accumulation show oil with over -- gas over top, as does the Alpine below, which, again, can help meet our fuel and EOR needs for the future. So we see a really exciting set of opportunities that can be high value-accretive benefit to the -- bringing high value-accretive benefit to the project. So with that, I'd like to hand it back to Keiran to discuss the strategic review. Thank you.

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Keiran John Wulff, Oil Search Limited - MD & Director [5]

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Okay. Thanks, Bruce. The Alaska operations is really a stellar success for Oil Search, and you'll see more and more on that as we go forward. Just really want to finish up with our strategic review, which you'll see more of in the third quarter this year. But importantly, the Board has initiated a major corporate strategic review to set a 10-year plan for the company focus on ensuring we have the capacity to deliver the risk profit value of our assets in PNG and Alaska, and also ensures that we have a sustainable long-term business in PNG that actually evolves with the country dynamics, and that we fully consider global trends and investor market desires to position Oil Search as a partner and investment of choice for all stakeholders.

The last time Oil Search undertook such a comprehensive review was back in 2002 when the initiatives that were set at the time have really led to the successful company that we are today. We have engaged the services of Bain, Goldman Sachs and other specialists to work with a dedicated Oil Search team in this process. The review will be completed, as I said in early third quarter, with the intention to present to the market and investors at an Investor Day in early September. To ensure we develop a long-term strategy aligned with shareholders and interest, we'll also be arranging a number of meetings over the coming months with our shareholders and investors to listen to and collate views and opinions for our consideration. Regarding how we currently see the world, it really is Oil Search does have, despite the economic gloom that we're seeing in the world at the moment with the coronavirus, we have an incredibly robust position today and our outstanding platform to deliver long-term shareholder value. We've got world-class producing assets in PNG and LNG, and the LNG expansion really does have a niche play and a niche opportunity for the North Asian markets. We've got material Alaskan oil assets that are very, very close to infrastructure with low breakeven and development costs with major growth potential. And we have sound operating cash flow and liquidity position underpinned by an increasingly disciplined capital allocation. Oil Search also has an industry-leading reputation for social responsibility, and we have over 80% of our PNG workforce comprising of PNG citizens.

We've recently signed a landmark use agreement in Alaska that supports sustainable future and cultural preservations for all future generations. And we have been recognized independently as a top quartile -- the top quartile of Carbon Tracker's climate-resilient oil and gas companies. But the world is definitely changing. Energy and transition has a clear direction of travel, but at a highly uncertain pace, creating opportunities and challenges. The sociopolitical landscape is evolving more quickly than companies can actually prepare for. Companies are also facing greater societal expectations than ever before. But importantly, we're very well placed to be able to lead the pack with respect to that.

In regard to the strategic review, the company-wide strategic review will actually reevaluate Oil Search's long-term vision, our strategic focus and our path for delivering superior shareholder returns. We'll establish how we evolve with PNG and how we proactively manage risk to deliver the PNG assets full potential. We'll ensure a sustainable, environmentally responsible and profitable operations through a flawless project execution. And we'll also consider Oil Search's position in the global energy business and how we respond to technological changes and ESG considerations. It's an area that we intend to be very tangibly at the leading forefront of. Importantly, this review will not distract Oil Search's focus on safe, reliable operations, nor will it focus on delivering our key projects in PNG Alaska. It will not change our focus on being a lowest-quartile cost provided for our projects, nor will it change our focus on being very responsible with respect to capital management. It won't also compromise our core Oil Search DNA of social environmental responsibility. In fact, we intend to enhance it.

So in final, I'll just go through where we are looking forward to in terms of 2020. In summary, times are uncertain across so many areas, but we're working to focus our business and make our company a leader in regard to alignment with stakeholders, whether they be our loyal investors, our JV partners, host governments and equally importantly, the communities where we operate or more broadly. Put simply, we are focused on 5 areas. Still, the highest priority in the company is commercializing and advancing our LNG expansion, focusing on positive outcomes for all parties. We're still targeting an optimal 3-train expansion, and we welcome the ongoing dialogue with the PNG government and all parties involved. Our second priority is delivering the Alaskan Pikka Unit development optimally through incorporating and expanding our resource base, as Bruce went through, and also optimizing our facilities to ensure that we minimize capital spend whilst maximizing value. We're also quite advanced with respect to optimizing the equity, and we actually have some company or a company, up in Alaska, right now, doing some fuel due diligence. So it really is advancing. We have an FID decision in the second half of 2020. It's our intention to be a model for social environmental responsibility, and we've established dedicated teams to develop material and measurable initiatives to minimize our footprint and emissions. It's an area where you hear so much, but you see so little tangible direction coming out of people.

We also want to create a long-term business and development and support local community wellbeing. Whilst it's #4, it's probably #1 in terms of priorities in regard to capital management and prioritization. We clearly have a focus on Pikka Unit and moving towards FEED, and we're focused on early commercialization opportunities in both in PNG and Alaska. Discretionary expenditure or expenditure that doesn't have a clear pathway to commercialization will be halted for the foreseeable future. Our strategic review is clearly going to set the long-term vision. It's a comprehensive strategic review, and it's already underway. And as I said, the results will be released in September. Delivering full value, capital management, investment allocation, consideration of the optimal mix of scale and assets, Oil Search's position in the energy future, our funding, optimizing our operating model in PNG are all key aspects of the strategic review.

With that, I thank you very much for your attention, and I'll actually throw it open for questions.

James, how do I know that you're always going to be first?

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Questions and Answers

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Unidentified Analyst, [1]

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Okay. A couple of questions. Firstly, congratulations on the appointment by the way, Keiran.

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Keiran John Wulff, Oil Search Limited - MD & Director [2]

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Thank you.

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Unidentified Analyst, [3]

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So I don't know that I'm reading into the release too much. But I actually got the impression from the language in the release that you are more optimistic on a P'nyang deal being done than you might have been a month ago, using words like once P'nyang is signed as opposed to if P'nyang is signed, including the cost in your CapEx guidance, for example. I'm wondering over the past month, as you've had these informal discussions, do you think the balance of probabilities of a deal being done is something that you're more optimistic on?

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Keiran John Wulff, Oil Search Limited - MD & Director [4]

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Look, it's a good question, and one that we anticipated. The reality is that there's a huge amount of value in an integrated 3-train project for all parties. And that really has to be the focus of it for the project proponents. So what we're looking to do is to ensure that every avenue are pursuing that project and that integration is pursued. So hence, Peter and Beth are up in PNG at the moment. But apart from that, I'm really going to say very little. And you can also see that both Exxon and Total have publicly stated that their intention is to pursue a 3-train development. So whilst the formal negotiations were suspended at the end of January, it was clear that there was potential space for the parties to reach an agreement and that's in that space that we're trying to achieve.

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Unidentified Analyst, [5]

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Okay. Do you think in the absence of a timeline that actually makes it easier to come up with a compromise between the JV and, like, PNG government?

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Keiran John Wulff, Oil Search Limited - MD & Director [6]

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Look, it's -- again, it's a good question. When you negotiate things that have a 30- or 40-year time frame that impact a lot of peoples' lives over multiple generations, you want to make sure that you get it right and that you get it right for all parties. So one of the benefits -- it's one of the few benefits of the slowdown economically is it's actually given space, a rational discussion between all the parties and that's where we're focused on at the moment.

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Unidentified Analyst, [7]

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Okay. I wanted to ask quickly about AGX. Now I presume that pre-FEED would have continued despite the fact that the P'nyang gas agreement had stalled. Is the AGX FEED entry predicated on also entering FEED for expansion more generally? And really, the crux of my question here is trying to understand whether AGX could actually be used to debottleneck the existing 2 trains? Because the share price reaction, a month ago, effectively eliminated all the value for Train 3, but didn't necessarily add back any value the gas resource being able to debottleneck the existing trains.

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Keiran John Wulff, Oil Search Limited - MD & Director [8]

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Okay. To answer the first question first with respect to AGX and FEED. AGX FEED is dependent on P'nyang going ahead at this stage. One of the other issues that we saw was that there's been a -- there was a substantial increase in gas resources that was announced last year. So the project is not short on gas resources. But at the moment, the AGX project progressing that through to FEED is really dependent on P'nyang.

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Unidentified Analyst, [9]

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Okay. Would -- in the instance so that P'nyang gas agreement was unsuccessful, do you see a pathway to being able to debottleneck the existing trains? Whether that's through the lens of technically being able to debottleneck or commercially arranging the gas to go into a larger 2 train.

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Keiran John Wulff, Oil Search Limited - MD & Director [10]

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Look, I mean, we're very fortunate to have Exxon as an operator and Exxon has been very successful in maximizing the value and throughput through the existing trains. And I'm sure there will be a consideration of how we continue to maintain value for all parties. But at the moment, as I said, we're very, very focused on exploring all opportunities to pursue the 3 trains because it makes sense for everyone.

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Tim Gerrard;Janus Henderson Investors;Analyst, [11]

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Tim Gerrard, from Janus Henderson. With regard to Alaska, I noticed in the last ConocoPhillips report, they are also looking to sell down their acreage to the East -- to the West around Willow. Does the timing of their sell down have any positive or negative impacts on your 15% sale.

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Keiran John Wulff, Oil Search Limited - MD & Director [12]

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Again, Tim, it's a good question. Also, in their release, they talked about delaying the sale until they actually get clarity on some of the citizens' ballot initiatives in Alaska in relation to taxing some of the legacy fields -- their 15% also includes some of the legacy field areas. So the reality is, it doesn't impact us with respect to timing. Conoco have their own reasons for it, but talked about limiting their capital expenditure to a certain limit. That's why they're looking at divesting up to 25%. But having said that, Alaska still accounts for, I think, this year, upwards of 50% of their allocation for expenditure, which highlights just how serious all of us have seen this Nanushuk play in the area.

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Tim Gerrard;Janus Henderson Investors;Analyst, [13]

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But you wouldn't see any opportunity for a single party sort of buying both stakes?

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Keiran John Wulff, Oil Search Limited - MD & Director [14]

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Look, there's always that avenue. At the moment, one of the things that we've learnt is to have our hands on their own levers to make sure that we're not reliant on other parties for the successful delivery of value to our shareholders. So right now, we're very focused on a simple 15% divestment, and we've had a lot of interest.

Okay. If there's no more questions in the room, if people on the ether on the phone would like to ask a question?

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Operator [15]

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Your first question comes from Daniel Butcher from CLSA.

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Daniel Butcher, CLSA Limited, Research Division - Research Analyst [16]

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A couple of questions. Just on the Alaska sell down. If the market price is not right at the time, would you warehouse a 51% until a year or 2 down the track? And how that sort of interacts with your LNG expansion plans and financing?

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Keiran John Wulff, Oil Search Limited - MD & Director [17]

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Again, it's a good question. It's not one we haven't thought about, nor one that's been asked before. It's strongly our intention at the moment. We're seeing strong interest to divest 15%. It's not a change. We moved -- last year moved the divestment into this year to take into consideration the Pikka B and Pikka C results and also the expected resource upgrade that was confirmed by the Ryder Scott independent certification.

It's our intention, really, to continue with the divestment. However, one of the interesting things about the Mitquq result, it really has highlighted that there is substantial additional potential in the area that can be rapidly tied in. It's still early days. The wells are still operational and we're still mobilizing. We're just in the process of mobilizing testing equipment to both well sites. But at this stage, it's our intention to continue with the divestment to a 35% level.

If we were to make that decision, it would be a decision that we'd make following the completion of the review of the Mitquq results and also understanding exactly where the P'nyang -- the likelihood of the P'nyang expansion occurs, and that's still a couple of months away.

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Daniel Butcher, CLSA Limited, Research Division - Research Analyst [18]

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Okay. And maybe just moving to the Stirrup result. I mean you mentioned you had oil shows, obviously very preliminary. Can you maybe -- simplistically, but maybe give us an idea of what minimum flow rate you'd like to see in the test in March, April to sort of indicate [profitability] and worth drilling it further?

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Keiran John Wulff, Oil Search Limited - MD & Director [19]

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Look, the key issue here is that the testing will be done on a single zone with a single stimulation. So it won't be really indicative. The important point about that test will really be to -- that we get oil recovered to surface at a reasonable rate. We're not expecting thousands of barrels, given the constraint of the testing equipment, but we'll give you a very clear indication once we get the test results, whether it's positive or not. But probably it'd be best to leave it there.

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Daniel Butcher, CLSA Limited, Research Division - Research Analyst [20]

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Sure. Okay. Just finally, I mean, just speaking here, but you clearly signaled your intention to focus on the 3 train development when you make the JV in the next month or 2, but will alternatives also be discussed, like going with Papua on its own? I guess just wondering, if that option does come down to that in the future, might you bring Santos into Elk-Antelope, given it has veto over the foundation project.

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Keiran John Wulff, Oil Search Limited - MD & Director [21]

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There's a lot of hypothesis there that we actually don't control there, Dan. Look, the reality is that all of the parties recognize the value that's associated with the 3 train expansion for PNG and for the stakeholders. And especially importance of driving costs as low as possible in the current economic climate. So at the moment, we're very, very focused on that outcome. Clearly, at some stage in the future, if all of those things are exhausted, we'll actually relook at the Papua LNG. But at the moment, the joint venture is very focused on a 3 train outcome. So anything other than that's hypothetical.

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Operator [22]

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The next question comes from Saul Kavonic from Crédit Suisse.

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Saul Kavonic, Crédit Suisse AG, Research Division - Research Analyst [23]

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Keiran, congratulations again on the new role. A couple of questions, if I may. If I start on the PNG expansion and acknowledging what you say that it's hypothetical, anything other than the 3 train expansion, I guess, since that's a hypothetical, I mean, what was the rationale for Oil Search's announcement to shift focus to Papua on the 3rd of February? And what has changed since then? And if I just also may ask a question about contractors. I mean there's obviously talk in the market about the EPC contractors and the availability to the old PNG expansion, are those bodies still being held back and being kept warm in able to execute should P'nyang enter feed? Or at what point -- or have we already seen those people move off onto other projects around the world?

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Keiran John Wulff, Oil Search Limited - MD & Director [24]

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Saul, I'll deal with your second question first. Having just come out of Japan last week with Diego and our marketing team, we actually caught up with Chiyoda who also were there, and they're still very focused and committed to supporting FEED for the P'nyang project. So to answer that question, yes, there is still a commitment and an intention to sort of drive that project going forward with the existing contractors there.

With respect to your first question about what's changed in the last month, not a lot, apart from the fact that there's been an ability to step away from something with a specific time frame and look at continually what's in the best interest of all the parties. And what's very clear is that a 3 train project is in the interest of all parties, as I've said before. And so that is the focus for everyone, especially when you look at the global economic environment where PNG sits relative to the market, its cost and such. So we believe that there is the potential to have an opportunity for reaching agreement and that there is potential deal space between the parties. So that's where we need to focus our attention right now.

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Saul Kavonic, Crédit Suisse AG, Research Division - Research Analyst [25]

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Thanks. My second question is on Alaska and particularly the delay of the full-scale development start-up from '24 to '25. Now if I just rewind back to when the Alaska entry happened, and I think you were guiding to a '23 startup for the whole development, subsequent to that, you've obviously cited optimization to get to where we are now. But I'm struggling to see how an optimization results in 1-year early production for the early production section, but a 2-year delay to the fourth current production? I mean have there also just been fundamental delays here for other reasons beyond optimization compared to your entry case into Alaska?

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Keiran John Wulff, Oil Search Limited - MD & Director [26]

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Again, Saul, it's a good question. 2023 was the estimate that when we acquired the asset was the estimate from Repsol and Armstrong. So we obviously went with what was originally proposed by those parties. When we got into the asset, it was quite clear that the area needed to be further appraised and confirmed by the drilling that we did and also some of the information that we were able to share with adjacent operators. So very early on, we made a clear decision, and we advised the market that we'd be moving to a 2024 full-field development and potentially looking at an early production system, where we could not only get early cash flow in 2022, but where we could also use the early activity to drive cost benefits through drilling and others into the overall project development, given the fact that about 1/3 or a little bit over 1/3 of the actual cost of the project are drilling related. So there was a lot of rationale in terms of why we did what we did because the scale of the drilling here is that we really wanted to get it right.

With respect to the current change, one of the other issues that we wanted to make sure is that especially with the increase in resources that we control our own destiny for expansion volumes as much as possible. And so part of this is to be making sure that in terms of any commercial negotiations or discussions with other parties, we have an ability to add reserves over a period of time. That's not discretionary and not reliant on other parties' involvements or other parties' decisions. So whilst it's a relatively short delay, it actually provides also with a lot more leverage and control over its own destiny. And there's a lot of rationale and economic justification behind it.

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Saul Kavonic, Crédit Suisse AG, Research Division - Research Analyst [27]

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Understood, Keiran. Good answer. A quick follow up on that. The entry into FEED, is that confirmed that there's commercial arrangements to share neighboring infrastructure have been concluded or are they still outstanding?

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Keiran John Wulff, Oil Search Limited - MD & Director [28]

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We're very, very close. The financial arrangements are largely finalized. We're just completing some of the outstanding sort of legal issues at the moment, but it's very close. Early production is in the interest of all parties, in the interest of our joint venture, it's also in the interest of ConocoPhillips at Kuparuk. So we're very confident that there will be an agreement made in the not-too-distant future. But the joint ventures move forward with all the engineering and support for engineering FEED, and we're progressing with WorleyParsons and other contractors to achieve the dates that we've mentioned in the release.

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Saul Kavonic, Crédit Suisse AG, Research Division - Research Analyst [29]

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Lastly, on the LNG marketing, having just come back from Japan and talking about PNG LNG, LNG being differentiated because it's rich, now I think we're aware that, that was very much the market mantra 10 years ago, but at least according to my conversations with market participants, I'm not aware of any recent contracts for LNG, where rich LNG achieved a premium or indeed it might have actually been achieving discounts given some of the operational challenges involved. Do you actually expect to have a differentiated product because of the rich LNG? Are you aware of any contracts where that is actually being reflected in the pricing that have been conducted over last few years?

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Keiran John Wulff, Oil Search Limited - MD & Director [30]

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Again, fairly interrogative question. So look, importantly, we don't comment on other people's -- on other people's pricing or mechanisms for entry. I suppose the most important point about the high heating value is if you look at the number of contracts that are winding down out of Japan, coming out of the Northwest shelf and other areas, which are high heating value, Oil Search's and the group's LNG out of Papua New Guinea is very well placed to replace those volumes. So that's probably best left there.

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Saul Kavonic, Crédit Suisse AG, Research Division - Research Analyst [31]

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Thanks, Kieran. And apologies, I can just squeeze one last in. On the strategic review, do you envisage that could incorporate looking at M&A beyond Alaska and PNG?

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Keiran John Wulff, Oil Search Limited - MD & Director [32]

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Look, the important point, the Board -- as Rick said at one of Peter's recent farewells, the Board has told us to be brave and consider all different options. But having said that, one of the things that was absolutely paramount here is that nothing in the strategic review will remove our focus on delivering the core assets in PNG and Alaska. So we won't be doing anything to compromise the delivery of those. So it's a politician's answer to say there's always a possibility. But right now, we're focused on delivering the full potential of our core assets.

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Operator [33]

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Your next question comes from Mark Samter from MST.

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Mark Samter, MST Marquee - Energy Analyst [34]

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Just a quick question, Keiran, a bit of a follow up on from Dan on the sell-down with Alaska. And obviously, macro is about ugly at the moment and maybe becomes not the best times to sell the stake no matter how valuable you ultimately think it is. Should we think FID is no longer contingent on the sell-down? You would be happy now to FID at 51%, should the macro make the [full on] time sell-down or would you want to get the sell-down before FID?

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Keiran John Wulff, Oil Search Limited - MD & Director [35]

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I think the reality is our ability to finance at 51%. It's the intention to continue FID, and you have to make a lot of decisions during FEED in terms of contracting and others to drive the project forward and were we to delay an FID decision simply on Oil Search's push for a 35% partner, I'm not sure whether our partner would be too pleased with that. So it's certainly our intention to progress to FID in the last quarter this year. Whether or not we keep 51% will be determined by a number of factors. But at the moment, it is our strong intention to divest. And we've actually seen, as I said, a number of very interested parties. And as I said, one is right up in the North Slope, probably not so much enjoying themselves at minus 50 degrees, whatever it is today. But it's strongly our intention to move forward with the divestment of 35% ongoing interest.

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Operator [36]

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Your next question comes from James Redfern from Bank of America Securities.

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James Redfern, BofA Merrill Lynch, Research Division - VP [37]

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Just two quick questions, please. Just maybe first, cheeky one maybe, just in terms of recent departure of Ian Munro, who is mainly responsible for gas marketing, is his departure related to, I guess, the delay in PNG around expansion? Or is it more a case of simplifying the organizational structure? I've got one more.

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Keiran John Wulff, Oil Search Limited - MD & Director [38]

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It's certainly the latter. One of the things that we did, we looked at how to optimize the organization going forward, and it was quite clear that we wanted to push more responsibility for gas marketing into the region. And so we have substantially upgraded the responsibilities and accountabilities of our Japan marketing office. And within a certain period of time, we'll probably be opening a Singapore office to manage both our oil and our gas marketing out of that. So it really is a reflection of an evolution of maturing of Oil Search's organization, and we're lucky to have Diego to be in charge of that corporately, and Diego has got a strong background in marketing through his previous role with Exxon. So it was simply a matter of optimizing the executive structure.

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James Redfern, BofA Merrill Lynch, Research Division - VP [39]

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Okay. And then just quickly on the potential sell-down Alaska, during the [summer] of last year, it was suggested that kind of the Japanese trading houses might be interested in farming into the Pikka Unit. Is that still the case or should we be thinking more about some of the [E&Ps] operating in Alaska at the moment?

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Keiran John Wulff, Oil Search Limited - MD & Director [40]

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It's -- again, it's a good question, but it's a combination of both. And so there's nothing different to what we talked about last year during the field visit, I'm pleased to say.

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Operator [41]

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Your next question comes from Adrian Prendergast from Morgans Financial

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Adrian Prendergast, Morgans Financial Limited, Research Division - Senior Analyst [42]

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Just one quick follow-up question on the informal talks at P'nyang. And just really, what indication can you give us, if any, on just how far apart the 2 sides are? Like, is it as simple as needing to reach a consensus on some sort of price? Or is it something more material around the government seeking to transform the fiscal model?

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Keiran John Wulff, Oil Search Limited - MD & Director [43]

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Adrian, I'm pleased to say you've given me the easiest question so far. Look, I really can't discuss anything in relation to the discussions that might be occurring or what they're actually talking about. We're not the operator of the project and Oil Search's role is just really to make sure that discussions are ongoing. So I'll leave it there, before I get in trouble.

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Adrian Prendergast, Morgans Financial Limited, Research Division - Senior Analyst [44]

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Fair enough. And just one quick follow up one, just back to the scope of the strategic review. Is it, in addition to, as you said, the Board have charged you being bold and looking at all sorts of great options that don't disrupt PNG and Alaska that really just honing in on PNG and Alaska. Is it also around the emphasis on the 2 in terms of our accountability with the spread between them? Or is it really just down to ultimately optimizing what you've got in front of you in the current portfolio?

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Keiran John Wulff, Oil Search Limited - MD & Director [45]

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Again, it's really -- it's an easy question to answer. It's about value for our shareholders and the speed at which we can commercialize and capital optimization. So one of the things that we see in Alaska is we see a lot of running room for additional growth. But importantly, what we don't want to be doing is, in Alaska is, drilling wells that have -- aren't going to be commercialized for the next 5, 10-plus years. So for us, in Alaska, it's all about identifying opportunities to tie into existing facilities to either expand or to grow the production base in Alaska quite quickly.

In PNG, it's about making sure we deliver on our LNG expansion volumes as optimally for everyone as possible. We don't need to be out there drilling any more gas wells. Peter's talked very clearly and told the market that's not our intention to drill any more expensive wells that don't see a market for into the next decade, and that's strongly the case. So we're in a situation now where we're very able to manage our portfolio and focus capital where it's not only most needed, but where it actually adds best value for our shareholders. And in PNG, we don't have, as I said in the presentation, we don't have a lot of ongoing commitments.

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Operator [46]

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There are no further questions at this time. I'll now hand back to Mr. Wulff.

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Keiran John Wulff, Oil Search Limited - MD & Director [47]

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Okay. Look, with that, I'd just like to thank everyone for coming. I know it's a long time, and I know that the Caltex presentation is today. So look, thank you very much. And I look forward to a long relationship with all of you. So thank you for your support of Oil Search today. Thank you.