Oil Search eyes selldown of promising $3bn Alaska oil project

Oil Search will start a 15% selldown process for its proposed 80,000 barrels of oil per day Pikka low emissions oil project in Alaska by April. Phase 1 of Pikka is expected to cost about $3 billion and produce oil at a break-even cost of supply less than $40 per barrel Brent, inclusive of a 10% return, reckons the Australian-based company.

Oil Search yesterday said that it had started front-end engineering and design (FEED) work for the scheme that will be built close to existing infrastructure with an emissions footprint that is 75% less than the current average for North Slope operations, data from Wood Mackenzie shows.

Procurement activities for key items will now begin, helping ensure a timely delivery of pipelines, facilities, the drilling rig and other materials, needed to support first oil, planned for 2025.

“With confirmed 2C resources in Alaska of nearly a billion barrels of oil (gross) and further opportunity, we are exceedingly optimistic about Oil Search’s future in Alaska,” said Keiran Wulff, Oil Search’s managing director.

“We recognise the importance of a successful selldown of a 15% interest in the Pikka development area and on securing project level financing to fund at least 50% of the initial Phase 1 project costs. These two activities are a critical part of our capital management strategy which, combined with a strengthening energy demand outlook for projects with low break-evens and low emissions intensity, will provide confidence in our ability tomake a final investment decision later this year,” added Wulff.

The company has slashed costs with the latest design estimated to need half the capital investment of the previous concept while preserving a pathway to achieve the full value of the original development, according to Oil Search.

Oil Search is targeting future developments on state lands and not federal lands which is unlikely to be hit by changes in drilling regulations in Alaska. The company already has federal approvals to progress Pikka to FEED and alignment with the state to develop the project.

The company has enough funding for its expansion plans, said analysts at investment house Bernstein. Oil Search has total liquidity of $1.4 billion with net debt of $2.4 billion consisting mainly of PNG LNG project finance of $2.6 billion. Bernstein believes the company can self-fund its growth at $50 oil and above.

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