OBG talks to Peter Botten, CEO, Oil Search: Interview

Interview: Peter Botten

Oil prices have been hovering around $50 a barrel for the last year. Is this a price that operators should get used to in the long run?

PETER BOTTEN: Unfortunately an unexpected outcome can always destabilise markets, and one of the biggest at the moment relates to the UK exit from the EU and how is it going to affect the global economy in the short to medium run. We are talking about the world’s fifth-largest economy taking a leap into the unknown, with major repercussions for the EU as well, and it would be naive to think that it won’t affect the hydrocarbons industry, most likely as a driver of lower oil prices, as it adds uncertainty to an already volatile market.

Other than that, I believe that the oil supply-demand balance is gradually being addressed, as the industry cannot be sustained for a long period with oil at $40-50 a barrel without undermining global supply. The lack of investment in the conventional side, which has been dropping at a rate of 5-6% a year, is expected to drive oil prices higher over the next three years, most likely to $60-70, because the world has to do without 6m-7m of barrels a year. So political uncertainties and volatility in the short run will most likely push prices down, while a more balanced supply-demand scenario will have the opposite effect. Another possible destabilising scenario would be the break-up of the UK, with an independent Scotland and its North Sea oil reserves being a factor in the market, even though production there has been hit by low oil prices and producers have been looking hard at returns, rather than just production numbers.

How big of a factor do you think greater collaboration among large energy players will be in Papua New Guinea in the years to come?

BOTTEN: Oil and gas production in PNG is certainly more sustainable than in other markets, but generating an environment of cooperation among the major players is becoming essential to stay competitive, by reducing wastage and duplication.

Both the PNG government and the private sector are fully behind this concept, considering the much lower oil and gas prices we are seeing compared to a couple of years ago. This means that we have to work smarter in the effort to accelerate development of the next phase of liquefied natural gas (LNG) growth. The need for cooperation has also been the main driver for Oil Search’s proposed acquisition of Interoil, in the effort to create synergies between the first PNG LNG project and the future one. If we look, for instance, at the LNG complex on Curtis Island, off Queensland in Australia, billions of dollars were duplicated in capital infrastructure that could have been saved with better cooperation between the three operators, as each one built its own jetties, pipelines, camps and tanks at its liquefaction facilities.

Will better cooperation affect the delivery timeframe for the next wave of LNG projects?

BOTTEN: We have enough gas for at least two more trains, and with additional drilling success we could opt for a third train. We can see that period of growth starting as early as 2017, while in 2018 it will be all about construction and engineering. Better cooperation between the two major LNG projects in PNG, which would mean sharing facilities and reserves on a differential ownership basis, could save the development of the next phase as much as $100m a year for 20 years in costs. It will also set the clock forward at least 12 months from the initial estimates, with huge implications for PNG’s economy in the long run. Considering the cost base, partnership and quality of reserves, this country can play a very significant role in the next phase of LNG development in Asia and beyond.