Keiran Wulff, Managing Director, Oil Search: Interview

Interview: Keiran Wulff

In what ways has the Covid-19 pandemic impacted business operations in Papua New Guinea?

KEIRAN WULFF: Like most companies in the oil and gas sector, the pandemic forced us to quickly review all areas of business, particularly our cost base. These included the capital programmes we had planned for 2020, our approach to supporting production operations and our management of labour-intensive field activities.

Our priority has been to ensure the welfare and safety of our workforce, while ensuring the reliability of production under challenging conditions. This has required the development of reliable remote working environments for office staff and the adherence to strict safety protocols in our field operations. We established a roster and staffing solution that allows the development of protection zones, or “cocoons”, to limit the potential for infection. Furthermore, to prepare for worst-case scenarios we developed contingency plans for further isolation and quarantine procedures to allow our operations to continue.

What are the main ways the pandemic is expected to affect revenue and employment in the sector?

WULFF: The oil sector has been impacted by a tsunami of events: the Covid-19 pandemic; the oil price war between Saudi Arabia and Russia; the impact of climate change on long-term investor sentiment; and fluctuations in demand and access to funding. The precipitous fall in the demand and price for oil during the Covid-19 pandemic had a calamitous impact on the industry at all levels. This is demonstrated by the sector’s reduced discretionary expenditure, which slowed progress in development decisions – in some cases halting projects completely – and led to reductions in employment, particularly among contractors. This will likely reset the cost base going forwards, as it is unlikely that the industry will reach pre-Covid-19 levels of activity for many years. In general, the industry has been forced to re-evaluate capital programmes, contracting strategies and long-term staffing decisions, while seeking technological solutions to lower costs and compensate for reduced human capital mobility.

PNG is well connected to the global economy and is particularly reliant on export revenue to support public services, including health care and education. It is therefore important that PNG remains competitive enough to attract investment in a challenging and increasingly competitive, global environment.

How has the pandemic affected proposed projects?

WULFF: Talks over an agreement for the expansion of the P’nyang liquefied natural gas (LNG) project were suspended at the end of January 2020. The negotiations between ExxonMobil and the PNG government were being conducted under challenging circumstances with strict deadlines. The slowdown of global economies due to the Covid-19 pandemic also weighed on the progress of other LNG projects. This enabled exploratory discussions to recommence on the P’nyang LNG agreement, and allowed for all parties to better consider key issues and identify mutually acceptable deals. We are now more hopeful that the operator and the government will be able to reach an agreement for the expansion of the P’nyang LNG project.

Do you expect there to be an oil production cut?

WULFF: The potential for a cut in oil production relates to the global supply and demand equation. When there was oversupply in the industry and inventories were reaching peak levels, the potential for short-term production cuts was very real. However, we do not foresee a high likelihood that PNG will be faced with production cuts in the near term, as the country is strategically located close to fast-growing markets and has a high-quality product. The market is currently in oversupply, and we are planning for soft oil prices in the second half of 2020. We anticipate that it will take a few years for the market to return to equilibrium.