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Price slump hits Oil Search profit

AAP logoAAP 23/08/2016 Prashant Mehra

Papua New Guinea-focused Oil Search has posted a 89 per cent plunge in first half profit, weighed down by weak oil and gas prices despite a better-than-expected performance at its LNG venture.

The oil and gas explorer will now review its strategic options in PNG, after its near $3 billion bid for New York-listed InterOil was thwarted by global energy giant ExxonMobil.

The deal has cleared the way for ExxonMobil to potentially tie its PNG LNG project with the rival under-development Papua LNG project backed by France's Total.

"There has been a change in oil and gas prices; there is a need to understand in detail what type of co-operation can occur between the two projects and what is needed to facilitate the development," managing director Peter Botten told AAP.

"Given the recent announcement about the InterOil-Exxon, it changes some of the factors in our calculation and that is what we will be looking at."

The review will be completed in about eight weeks, Mr Botten said.

Oil Search had bid for InterOil to expand co-operation between the two rival LNG projects.

Under the deal, the Australian company would have ended with identical 29 per cent stakes in the existing ExxonMobil-operated PNG LNG project, as well the planned Papua LNG project run by Total.

ExxonMobil's entry into the rival LNG project will also speed up development of the Elk-Antelope gas field that will supply gas to the projects.

"It improves the returns, reduces the capital cost exposure: all of that delivers better returns for us and the stakeholders," Mr Botten said.

On Monday, Oil Search said first-half profit tumbled to $US25.6 million ($A33.5 million) from $US227.5 million a year ago, as falling global oil prices hit revenue.

PNG LNG produced at an annualised rate of 7.7 million tonnes a year in the first half, about 12 per cent above the plant's rated capacity.

The result was largely in line with analyst estimates, and comes despite an eight per cent cut in production costs.

Mr Botten said the company is continuing to manage costs closely, to ensure its competitiveness.

"We are not banking on any significant oil price increase over the next 12 to 18 months, to run our business. I think we are playing conservative," he said.

Oil Search slashed its interim dividend to 1.0 cents, from 6.0 cents a year earlier.

Oil Search shares closed down six cents or 0.8 per cent, at $7.38.

WEAK PRICES HIT OIL SEARCH

* First-half net profit down 88.7pct to $US25.6m

* Revenue down 32.8pct to $US580.8m

* Interim dividend down five US cents to one US cent unfranked

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