2008 Half Year Results - Oil Search

1

2008 Half Year Results

19 August 2008

O I L S E A R C H L I M I T E D

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2008 Half Year Results Agenda

Performance Summary Peter Botten

Financial Overview Stephen Gardiner

Operations Review Phil Caldwell

PNG LNG Project Phil Bainbridge

Growth Opportunities Peter Botten and Outlook

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Performance Summary

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2008 First Half Performance Summary

NPAT, excluding MENA sale profit, of US$133.3 million, nearly three times higher than in 2007 first half

Record oil prices – unhedged, average realised price of US$115 per barrel, 63% above pcp

Sound underlying performance of PNG oil fields

Divestment of MENA assets realises profit of US$132 million

Landmark decisions taken on PNG LNG Project, now in FEED phase

Progressing opportunities to commercialise remaining gas resources

Active exploration programme in PNG

Board approves an unchanged interim dividend of four US cents per share. Payable on 10 October 2008

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Indexed Share Price Performance

Sh

are

pri

ce (

reb

ase

d t

o O

SH

)

OSH

STO

WPL

ASX200

WTI

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

6

Financial Overview

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Earnings Performance

EBITDAX up 64% on prior first half

Revenue

EBITDAX

Core Profit

US$m

233.4

323.3 305.4

466.7

188.3

276.8

249.8

410.7

63.9

115.3

46.9

133.3

0

100

200

300

400

500

1H05 1H06 1H07 1H08

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2008 First Half Performance

Oil Sales (mmbbl)Realised oil price (US$/bbl)(US$’m)RevenueCash ExpensesEBITDAXExploration ExpenseCore Profit

1H07

3.75114.99

466.7(56.0)410.7

(70.6)133.3*

1H08

4.0770.69

305.4(56.4)249.8

(66.2)46.9

Record half year revenue and core profit reflects 63% increase in realised oil prices, slightly offset by 8% fall in oil sales volumes

Cash expenses flat, period on period

* Excludes net profit of US$131.1 million on sale of MENA assets/JV licence sale profit adjustment

+53%

+64%

+184%

-8%

+63%

9

Results – Other Factors

Sale of MENA assets recognised in P&L effective from 1 May. Profit on sale of US$132 million not subject to tax Non-cash charges higher due to full period depreciation of two drill rigs and first-time take-up of “time value” of future site restoration outlays in Finance CostsExploration expenses up by 7% to US$70.6m, including:

2 unsuccessful exploration wells: one in PNG and one in EgyptG&G, G&A and business development costs

51% effective tax rate on core profit consistent with the majority of exploration expenses incurred in PNG and hence tax deductible

10

Continuing Cost Pressures

1H07 1H08US$’m US$’m

Field Costs- Oil: PNG- Oil: MENA- Hides

28.48.02.8

32.94.34.2

Other Prod’nOpex

39.2 41.4

- Oil- Hides

8.20.1

8.80.2

8.3 9.0

Net Corp Costs 7.0 4.1

FX Losses 1.9 1.5

Total 56.4 56.0

PNG oil field cost increase driven by:

Rising labour costs, reflecting global industry pressures

Stronger A$ and Kina (14% & 12% increases respectively)

Record crude prices flowing into 50% higher fuel costs (recovered as refinery sales revenue)

Increased materials and chemicals prices

MENA cost base lower than in 2007. Asset sale effective May 2008

Fall in corporate costs reflects strong focus on cost control

1111

Operating Cash Flows

Openi

ngCas

h*Ope

ratin

gIn

vest

ing

Fina

ncin

gClo

sing

Cash*

Operating cashflow included US$78m of tax paid (with 2nd PNG tax instalment of US$136m paid in late July)

Investing outflows included US$85m on production/development and US$147m on exploration, evaluation & gas commercialisation

Financing outflows included US$45m of dividends (2007 final)

* Includes Company share of JV cash balances

344344

348348

(61)(61)

400400

US$’m

0

125

250

375

500

625

750

(231)(231)

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US$400 million in cash at end June incl. JV balances; no debt. Approximately US$205 million to be received in third quarter upon settlement of MENA asset saleRefinancing of 5 year US$ oil facility in final stages:

Very positive response from bank market with competitive offers for more than twice the amount soughtFacility size increased by US$50 million to US$450 millionPricing and facility terms more favourable than those on the facility it is replacingAlmost half the facility provided without political risk insurance – strong endorsement for PNG

No oil hedging undertaken during first half of year or currently in place

Treasury Update

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FY08 Capital Outlook Update

Exploration expenditure for full year 2008 expected to be US$150 - 160 million, inclusive of acquisition of Shakal interest in Kurdistan

Gas commercialisation and new business expenditure of US$80 million, including growing FEED spend on PNG LNG as activities ramp up

Development expenditure of US$150 million, plus US$20 million on rig acquisition payments

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Operations Review

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Production Summary

NET Production (mmboe)

MENA

Hides GTE

SE Mananda

SE Gobe

Gobe Main

Moran

Kutubu

0

1.0

2.0

3.0

4.0

5.0

6.0

1H 06 2H 06 1H 07 2H 07 1H 08

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Field-by-field performance

KutubuReservoirs performing wellProduction in 2Q08 boosted by UDT 8, the first development well drilled with new Rig 103, after delays in rig commissioning and drilling operationsUDT 9 subsequently drilled and completed and UDT 10 recently spudded; two further Usano wells to follow

MoranNatural field decline, with no new wells drilled in 1H08Moran 14 drilling underway, first of three-well development programmePDL 6 production licence granted end April

Gobe Main and SE GobeUnderlying reservoir performance better than expectationsField management activities bearing fruit

SE Mananda & HidesStable production performance

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Field Development Drilling Activity

Usano:2008 : 4 wells2009 : 1 wells

SE Gobe:2010 : 1-2 wells

Kutubu:2009 : 3 wells

Agogo:2009 : 2 wells

Moran:2008 : 1-2 wells2009 : 1-2 wells

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PNG Drilling Update

Rig 103:Spudded UDT-8 end Dec 07. Some operational problems which delayed well completionSignificant improvement on UDT-9 development wellRigged up and commissioned leapfrog unit and spudded UDT-10 well

Rig 104:Delayed primarily due to late delivery of specialist drilling equipmentRig due to commence drilling activities in late Dec 08

Parker Rig 226:NW Paua exploration well completed in Jul 08Rig moved to Moran 14 development well, currently drilling aheadContract with Parker expires at end of Moran 14 well

Rig 101, (ex Rig 2):Spudded Cobra in January. Challenging geology on Cobra resulted in significant overrunsPresently drilling Cobra 1A ST3, complete in Aug 08Contract expires with HAES at end of Cobra 1A well. Future programme under review

Hydraulic Workover Unit:Mobilised low cost workover unit and completed first workover

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FY 2008 Outlook

Following MENA sale, production outlook for FY2008 of 8.5 – 9.0 mmboe

PNG production subject to results of:

Drilling campaign at Usano (4 wells) and Moran (2 wells), workover campaign (6 in Kutubu)

Field uptime availability and ongoing reservoir management

Continued focus on costs and capital efficiency

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2009 PNG Drilling Programme

Currently evaluating optimal programme

Rig 103 and 104 will be focused on delivering production wells

Evaluating potential use of another rig for appraisal/ exploration / New Gas work

Hydraulic workover unit programme likely to be extended from current 5 well programme

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PNG Exploration

Cobra resultsThicker Hedinia Sand penetrated than predicted pre-drill−Potential oil zone interpreted to be present−Initial well pressures and samples inconclusive due to probable formation

damage−Drilling sidetrack to get undamaged formation and definitive samples and

pressures−Potential economic volumes present – will need further seismic and evaluation

to define field size and location

Potential play-opener with significant follow-up−De-risks many along strike large structural features already identified in

portfolio

Other oil activities in 2008 include continued seismic for gas and oil exploration/appraisal, in Highlands, Forelands and Offshore

Active programme to optimise interests in existing licences and new venture opportunities underway with target date in 4Q08

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Cobra 1A – Hedinia Sands

Cobra sub-thrust structure and schematic Hedinia Sand penetrations in sidetracksSignificant sand thickness variation in upper potentially oil-bearing intervalInterpreted dip at well penetrations showing significant updip potential

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MENA Exploration

First well expected to spud in Shakal PSC in Iraq in 3Q08Seismically defined large 100+mmbbl structure adjacent to existing discoveries

Offshore Libya Block 18 drilling expected in 4Q08Caliph: high risk/high reward structure with potential reserves >1bnbbl. OSH 30%, Petrobras (operator) 70%

TUNISIA

LIBYA

IRAQ

YEMEN

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Gas Commercialisation

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World Class and World Scale LNG Project2C resources of 9.5 tcf 6.3mtpa, 2 train LNG projectClean gas with liquidsNo technology issues or concernsWell positioned for the Asia market

Joint Venture is aligned

Supportive Government

Strong OperatorExxonMobil is the Project operator – excellent record of project delivery on time and on budget, assisted by comprehensive pre-FEED processOil Search providing PNG experienceStrong Project team

Rapidly AdvancingProject in FEED phase, with marketing underwayFiscal terms agreed with aligned GovernmentConsidering early works commitment

Optimal time to satisfy regional demand in 2013/2014 period

Real Expansion CapacityOnly 60% of OSH gas resources dedicated to PNG LNGNew infrastructure will stimulate additional gas development

PNG LNG - Premier AsiaPacLNG Project

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PNG LNG - Optimal Timing to meet market requirements

Pacific Basin LNG Supply and Demand to 2020MMTPA

Onstream Under Construction Possible Speculative Pacific LNG Demand

Source Wood MacKenzie Global LNG, April 2008

Notes1. Project Under Construction include: Pluto LNG, Tangguh LNG, Yemen LNG, Qatar Gas 2,3,4, RL3, Angola LNG2. Possible projects include: PNG LNG, Sunrise LGN, Gorgon LNG, Browse, Ichthys, Scarborough, Wheatstone LNG, 4 Gladstone projects, Sulawesi, Abadi, Brunei LNG II, NLNG VII, Brass LNG, OK LNG, Iran LNG3. Speculative projects include: projects that currently lack any reasonable definition in terms of participants, structure or underlying resources as well as defined supply where major issues are preventing the project from making

substantial progress

Regional market fundamentals remain robust

Steady expansion from existing markets (Japan, Korea, Taiwan)

Growth from emerging markets of India & China and new markets

Decline in existing contracts and concern with new project timing

Supply and Demand imbalance after 2012

Projects under construction do not match capacity

Extensive set of projects in queue from 2013 onwards

0

50

100

150

200

250

300

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

“LNG supply unlikely to keep up with demand with high prices set to continue in the medium term”

“Some of these possible projects are tenuous e.g., LNG from Iran, and actual supply will be lower than shown”

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4 Projects Gladstone LNG

Sunrise LNGGorgon LNGBrowseIchthysScarboroughPluto LNGWheatstone LNG

Sakhalin 2

PNGLNG

Tangguh LNG

Brunei LNG II

SulawesiAbadi

Yemen LNG

Iran LNG *3

Qatar Gas2,3,4

RL 3

Angola LNG

NLNG VIIBrass LNGOK LNG

Projects Under ConstructionProjects Possible Source Wood MacKenzie Global LNG, April 2008

LNG Projects Under Construction and Proposed

Large number of possible projects under consideration

Not many possible projects will be able to cover the demand gap in 2013

Western Australia: strong cost pressures and competition for resources

Potential first production post 2014/5

Australian CSG projects: 4 projects competing for 2014 window, new technology with several hurdles to be overcomeIncreasing foreign focus

PNG LNG is an attractive option relative to others

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LNG Pricing

0

5

10

15

20LNG ($/mmbtu)

10 20 30 40 50 60 70JCC ($/b)

80 90 100

Crude Oil Parity

Strong pricing drivers:Supply/demand fundamentals

Pull from Europe

Delays in other projects

Environmental advantages

Pricing and challenges with competing energy sources

Pricing around parity:Supported by recent contracts with pricing at around US$14/mmBTU

Recent contracts:Sept 07: Petrochina, 2-3 mtpa, 15 - 20 years ex Browse

Sept 07: Petrochina, 1 mtpa, 20 years ex Gorgon

Nov 07: CPC, 2-3 mtpa, 15 - 20 years ex Browse

April 08: Petrochina, 3 mtpa, 25 years from 2011 ex QatarGas

April 08: CNOOC, 2 mtpa, 25 years from 2009 ex QatarGas II

Source: FACTS Global Energy

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PNG LNG Project

MarketingStrongly positioned. Competitive advantages recognised Positive engagement

Project:FEED and schedule on track for EM and Oil Search responsibilitiesPositive scope optimisation

Commercial:Many value enhancements

FinancingRoad shows ongoingContinued positive response

Government:Committed and supportiveLeadership and co-ordination defined

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Project UpdateEOS (KBR/ WorleyParsons JV) conducting upstream FEED comprising:

Preliminary engineering design for gas field developments Gas conditioning and compression facilitiesPipeline and infrastructure

Downstream FEED (LNG plant, storage, marine facilities) being conducted in two phases:

Non-competitive phase - support from KBR Second, competitive EPC bid phase involving APCI (Air Products and Chemicals, Inc) and COP (ConocoPhillips) process licensed contractors

High quality project team

Oil Search-managed associated gas FEED study commenced with WorleyParsonsFurther capex estimates from EPC bids (3Q09)JV considering proposal for early works programme subject to marketing, Benefits Sharing Agreement and permitting progress

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LNG Project Schedule

FEED

PNG GovernmentApprovals

Benefits SharingAgreement

Project Financing

Detailed EngineeringDesign & Procurement

Construction /Commissioning

2008 2009 2010 2011 2012 2013 2014

FirstCargoLNG

*Schedule is Indicative only

FIDPIMClose

Gas Agreement

Entry

Environmental, Licences etc

EPC bids

HOA’sMarketing

SPA’s

Possible early works

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Commercial Update

For Oil Search, the Project will provide:Annual incremental net production of ~18 mmboe

Booking of over 500 mmboe of Oil Search’s 2P gas resources providing positive impact on depreciation

Past costs pay back by Government on back-in at Final Investment Decision

Value additions to the oilfields by:− Incremental reserves due to extension of oil field life (Gobe to

2024, Kutubu to 2048) and revised reservoir opportunities

− Abandonment deferral

− Additional pipeline tariffs

− Cost sharing benefits in oil fields and pipeline export system

− Reduction of oil field taxation rate on conversion

Detailed field review starting, to analyse field management of gas and oil, optimal development and value synergies− New Moran development plan

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Commercial Update

Potential for additional value:Initial equity determination at Project sanctionAcceleration/schedule mitigation options:−Early works

The Project will provide additional opportunities:

De-bottlenecking of existing trainsInfrastructure for additional gas developments

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Government Update

Leadership and Co-ordination defined:Political leadership through Ministerial Economic CommitteeCo-ordination branch approved and being implemented

Retention Licence renewal:Government has announced PRL 11 and PRL 12 renewal

Commitment to pursue Benefits Sharing Agreement:

Targeting 4Q08/1Q09

Long term benefits to Papua New Guinea fully understood:

“Affects economy of PNG and its balance of trade situation profoundly” (ACIL Tasman report)

Strong support for the Project at local community level

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Growth Opportunities and Outlook

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Gas Growth Opportunities

Delivering PNG LNG Project is the priority:Delivers infrastructure for additional gas growth

Additional LNG developments command the highest value:

Sufficient 2C resources for additional train already exist in PNG fields

Many other gas development options also available with robust economics

Oil Search seeking to: Increase contractible gas (exploration, appraisal, acquisition)

Aggregate gas for highest value development option

Key partnerships with State – MOU signed in July

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Key Gas Fields in PNG

Hides / Angore Fields (OSH – 27.5%/52.5%)Hides – 5.3 tcf of 2C resource, 3C upside to 10 tcfAngore ~ 1.2 tcf

Kutubu Complex Fields (OSH - 60.0%)~ 1.5 tcf plus liquids, largely developedKey strategic resource and infrastructure hub, high value

Juha Field (OSH 31.5%)~ 0.6 tcfLiquids rich

Other fields include:Kimu (OSH – 60.7%)Barikewa (OSH – 42.5%)Uramu (OSH – 49.6%)P’nyang (OSH – 38.5%)

Significant exploration upside, particularly in offshore region

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Proposed Exploration Programme

2009 – 2011 exploration programme will test over 9 tcf mean resource (gross), with average POS of ~15%

Testing off-shore prospectivity (Flinders, Bigpela, APPL234, APPL 293) to commence in 2009/10

Huria well, expected to be drilled prior to the Hides development wells which will test Hides 3P upside

Appraisal drilling at Barikewa in 2009 and Pandora in 2010

Flinders

Barikewa Deep

Huria

ForelandShelf

WesternCorridorStage I

OffshoreHub

EasternHub

NorthernHub

WesternCorridorStage II

CentralFoldbelt

Hedinia Deep

Cecilia Iwa

Bigpela

Well 1

Lead 2

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Gas Growth Opportunities

Additional LNG trains or plants

Capacity for an additional 3.2mtpa LNG train or equivalent available at low cost from existing discoveries

Gas could come from various sources eg Hides, P’nyang, Angore, Barikewa etc

Significant field, pipeline and plant synergies may be obtained

OSH share in future non-Project LNG train expected to be similar to PNG LNG Project interest

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Gas Growth Opportunities cont.

Other gas commercialisation opportunities can also offer attractive returns, diversification and timely delivery. These range from export oriented projects to domestic micro projects including:

Methanol and other derivativesGas to liquids (GtL)Compressed Natural Gas (CNG)Gas for use in mine operations eg extending mine life at PorgeraPower generation and other smaller projects catering to the needs of local communities & industry

Size of dedicated resource important in defining commercial optionRange of study groups are being formed with Government and other entities to form non-PNG LNG gas development ‘master plan’

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AGL Asset Sale a Win:Winfor OSH shareholders

AGL is selling its interest in PDL 2 (11.9%) and PDL 4 (66.7%)

Highest bidder expected to be known by mid SeptemberOSH and other licence partners (ExxonMobil, JPP, MRDC) have pre-emptive rights. 30 day pre-emption period post notificationCan pre-empt on either or both licences

Strong investment discipline will be applied when reviewing pre-emption opportunity. Considerations for OSH include:

PriceFunding efficiencyPre-emption intentions of partners

AGL sale process a likely Win:Win for Oil Search shareholders

If a high sale price, demonstrates strong market value and confidence with ‘look through’ implicationsCould represent a potential buying opportunity of well known quality assets subject to meeting investment criteria

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AGL asset package

25.5%

10.0%

72.3%

49.4%

60.0%

OSH % interest

6.6 mmbbl

2.1 mmbbl

1.7 mmbbl

60.3 mmbbl

41.4 mmbbl

Gross remaining recoverable oil

reserves at 1.1.08

27.3%SE Gobe Unit (PDL 4)

66.7%Gobe Main (PDL 4)

11.9%SE Mananda (PDL 2)

5.2%Moran Unit (PDL 2)

11.9%Kutubu (PDL 2)

AGL % interestAsset

In addition, AGL holds ~3.6% interest in PNG LNG Project (OSH 28-31% post Government back-in)AGL assets have good short-medium term cash flows from oil and small interest in long term legacy projectUnlike OSH, does not have major gas resource upside. Other OSH assets include:

~ 2 tcf 2C gas and associated liquids in non-PNG LNG Project gas fields

Exposure to significant 3C upside in Hides field and in other gas fields

Exploration portfolio in PNG and MENA – 3 year drilling programme will test over 1bnbbl unrisked oil and over 8 tcf unrisked gas (net to OSH)

~ US$600m cash (on settlement of MENA sale)

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Gas set to dominate portfolio over time

Substantial unrealised value exists within Oil Search’s current asset portfolio, capable of generating superior shareholder returns over next five years and beyondDelivery of PNG LNG alone can deliver 15% plus annual TSR growth (based on US$70/bbl oil price scenario)Further value growth can be delivered through commercialisation of other gas resources and exploration successValue of PNG gas will increasingly dominate portfolio over timeValue calibration from FEED assumes:

Progress on key milestones – gas HOA’s, early worksProgress on demonstrating value growth options

Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 Dec '12 Dec '13

Existing portfolio can deliver superior TSR

Oil & Other

PNG LNG

Other Gas

(existing)

Valu

e

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Operational Outlook

Production outlook for 2008 of 8.5 – 9.0 mmboe, post MENA sale

Exploration spend considerably lower in 2H08 than in 1H08. FY spend expected to be ~US$150 - 160 million. FY08 development spend of US$170 million and U$80 million on gas inc LNG FEED. Funded from cash flows and existing cash position

Strong balance sheet, buoyed by MENA cash receipts, cash flows and oil refinancing. Liquidity, post completion of funding facility, of ~US$1bn

Provides excellent financing flexibility

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Gas Outlook

PNG LNG Project on track to make Final Investment Decision in late 2009, first production expected late 2013/2014. Will deliver key infrastructure to PNG. 30 year+ legacy project

Reserves upside in Hides and debottlenecking opportunities in PNG LNG are likely to provide next tranche of value creation

Significant existing 2C resources outside PNG LNG remain to be commercialised. Value enhanced by PNG LNG Project infrastructure

Oil Search seeking to be catalyst for non-Project gas development

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Summary

PNG LNG Project and commercialising remaining gas will drive Company value. Rising NPV over time, as cash flows get closer and Project de-risks

Core PNG oil business remains robust, with stable production and cost outlook, provides cash flows to support LNG and other development options

Exploration activities wound back from 2007 high levels, but material prospects still to be drilled in both PNG and MENA

AGL asset sale provides industry value benchmark, with partial value see-through. May provide opportunity to increase PNG LNG interest, but only in the right circumstances – series of gates for decision-making

Considerable upside value in existing asset base still to be recognised by market

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O I L S E A R C H L I M I T E D