Promoting Sustainable Overseas Investmentmddb.apec.org/Documents/2015/IEG/WKSP1/15_ieg_wksp_010.pdfItem 2 Sustainability is a core strategy Item 3 Our Programmes Item 4 Case Study

___________________________________________________________________________

2015/IEG/WKSP/010 Session: 3

Promoting Sustainable Overseas Investment

Submitted by: Oil Search Limited

Workshop on the Best Practice of the Sustainable Investment in APEC Region

Beijing, China9 February 2015

Oil Search LimitedARBN 055 079 868

Michael Uiari, General Manager, PNG Commercial,

Legal & Stakeholder Management

Promoting Sustainable Overseas

Investment

ASX: OSH | US ADR: OISHY

www.oilsearch.com

Disclaimer

While every effort is made to provide accurate and complete information, Oil Search Limited does not

warrant that the information in this presentation is free from errors or omissions or is suitable for its

intended use. Subject to any terms implied by law which cannot be excluded, Oil Search Limited accepts

no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a

result of any error, omission or misrepresentation in information in this presentation. All information in

this presentation is subject to change without notice.

This presentation also contains forward-looking statements which are subject to particular risks

associated with the oil and gas industry. Oil Search Limited believes there are reasonable grounds for

the expectations on which the statements are based. However actual outcomes could differ materially

due to a range of factors including oil and gas prices, demand for oil, currency fluctuations, drilling

results, field performance, the timing of well work-overs and field development, reserves depletion,

progress on gas commercialisation and fiscal and other

government issues and approvals.

2Best Practice in Sustainable Investment in APEC Region 9 Feb 2015

Agenda

Item 1 Who is Oil Search?

Item 2 Sustainability is a core strategy

Item 3 Our Programmes

Item 4 Case Study | PNG LNG Benefits

Management


Agenda





Management


» Established in Papua New

Guinea (PNG) in 1929

» Market capitalisation ~A$13bn

(US$12bn)

» Listed on ASX and POMSOX

(Share Code OSH) plus ADR

programme (Share Code

OISHY)

» ASX 50

» Operates all PNG’s currently

producing oil fields

» 29% interest in PNG LNG

Project, world scale LNG

project operated by

ExxonMobil. First LNG sales

commenced May 2014

» Exploration interests in PNG,

Middle East/North Africa

Oil Search Profile

PAPUA

NEW

GUINEA

AUSTRALIA

Brisbane

Sydney

Port Moresby

(Head Office)

Kutubu Ridge Camp

Dubai

TunisErbil

Sulaymaniyah

Sana'a

TUNISIA IRAQ

YEMEN

Best Practice in Sustainable Investment in APEC Region 9 Feb 2015 5

Share Register as @ 31 Dec 2014

Shareholder % City

International

Petroleum

Investment

Company

12.9 Abu Dhabi

Capital Group 10.1 Los Angeles

Fidelity Worldwide

Investment

4.7 Combined

Commonwealth

Bank of Australia

3.8 Sydney

UBS 3.4 Sydney

PNG corporates 3 Port Moresby

Perpetual 3 Sydney

BT Investment

Mngt

2.4 Sydney

JP Morgan Chase 2,.4 London & others

AMP Capital 2 Sydney

Shareholder % City

JCP Investment

Partners

2 Melbourne

Cooper Investors 1.9 Melbourne

Vanguard Group 1.9 Combined

Standard Life 1.8 Combined

Black Rock Inc 1.5 Combined


1

1 Does not reflect the PNG Government’s full beneficial holding of 149.4m (9.8%) stake in OSH, via NPCP Investments.

PNG Licence Interests

7

PNG LNG Project

Gas Fields

PNG LNG Project

Facilities

Non PNG LNG

Gas/Oil Fields

Oil Field

Gas Field

Oil Pipeline

Gas Pipeline

Oil Facility

Gas Facility

OSH Operated

OSH Interest

Condensate Pipeline

PPL260

Juha

Kutubu

Proposed Juha

Facility

Hides

Angore

LNG Facility

Gobe MainHides Gas

Conditioning Plant

& Komo Airfield

Uramu

P’nyang

Kimu

SE Gobe

Hagana

Flinders

Juha North

Barikewa

Elk/Antelope

Moran

Agogo

Papua New Guinea

Hides

Kutubu

Port Moresby

Best Practice in Sustainable Investment in APEC Region 9 Feb 2015

Our Operating Environment


Historic Metrics

185.6202.5

175.8205.7

152.5

0

50

100

150

200

250

2010 2011 2012 2013 HY2014

Net Profit After Tax (US$M)

4 4 4 4

2

0

1

2

3

4

5

2010 2011 2012 2013 HY2014

DPS (US cents)

7.76.7 6.4 6.7

5.4

0

2

4

6

8

10

2010 2011 2012 2013 HY2014

Production (mmboe)

76

117 114 108 112

0

20

40

60

80

100

120

140

2010 2011 2012 2013 HY2014

Oil Price (US$/bbl)


9 months to 30 Sep 14:

12.0 mmboe

9 months to 30 Sep 14:

US$107/bbl

0

2

4

6

8

10

12

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

2002 to 2014 | Significant share price appreciation

Acquisition of

ChevronTexaco’s

PNG assets.

Assume

Operatorship

Manage transition to PNG LNG Project

PNG LNG FID

PNG LNG

production

commencesPRL 15

acquisition


Sh

are

Pri

ce

(A

$)

2002 Strategic

Review

2010 Strategic

Review2007 Strategic

Review

10

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0 50 100 150 200 250 300 350

Cu

mu

lati

ve D

isco

vere

d P

50

Re

co

ve

rab

le V

olu

me

(m

mb

oe

)

Well Number

• Hides is largest field found to date

• Future field sizes likely smaller but still

material

Hides

Antelope

Based on OSH estimates

The Future | only ½ of PNG’s full resource

potential has been discovered


» Internal and external

assessments indicate only half

of PNG’s full resource potential

has been discovered

» Significant remaining gas

potential in Highlands and Gulf

areas

~10

bnboe

PNG Resource Base

Producing

Fields

Discovered

Undeveloped

Resources

Exploration

Yet-to-Find

(full potential)

YTF = USGS P50 & IHS Estimates

0

5

10

15

20

25

30

050

10

015

020

025

030

035

040

045

050

055

060

065

070

075

080

085

090

095

010

00

Fre

qu

en

cy

Size (mmboe)

Field Size Distribution

Hid

es

Ante

lope

Field count = 41

* OSH estimates

** Cumulative numbers based on arithmetic sum of P50 resource

11

Agenda





Management


Vision, Objective and Strategies


Sustain and optimise

oil and gas assets

through safe and

reliable operations

Commercialise

additional LNG trains

resourced from NW

Highlands and Gulf

hubs

Explore for and

appraise high value oil

and gas accumulations

in PNG and progress

high value global new

venture opportunities

Maintain Oil Search as

a leading corporate

citizen in PNG. Protect

value and enable

growth by mitigating

risks and promoting a

stable operating

environment

Optimise capital and

liquidity management

to support investment

and reward

shareholders

Enhance

organisational

capabilities to deliver

our strategic

commitments

Achieve top quartile value growth performance versus peer group over next five years,

by pursuing the following strategies:Objective

Optimise value

of existing

assets

Commercialise

gas in PNG

Pursue high

value

opportunities

Lead PNG

sustainability

Optimise capital

management

Enhance

organisational

capability

To generate top quartile returns for shareholders through excellence in

socially responsible oil and gas exploration and productionVision

13

Sustainability is the key to historic &

future success

» Majority of OSH value growth over next 5-7 years will come from

assets in PNG

» Dynamic social environment, combined with significant economic

changes, requires active management

» Social responsibility, sustainable development and enduring

government and community relationships integral to OSH’s

historic and future success

» OSH has a comprehensive series of social programmes to help

government and communities address social and economic

challenges across infrastructure, education and health, including:

– Working with Govern’t to lead development of PNG’s oil and gas sector

– Ensuring PNG LNG benefits commitments are delivered

– Facilitating delivery of key infrastructure projects (OSH manages

>US$200m of projects on behalf of Government)

– Oil Search Health Foundation (health service provider)

– Delivery of power solutions in PNG

» Managing PNG country issues critical to preserving OSH value,

generating growth and maintaining our social licence to operate


Agenda





Management


Our Programmes | Balancing

financial return and social good

» Collaboration with national and sub national government

– Tax Credit Scheme as a mode of project delivery

– PNG LNG benefits (contractual and statutory)

management

– Transformation of institutions including our industry regulator

– Health outcomes through Oil Search Health Foundation

http://www.oilsearchhealthfoundation.org/

– Supporting infrastructure delivery

– Progressing EITI in PNG

» Local communities

– Participation in business opportunities through local

landowner businesses

– Tertiary sponsorships

– Community development projects

– Workforce and community healthcare

– Developing skills for food security across PNG

– Targeted Donations

– Understanding biodiversity

– Improving social impact measurement

– Human Rights risk review

» Promoting good governance

– Corporate standards on preventing corruption

– Board Committee provides oversight of Sustainability

strategy

– Corruption prevention through Internal standards,

enforcing internal Code of Conduct and educating

Suppliers on our standards


http://www.oilsearchhealthfoundation.org/

Agenda





Management


PNG LNG Project

18

PNG LNG Project

Gas Fields

Juha

Kutubu

Proposed Juha

Facility

Hides

Angore

LNG Facility

Gobe Main

Hides Gas

Conditioning Plant

& Komo Airfield

Moran

Agogo

Gas Pipeline

Oil Field

Gas Field

Oil Pipeline

Gas Pipeline

Oil Facility

Gas Facility

OSH Operated

OSH Interest

Condensate Pipeline

Papua New Guinea

Hides

Kutubu

Port Moresby

Hides Drilling

LNG shipped to

Asian buyers

LNG Plant

TEG unit

HGCP


» 6.9 MTPA, 2 train development, operated by ExxonMobil

» Expected to produce more than 9 tcf of gas and 200+ million barrels of associated liquids

over its 30 year life

» Equity Interests:

– ExxonMobil (33.2%), Oil Search (29.0%), National Petroleum Company of PNG (PNG Govt) (16.8%),

Santos (13.5%), Nippon Oil (4.7%), MRDC (PNG Landowners) (2.8%)

» 6.6 MTPA contracted to Asian buyers:

– Sinopec (China) ~2.0 MTPA

– TEPCO (Japan) ~1.8 MTPA

– Osaka Gas (Japan) ~1.5 MTPA

– CPC (Taiwan) ~1.2 MTPA

» Development delivered slightly below US$19bn revised budget

1919

PNG LNG Project Overview


PNG LNG Facilities

20

Associated GasLNG Plant

LNG Tanker at Jetty Hides GCPHides GCP


Source: ExxonMobil

First PNG LNG shipment arrived in Japan in

early June 2014

21

Unloading of first PNG LNG cargo at TEPCO

Futtsu-2 Terminal

Source: ExxonMobil


Balancing financial return with social

good | PNG LNG Benefits Management

Factors

» PNG LNG will be transformational for PNG

» Oil production over the last 20 years represents a

lost opportunity to translate benefits into

development outcomes for our host communities,

host Provinces and host country

» Our investment in PNG LNG must translate into

benefits for our host communities, host Provinces

and host country

» Expectations within PNG for basic service delivery

– schools, hospitals, roads, power etc – has never

been higher

» Capacity of National and Provincial Governments

to deliver core services are challenged

» Important that OSH plays a role to facilitate and

augment Government capacity to deliver services

Strategic Approach

» Shared Responsibility with Host

Government

» Transparency is mandatory

» Follow the money trail

– While in FEED in 2008, we recognised the

need to-

• map all benefits streams

• negotiate a shared responsibility approach with our

host Government

• encourage the introduction of governance

mechanisms around each benefits stream

• translate non cash benefits into social infrastructure

• assist Government develop business plans for

cash benefits

– Covers tax and non-tax benefits


A substantial share of PNG LNG benefits will

accrue to Government


62.6%

37.4%

PNG LNG Project Government Take vs Company Take

% of Project NPV

Gov't Take

Company Take

ACIL Tasman Economic Benefits Study

indicated benefits bigger than annual GDP

Over 25% of PNG LNG revenues will

be allocated to local stakeholders

National Goverment

(Taxation and NPCP Equity)

74.41%(rest of PNG)

PNG LNG Project - National Government v Project Area Stakeholders

(Benefits Sharing %)

Various Project

Area Stakeholders

25.59%

- 5 impacted

provincial

governments

- landowners


Non Tax Benefits | Shared

Responsibility with Government

Benefits Stream Quantum Beneficiary Type Governance

Approach

Royalty 2% of wellhead

value

Landowners Statutory Cash 40% cash to

landowners, 30%

each to CIT & FGT

Development Levy 2% of wellhead

value

5 Impacted

Provincial

Governments ie.

sub national level

Statutory Cash Mobilising funds

against defined

goals and assist

implementation

Business

Development

Grant

K120m Landowners Contractual Cash Distributed in 2010

– too late

Infrastructure

Development

Grant

K1.2bn released

@ K120m pa from

2010

5 Impacted

Provinces

Contractual Cash Lost 2010 – 2013

Infrastructure

delivery

partnership with

Gov’t forward plan

High Impact

Infrastructure

Projects (next

slide)

Project list –

unrealistic

designated cost

5 Impacted

Provinces

Contractual Non Cash Infrastructure

delivery

partnership with

Gov’t

Landowner equity Landowners Statutory & extra

equity is

contractual

Non Cash Managed by a

corporate trustee

per royalty


Non Tax Benefits | Help to deliver

High Impact Infrastructure Projects

Project Designated

Kikori-Kutubu-Tari-Koroba-Kopiago North Coast Road

(Tax Credit Scheme*)

K100m

Komo to Tari road sealing K 90m

Hela City Development (first phase) K100m

International airport at Tari (first phase) K 90m

Komo Township K 15m

Magarima Township K 15m

Kutubu Township K 15m

Koroba Township (including hospital) K 20m

Nogoli Growth Centre K 15m


*The Tax Credit Scheme is a legislated infrastructure delivery model that

permits the mobilization of 0.75% - 2% of a Developer’s taxable income to

fund project delivery by the Developer

Taxation | Shared Responsibility with

Government to deliver national priorities

National Priorities Oil Search Prioritisation Project List

A. Planning Framework

• Vision 2050 (2010-50)

• 20 Year PNG DSIP (2011-

2030)

• 5 year MTDP (2011-15)

• Annual Budget Priorities

• Sector plans and

provincial plans

1. Criticality Analysis:

2. Capability/Capacity Analysis

• Organisational Capability

current and future

3. Funding Constraints

4. Policy/Law: evolution

eg tax credit/NITCS?

5. Operating models- best fit

• Level A

• Large Projects

• Level B

• Small Projects

• Initial List

• Short List

B. External Influences

• Millennium Development

Goals

• (now called Sustainable

Development Objective)

• Aid Agency programmes

• Australia, Japan, Multi-

laterals

Examples

• Hospital

• Power Solution

• Road

• HIIPs projects

C. UBSA/LBSA Commitments

D. NEC Decision(s)


Thank You
