Oil Search Limited ARBN 055 079 868 Singapore, November 2014 Morgan Stanley 13 th Annual Asia Pacific Summit ASX: OSH & POMSoX: OSH | US ADR: OISHY » 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) » 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 Tunis Erbil Sulaymaniyah Sana'a TUNISIA IRAQ YEMEN Oil Search Update - November 2014 2 For personal use only
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Oil Search LimitedARBN 055 079 868
Singapore, November 2014
Morgan Stanley13th Annual Asia Pacific Summit
ASX: OSH & POMSoX: OSH | US ADR: OISHY
» Established in Papua NewGuinea (PNG) in 1929
» Market capitalisation ~A$13bn(US$12bn)
» Listed on ASX and POMSOX(Share Code OSH) plus ADRprogramme (Share CodeOISHY)
» Operates all PNG’s currentlyproducing oil fields
» 29% interest in PNG LNGProject, world scale LNGproject operated byExxonMobil. First LNG salescommenced May 2014
» Exploration interests in PNG,Middle East/North Africa
Oil Search Profile
PAPUANEW
GUINEA
AUSTRALIABrisbane
Sydney
Port Moresby(Head Office)
Kutubu Ridge Camp
Dubai
Tunis ErbilSulaymaniyah
Sana'a
TUNISIA IRAQ
YEMEN
Oil Search Update - November 2014 2
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Oil Search Licence Interests, PNG
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PNG LNG ProjectGas Fields
PNG LNG ProjectFacilities
Non PNG LNGGas/Oil Fields
Oil Field
Gas Field
Oil Pipeline
Gas Pipeline
Oil Facility
Gas Facility
OSH OperatedOSH Interest
Condensate Pipeline
PPL260
Juha
Kutubu
Proposed JuhaFacility
Hides
Angore
LNG Facility
Gobe MainHides GasConditioning Plant
& Komo Airfield
Uramu
P’nyang
Kimu
SE Gobe
Hagana
Flinders
Juha North
BarikewaElk/Antelope
Moran
Agogo
Papua New GuineaHides
Kutubu
Port Moresby
Oil Search Update - November 2014
Transformation underway
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» Oil Search (OSH) undergoing major corporatetransformation with commencement of PNG LNG Projectand legacy cash flows:
– PNG LNG Project start-up in 2Q 14 a major milestone for OilSearch and PNG
– In first full year (2015), will quadruple OSH’s production andboost operating cash flows before interest to ~US$1.5bn pa
» Impact of Project seen in recent results:– 1H14 production up 68% to 5.4 mmboe, NPAT up 34% to
US$152.5m– 3Q production up 81% to 6.67 mmboe, nearly same level as
for 2013 full year
» Have recently completed a major strategic review, to re-evaluate Company’s position and future strategy
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2014 Strategic Review» All-encompassing review focused on setting roadmap for
next phase of growth:
– Thorough review of overall strategy, asset portfolio,operational capabilities, skills, succession planning, capitalmanagement and dividend policy
» Multi-disciplined internal team seconded for six months toundertake Strategic Review
» Range of external consultants also utilised – providedextensive data and reports
» Renewed vision, strategic objectives and initiativesendorsed by the Board:
– Designed to ensure continued delivery of top quartile returnsto shareholders
» Predictions of softer Brent price have arrived sooner than expected» Long term support at ~US$90 per barrel
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Oil price predicted during Strategic Review
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Long term demand growth for energy fromAsia still strong, especially for LNG
» Asian and ME LNG demand nearly doubles by 2030» Incremental demand in Asia will be driven primarily by China and India» Demand from Thailand, Singapore and Malaysia will further prop regional demand» Philippines, Pakistan and Vietnam may emerge as potential buyersOil Search Update - November 2014
*Capacity per Department of Energy authorization to Free Trade Agreement countries, in addition to capacities under construction**Project partners’ plan includes expansion up to 50 mmtpa
Many potential new LNG suppliersCanada
Announced >160 mmtpaRussia
Announced 63.9 mmtpa
MozambiqueAnnounced 20 mmtpa**
USUnder Construction ~20 mmtpa
Announced >290 mmtpa*
AustralasiaUnder Construction 68.1 mmtpa
Planned 3.2 mmtpa
Oil Search Update - November 2014
PNGPlanned >10 mmtpa
MediterraneanPlanned >15 mmtpa
Source: Goldman Sachs, FGE
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LNG from PNG has many competitive advantagesand is in strong position to capture markets
mobilisation» Airfield construction» Drilling mobilisation» Start onshore and offshore
pipeline construction
2011 CONSTRUCTION» Complete pipe lay» Ongoing drilling» Construction of HGCP» Commission LNG plant
with Kutubu gas
2013
Oil Search Update - November 2014
First PNG LNG shipment arrived in Japan inearly June 2014
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Unloading of first PNG LNG cargo at TEPCOFuttsu-2 Terminal
Source: ExxonMobil
Oil Search Update - November 2014
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PNG LNG Facilities
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Associated GasLNG Plant
LNG Tanker at Jetty Hides GCPHides GCP
Oil Search Update - November 2014Source: ExxonMobil
PNG LNG debottlenecking offers potentialfor substantial incremental value
Oil Search Update - November 2014
» Global benchmarks suggest 10-15% increase in capacity achievable through debottlenecking» High value add – generally, minimal capex required» OSH believes potential debottlenecking of PNG LNG T1 & T2 represents highest returning
opportunity in its portfolio
Source: FACTS Global Energy
0%
5%
10%
15%
20%
25%
30%
Bontang(T1-T2)
Bontang(T3-T4)
Brunei LNG MalaysiaDua
Sakhalin NWS (T1-T3)
Bontang(T5)
Bontang(T6-T7)
AtlanticLNG (T1)
Bontang(T8)
Adgas
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Proven success optimising production frommature oil fields
Oil Search 2014 Strategic Review - 23 October 2014 23
» Since taking over oil field operatorship in 2003, OSH has:– Drilled 41 development wells with ~85% success rate– Added +50mmbbls oil (gross) to 2P expected ultimate recoveries (+75mmbbls to 1P EUR)
» Achieved key 2010 objective of maintaining oil production broadly flat until first PNG LNGproduction
» As reservoirs mature, opportunities becoming smaller and more challenging
Base oilHides GTETazaPNG LNG condensate (6.9mtpa)PNG LNG Gas (6.9mtpa)
» From 2014, PNG LNG (T1 + T2) will supplant oil as OSH’s base business» Debottlenecking may provide additional upside
Production outlook – PNG base business
1. LNG sales products at outlet of plant, post fuel, flare and shrinkage2. Gas:oil conversion rate used in 2014 & 2015: 5,100 scf = 1 barrel of oil equivalent (prior years 6,000 scf/boe)3. Taza forecast includes 4 year EWT 2015-2018 only
Oil Search Update - November 2014
18 – 20mmboe
Forecast
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Strategy 2: Commercialise gas in PNG» PNG LNG Project has delivered strong platform for future
growth:
– Major infrastructure, government and landowner support, Tier 1LNG customers and financier confidence
» OSH played significant role in project execution and inongoing operations
» Delivery of additional trains is common objective forindustry, communities and Government
» PNG has resources to deliver at least two expansiontrains, underpinned by existing undeveloped resources,and third expansion train with modest exploration/appraisalsuccess in current drilling programme
» Multiple exploration opportunities remain
Oil Search Update - November 2014Images courtesy ExxonMobil
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>20 tcf of discovered gas in PNG of whichonly 9 tcf is under development
Oil Search Update - November 2014
Papua New GuineaHides
Kutubu
Port Moresby
~6tcf
~6tcf
~1tcf
<1tcf
9 tcf
~1tcf
PNG LNG Projectdedicated 2P
reserves and 2Cresources
Undeveloped (bestestimate)
* OSH/other operator estimates** Cumulative numbers based onarithmetic sum of best estimateresource
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Gas resource evaluation ongoing in two keyhubs – NW Highlands and Gulf
» Key resource evaluation activities are ongoing.Will provide greater certainty through 2015 ondevelopment plans:
– Structural remapping and reservoir modelling basedon new Hides wells will help constrain gas volumes
– P’nyang evaluation ongoing plus possible furtherdrilling to determine upside
– Hides F1 Deep well – material exploration targetunderlying Hides field, recently commenced drilling
– Antelope 4 and 5 appraisal wells – will establishwhether resource can underpin two trains. Possiblefurther drilling (Antelope 6) to assess upside
– Antelope Deep exploration well – planning underwayfor potential 2015 spud, high potential play
» PRL 15 arbitration outcome expected 1Q15,important for development cooperation andtiming
Hides F1 Deep
Antelope 4Antelope 5Antelope 6*Antelope Deep*
Oil Search Update - November 2014
Evaluation of Hidesdevelopment wells
P’nyang reserve evaluationFurther drilling*
* Subject to JV approval
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NW Highlands: P’nyang - PRL 3» Key resource to support potential
growth from PNG LNG Project
» Located 120 kilometres NW ofHides
» Concept selection work welladvanced
» Development work to continuethrough to submission of PDLapplication in early 2015
» Designed to be completed as a Hidesdevelopment well and to penetrate Koi-Iangereservoir (currently mapped ~700m belowHides Toro/Digimu reservoirs)
» Significant resource potential
PDL 1 WI %
ExxonMobil affiliates 36.8
Oil Search 16.7
Santos 24.0
Kroton No 2 (PNG Govt) 20.5
Gas Resources Gigira (landowners) 2.0
Hides 4
Hides 3Hides 2Hides 1Hides GHides F1 Deep
Koi-IangeKoi-Iange
IeruIeru
DaraiDarai
ToroToro
NW SE
Oil Search Update - November 2014
Gulf Basin: Elk/Antelope – PRL 15
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» Acquired 22.8% grossinterest in PRL 15, containingElk/Antelope gas fields, inMarch 2014
» Largest undeveloped gasresource in PNG withsignificant exploration upside
» Appraisal programmeunderway
» Arbitration hearing on disputerelating to sale of interest inPRL 15 from InterOil to TotalSA, scheduled for November.Substantial additional value,if successful
PNG LNG ProjectGas Fields
PNG LNG ProjectFacilities
Non PNG LNGGas/Oil Fields
PPL260
Juha
Kutubu
Proposed JuhaFacility
Hides
Angore
LNG Facility
Gobe MainHides GasConditioning Plant
& Komo Airfield
Uramu
P’nyang
Kimu
SE Gobe
Hagana
Flinders
Juha North
BarikewaElk/Antelope
Moran
Agogo
Oil Field
Gas Field
Oil Pipeline
Gas Pipeline
Oil Facility
Gas Facility
OSH OperatedOSH Interest
Condensate Pipeline
Oil Search Update - November 2014
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PRL 15 appraisal programme
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» Up to three appraisal wells to be drilled,to determine whether gas resourcescan support one or two LNG trains
» Antelope 4 spudded in September;Antelope 5 expected to spud in 4Q14:
– Comprehensive data acquisition andtesting programme planned
– Possible Antelope 6 well, located ineastern part of field, to be drilled following4 and 5
» Preliminary planning underway forpossible exploration well on AntelopeDeep prospect
» Scope of Concept Select studies beingconsidered by JV:
– Likely to include both greenfieldstandalone and integrated LNGdevelopments concepts
Antelope 5
Antelope 4
Antelope Deep
Papua New GuineaHides
Kutubu
Port Moresby
Oil Search Update - November 2014
Resource requirements and valuemaximisation of expansion trains» NW Hub train:
» Targeting final investment decisions by end 2016, withprogressive delivery of additional trains 2019 – 2022
» Train sizing and start-up dates dependent on extent ofcooperation
Oil Search Update - November 2014Image courtesy ExxonMobil
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OSH’s role in future developments» Unique opportunity over next 12 months to drive optimal
development plan, through promoting cooperation agenda:– Extensive equity interests spanning sources of expansion gas
– Alignment with PNG Government
» Leverage OSH’s unique local knowledge and PNG LNGexperience through role in upstream development:
– OSH operates Associated Gas Fields, which contribute ~20% ofPNG LNG Project gas as well as liquids export system
– Successfully delivered key components of PNG LNGinfrastructure
– Key role supporting PNG LNG operator in Government andlandowner negotiations
» ~US$3 billion of potential capital cost savings and ~twoyears of production acceleration from cooperation
Image courtesy ExxonMobil
Oil Search Update - November 2014 33
Strategy 3: Pursue high value opportunities
Oil Search Update - November 2014
» Renewed focus on resource replacement, given step change inproduction and resource conversion with PNG LNG Project start-up
» Exploration programmes to target 150% resource replacement(five year rolling average)
» Significant exploration upside remains in PNG, with only half ofPNG’s estimated full potential of 10 bnboe discovered so far
» New Ventures will focus on:– PNG growth opportunities
– Development of international material oil exploration opportunities tosupport longer term growth:• Any new entries will be disciplined and assessed against high returning
PNG growth assets
» Total exploration and appraisal budget (PNG & international) for2015–2016 of US$350-450m pa– Spend focus is in PNG with clear short and medium term programme
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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
Cum
ulat
ive
Dis
cove
red
P50
Rec
over
able
Volu
me
(mm
boe)
Well Number
• Hides is largest field found to date• Future field sizes likely smaller but still
material
Hides
Antelope
Based on OSH estimates
PNG exploration running room
Oil Search Update - November 2014
» Internal and externalassessments indicate only halfof PNG’s full resource potentialhas been discovered
» Significant remaining gaspotential in Highlands and Gulfareas
~10bnboe
PNG Resource Base
ProducingFields
DiscoveredUndevelopedResources
ExplorationYet-to-Find
(full potential)
YTF = USGS P50 & IHS Estimates
05
1015202530
0 50 100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
950
1000
Freq
uenc
y
Size (mmboe)
Field Size Distribution
Hid
es
Ant
elop
e
Field count = 41
* OSH estimates** Cumulative numbers based on arithmetic sum of P50 resource
» Taza 4 – to test highly fractured zones on Westflank, due to spud 2Q15
» Further drilling dependent on results
» Extended Well Test planned in mid-2015
» Declaration of Commerciality expected 4Q15
SE Jambur Lead
Pulkhana
Jambur Kor Mor
Taza 3
Taza 2
Potential Taza 5
Taza 4Proposed
TazaTaza 1ST2
Oil Search Update - November 2014 39
Strategy 4: Lead PNG sustainability» Social responsibility, sustainable development and enduring
government and community relationships integral to OSH’shistoric and future success
» OSH has a comprehensive series of social programmes to helpgovernment and communities address social and economicchallenges across infrastructure, education and health, including:
– Working with Government to lead development of PNG’s oil and gassector
– 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 (second largest health service provider inPNG)
– Delivery of power solutions in PNG
» Managing PNG country issues critical to preserving OSH value,generating growth and maintaining our social licence to operate
Oil Search Update - November 2014 40
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Strategy 5: Enhance organisational capability» Strategic Review has highlighted importance of PNG to OSH’s future value growth
» Organisational changes will take place to manage programmes needed to deliver growth
» Several senior managers will be based in PNG
» Will deliver significant management depth to address key challenges in-country,
understanding of in-country issues and assist development of deeper relationships with key
PNG stakeholders
» Will facilitate senior management development and succession planning
» Board has appointed consultant to undertake gap analysis and help steer succession
planning
Oil Search Update - November 2014 41
Strategy 6: Optimise capital management» Key objective is to ensure all future growth opportunities can be fully funded and
financial flexibility maintained while also sharing profits from PNG LNG Projectwith shareholders
» Balance sheet (gearing and liquidity) to be conservatively managed
» Anticipate that future LNG trains in PNG will be funded utilising project financing.MENA growth from internal funding sources (cash and corporate borrowings):
» No hard gearing target but expect gearing not to materially exceed 30 June 2014level (~ 45%)
Oil Search Update - November 2014
*excludes any material one-off adjustments to income
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Cash Flow Priorities
Oil Search Update - November 2014
Available CashflowsAfter scheduled debt servicing, sustainingcapital expenditure and commitments
DividendsPayment in accordance with new dividendpolicy
Growth Capital Investment ILNG expansion
Growth Capital Investment IIExploration, New Ventures, M&A
Surplus CapitalReturn to Shareholders:
- Share Buy-Backs, Special Dividends
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OSH’s new dividend policy»Oil Search to adopt a proportional dividend policy, commencing with 2014
final dividend:
– Target dividend payout ratio of 35% – 50% of core net profit after tax*
– Payout ratio will be reviewed in event of substantial rise or fall in oil prices
– Dividend reinvestment plan to be suspended, commencing with 2014 finaldividend
Oil Search Update - November 2014
* Excludes any material one-off adjustments to income
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Forecast application of free cash-flow,2015 – 2019
Oil Search Update - November 2014
PNG International
Allocation of cash generated PNG vs International Capex Splits
» Expect to generate ~US$1.5bn pa in operating cash flow before interest over next fiveyears*
» OSH has low sustaining capex requirements, <US$650m over 5 year period (2015-2019)» OSH can fully fund a three train LNG expansion as well as provide significant dividends
* Based on flat Brent oil price of US$90/bbl. Forecasts assume a three train LNG expansion
2015-19Operating
Cashflow preinterest
Sustainingcapex
Net interest Debtrepayment
Dividend Availablecashflow
Debtdrawdown
Growth Capex
US
$M
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OSH has potential to provide materialproduction growth as well as dividends
Oil Search Update - November 2014
» Possible production growth profile
1 LNG sales products at outlet of plant, post fuel, flare and shrinkage2 Oil forecast assumes successful development drilling in 2014/153 Gas:oil conversion rate used in 2014 & 2015: 5,100 scf = 1 barrel of oil equivalent for PNG
LNG. No debottlenecking shown4 Taza forecast includes 4 year EWT 2015-2018 only
Summary» Board has endorsed OSH’s vision and strategic objectives:
– Generate top quartile returns for shareholders through excellence in socially responsible oil and gas exploration andproduction
» Review has confirmed OSH has high-returning growth opportunities in PNG, with enough gas in existingportfolio to support at least two and, with modest drilling success, three additional LNG trains:
– Potential to double production again between 2015 and early 2020s and drive continued top quartile performance withsignificant remaining exploration upside
» Potential PNG LNG T1 & T2 debottlenecking is highest returning opportunity in OSH’s portfolio
» Measured pursuit of high returning oil opportunities internationally, to add to long term growth
» Expansion of PNG sustainability programmes
» Organisational changes to address PNG relationships, structured succession planning
» Sufficient funding available for both growth and dividends
OSH IN BEST POSITION IN ITS 85 YEAR HISTORYOil Search Update - November 2014 47
Appendix 1: TSR performance (to 30 Sep 2014)
48
4.139.2
11.6
73.3
-7.1
23.8
-17.1
192.7
-0.3
36.73.9
180.4
4.2
60.0 42.3
592.3
-60
40
140
240
340
440
540
640
%TS
R
Median TSR ASX200Median TSR ASX200 EnergyMedian OSH Peer GroupOSH TSR
1 YEAR 3 YEAR 5 YEAR 10 YEAR
Source: Orientcap
Oil Search Update - November 2014
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Appendix 2: Key metrics
185.6 202.5175.8
205.7152.5
050
100150200250
2010 2011 2012 2013 HY2014
Net Profit After Tax (US$M)
4 4 4 4
2
012345
2010 2011 2012 2013 HY2014
DPS (US cents)
7.76.7 6.4 6.7
5.4
02468
10
2010 2011 2012 2013 HY2014
Production (mmboe)
76
117 114 108 112
0
50
100
150
2010 2011 2012 2013 HY2014
Oil Price (US$/bbl)
49Oil Search Update - November 2014
9 months to 30 Sep 14:12.0 mmboe
9 months to 30 Sep 14:US$107/bbl
Appendix 3: Treasury update
1,2641,047
488210
595
0
500
1,000
1,500
2010 2011 2012 2013 3Q 2014
Cash (US$M)
50
» New bilateral revolving facilities totallingUS$250 million established during 1H14
» Total liquidity of US$1,295 million at30 September comprising US$595 millioncash, US$500 million undrawn non-amortising corporate revolving facility andUS$200 million available under US$250million bilateral facilities
Numbers may not add due to rounding1 Gas volumes have been converted to barrels of oil equivalent using an Oil Search specific conversion factor of 5,100 scf per boe, which represents a weighted average, based on Oil Search’s reserves portfolio,using the actual calorific value of each gas volume at its point of sale. The change to a specific boe conversion factor more closely reflects the energy content of the Company’s gas reserve portfolio compared to theprevious conversion factor of 6,000 scf per boe.2 Includes Hides GTE gas purchase costs, royalties and levies, selling and distribution costs, rig operating costs, corporate administration costs (including business development) and inventory movements.
51Oil Search Update - November 2014
Appendix 5: Investment outlook 2014
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014 Guidance
US$
M
Exploration & Evaluation PNG LNG Production Other PP&E
DisclaimerWhile every effort is made to provide accurate and complete information, Oil Search Limited does notwarrant that the information in this presentation is free from errors or omissions or is suitable for itsintended use. Subject to any terms implied by law which cannot be excluded, Oil Search Limited acceptsno responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as aresult of any error, omission or misrepresentation in information in this presentation. All information inthis presentation is subject to change without notice.
This presentation also contains forward-looking statements which are subject to particular risksassociated with the oil and gas industry. Oil Search Limited believes there are reasonable grounds forthe expectations on which the statements are based. However actual outcomes could differ materiallydue to a range of factors including oil and gas prices, demand for oil, currency fluctuations, drillingresults, 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.