Oil Search flags $400 million impairments

The Papua New Guinea-focused oil and gas producer and PNG LNG stakeholder, Oil Search flagged a $360-$400 million impairment in its interim results.

The company noted in a statement on Monday it has assessed the carrying value of its assets for impairment as June 30, 2020, in accordance with the relevant accounting standards. Oil Search has taken into account the potential longer-term impact of prevailing economic conditions, the outlook for oil and gas prices and the current status of other factors that could impact on value realisation.

The impairments that are expected to be recognised largely relate to PNG exploration licences.

As part of the strategic review currently underway and in line with OIl Search’s prioritisation of capital allocation, a number of exploration and evaluation assets in PNG have been identified as being of reduced priority due to lower prospectivity or sub-optimal economics.

As there is no current intention to pursue activities on these assets, the full value of these exploration assets is expected to be written down.

An immaterial impairment relating to exploration leases in Alaska, which are scheduled to be relinquished, also is anticipated.

Given the ongoing gas supply uncertainties resulting from the recent suspension of mining activities at the Porgera project, the carrying value of the Hides gas-to-electricity project is also expected to be fully impaired.

The expected impairment expense is a non-cash item and will not impact cash earnings or cashflow, Oil Search said.

The final impairment expense to be recognised is subject to the finalisation of the half-year accounts and completion of the half-year review by the Company’s auditor.