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The head of Australia-listed energy producer Oil Search has pledged to maintain a disciplined approach to spending and costs even as crude oil begins recovering from last year’s COVID-19 collapse and rallies to its highest prices in more than 12 months.
Oil Search managing director Keiran Wulff on Tuesday revealed the full extent of the company’s earnings collapse over 2020 to a deeper-than-expected $US320 million ($404 million) loss after the coronavirus pandemic hammered the world’s demand for fuels.
The global oil crash forced Oil Search to slash spending and suspend projects.
Excluding write-downs, its profit was nearly wiped out, collapsing 93 per cent across the 12 months to December, with sales revenue plunging nearly a third to $US1.07 billion.
The huge loss came after the Papua New Guinea-focused Oil Search last year axed a third of its workforce, wiped off $US260 million off the value of its assets as the benchmark Brent crude oil price sank to multi-year lows of less than $US20 a barrel.
“The company took decisive action to ensure that we limited discretionary spend, enhanced our liquidity, right-sized the organisation and materially reduced our operating cost base and break-even for new and existing projects,” Dr Wulff said.
However, as Brent oil rises back above $US60 a barrel and the company prepares to return to growth with a $US3 billion oil project in Alaska, Dr Wulff said Oil Search would remain focused on ensuring it was able to navigate through periods of uncertainty and “deliver our projects in 2021 and beyond”.
“Whilst we are encouraged by the recovery in the oil price over the last few months, particularly given our strong cash flow and earnings leverage to higher prices, the company remains focused on maintaining discipline in both our capital management and in cost control across our operations,” he said.
Oil Search, like oil and gas giants worldwide, was hit hard by the destructive impact of pandemic lockdowns on the global economy last year, as travel restrictions to arrest the spread of the virus sapped energy demand and sent commodity prices crashing to multi-year lows.
But analysts on Tuesday said strong demand forecasts linked to post-COVID stimulus programs and vaccines helping economies reopen quickly were driving prices of oil and other commodities higher. The Commonwealth Bank’s energy and mining commodities analyst, Vivek Dhark, said supply-side factors, including output cuts from the OPEC+ alliance of oil producers, were also supporting prices.
“In oil markets, OPEC+ supply discipline and supply setbacks in the US from freezing weather have prompted oil prices higher,” he said.
Rising oil prices helped drive a rally in ASX-listed oil and gas stocks on Tuesday. Oil Search ended the day up more than 6 per cent at $4.31.
The company declared a final unfranked dividend of US0.5¢ per share.
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