Oil Search may ditch gas project

OIL Search has flagged it is willing to ditch the $7 billion Papua New Guinea gas project to concentrate on other energy development if a new partner is not finalised soon.
The troubled 4000km project has been hit with a string of setbacks since August, when skyrocketing costs forced co-builder of the Australian leg, AGL, to stop engineering works because of increasing costs.
AGL said it wanted to sell out of its share in the joint venture with Malaysian government-owned Petronas.
Oil Search told investors in the US it was concentrating on expanding its petrochemicals, liquefied natural gas and liquids recycling projects.
The Port Moresby-based oil and gas producer backed AGL's call for the PNG gas pipeline project to go ahead in stages rather than in one hit.
Its presentation to investors included a route showing the pipeline travelling down the east coast to Gladstone and west to Gove to service Alcan, which has already signed up to take gas, and to Mount Isa.
This route would cut out Santos, which has been accused of stalling on signing up for PNG gas, accessing any supplies through its Moomba processing facility.
Oil Search said it was "confident a robust economic project can be achieved with partner alignment". The market was only slightly impressed, pushing up Oil Search shares 9¢ to close at $3.18 with almost 10 million shares traded.
But it warned the project needed "clarity of direction" to stop it looking at other options for future growth.
Its new strategic review concentrated on its other development projects especially the PNG oil fields, and exploration activity in the Middle East and north Africa, where it will drill more than 40 wells in the next 18 months.
Oil Search is in the process of a five-year plan to double its market capitalisation by 2010 and commercialise its resource of 1 billion barrels of oil equivalent in gas and liquids.
ExxonMobil is expected to announce by the end of this month whether the project will go ahead, with analysts tipping it to back a staged progression.
But analysts also have questioned whether escalating construction costs amid a resources boom will make it financially viable for the project to proceed.