IOC Interoil Corp. (delisted)

By Robb M. Stewart

MELBOURNE, Australia--Oil Search Ltd.'s (OSH.AU) interim dividend was slashed by the sharp fall in oil and gas prices that hit the Papua New Guinea-focused company's first-half earnings.

Net profit fell 89% to US$25.6 million in the six months through June from US$227.5 million a year earlier, Oil Search said Tuesday. The result was in line with the US$29 million median of five broker forecasts compiled by The Wall Street Journal.

The company, based in the Papua New Guinea capital of Port Moresby but listed in Australia, said it would pay an interim dividend of US$0.01 a share, down from last year's payment of US$0.06.

Dividends among the region's big energy companies have been hard hit by the fall in prices and earnings. Woodside Petroleum Ltd.'s (WPL.AU) first-half dividend was reduced 43% after its profit was halved, while loss-making Santos Ltd. (STO.AU) and Origin Energy Ltd. (ORG.AU) both suspended dividends for the period.

Sales revenue was 33% lower in the period at US$580.8 million despite volumes increasing by 5%, as the average price the company realized for its oil fell by 27% on year while LNG and natural gas prices dropped by 40%, due to the roughly three-month lag between oil and LNG pricing.

"Despite the success of the cost reduction program, profitability was impacted by the continued slump in global oil and gas prices," Managing Director Peter Botten said.

Oil Search last month abandoned a bid to cement its position in Papua New Guinea with a deal to buy InterOil Corp. (IOC) after Exxon Mobil Corp. (XOM) made an all-stock offer worth about US$2.5 billion, roughly 10% higher than the proposal made by Oil Search in May.

Oil Search's main asset is a 29% stake in the PNG LNG liquefied-natural-gas development operated by Exxon that began producing in April 2014. It also owns an almost 23% interest in the prospective Elk and Antelope gas fields in Papua New Guinea bring developed by Total SA (TOT), in which U.S.-listed InterOil has a nearly 37% stake.

The company in July received US$60 million from Exxon, a fee for breaking up its deal with InterOil, which Oil Search said more than covered the costs associated with its offer.

Despite a deal with InterOil not going ahead, Mr. Botten said a study was now underway to review possible cooperation between the PNG LNG project and Total's planned Papua LNG project. He said there is sufficient gas resources to underpin the two existing LNG production lines in Papua New Guinea, as well as two or three additional lines if exploration drilling is successful.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 22, 2016 20:41 ET (00:41 GMT)

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