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July 15, 2019, 10:51 p.m. EDT

Oil Search lowers annual production target

By Robb M. Stewart

MELBOURNE, Australia--Oil Search Ltd. (OSH.AU) tweaked its annual production target after a slip in second-quarter output and lowered guidance for spending this year because of a rescheduling of the expansion of gas-export operations in Papua New Guinea.

The oil and gas producer said Tuesday it now anticipates production in 2019 of between 28 million and 31 million barrels of oil equivalent, where it previously saw the top of the range at 31.5 million barrels.

That followed a 5.1% quarter-over-quarter drop in output to 6.9 million barrels in the second quarter after planned plant maintenance dented volumes. Still, production for the first half was up 38% at 14.1 million barrels as Oil Search seeks to more than double production by the middle of the next decade with the expansion in Papua New Guinea and its foray into Alaska.

For the second quarter, Oil Search's sales revenue was down 4.8% on-quarter at US$378.9 million, but up 39% for the first half at US$777 million.

Oil Search operates all of Papua New Guinea's producing oil fields, though these are dwarfed by output from the Exxon Mobil Corp. (NYS:XOM) -led US$19 billion PNG LNG operation, in which Oil Search has a 29% interest.

Oil Search, with partners Exxon and Total SA (NYS:TOT) , earlier this year signed a deal with Papua New Guinea's government that paves the way for a final investment decision on the expansion of liquefied natural gas output in the country. Late last month, the company agreed to exercise a US$450 million option to double its stakes in prospective oil fields in Alaska, where it has been drilling, and expects to lift the estimated resource.

The company, based in the Papua New Guinea capital of Port Moresby and listed in Australia, said it now expects investment spending at between US$500 million and US$610 million this year, a drop from its earlier target of US$545 million to US$655 million.

In June, James Marape was sworn in as Papua New Guinea's prime minister following the resignation of Peter O'Neill. The companies are moving toward front-end engineering and design work on the expansion of LNG production in the country, though the new government has said it wants to review the gas agreement signed for Total's proposed Papua LNG project that would make use of the PNG LNG operation's infrastructure. The deal is a prerequisite for beginning the engineering phase on Papua LNG, and a separate gas agreement for another field is needed to launch engineering on three proposed LNG production lines by the companies.

Oil Search Managing Director Peter Botten said his company and its partners had in recent weeks met with the new leader and members of his government to brief them on the LNG expansion plans. He added the company's marketing team continued to talk with potential buyers regarding an equity share of fuel produced in the Papua New Guinea expansion, which would help underpin a decision to go ahead with the development.

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

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