ASX Announcement‌‌‌‌‌‌‌

Activities for the Quarter ended 31 December 2015

(ASX: OSH | ADR: OISHY | POMSoX: OSH)

27 January 2016

Highlights‌

• Production in the fourth quarter of 2015 was 7.51 million barrels of oil equivalent (mmboe). The continued strong performance during the quarter took 2015 full year production to 29.25 mmboe, 52% higher than production in 2014 and an all-time record for the Company. This exceeded the upper end of our guidance range.‌‌

  • Fourth quarter production net to Oil Search from the PNG LNG Project was 5.73 mmboe (24.8 bcf LNG and 0.86 mmbbl liquids), while the base PNG oil and gas business contributed 1.79 mmboe. The PNG LNG Project continued to operate well above its 6.9 MTPA nameplate capacity, with an annualised production rate of approximately 7.6 MTPA during the quarter, compared to 7.4 MTPA in the previous quarter and 7.4 MTPA for the 2015 full year.

  • Product sales during the fourth quarter were 3% lower than production due to timing of liftings. Total sales for the 2015 full year, at 28.98 mmboe, were 63% higher than in 2014 and the highest in Oil Search's history.‌‌

  • Total revenue for the quarter was US$342.9 million, 10% lower than in the third quarter, largely due to the sharp drop in global oil and gas prices. The average realised LNG and gas price was US$8.41/mmBtu, down 6% from the third quarter, while the average realised oil and condensate price declined 14%, to US$42.90/barrel. Total revenue for the 2015 full year was US$1,585.7 million, marginally lower than total revenue in 2014.‌

  • While Oil Search's production generates positive cash flow even at the current depressed oil price, the Company is presently re-assessing its 2016 work programmes and is looking for opportunities to optimise its activities, improve efficiency and further reduce its cost base. Given that PNG LNG Project expansion and the Papua LNG Project are considered to be among the most commercially attractive new LNG projects globally, activities to progress these potential developments will continue to be prioritised. Guidance on 2016 operating costs and capital expenditure will be provided in the 2015 full year results, scheduled to be announced on 23 February 2016.

  • Engagement with the Department of Petroleum and Energy (DPE) regarding the issuing of a Petroleum Development Licence (PDL) over P'nyang was ongoing during the quarter. The DPE

    
    

    Oil Search Limited

    Incorporated in Papua New Guinea ARBN 055 079 868

    Head office

    Port Moresby Papua New Guinea

    Sydney office

    1 Bligh Street

    Sydney NSW 2000 Australia

    Mailing address

    GPO Box 2442

    Sydney NSW 2001 Australia

    Tel: +61 2 8207 8400

    Fax: +61 2 8207 8500

    www.oilsearch.com

    
    

    continued fieldwork to identify project landowners and held information sessions in villages in the Project area, with landowner development forums expected to take place in 2016. Well site preparations for the high-potential Muruk 1 gas exploration well in PPL 402 also commenced.

• During the quarter, the Antelope 4 ST1 well was drilled and wireline logging was completed. Log interpretations confirm that a thick, high quality dolomite reservoir unit extends to this southern location. The Antelope 6 well, on the eastern margin of the field, was spudded in December, with reservoir penetration expected during the first quarter of 2016, while a long-term test of Antelope 5 has also recently commenced.

• In preparation for independent gas certification of the Elk-Antelope field, Oil Search has engaged two world class certifiers and expects certification to be completed early in the third quarter of 2016. The certification will incorporate the Antelope 6 results and the Antelope 5 testing currently underway, as well as all other data currently available.

• During the quarter, the Company refinanced its two existing US$125 million bilateral revolving credit facilities through a well supported competitive bid process. At the end of December 2015, Oil Search had available facilities of US$748 million and cash of US$910 million, taking total liquidity to US$1.66 billion. Based on this strong financial position, the Company can fund all planned capital expenditure, debt repayments and dividends from operating cash flow and its existing cash balances, even if oil prices remain at current levels for an extended period of time.

• Towards the end of the quarter, Woodside Petroleum withdrew its non-binding, highly conditional indicative all scrip proposal for Oil Search.

COMMENTING ON THE FOURTH QUARTER OF 2015, OIL SEARCH MANAGING DIRECTOR, PETER BOTTEN, SAID:

"Following a strong performance from both the PNG LNG Project and our operated oil fields during the fourth quarter, 2015 full year production was 29.3 mmboe, which was an all-time record for the Company and above the top end of our 27 - 29 mmboe guidance range.

The PNG LNG Project produced at an annualised rate of approximately 7.6 MTPA during the quarter, up from 7.4 MTPA in the third quarter and 10% higher than the nameplate capacity of 6.9 MTPA. The high performance and reliability seen to date from all components of the PNG LNG Project infrastructure augurs well for 2016 and is enabling the co-venturers to derive significant additional value from the existing installed capacity.

Despite the present oil price weakness, the PNG LNG Project co-venturers remain committed to pursuing PNG LNG Project expansion activities, as maximising production through the existing trains and the construction of a potential third train continues to offer attractive returns. Material progress is also being made on the Papua LNG Project, which is regarded by the participants and a range of independent experts as one of the most competitive greenfield LNG projects in the world.

Oil Search is in the very fortunate position of having a range of producing assets with low operating costs and small sustaining capital requirements. Based on the current cost structure, the Company would generate positive operating cash flow even if oil prices fell to US$20/barrel. A number of changes were made to the Company's organisational structure, offices and internal processes in 2015, to improve efficiencies and reduce costs. In addition, almost all third party contracts have already been renegotiated or are being reviewed, in line with reduced forward work programmes and current market conditions. Given the recent further sharp decline in oil prices, we are using the information gained through the 2015 Business Optimisation Programme to actively prioritise further cost reduction opportunities across our business. Our

overall strategy, however, remains unchanged, with a strong focus on PNG, where we have a major competitive advantage, and on our high-value growth projects.

The recent successful refinancing of the Company's two US$125 million credit facilities demonstrates that the banking community is willing to back well-positioned energy companies, notwithstanding the negative oil price sentiment. With liquidity of US$1.66 billion, including cash of more than US$900 million, we are very well placed to fund all our commitments during 2016 and beyond."

Withdrawal of Woodside's non-binding, conditional indicative proposal

"In December, Woodside withdrew its non-binding, conditional, indicative all-scrip proposal to acquire all the shares in Oil Search for a consideration of one Woodside share for every four Oil Search shares held.

As previously highlighted, the Oil Search Board unanimously rejected the approach in September 2015 on the grounds that the proposal was highly opportunistic, grossly undervalued the Company, diluted the growth profile available to Oil Search shareholders and provided very few synergies, given there is no asset overlap.

Oil Search is committed to acting in the best interests of its shareholders and remains focused on delivering value by continuing to produce from its top tier PNG assets and progressing the development of our world class growth projects."

PNG LNG Project expansion activities

"Engagement with the PNG Government on the award of a PDL over the P'nyang gas field continued through the fourth quarter, with Government and the PRL 3/PNG LNG Project joint ventures having already delivered on early commitments made under the Memorandum of Understanding signed in January 2015. The intention is to integrate P'nyang into the PNG LNG Project once the PDL is awarded, to provide gas to support the proven additional production capacity within the foundation project, domestic gas and a potential third train.

During the quarter, the PNG Government, supported by the PRL 3 joint venture, continued planning landowner development forums, which are part of the PDL award process. With logistics assistance from the PRL 3 joint venture, the DPE continued fieldwork to identify project landowners and held information sessions in villages in the Project area. Additional village-based information sessions, building on the Ministerial determination of eligible P'nyang Gas Field Clans and Villages, are expected to take place in the first half of 2016, in advance of landowner development forums.

Preparatory works for P'nyang drilling, including field survey work, also continued, with the P'nyang South 2 well targeted to spud in the second half of 2016. To take advantage of logistic and cost synergies, drilling of the Muruk 1 exploration well in PPL 402 has been accelerated to the first half of 2016. The highly regarded Muruk prospect, which is scheduled to commence drilling late in the first quarter, is also a potential source of gas for future expansion of the PNG LNG Project."

Papua LNG (Elk-Antelope) development activities

"Appraisal of the Elk-Antelope field was ongoing during the quarter, with continued positive results. Log interpretations from the Antelope 4 ST1 well, which was completed during the quarter, confirm that a thick, high quality dolomite reservoir extends into the southern part of the field. The Antelope 6 well, which is designed to provide structural control and reservoir definition on the eastern flank of the field, spudded in

December and is currently drilling ahead. The well is expected to reach total depth during the first quarter of 2016. A long-term production test of the Antelope 5 well and a sampling programme is also underway. The test, comprising flow testing of the Antelope 5 well with observation of pressure movements at Antelope 1, is designed to further demonstrate the productivity and connectivity of the reservoir.

Completion of the appraisal programme, which may include a further appraisal well, Antelope 7, will enable the selection of the final development concept and confirmation of whether the resource can support one or two trains. In parallel, a comprehensive work programme including environmental and societal studies, surveys, subsurface and engineering studies, as well as work on marketing and project financing options, is being undertaken.

Preparations for independent gas certification are underway, as required under the sales and purchase agreement between Oil Search and Pacific LNG. Two certifiers, Gaffney Cline and Associates and Netherland Sewell and Associates, have been engaged, with results of the certification expected to be known early in the third quarter of 2016."

Power in PNG

"In December, Oil Search announced that it had signed two Power Purchase Agreements (PPAs) with Government-owned PNG Power Limited, as part of a multi-phase, long-term plan to help develop PNG's power sector.

Under the PNG Biomass PPA, PNG Biomass Independent Power Producer (IPP) (Oil Search - 70%, Aligned Energy 30%) will use wood chips from new plantation trees, sustainably grown and harvested in the Markham Valley, to provide up to 30MW of low cost, reliable baseload biomass power for the Lae region. The Highlands PPA covers the construction by Highlands IPP (Oil Search - 100%) of an initial 2 MW gas- fired pilot power project located near Hides in the Hela Province, with potential to ramp up to 5 MW in the short-term and up to 65 MW by 2030. Subject to the execution of a binding gas supply agreement, Highlands IPP will source gas from the Hides gas field and provide cost-effective baseload, peaking and backup power, primarily for households and social infrastructure in the Hela and Southern Highlands Provinces.

Oil Search has identified that providing PNG businesses and households with access to affordable power supplies is a high political and social priority in PNG and the Company's involvement is part of its programme to mitigate operating risk by giving back to the community."

2015 fourth quarter production and revenue performance

"Production net to Oil Search in the fourth quarter of 2015 was 7.51 mmboe, compared to 7.42 mmboe in the third quarter. During the period, an extended high rate production test took place at the PNG LNG Project, which was very successful, reflecting excellent gas deliverability from the upstream facilities combined with a high level of uptime from the LNG trains. The Oil Search-operated oil fields continued their strong contribution to the PNG LNG Project, delivering an average of 117 mmscf/day of gas to the LNG feedstock over 2015.

24 LNG cargoes were sold during the period, 21 under long term contract and three on the spot market, with four cargoes on the water at year end. Eight cargoes of Kutubu Blend and two naphtha cargoes were also sold in the quarter. For the 2015 full year, 101 LNG cargoes were sold, of which nearly 80% were sold under long-term contract, with the ramp up of contract sales progressing in line with expectations. 10.5 mmboe of PNG LNG Project condensate were transported through the Oil Search operated liquids export system in 2015.