The Oil Search Ltd [ASX:OSH] share price is up close to 1% today after the company said their Pikka Oil Project in Alaska is in the Front-End Engineering Design (FEED) stage.
What’s the plan for the Pikka Oil Project?
Pikka is part of the Alaskan North Slope, a project Oil Search got a hold of in 2018. The first phase of the project is set to include a drill site and a production facility with a capacity of 80,000 barrels of oil per day.
The whole of Phase 1 is expected to cost around US$3 billion and the company says they have gotten some savings by using a ‘standardised modular process facility design and off-the-shelf equipment.’
Oil Search expects to start production in 2025, and that the project will break even at less than US$40 a barrel for Brent crude inclusive of a 10% return.
According to the company, the project is close to existing infrastructure and its emissions will be 75% less than North Slope’s operations.
Keiran Wulff, Oil Search’s Managing Director, said:
‘This is a key milestone toward realising material value from our Alaska assets and creating long term benefits for the North Slope community and jobs for Alaskans. The team has already done a tremendous amount of work to deliver a project concept that is cost effective over a wide range of oil prices.’
Oil Search owns 51% of Pikka and Repsol owns the other 49%. Oil Search has said they are looking to sell 15% of their interest to fund the project. As Wulff continued:
‘We recognise the importance of a successful sell down of a 15% interest in the Pikka development area and on securing project level financing to fund at least 50% of the initial Phase 1 project costs. These two activities are a critical part of our capital management strategy which, combined with a strengthening energy demand outlook for projects with low break evens and low emissions intensity, will provide confidence in our ability to make a final investment decision later this year.’
What could happen next to the Oil Search Share Price?
At time of writing, the company’s shares are trading at $4.08, up from yesterday’s close at $4.05.
Oil prices collapsed last year when demand collapsed in the pandemic. So did the Oil Search share price, which fell from around $7 down to $1.81 and has yet to recover to those levels.
Brent prices have picked up by 23% in 2021, after Saudi Arabia cut production. Yet Oil Search shares haven’t so far followed oil prices with their OSH share price up only about 9% for the year.
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