Oil Search Share Price Up on Pikka Oil Project (ASX:OSH)

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.

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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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 Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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