UPDATE 1-Oil Search steps up spending for next leg of growth
Core profit slides to $106.6 mln, matches consensus
* 2017 capital spending to jump as high as $460 mln
* ExxonMobil, Total's plans key for Oil Search
MELBOURNE, Feb 21 (Reuters) - Australia's Oil Search Ltd (OSH.AX) said it will boost capital spending this year to help expand output in Papua New Guinea in coming years, despite reporting a 70 percent drop in annual core profit on weak oil and gas prices.
The PNG-focused oil and gas firm is pushing global giants ExxonMobil Corp (XOM.N) and France's Total SA (TOTF.PA) , its partners in two rival projects, to work together to expand liquefied natural gas (LNG) exports from the country.
While slumping LNG prices due to a flood of new supply have forced several proposed projects to be shelved, projects in PNG are still seen as promising, thanks to the quality of the gas, low costs and proximity to big buyers in Asia.
Oil Search Managing Director Peter Botten said on Tuesday a recent rebound in Asian LNG prices, which more than doubled to $9.75 per million BTUs between April and January, was unlikely to last, but saw the market improving within a few years.
"While we expect spot LNG prices to soften from current levels through 2017, the long-term LNG market fundamentals remain strong, with major Asian buyers expected to have substantial new LNG requirements early next decade," he said in a statement.
Oil Search plans to roughly double capital spending this year to between $360 million and $460 million, particularly on work to understand a new find, Muruk, in the highlands of PNG, which could provide a cheap source of gas to expand PNG LNG.
The Muruk partners, ExxonMobil, Oil Search and Santos Ltd (STO.AX) , believe the field could hold between 1 trillion and 3 trillion cubic feet of gas, which would be on top of a recent 25 percent increase in the resource estimate for the PNG LNG fields to 11.5 trillion cubic feet.
Oil Search is also a partner in the Papua LNG project, run by Total, which is looking to develop the Elk-Antelope gas fields. Oil Search believes billions of dollars could be saved if those fields are used to help expand the PNG LNG project, rather than building a completely new LNG plant.
ExxonMobil will also become a partner in Papua LNG, once it completes its delayed takeover of InterOil.
Oil Search's net profit before one-offs fell to $106.7 million for 2016 from $359.9 million a year earlier, as average liquefied natural gas (LNG) prices dropped by a third and oil prices slid 12 percent. The result matched analysts' forecasts of $107.9 million, according to Thomson Reuters I/B/E/S.
The firm cut its full year dividend to 3.5 cents a share from 10 cents, slightly ahead of analysts' forecasts at 3 cents.
Oil Search expects to produce between 28.5 million and 30.5 million barrels of oil equivalent in 2017, flat to slightly weaker than last year's record output.
