PETROMIN NEWS
Petromin Managing Directors Statement at the Petromin 2009 Annual General Meeting
Since inception the major thrust of our strategy has been to grow and transform the company into a mature and socially responsible national oil, gas and minerals company, a promise and commitment we made to our shareholders; the State and people of Papua New Guinea. For the 2009 financial year, we have been true to this strategy, and while we still have a long way to go, we are most certainly moving in the right direction as we continued to consolidate our administrative systems and pursued a structured and risk averse approach to making investment choices and decisions.
Delivering on Our Promises and Commitments
In order to deliver on our promises and commitments, we endeavored to focus on four fundamental aspects of our business during the year under review.
- We introduced a proactive process of Performance Management Contract at all levels of our organizational functional areas to ensure that agreed operational and administrative targets, based on our business strategy, were achieved on time and within budget.
- We focused on a sustainable resource development strategy in our mining operations where the emphasis was on cost management, increased production, increased infield, near mine and regional exploration and reviewing our total mineral resources in our Tolukuma mining asset in an effort to extend the life of mine as well as to increase our total resource base for a sustainable mining business.
- We worked closely with the State and Inter-Oil Corporation, the developer of the Elk/Antelope gas project to get the Project Agreement approved, paving the way for the construction of pipeline and liquefaction infrastructure for Papua New Guinea’s second LNG project. By securing 20.5 % of the States’ back-in right in this multi-billion dollar investment, significantly increases the future worth of Petromin’s Balance Sheet.
- We focused on capital acquisitions and liquidity management, thus increasing the net worth of the Company’s Balance Sheet by 29 percent.
Production and Financial Results
Gold production increased by 33 percent. With increased gold prices, our only operating mining asset, Tolukuma Gold Mine recorded an increase in income of K54, 080,000. This was about 52.5 percent increased from 2008. The turn around from a loss situation in 2008 to a profit of K68, 588, 000 in 2009 was attributed, apart from the favorable gold prices, to the level of efficiency achieved through our mine assessment and re-development strategy. While this is the most pleasing and exciting result for us as we have been the operator of the mine for under 24 months at end of December 2009, a lot more has to be done in the short to medium term to ensure that the cost per ounce is reduced from its current levels to more manageable levels.
Our share of production in our Moran oil asset was 577,472 barrels for the period. Due to reduced oil prices compared to the previous year, oil revenues for the period under review declined by 44 percent. The total income for the period was K103,832,250.00.
This loss however, was compensated by a profit of K68,588,000 from our mining income and the Group recorded a net profit of K78.2 million a decrease of 16 percent when compared to the 2008 net profit of K93.3 million. The decrease was largely due to lower oil prices in 2009, an increase in income taxes as excessive capital and exploration expenses were written back in and also an increase in Petromin’s investment activities.
Sustainable Resource Development
The 2009 drilling program was focused on increasing the inferred resource of 35,000 oz estimated by Emperor at Saki as part of our continued efforts for achieving sustainable resource development. These efforts will continue in 2010 using ground geophysics (IP) and second phase of deep drilling at Saki.
On the Tolukuma Gold Mine, resource drilling continued with both the underground and surface drill rigs. The December 2009 resource stood at a total 779,000 ounces of gold (including both indicated and inferred) at a grade of 22 grams per tone. This was an increase over the previous resource estimates.
Safety and the Environment
Petromin aspire to be an environment friendly participant in the mining and petroleum industry. Management is determined to ensure that our operations are within approved national environment standards. Consistent with this desire, we engaged independent consultants to carry out health, water and soil as well as flora and fauna studies in the Angabanga River in the year under review. The studies have been completed and were awaiting peer reviews at end of December, before the results are made available to the stakeholders who are largely river community dwellers.
Looking Ahead
The path ahead in both the short and medium term is both exciting and challenging for the Company as well as our shareholders. Movements in the oil and gas market will continue impact on our business and we have to be prepared operationally, financially, administratively as well as through a prioritized and risk averse investment strategy.
Operations
We will continue to work with our partners in both the PNG LNG project and the Elk/Antelope LNG project to commercialize them in the projected time line. As regard to our oil asset, production at Moran is expected to decline in 2010 as the well move towards depletion in 2020.
Condensate production from the Elk/Antelope project should be commercialized in early 2013 and FID on this component of the project is expected in fourth quarter of 2010. This early revenue from the Elk/Antelope project should compensate for any loss in the oil revenue from our Moran asset and should also contribute towards construction cost of the Elk/Antelope LNG project.
Annual gold production at our Tolukuma mine in 2010 should be the same as 2009 with a result above 50,000 ounces. Underground production will remain the primary source of mill feed. Open pit operations are expected to make a significant contribution in the 2nd half of 2010.
Financial Performance
Management will continue the strategy of prudent financial management through our risk management policy. The financing of the Elk/Antelope LNG project as well as the PNG LNG project may incur new debt to Petromin and the Group. Such new debt will be managed within the parameters of our debt management strategy where the emphasis is to minimize or avoid as much as possible debt financing.
Growth and diversification
As the Company is going through a natural growth pattern in our organization life, we intend to seek out new opportunities and consolidate on our existing businesses. Efforts will continue to redevelop our Tolukuma mine to be a sustainable operation, including construction of a road linking the mine to Port Moresby.
Management has commenced the process of our diversification strategy which includes investing in the whole chain of our core business as well as in generic activities, such as LNG shipping, petrochemical and power generation. In addition management will identify opportunities in 2010 to implement the Board approved Socially Responsible Investment Strategy. The strategy aims to invest some portion of the revenue from our core business into sustainable investments, including tourism infrastructure.
Joshua R. Kalinoe, CSM, CBE
Port Moresby
Friday, 18th June 2010