Oil Search Limited (ASX: OSH) shareholders haven't had the best of years. The Oil Search share price has been pummelled by falling energy prices as COVID-19 ushered in a big drop in demand for oil and gas.
From its 2020 high on 15 January until the low on 23 March, the Oil Search share price crashed 76%. Although it's come roaring back from that low, up 75%, the share price is still down 58% from its 2020 peak.
At time of writing, the share price is down 0.8% in intraday trading. A fairly muted reaction in light of the latest sabre rattling from Papua New Guinea's prime minister.
Image source: Getty Images
What does Oil Search do?
Oil Search was established in Papua New Guinea in 1929 and began trading on the ASX in 1999. The company operates all of PNG's oil fields. It owns 29% of the ExxonMobil-operated PNG LNG Project, a major exporter to Asian markets. The company also holds interests in the Elk-Antelope and P'nyang gas fields.
The company is part of the S&P/ASX 200 Index (ASX: XJO).
How is PNG's prime minister impacting the Oil Search share price?
As a company that holds all of its oil and gas fields in PNG, Oil Search's share price depends on a good relationship with the local government just as much as it depends on a profitable price for oil and LNG.
And in a statement to parliament yesterday, Prime Minister James Marape threw down the gauntlet to international energy and mining companies, demanding a larger share of the resources they extract from PNG.
According to Bloomberg,
Marape said that the state must take a 60% to 65% share of revenue from future projects, up from just 40% on recent petroleum ventures. His government also wants to see the financial benefits flow through to the state coffers quicker, and for developers to commit to using local labor, goods and services in their operations wherever possible…
PNG "has been unfairly held to ransom" by Exxon and its partner Oil Search Ltd., Marape said.
Exxon stated that negotiations were ongoing and it was hopeful for a positive outcome, while Oil Search has not yet commented on the latest developments.
Although I believe the Oil Search share price represents good long-term value at its current price of $3.22 per share, the situation in PNG is a good reminder for investors to take sovereign risk into account when investing in shares operating internationally.
