"A positive decision to enter FEED (for the PNG liquefied natural gas project) will mark the start of a major long term growth path while the strategic review will set new objectives and establish programmes to deliver maximum shareholder value in the short-medium term, prior to the commencement of gas cash flows," he said.

He added that all PNG LNG participants, especially operator ExxonMobil and the PNG Government, had shown strong commitment to finalise the fiscal terms and other regulatory issues before the expected decision to enter FEED before the end of the current quarter.

"In parallel with the LNG development, Oil Search continues to review other complementary gas options for developing its remaining gas, with the PNG LNG Project only using some 60% of Oil Search's existing proven and probable resource," Botten said.

"At present preliminary economics suggest that, assuming the first phase of LNG construction proceeds, expansion via additional LNG trains is by far the most value accretive way of commercialising Oil Search's remaining gas resource.

"Nonetheless, discussions remain ongoing with proponents eager to develop a petrochemical industry in Port Moresby and with other potential users of gas."

Botten also touched on the upcoming completion of Oil Search's strategic review, which started in the middle of last year utilising both personnel from within the company and external expertise.

"The review has identified ways of optimising our PNG and MENA (Middle East and North Africa) licence portfolios, by concentrating our focus on material assets that have the potential to meaningfully add value to the company as the gas portfolio value increases."

Meanwhile, Oil Search said its 2007 net profit was down from the $207.5 million it posted in 2006 due to higher depreciation and amortisation, an increase in exploration expense as well as an increase in the effective tax rate due to the non tax deductibility of its Middle East exploration expenses.

"The company spent $222 million on exploration and new venture evaluation in 2007 ($121 million in 2006), of which $173 million was in PNG and $49 million in the Middle East," Botten said.

"In line with the successful effort's accounting policy, all costs associated with unsuccessful drilling, seismic work and other related works were expenses, resulting in a charge of $163 million, compared to $47 million in 2006."

Botten added the company's activities in its MENA licences also drove its effective tax rate up from about 50% to 56%.

However, earnings before interest, tax, depreciation, amortisation and exploration (EBITDAX) were up 10% to $598.2 million on record revenue of $718.8 million.

This was driven by increased oil prices with the company realising an average price of $77.78 per barrel, up 16% from 2006.

Oil Search added that despite limited development drilling activity and an extended shut-in at the NW Moran field during 2007, production was down by just 4% to 9.8 million barrels of oil equivalent (MMboe) due to the continued success of its field management programs.

Botten noted the company's production in 2008 was subject to the results and timing of its development drilling program and is currently expected to be between 9-9.5MMboe.

"During 2008, Oil Search expects to drill five development wells and undertake five work-overs on Kutubu-Usano and three development wells and one work-over on the Moran field," he added.

"This should result in production from these fields gradually increasing over the year, as the wells are progressively brought on-stream. This is expected to offset declining production from the Gobe and SE Mananda fields."

Oil Search is also drilling two exploration wells in PNG and is scheduled to drill a third, Wasuma, in late 2008 or early 2009.

"The Middle East exploration programme during 2008 will include extensive seismic in Blocks 3 and 7 in Yemen and Oil Search's first well in Block 18 offshore Libya, all of which are highly prospective areas," Botten said.

He added that Oil Search expects to spend $130-140 million on exploration this year, down 35-40% from 2007.

Oil Search also reported that an audit by independent expert Netherland Sewell and Associates had placed the company's proved reserves at 52.6MMboe while proved and probable reserves were 73.5MMboe.

"In addition, the company had a resource inventory of 952MMboe of gas and associated liquids, taking total 2P reserves and resources to 1025.5MMboe," Botten added.