In the company’s quarterly report, managing director Peter Botten said that during the period a large amount of management time was spent reviewing the best way to develop Oil Search’s large PNG gas resources.

And one of those ways involved the PNG pipeline.

“Oil Search, in conjunction with AGL and other partners, continued to pursue the PNG Gas Project, which despite the set-backs experienced appears to economically viable, even after changes to the planned pipeline route, markets and capital costs,” Botten said.

“Interest remains strong from a range of customers in Australia in buying PNG gas, particularly given that there are indications that without PNG gas, gas prices in the eastern seaboard are likely to rise.”

He said expressions of interest were sought for a new participant to to build, own and operate the Australian leg of the pipeline, replacing the AGL/Petronas joint venture.

“A positive response was received and work is now taking place to assess the submissions,” Botten said.

One potential candidate could be Australian Pipeline Trust, whose managing director three months ago said the company “wanted to be a key player” in the project.

“We do definitely want to see PNG come into South East Australian markets and we want to play a role,” Mick McCormack said at the time.

During the December quarter, Oil Search reports it achieved sales revenue of $US171.3 million ($A221.7 million), 19% higher than the previous three months.

This result brought total 2006 revenue to $US628.2 million, a 2% drop on the record level achieved in 2005.

Oil and gas production during the quarter was 2.65 million barrels of oil equivalent net to the company, 14% higher than the third quarter, but down from 3.39MMboe in the corresponding quarter of 2005.

Botten said sharp decline in production was due to reduced field interests following the sale of assets to AGL Energy Ltd at the beginning of the year, several weather-related operational incidents, and a production adjustment following the establishment of the Greater Moran Unit, which includes NW Moran.

“Despite the production interruptions, gross production rates from the PNG fields rose by 4% in 2006, attesting to the remaining potential of these mature assets,” Botten said.

“The major upwards driver for revenues in 2006 was higher oil prices, with strong market demand for PNG’s light sweet crude resulting in Oil Search realising a premium to the Tapis oil price, the Kutubu benchmark crude.”

Botten said this premium had increased since Oil Search took over the marketing of its own crude in the final quarter of 2006, allowing the company to post only a small drop in sales revenue despite the sizeable fall in production.