Papua New Guinea is well known for a rich variety of striking masks. They often incorporate clan spirits or totems, such as a pig, cassowary or

TRANSPARENCY REPORT 2013

Papua New Guinea is well known for a rich variety of striking masks. They often incorporate clan spirits or totems, such as a pig, cassowary or crocodile. Few masks in Papua New Guinea are worn directly over the face, rather they are attached to dance costumes or displayed, often in the men s house, to attract powerful spirits.

TRANSFORMATION 1

2 Oil Search TRANSPARENCY Report 2013

a year of TRANSFORMATION Successful completion of the US$19 billion PNG LNG Project in 2014 will see Oil Search transform into a significant LNG exporter. With a major new revenue stream and material expansion opportunities on the horizon, our aim is to deliver both growth and higher dividends to shareholders, ensuring continued top quartile RETURNS in the years ahead. 4 Letter from the Chief Financial Officer 6 Papua New Guinea 8 Middle East & North Africa (MENA) 10 Basis of Preparation 12 Glossary 3

Letter from the chief financial officer Our second annual Transparency Report brings together information on payments the Company makes to governments in the countries in which we operate. It is an important part of Oil Search s commitment to transparency and combatting corruption and the Company will continue to release this information annually. Around the world, stakeholder interest in payments made by large companies to Governments is increasing. Recent international developments have included the 2010 Dodd-Frank Act in the US a comprehensive set of financial regulation reforms and a European Union directive in June 2013 requiring disclosure from mid-2015 of payments of over 100,000 euros to governments for all extractive and logging activities. Oil Search believes that increased transparency around government payments helps address corruption. Publishing this information helps citizens hold their governments accountable to ensure public monies are being spent appropriately for the sustainable development and future prosperity of their countries and communities. As one of Papua New Guinea s (PNG) largest companies and tax payers, Oil Search generates significant revenue for the PNG Government. Further information on Oil Search s activities and how we monitor our impact in PNG can be found in the 2013 Oil Search PNG Perspective In-Country Sustainability Report at http://www.oilsearch.com/sustainability/sustainability-reporting.html 4 Oil Search TRANSPARENCY Report 2013

Oil Search supports the goals of the Extractive Industries Transparency Initiative (EITI) and became an EITI Supporting Company in January 2013. The Company is working with the PNG Government, civil society and industry peers to formally adopt and implement EITI in PNG. In November 2013, Oil Search became one of six extractive industries representatives on PNG s first formal EITI Multi-Stakeholder Group (MSG) after several years of active participation in the informal MSG. US$249.1M Paid by Oil Search to the PNG, Kurdish, YemenI and Tunisian Governments in 2013 as royalties, taxes, dividends, levies and other fees and charges. In mid-2013, the EITI released an updated standard that expanded contextual reporting requirements. EITI-compliant countries must now include disclosures on their oil and gas regime, licences and agreements. To support this expanded scope, Oil Search has voluntarily adopted a viable company reporting model based on the new requirements. To encourage adoption of the principles of EITI by other extractive companies, during the year we continued to push for the creation of an aggregated industry payments report for PNG. This work will now continue through the PNG MSG forum. Oil Search has activities in two EITI-compliant countries: Yemen and Iraq. This year the Company provided 2011 payment data for inclusion in the Yemeni Government s EITI submission. Although Oil Search s activities in the Kurdistan Region of Iraq are currently in the exploration phase and data on our payments to Government has not yet been requested, these payments are included in this report. Oil Search is committed to improving disclosures around payments and welcomes feedback on this Transparency Report. STEPHEN GARDINER chief financial officer 5

PAPUA NEW GUINEA Extractive industries make a major economic contribution to the PNG economy. According to the PNG Chamber of Mines and Petroleum, the petroleum and mining sectors contribute over one third of the PNG Government s tax revenue as well as significant amounts in salary and wages tax, duties, levies, dividends to provincial Governments and land owners and infrastructure projects through the Tax Credit Scheme 1. The fiscal regime in PNG applying to the petroleum and gas industry consists of a combination of corporate income tax, royalties, development levies and development incentives. It is governed by the Oil and Gas Act (1998) and the Income Tax Act (1959). The Oil and Gas Act (1998) gives the PNG Government the option of participating in petroleum projects to a maximum 22.5% interest, 2% of which must be granted to project area land owners. The application of the fiscal regime to particular projects in the oil and gas industry is governed by the terms of petroleum or gas agreements between the PNG Government and developers. Companies such as Oil Search are granted a licence to explore, develop and export hydrocarbon that is found within the country. The Government earns revenue through taxes, royalties and levies raised from this resource development. The Oil and Gas Act (1998) is administered by the Department of Petroleum and Energy (DPE), which maintains a public register of licences in their offices in Port Moresby. 2 In October 2012, Oil Search was granted exploration licence PPL385. This licence covered an area which was previously held by Oil Search under a separate licence. In 2013, Oil Search applied for PRL 8, 9 and 10 to be extended for a third five-year period these have not yet been awarded. With ExxonMobil PNG Limited Oil Search applied, not as operator, for new exploration licences over relinquished parts of PRL2 and PRL11 and an area to the south west of PRL3. The PRL2 application was unsuccessful whilst those over relinquished portions of PRL11 and the area to the south west of PRL3, are still in play. In February 2014, Oil Search acquired a 22.835% interest in PRL15. Located in the onshore Papuan Basin, the licence contains the Elk/Antelope gas discoveries, the largest undeveloped gas resources in PNG. 63.4 5.7 MMBBLS oil produced in 2013 5,513 MMSCF gas produced in 2013 10.9 7.9 29.3 242.5 131 PAYMENTS TO PNG GOVERNMENT BY TYPE (US$ MILLION) PETROLEUM TAX ALL OTHER TAXES FEES AND CHARGES SHARE DIVIDENDS ROYALTIES AND DEVELOPMENT LEVIES For a full summary of Oil Search s current licence holdings, visit www.oilsearch.com/licencemap Over the past two years, Oil Search has helped to promote the adoption of the EITI by the PNG Government. In November 2013, an agreement was reached between the PNG Government and various civil society and industry representatives to create a formal EITI Multi-Stakeholder Group (MSG). Oil Search is one of six extractive representatives on the MSG and in 2014 will provide input into the MSG work plan. (1) http://pngchamberminpet.com.pg/industry-contribution/ (2) Department of Petroleum and Energy, Elanse St, Newtown, Port Moresby. 6 Oil Search TRANSPARENCY Report 2013

Payments to the PNG Government Oil Search Group 2013 US$ 000 2012 US$ 000 2011 US$ 000 Petroleum tax 130,958 201,718 166,852 Oil Search share dividends 7,864 7,864 7,864 Oil Search Directors tax 820 600 948 Total 139,642 210,182 175,664 Oil Search (PNG) Limited 2013 2012 2011 Royalties 22,458 24,563 25,472 Development levies 6,898 11,117 8,236 Salary and wages tax 31,887 31,952 31,792 Other Gov t taxes 30,716 21,592 18,547 Other Gov t fees and charges 10,867 9,601 786 Total 102,826 98,825 84,833 For further information on the methodology and scope used for each payment stream, go to the Basis of Preparation section on p 10. 7

middle east & north africa (MENA) Yemen In Yemen, the Ministry of Oil and Minerals (MOM) regulates the petroleum industry while the Petroleum Exploration and Production Authority grants rights and licences. There is no specific law governing the oil and gas industry in Yemen, so the industry is subject to laws that contain general principles only. The detail for each project is contained in its specific production sharing agreement. The EITI Board suspended Yemen on 26 February 2013 due to delays in meeting reporting requirements. The Board lifted its suspension during the year once Yemen EITI brought its published data up to date in June 2013. Despite Oil Search s assets in Yemen remaining in a state of force majeure in 2013, the Company provided its payments data for inclusion in Yemen s 2011 EITI report, which was due to be released in December 2013. All payments made by Oil Search to the Yemen MOM are disclosed in the Yemen table on p 9. In 2012, US$3.1 million of tax was included, relating to the sale of the Company s Block 3 interest. Kurdistan Region of Iraq The Kurdistan Regional Government (KRG) offers a Production Sharing Contract (PSC) arrangement to oil companies, including Oil Search. The Kurdish Oil and Gas Law (2007) establishes the directives by which oil and gas operations in Kurdistan are administered the model PSC follows these directives. The Kurdish Ministry of Natural Resources administers the law under the supervision of the KRG s Regional Council for Oil and Gas. In early 2012, Oil Search applied for a new PSC over the Shakal block, in which Oil Search had been a participant in a previous PSC. Unfortunately, Oil Search and its co-applicants were unsuccessful on this occasion and the block was subsequently awarded to another operator. Also during 2012, Oil Search elected to enter the second period (two years) on the Taza PSC, committing Oil Search to another well. The Kurdish Ministry of Natural Resources maintains a register online of PSCs that are publicly available. To view a copy of Oil Search s Taza PSC, go to: www.krg.org/p/p.aspx?l=12&r=296&h=1&s=030000&p=167. Iraq has been an EITI compliant country since 2012. However, payments made to the KRG were not included in the country s latest EITI report, which relates to 2011. All payments made by Oil Search to the KRG are disclosed in the Kurdistan Region of Iraq table on p 9. In 2011, the Company was required by our PSC to pay a US$40 million capacity building bonus, which was to be used by the KRG for local community development projects. Tunisia In mid-2012, Tunisia s Prime Minister announced Tunisia s intention to implement the EITI, however, Tunisia is not yet a compliant country. Positive steps taken by the Government towards greater transparency include the creation in early 2013 of a joint Government and civil society committee on public finance transparency, chaired by the Minister of Finance. Although Oil Search s Government payments in Tunisia were not material, they have been disclosed in the Tunisia table on p 9. For a full summary of Oil Search s current licence holdings, go to: www.oilsearch.com/licencemap 8 Oil Search TRANSPARENCY Report 2013

Payments to Governments Yemen Total payments to Ministry of Oil and Minerals (MOM) Total payments to Yemen Ministry of Finance and Social Security Organisation 2013 US$ 000 2012 US$ 000 2011 US$ 000 250 3,594 950 274 n/a n/a Total 524 3,594 950 Kurdistan Region of Iraq 2013 2012 2011 Total payments to KRG Ministry of Natural Resources Total payments to KRG Ministry of Finance and Economy 5,416 5,416 40,414 79 n/a n/a Total 5,495 5,416 40,414 Tunisia 2013 2012 2011 Total payments to ETAP (State Oil Company) 113 100 100 Total payments to Ministry of Finance 515 n/a n/a Total 628 100 100 n/a: This is a new indicator therefore data is not available for prior years. For further information on the methodology and scope used for each payment stream, go to the Basis of Preparation section on p 10. Photo: MegAn christensen 9

basis of preparation Scope This Transparency Report includes all payments made to Governments in the year ending 31 December 2013 by: Oil Search (PNG) Limited in its capacity as the Operator of oil licences in PNG covering all phases of exploration, development and production. Oil Search (PNG) Limited in its capacity as the Operator of components of the PNG LNG Project. Oil Search Limited and Oil Search (PNG) Limited, in respect of net payments, such as Directors tax and Petroleum income tax. Oil Search (Iraq) Limited, Oil Search (ROY) Limited and Oil Search (Tunisia) Limited, all currently in the exploration phase in countries in the Middle East and North Africa (MENA). Reporting currency All payment figures are reported in US dollars (US$). Payments in other currencies have been converted into US$ at either the exchange rate on the day of payment, if applicable, or using the following average annual conversion rates: 2011 PGK 1 = US$ 0.42 2012 PGK 1 = US$ 0.50 2013 PGK1 = US$ 0.45 Reporting basis Both gross and net figures are reported. Gross payments: Payments made by Oil Search on behalf of all licence joint venture partners. Net payments: Payments made by Oil Search which represent Oil Search s share only based on equity, profit or other costs relating to paying interests in production sharing contracts. All numbers are aggregated payments across all project licences where the payment stream applies. Actual cash outflows made in each calendar year are shown. Materiality No materiality threshold has been set for payment streams. Significant payment streams have been identified and are reported individually, while smaller payments streams have been aggregated into common generic payment streams for the purposes of reporting. Papua New Guinea Payment stream name Recipient Scope and methodology Petroleum Tax PNG Internal Revenue Commission Net, at rates set out in the applicable legislation and regulations. Oil Search share dividend PNG Independent Public Business Corporation (IPBC) Net, at rates per share declared by the Board of Directors. The Government of Papua New Guinea has a 15% shareholding in Oil Search Limited. Oil Search Directors tax PNG Internal Revenue Commission Net, calculated on personal income tax provisions applicable to each Board Director fee. Royalties Independent State of PNG Gross, calculated at a rate of 2% of the well head value of oil or gas exported. Development levies Independent State of PNG Gross, calculated at 2% of the well head value of the petroleum produced. 10 Oil Search TRANSPARENCY Report 2013

Payment stream name Recipient Scope and methodology Salary and Wages Tax PNG Internal Revenue Commission Gross, calculated on personal income tax provisions for each employee in PNG, including Short-Term Incentives, Long-Term Incentives and retention payments. Other Gov t taxes PNG Internal Revenue Commission Gross, includes excise duty, foreign contractor s withholding tax, Goods & Services Tax, interest withholding tax, stamp duties. Other Gov t fees & charges Multiple PNG Government Departments Gross, includes Department of Petroleum and Energy (DPE) licence fees, data request fees, environmental water and waste permits, in-house customs agency fees, manufacturer licence, PNG passports and visas, PNG work permit fees, telecommunication licences and drivers licences. Middle East & North Africa yemen Total payments to Ministry of Oil and Minerals Total payments to Yemen Ministry of Finance and Social Security Organisation Scope and methodology Net, calculated based on the requirements of the Block 3 and Block 7 production sharing contracts. Total payments include fixed tax paid, a Training Bonus, Institution Bonus, Social Development Bonus, Research and Development Contribution and the Databank Development Contribution. Gross, including payroll tax withheld and social security. Kurdistan Region of Iraq Total payments to Kurdistan Ministry of Natural Resources KRG Ministry of Finance and Economy Scope and methodology Net, includes Capacity Building Bonus, Community Development Payments and contributions to the Environment Fund, Personnel Fund and Other Training Bonus which relate to the Taza PSC. Gross, including payroll tax withheld and social security. Tunisia Total payments to ETAP (State Oil Company) Total payments to Tunisian Ministry of Finance Scope and methodology Gross, includes Training Bonus and is calculated based on the Tajerouine PSC. Gross, includes payroll tax withheld and social security. 11

GLOSSARY Capacity Building Bonus One-off payment made on entering into the production sharing contract for the Kurdistan Government to use in consultation with the Local Steering Committee for local community development projects, including projects for communities living in or near the area of operation. Community Development Payment Compulsory annual payments to the Kurdistan Government to use in consultation with the Local Steering Committee for local community development projects, including projects for communities living in or near the area of operation. Development levies These levies are paid 12 months in arrears and are redistributed to affected PNG provincial Governments and local level Governments for community infrastructure projects. Under the Oil & Gas Act (1998), petroleum projects that started after the passing of this Act such as the Moran project require the operator to pay this benefit. Extractive Industries Transparency Initiative (EITI) The Extractive Industries Transparency Initiative is a coalition of Governments, companies and civil society organisations working together to put in place a reporting standard specific to each country. Force majeure A clause in contracts releasing all parties from liabilities in instances of unavoidable events beyond their control, including wars and natural disasters. Gross payments Payments made by Oil Search as operator on behalf of all oil licence joint venture partners. Net payments Payments made by Oil Search which represent Oil Search s share only, based on equity, profit or other costs relating to paying interests in production sharing contracts. PNG Independent Public Business Corporation (IPBC) An independent entity that holds the majority of state-owned commercial assets in trust and to manage those assets prudently to improve commercial performance and underpin economic development. PNG Tax Credit Scheme (TCS) The Tax Credit Scheme is a voluntary PNG national Government scheme under which an agreed percentage of gross assessable income is made available by the PNG Government to fund approved infrastructure projects delivered by Oil Search (PNG) Limited. Tax credit projects focus on building or upgrading infrastructure projects such as schools, aid posts and roads. Costs incurred by Oil Search (PNG) Limited in delivering these projects are credited back from the PNG Government on an annual basis against petroleum tax payments. Production Sharing Contract (PSC) An agreement between a company and a host country on the percentage of oil each party will receive after specified costs and expenses have been paid for. Also known as a Production Sharing Agreement. Production Sharing Agreement (PSA) See PSC. Royalties Royalties are redistributed by the PNG Department of Petroleum and Energy to impacted provincial and local level Governments and landowners based on each individual oil licence development agreement. 12 Oil Search TRANSPARENCY Report 2013

2 0 1 3 sustaina b ility reports TR ANSPARENC Y REPORT 2013 7669_OSH_Transparency_V7.indd 1 4/04/14 1:41 PM Transparency Report S U S TA I N A B I L I T Y R E P O R T 2 0 1 3 OS_Sustainability_Report_2013_V7.indd 1 4/04/14 1:40 PM Sustainability Report PNG PERSPECTIVE : 20 1 3 I N - CO U N T R Y S U S TA I N A B I L I T Y R E P O R T 2013 IN-K ANTRI SASTENABILITI RIPOT OSH7651_INCOUNTRY 2013 V8b.indd 1 4/04/14 1:43 PM PNG Perspective In-Country Report S U S TA I N A B I L I T Y D ATA B O O K 2 0 1 3 7649_OSH_2013 Databook_v8.indd 1 4/04/14 1:36 PM Sustainability Data Book Enquiries and feedback on this reporting and performance are welcome. Please contact the Oil Search Sustainability team on sustainability@oilsearch.com This report is printed on Maine Recycled. Maine Recycled is produced with a blend of 60% post consumer waste fibre and 40% FSC certified virgin fibre. Made with fibre derived only from sustainable sources and is produced with a low reliance on fossil fuel energy. Maine Recycled s low carbon footprint has been neutralised to zero from seedling to delivery at printer through the purchase of carbon offsets. This chosen offset project is the Kasigau Corridor REDD+ project in Kenya. A programme which makes a difference to not only the precious carbon sink but the local community and people who inhabit the land. Every tonne of Maine Recycled sold means A$23 will go towards helping this valuable and worthy cause. Designed and produced by ArmstrongQ www.armstrongq.com.au

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