Managing director Peter Botten said that while the company enters 2009 "in the best shape it has been since its incorporation in 1929", proactive management will be needed to ensure continued success.
"Oil Search's 2008 full year net profit of $US240 million was a record for the company," he said.
"The company has a solid balance sheet with over $US530 million in cash and an undrawn line of cost effective credit which takes the company's liquidity to close to $US1 billion.
"This strength is needed as we remain on target to commit to the development of the PNG LNG project, a company-maker for Oil Search, within the next 12 months."
Botten said exploration expenditure, excluding gas commercialisation activities, will be reduced from $US176 million in 2008 to $US70 million.
Development expenditure will also drop from $US162 million in 2008 to $US130 million.
"The focus of the company will clearly remain on supporting the PNG LNG project and on other gas commercialisation initiatives," he said.
"Discretionary expenditure on exploration will be attenuated during 2009 reflecting lower oil prices and cash flows.
"New acquisitions, especially those which are able to underscore our medium term gas growth objectives, are likely."
Botten also said a number of previously planned infill development wells and workover activity in Papua New Guinea has been deferred and would be reviewed if oil prices recover.
He said the company's 2009 PNG drilling program will be based on a two-rig program and a number of high potential wells will be drilled in Libya and Yemen.
Production is expected to be between 8-8.3 million barrels of oil equivalent.
The company will introduce an underwritten dividend reinvestment plan (DRP) to reduce cash and capital outflows in early 2009 by $US45 million.
"With $US535 million in cash and undrawn debt facility balance of $US420 million, combined with the prudent capital management measures outlined above, we are entering 2009 in good financial shape and are in an excellent position to actively manage the present business environment as well as deliver significant value growth through the commercialisation of our discovered gas resources," Botten said.
In 2008, Oil Search generated record operating revenues of $US814.3 million based on oil sales of 7.5 million barrels of oil.
The company realised an average price of $US100.10 per barrel.
Total oil and gas production for the year was 8.6 million barrels of oil equivalent compared to 9.8MMboe in 2007.
Oil Search said the lower production reflected the sale of its producing assets in the Middle East and North Africa (MENA), and lower production from PNG.