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Oil Search to sell shares to fund Papua New Guinea deal

BY JAMES PATON

PORT MORESBY (Bloomberg) -- Oil Search Ltd. will sell about A$1.2 billion ($1.1 billion) in shares to Papua New Guinea to fund the purchase of a stake in discoveries that may lead to the Pacific nation’s second natural gas export project.

Oil Search will issue 149.4 million shares to the Papua New Guinea government at A$8.20 each, the Port Moresby-based company said today in a statement. That’s 4 percent less than its closing price on Feb. 24 and will give the country a stake of about 10 percent, according to Bloomberg calculations.

The company will use the funds to buy 22.8 percent of a license that includes the Elk and Antelope natural gas discoveries, making an initial payment of $900 million. Those fields are set to be developed by Total SA and InterOil Corp.

The deal gives Oil Search, Papua New Guinea’s largest oil and gas producer, an interest in fields that may underpin an expansion of the country’s liquefied natural gas industry. Exxon Mobil Corp., Oil Search’s partner in a $19 billion LNG development in Papua New Guinea, is due to start shipments to Asian customers later this year as global demand surges.

“The purchase we’ve made puts us in the box seat for future LNG growth,” managing director Peter Botten told reporters today on a call. “We will be pushing for, and the government is focused on pushing for, capital efficient, fast- to-market development.”

Oil Search, which last traded at A$8.57 before being halted on Feb. 25, has risen 5.7 percent this year. Separately, Oil Search said International Petroleum Investment Co. of Abu Dhabi will become its largest shareholder next month with a 13.2 percent stake after the conversion of bonds.

“They certainly don’t appear to us to have any trading mentality, and on that basis we see them as long-term supporters,” Botten said when asked about IPIC’s intentions.

Paris-based Total agreed in December to buy 61.3 percent of the license containing the Elk and Antelope gas fields from InterOil.

Joining Total in the fields “would provide alignment on bringing in any future gas discoveries into a standalone LNG development,” Nik Burns and Cameron Hardie, Melbourne-based analysts at UBS, wrote in a December report.

Oil Search sees the potential for three more LNG processing units in Papua New Guinea after the Exxon-operated project begins, Botten said.

LNG export plants are going ahead in Australia, Papua New Guinea and the U.S. to meet Asian demand. In Australia, producers from Chevron Corp. to BG Group Plc are building seven LNG export ventures at a cost of more than $180 billion.

Global LNG trade is set to increase 31 percent from 2012 to 2018 as a record number of projects from the U.S. to Australia come to fruition, according to an International Energy Agency report published in June.

UBS AG organized the funding for Papua New Guinea’s stake. The arrangements include a hedge position for about A$700 million, established by offering shares to institutions at A$8.20 apiece.

Should Papua New Guinea not proceed with the share placement, Oil Search has an agreement with UBS to raise A$700 million by selling shares at A$8.20 each.

02/27/2014

 

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