--Total takes 35%-50% stakes in Gulf of Papua blocks
--Oil Search sell stakes in exchange for help with drilling
costs
--First well to be drilled 1Q13
--Oil Search shares jump 3%
(Adds background on PNG, regional LNG markets throughout; share
price reaction and analyst comment in final paragraph)
By Ross Kelly
SYDNEY--French oil giant Total SA (TOT) has made its first foray
into Papua New Guinea, taking stakes ranging from 35%-50% in five
exploration blocks in a deal that could precede construction of
another big natural gas-export project in the impoverished
nation.
Australia's Oil Search Ltd. (OSH.AU) said Tuesday it has sold
half of its interests in the assets to Total in exchange for the
reimbursement of past license costs, and Total will pay part of the
cost of drilling for natural gas. No specific price tag was put on
the deal.
Total's interest reinforces views by rival oil companies such as
Chevron Corp. (CVX) that demand in Asia for cleaner-burning fuels
will continue to grow as countries like China look to reduce a
reliance on burning coal for power. Several big discoveries in
Papua New Guinea and offshore Australia have made the region one of
the hottest energy-investment plays in the world.
Drilling is scheduled to start in the first quarter of next
year, and any significant discoveries of natural gas could lead to
construction of a new terminal in Papua New Guinea or an expansion
of the US$15.7 billion PNG LNG export terminal led by ExxonMobil
Corp. (XOM). However, new projects in the region would have to
compete against the likely emergence of competing supplies from
North America and East Africa.
Jean-Marie Guillermou, a senior vice president at Total, said
the deal is in line with the company's strategy of strengthening
its presence in the Asia-Pacific region, particularly in the
natural gas and liquefied natural gas sectors.
Liquefied natural gas, or LNG, is natural gas chilled to a
liquid form and transported by tanker.
In recent years, Total has spent billions of dollars taking
stakes in two large LNG export projects under construction in
Australia's Queensland state and Northern Territory that will serve
customers in Japan, South Korea and Malaysia.
Oil Search is plowing billions of dollars into the PNG LNG
project, which aims to ship LNG to customers in Japan, China and
Taiwan from 2014.
Papua New Guinea, located immediately to Australia's north and
Indonesia's east, has an estimated 22.6 trillion cubic feet of
natural gas reserves, according to U.K.-based consultancy Wood
Mackenzie, or the equivalent of the U.S.'s natural gas consumption
in a year.
That likely underestimates its true potential as Papua New
Guinea has only been lightly explored for oil and gas up to now.
According to Canada's Talisman Energy Inc. (TLM), only a few
thousand kilometers of seismic data has been acquired throughout
the country since its independence in 1975.
In February, Japan's Mitsubishi Corp. (8058.TO) agreed a US$280
million deal to buy stakes in several natural gas discoveries and
prospects in the forelands area of western Papua New Guinea from
Talisman.
Oil Search owns 29% of the PNG LNG project and along with
partners Exxon and Santos Ltd. (STO.AU) wants to expand the
development to three LNG production units, or trains, from the two
under construction.
In recent presentations to investors, however, the company has
put more emphasis on the Gulf of Papua's potential to underpin
construction of a new standalone LNG development.
"In the event of exploration and appraisal success that leads to
an LNG project, Total would develop and operate the downstream
facilities of any development," Oil Search Chief Executive Peter
Botten said.
At 0126 GMT, shares in the Australian company were up 3.6% at
A$7.81 as investors embraced the introduction of a large,
experienced partner.
Write to Ross Kelly at ross.kelly@wsj.com
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