UPDATE: Oil Search Flags LNG Stake Sale; 1st Half Net Profit US$35.6 Million

Oil Search Ltd. (OSH.AU) Tuesday said it will sell part of its stake in the ExxonMobil Corp. (XOM)-led PNG LNG liquefied natural gas terminal in Papua New Guinea to Abu Dhabi-based International Petroleum Investment Co. to help it fund its share of the massive project.

Oil Search also reported a steep fall in first half profit on lower oil prices and asset sales in the previous corresponding period, although the fall was less than expected by analysts.

The company said it's in late-stage talks to sell a 3.5% stake in PNG LNG, with full details such as price to be announced once the deal is sealed.

Selling part of the project had been seen by analysts as one of a number of options Oil Search could use to strengthen its funding capacity. Some investors were concerned the company would have to conduct an equity raising, and the proposed stake sale announced today will cool those concerns for now.

JPMorgan estimated in May that Oil Search could get US$500 million for selling a 3% interest in PNG LNG, of which Oil Search currently owns 34%.

Net profit for the six months to June 30 fell to US$35.6 million, from US$264.4 million in the 2008 first half, when the company booked a one-off gain on the sale of its Middle Eastern and North African assets.

Underlying profit was also US$35.6 million, down from US$133.3 million, and above the consensus forecast according to UBS and Macquarie of US$28.7 million.

Oil Search declared an interim dividend of 2 US cents a share, down from 4 cents in 2008.

It stuck to its annual production guidance of 8.0 million to 8.3 million barrels of oil equivalent.

Shares in the company were up 3.3% at A$5.99 around 0054 GMT, compared to a 0.5% fall in the broader market, as investors welcomed the better-than-expected profit numbers and news of the potential PNG LNG stake sale.

Along with the Chevron Corp.-operated Gorgon LNG project, PNG LNG is considered by analysts as a frontrunner of about a dozen planned LNG projects in Australia and Papua New Guinea.

Oil Search said the PNG LNG project partners, which also include Santos Ltd. (STO.AU), are still on track to make a final investment decision by the end of 2009.

Most of the funding for the project is expected to be provided by export credit agencies. Oil Search said negotiations with commercial banks for additional funding commenced this month.

Current discussions with export credit agencies and commercial banks are expected to be completed and offers of finance to be in place in the 2009 fourth quarter, it added.

The stake sale to IPIC is expected to be completed "in the near future," Oil Search Managing Director Peter Botten said.

The money raised will be used partly to finance exploration and appraisal activities associated with proving up further gas resources for LNG, other gas industry expansion in Papua New Guinea, and partly to fund PNG LNG's development, Botten said.

-by Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; ross.kelly@dowjones.com

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