UPDATE: Oil Search Says LNG Stake Sale Ended, Flags Raising
October 18 2009 - 9:02PM
Dow Jones News
Oil Search Ltd. (OSH.AU) on Monday announced the shock
termination of a deal that would have helped it fund the
development of a multibillion gas export project in Papua New
Guinea and said it would launch an equity raising instead.
Oil Search said in August it was in late-stage talks to sell a
3.5% stake in the Exxon Mobil-led (XOM) PNG LNG liquefied natural
gas project to Abu Dhabi-based International Petroleum Investment
Co., or IPIC.
The deal was meant to help Oil Search fund its remaining share
of the massive development. 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 about 34%.
Australian integrated energy company AGL Energy Ltd. (AGK.AU)
agreed to sell its PNG oil and gas assets, which included a 3.6%
stake in the PNG LNG project, last October for US$800 million.
Credit Suisse Energy Analyst Andrew Williams said in August he
would expect Oil Search to get a better price compared with AGL
Energy, given the significant de-risking of the PNG LNG project
since late last year. That indicates Oil Search could launch a
sizable capital raising, possibly close to A$1 billion.
Although the deal termination with IPIC is not an ideal
situation for Oil Search or the PNG LNG project partners, which
also include Santos Ltd. (STO.AU), it is unlikely to cause much
disruption, with Oil Search likely to pull off the capital raising,
albeit at a dilutionary discount.
The PNG LNG partners are aiming to make a final investment
decision on the project by year-end.
Most of the funding for its construction is expected to be
provided by export credit agencies. Oil Search said in August
negotiations with commercial banks for additional funding commenced
that month and it could possibly conduct a bond issue.
Oil Search did not provide an explanation for why the deal with
IPIC has been terminated, although it is expected to make another
announcement to the market later Monday.
IPIC already has an involvement with Oil Search and PNG LNG.
In March, it completed a purchase of the Papua New Guinean
government's 17.6% stake in Oil Search as the government sought
capital to fund its share of the development.
That deal, flagged last November, involved the government
issuing exchangeable bonds for its holding in Oil Search. The
exchangeable bonds have a strike price - the price at which they
can be converted to Oil Search shares - of A$8.55 each.
Oil Search last traded at A$6.75. Its shares are currently in a
trading halt.
Along with the Chevron Corp.-operated (CVX) Gorgon LNG project,
PNG LNG is considered by analysts as a frontrunner ahead of about a
dozen planned LNG projects in Australia and Papua New Guinea.
Unlike some of the other proposed projects, PNG LNG has already
underpinned its full 6.3 million tons a year capacity with four
separate offtake agreements - although finalization of the
agreements into binding contracts remains a work in progress.
-By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957;
ross.kelly@dowjones.com
Oil Search (ASX:OSH)
Historical Stock Chart
From Jun 2024 to Jul 2024
Oil Search (ASX:OSH)
Historical Stock Chart
From Jul 2023 to Jul 2024