OSH Oil Search Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--Oil Search Ltd. (OSH.AU) has exercised an option to sharply increase its stakes in prospective oil fields in Alaska, where the energy company and partner Repsol SA (REP.MC) plan to build an operation producing about 120,000 barrels a day.

Oil Search said the US$450 million option will see it buy closely held Armstrong Energy LLC's and GMT Exploration Co.'s remaining 25.5% and 37.5% interests in the Pikka Unit and Horseshoe area, as well as further stakes in other exploration leases. That will double its interests across the assets in Alaska's North Slope, which is estimated to be one of the largest conventional oil discoveries in the U.S. in decades.

The decision to push more deeply into Alaska as part of an effort to diversify away from dependence on liquefied natural gas production in Papua New Guinea comes after Oil Search reviewed drilling and other data on the Alaskan fields compiled over the past 18 months.

Oil Search plans to sell part of its Alaskan portfolio ahead of making a final investment decision on the first phase of development on the North Slope's Pikka Nanushuk development, which is scheduled for mid-2020. The company said the timing of a sale would allow it to incorporate the latest drilling results, maximizing the value of the assets.

Oil Search, based in the Papua New Guinea capital of Port Moresby and listed in Australia, made a foray into Alaska in late 2017 with a US$400 million deal to buy into three exploration blocks that included the Nanushuk oil field sandwiched between two established fields controlled by ConocoPhillips (COP). Earlier that year, Spain's Repsol and exploration firm Armstrong Energy estimated Nanushuk could hold 1.2 billion barrels of recoverable light oil, which would be one of the biggest onshore U.S. finds in 30 years.

On Friday, Oil Search said it had agreed with Repsol to align ownership of their shared Alaskan assets. That would see the Papua New Guinea company retain 51% of the Pikka unit and the Horseshoe block, while buying a 51% stake in the leases Repsol acquired in 2017, resulting in a US$64.3 million payment from Repsol to Oil Search.

Oil Search said it expects to soon increase its current resource estimate for the Pikka Nanushuk and adjacent fields, which currently stands at a gross 500 million barrels.

Repsol and Oil Search's base plan would see the pair develop Nanushuk to initially produce 30,000 barrels a day from 2022, using the processing facilities of its neighbor, before building out dedicated facilities that could produce about 120,000 barrels daily as full-field output begins in 2024.

The US$450 million to buy the additional stakes from Armstrong Energy and GMT Exploration will be funded from existing credit lines, and Oil Search said it expected to finalize additional one-year bank credit lines for US$300 million to cover the period when it aims to sell some of its Alaskan interests.

Oil Search operates all of Papua New Guinea's producing oil fields, though these are dwarfed by output from Exxon Mobil Corp.'s (XOM) big liquefied natural gas operation in the country, in which Oil Search has a 29% interest. It also has interests in a number of undeveloped gas fields in Papua New Guinea, including assets operated by France's Total SA (TOT).

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

June 27, 2019 20:14 ET (00:14 GMT)

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