Oil Search expands into Elk-Antelope

OIL Search has positioned itself for expansion with the acquisition of a 22.8% interest in the Elk-Antelope gas discovery in Papua New Guinea, funded through the placement of 149.9 million shares to the PNG government.
Oil Search expands into Elk-Antelope
Oil Search expands into Elk-Antelope
Oil Search expands into Elk-Antelope
Oil Search expands into Elk-Antelope
Oil Search expands into Elk-Antelope

The company said it would gain the interest through the acquisition of the Pac LNG Group Companies for $US900 million ($A1 billion), providing Oil Search with a strategic interest in the largest underdeveloped gas resource in PNG.

PNG's state has entered into funding arrangements with UBS to fund the placement, which includes UBS establishing a hedge position in Oil Search of approximately $A700 million at $A8.20 per share.

Meanwhile, Oil Search's acquisition of Pac LNG is unconditional and expected to settle within two weeks.

Another side of the deal is the exchangeable bonds, which were issued to International Petroleum Investment Company in Abu Dhabi on behalf of the PNG government in 2009 as part of the government's PNG LNG Project funding arrangements.

While the bonds mature on March 5, IPIC has issued a mandatory exchange notice to exchange its entire holding of the bonds into 196,604,177 ordinary shares in Oil Search.

Once the shares are delivered, IPIC will become Oil Search's largest shareholder, holding approximately 13.2% of the share capital, diluted for the government placement.

With the PNG LNG project now passed the 95% completion stage and first shipments expected in the September quarter, Oil Search now expects to double total oil and gas production in 2014.

Oil Search managing director Peter Botten said 2014 would be a transformational year for Oil Search, from both an operational and financial perspective.

"We are extremely pleased to announce the acquisition of an interest in PRL 15," he said last night.

"The purchase of a material interest in this substantial uncommitted gas resource with significant exploration upside is in line with Oil Search's strategy to pursue LNG expansion opportunities in PNG, where we can leverage our longstanding business experience in the country," he added.

"Oil Search brings a wealth of local experience to the PRL 15 Joint Venture, operated by InterOil Corporation.

"This includes PNG logistics, upstream operating expertise, landowner and Government relations and, as a participant in the PNG LNG Project, recent exposure to the development of a major LNG project.

"These skills can be used to help the operator to determine the optimal way to develop this world class resource. In addition, we have contracted one of our drilling rigs to the Joint Venture for the PRL 15 appraisal programme, which will strengthen the partnership between Oil Search and InterOil.

"While Oil Search remains fully focused on the potential expansion of the PNG LNG Project underpinned by Highlands and Western Province gas, the acquisition of an interest in the Elk-Antelope gas discoveries provides Oil Search with a further material and value creating LNG growth opportunity, with multiple development options.

"It also provides a potential commercialisation route for other nearby undeveloped gas resources in PNG.

"With extensive interests both in the Highlands and Western Province and now in the Gulf basin, the acquisition reinforces Oil Search's position as PNG's pre-eminent independent oil and gas exploration and production company."

Botten said the move was a very strategic play which would enable Oil Search to influence the Elk Antelope development and how the resource was developed.

In the short-term, Botten confirmed Oil Search would be sitting down with joint venture partners to discuss the transaction and the development of the resource.

He also told investors it was critical to optimise existing gas infrastructure assets in PNG.

Oil Search timed the announcement to coincide with the release of its financial report for the year ended December 31.

The company achieved a 2013 net profit after tax of $US205.7 million, 17% higher than in

2012.

Revenue rose 6% to $766.3 million, driven by a 9% increase in oil and gas sales, and offset by a slightly lower realised oil price of $110.73 per barrel compared to $113.97 per barrel in 2012.

Underlying operating costs per barrel were in line with 2012 levels, at $24.77 per barrel

($24.55boe in 2012).

An 87% increase in operating cash flow to $366.8 million reflected higher sales volumes and at year end, the company had total liquidity of $509.7 million, comprising US$209.7 million in cash and $300 million undrawn under the $500 million corporate revolving facility.

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