Ipic eyes Papua New Guinea stake

Oil Search, which is partnering with ExxonMobil Corp to build a LNG project in Papua New Guinea (PNG), said it is in talks to sell a 3.5 per cent stake in the project to Abu Dhabi's International Petroleum Investment Company (Ipic).

The shares of Oil Search jumped six per cent after the announcement.

Oil Search, which is realigning its business to focus on the booming LNG sector, said yesterday it is also making its first foray into coal seam gas in Papua New Guinea, with hopes that discoveries could combine with existing gas resources to help expand its LNG business.

The talks to finalise the sale of a stake in the Papua New Guinea LNG project to Ipic are at an advanced stage, and details will be announced shortly, it said.

Analysts said Oil Search was likely to get more for the sale than the implied A$8 (Dh24.5) per share AGL Energy received when it sold its 3.6 per cent stake in the project for $800 million (Dh2.93 billion) last year, given the significant progress the project has made since then.

"The move would provide the balance sheet required to fund the PNG LNG capital expenditure commitments and further growth projects being targeted, whilst negating fears of a capital raising," Citigroup's analyst Di Brookman said in a note. Shares in Oil Search climbed as much as 6.7 per cent to a 13-month high of A$6.19. With its revenue hit by a steep fall in oil prices, analysts have previously questioned Oil Search's ability to fund its near-30 per cent equity position in the PNG LNG project, with some investors speculating it would need to conduct an equity raising.

The total cost of developing the project is estimated at between $11bn and $12.5bn. Oil Search Managing Director Peter Botten said the stake sale would substantially boost its balance sheet and doused speculation it would have to go to the market for more cash.

Botten did not rule out a potential further equity sale in the LNG project, adding that it may consider it in future if it needs more money to support a growing exploration programme or a possible expansion of the LNG project. Oil Search reiterated that the two-train PNG LNG project, which will have an annual output of 6.3 million tonnes, was on track for a final investment decision in the fourth quarter and for first gas in late 2013.

The other partners in the project are Santos, Nippon Oil Corporation and PNG landowners. In a surprise move to boost its gas reserves, Oil Search said it had acquired exploration licences, covering a total area of 17,500 square kilometres, to explore for coal seam gas in Papua New Guinea.

"The acreage acquired provides us with a dominant position in this new play type in PNG and complements the company's strong position in conventional gas," Botten said.

Coal seam gas is methane gas that can be found within coal deposits and can be extracted when pressure on the coal seam is reduced, usually by removal of water from the seam.

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