By David Winning
SYDNEY-- Oil Search Ltd. has bid more than $300 million to buy
the Papua New Guinea assets of Talisman Energy Inc., in a move that
could accelerate an expansion of the Pacific nation's flagship
gas-export facility, people familiar with the matter said.
Oil Search hopes to add Talisman's natural-gas reserves in the
flat western region of Papua New Guinea to its own P'nyang
discovery in the densely forested highlands area. A deal could help
Oil Search secure enough gas to justify a new pipeline and
processing unit at the $19 billion PNG LNG export plant operated by
Exxon Mobil Corp.
For Talisman, a deal would help it meet a goal of $2 billion in
asset sales by mid-2015. Last month, the Calgary, Alberta-based
company grouped Papua New Guinea with the U.K. North Sea and Iraqi
Kurdistan as assets where it was "actively pursuing exit or
performance improvement."
"There are no viable offers that we are considering at the
moment," Grant Christie, general manager of Talisman's Australasian
unit, told The Wall Street Journal on the sidelines of a conference
in Sydney. Oil Search Chief Executive Peter Botten declined to
comment on the recent bid.
Papua New Guinea, a country better known for its jungles and
tribal society, became the world's newest major energy exporter
when the PNG LNG project shipped its first cargo to Asia in May.
The project is one of several in the broader region including
Australia, which are expected to start up over the next three years
and mark a shift in the global liquefied natural gas trade away
from the Middle East.
Work began on the PNG LNG project in 2010, when Asian gas users
were looking to increase imports of fuels that burn more cleanly
than coal, and international energy companies were struggling to
gain access to resources not owned by foreign governments. The
industry's landscape has changed dramatically since then--North
American companies now are looking to export shale gas, and China
this year signed a $400 billion deal to buy gas from Russia.
Despite a recent sharp fall in crude-oil prices that is hurting
returns on LNG projects, Oil Search is championing an expansion of
PNG LNG by adding more processing units--each known as a "train."
Prices of LNG are often linked to movements in crude futures,
especially in Asia.
In October, Oil Search talked up the prospects of a new train
that would use gas from P'nyang and discoveries made by other
energy companies nearby. The company said it needed two trillion
cubic feet of proven gas reserves to justify building the so-called
North Western Hub train, and it was looking to make a decision on
construction by the end of 2016 and begin gas production as early
as 2019.
Other companies with gas discoveries in the western region of
Papua New Guinea include Horizon Oil Ltd. and Kina Petroleum Ltd.
Japan's Mitsubishi Corp. is also an investor, thanks to a $280
million deal to buy stakes in nine of Talisman's natural-gas blocks
two years ago.
In a speech to the conference on investment in Papua New
Guinea's resources industry on Monday, the country's Prime Minister
Peter O'Neill said he was also seeking progress on the development
of gas discoveries considered to be stranded because they aren't
connected to a pipeline or the PNG LNG plant.
Talisman had once hoped to be heavily involved in that
development. The company invested aggressively to expand its
footprint with a view to aggregating several natural-gas
discoveries, including the $177 million takeover of Rift Oil PLC in
2009.
However, management became frustrated by repeated delays in the
development of that gas and condensate, a type of light oil, Mr.
Christie said.
Write to David Winning at david.winning@wsj.com
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