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Oil Search Raises $1.09 Billion

SYDNEY--Oil Search Ltd. (OSH.AU) said it would raise 1.22 billion Australian dollars (US$1.09 billion) to fund the purchase of stakes in two large natural gas discoveries in Papua New Guinea, boosting its bets on an impoverished country soon to join the ranks of global gas producers. Oil Search, Australia's fourth-largest listed oil producer, said it would buy a 22.8% stake in a license that includes the Elk and Antelope gas fields from closely held Pac LNG Group for US$900 million. The deal injects fresh momentum into the development of the two fields, which could potentially support a new gas-export facility in Papua New Guinea. To feed growing Asian demand, including from Japan and China, international investors are increasingly turning their attention to countries that previously played little part in energy markets. Papua New Guinea, better known for its jungles and tribal society, is due to start receiving a revenue windfall later this year, when Exxon Mobil Corp.'s US$19 billion PNG LNG project starts up. Oil Search, which also owns 29% of the PNG LNG project, said it would issue 149.4 million new shares at A$8.20 each to the government of Papua New Guinea to fund its entry into the Elk and Antelope developments. The involvement of Papua New Guinea in the capital raising is significant as it signals the end of the government's efforts to buy back a A$1.68 billion exchangeable bond which it sold five years earlier to one of Abu Dhabi's sovereign wealth funds. The Abu Dhabi fund will become Oil Search's largest investor with a 13.2% stake when the bond, which funded the Papua New Guinea government's share of the PNG LNG project's development costs, converts to shares next month. "The placement to the PNG government is strategically very important for the company, ensuring the ongoing alignment of Oil Search and the PNG government's interests and a continuation of the strong working relationship that has been in place since the PNG government first became a shareholder in the company in 2002," Oil Search Chief Executive Peter Botten said. In December, France's Total SA (TOT) agreed to pay US$613 million upfront to InterOil Corp. (IOC) to take a stake in the Elk and Antelope fields ahead of drilling work to assess how much gas they contain. InterOil said the deal could ultimately be worth US$3.6 billion if the fields were found to contain at least 9 trillion cubic feet of natural gas, typically enough to support an export facility with two processing units. Total had moved to secure a deal after earlier talks between Exxon and InterOil failed to result in an agreement. Oil Search could prove a useful partner for Total and InterOil as they look to develop the Elk and Antelope gas fields. It already has an exploration venture in Papua New Guinea with Total, although early efforts with the drillbit have been largely unsuccessful, with two exploration wells drilled last year failing to find commercial quantities of natural gas. Having operated in Papua New Guinea since 1929 and with a listing on Port Moresby's stock exchange, Oil Search has the connections and knowledge of the country's tribal society that a new entrant such as Total may struggle to acquire. Mr. Botten said the Papua New Guinea government wanted the Elk and Antelope gas fields to be developed in the "earliest practical timeframe." Oil Search, which is also exploring for oil in Iraqi Kurdistan, said Thursday its net profit for the year to Dec. 31 rose 17% to US$205.7 million. The result reflected an increase in its annual production of crude oil, and lower exploration costs. Last month, the Sydney-based company raised its annual production forecast to between 12 million and 15 million barrels of oil equivalent--up from previous guidance of 10 million-to-13 million barrels of oil equivalent. The forecast jump from 6.74 billion barrels of oil equivalent produced in 2013 is due to the expected start-up of the PNG LNG project. -Write to David Winning at david.winning@wsj.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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