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
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