2nd UPDATE: Oil Search In LNG Stake Sale, 1st Half Profit Down
25 Août 2009 - 8:03AM
Dow Jones News
Oil Search Ltd. (OSH.AU) Tuesday said it will sell part of its
stake in the proposed ExxonMobil Corp-led (XOM) PNG LNG liquefied
natural gas project in Papua New Guinea to Abu Dhabi-based
International Petroleum Investment Co., or IPIC, to help it fund
its share of the massive development.
Oil Search also reported a steep fall in first half profit on
lower oil prices and asset sales in the previous corresponding
period, although the fall was less than what analysts expected.
The company said it's in late-stage talks to sell a 3.5% stake
in PNG LNG, with full details such as price to be announced once
the deal is sealed in what Chief Executive Peter Botten estimated
would be in "the next couple of weeks".
Australian integrated energy company AGL Energy Ltd. (AGK.AU)
agreed to sell its PNG oil and gas assets, which included a 3.6%
stake in the PNG LNG project, last October for US$800 million. An
AGL spokesman said Tuesday that a specific breakdown on the sale
price for that deal remained confidential.
Credit Suisse Energy Analyst Andrew Williams said that he would
expect Oil Search to get a better price compared with AGL Energy,
given the significant de-risking of the PNG LNG project since late
last year.
JPMorgan estimated in May that Oil Search could get US$500
million for selling a 3% interest in PNG LNG, of which Oil Search
currently owns about 34%.
Botten said that Oil Search's holding in PNG LNG is expected to
be reduced to somewhere between 28% and "just over 30%" once the
PNG government backs into the project, as expected, but before the
3.5% stake sale to IPIC.
Selling part of the project was seen by analysts as one of a
number of options Oil Search could pursue to strengthen its funding
capacity. Some investors were concerned the company would have to
conduct a discounted equity raising and the proposed stake sale
announced today will cool those concerns for now.
Botten told analysts an issue of new shares by Oil Search is now
"highly unlikely" and he later told reporters that the company has
no desire to sell down more project equity. "But equally, to
realize upside in the project we have to have a balance sheet that
is supportive of an expanded exploration appraisal program," he
said.
"And hopefully our balance sheet will also support further
construction activity."
The project partners are "looking clearly" at the opportunity of
adding a third LNG processing train to produce more than the 6.3
million tons per annum currently planned from the first two trains,
Botten said.
"I think it's fair to say the PNG LNG project is focusing
clearly at this stage on delivering all they have to do for Train 1
and Train 2," Botten said.
"But we're signaling that in the post FID (final investment
decision) period a much greater focus on other gas expansion
activities...will come into play."
A final investment decision on the first two trains is still
scheduled for the end of 2009, Oil Search said.
Its net profit for the six months to June 30 fell to US$35.6
million from US$264.4 million in the 2008 first half when the
company booked a one-off gain on the sale of its Middle Eastern and
North African assets.
Underlying profit was also US$35.6 million, down from US$133.3
million, but above the consensus forecast according to UBS and
Macquarie of US$28.7 million.
Oil Search declared an interim dividend of US$0.02 a share, down
from US$0.04 in 2008 and stuck to its annual production guidance of
8.0 million-8.3 million barrels of oil equivalent.
Shares in the company rose 6.0% by 0525 GMT compared with a 0.2%
fall in the broader market as investors welcomed the
better-than-expected profit numbers and news of the potential PNG
LNG stake sale.
Along with the Chevron Corp.-operated (CVX) Gorgon LNG project,
PNG LNG is considered by analysts as a frontrunner ahead of about a
dozen planned LNG projects in Australia and Papua New Guinea.
Unlike some of the other proposed projects, PNG LNG has already
underpinned its full 6.3 million tons a year capacity with four
separate offtake agreements - although finalization of the
agreements into binding contracts remains a work in progress.
Most of the funding for the project's construction is expected
to be provided by export credit agencies. Oil Search said
negotiations with commercial banks for additional funding commenced
this month and it could possibly conduct a bond issue.
The discussions with export credit agencies and banks are
expected to be completed and offers of finance in place in the 2009
fourth quarter, it added.
Oil Search said the money raised from the sale to IPIC will be
used partly to finance exploration and appraisal activities
associated with proving up further gas resources for LNG, other gas
industry expansion in Papua New Guinea, and partly to fund PNG
LNG's development, Botten said.
The Port Moresby-based company also said Tuesday that it has
been awarded exploration licenses by the PNG government allowing it
to explore for coal seam gas.
Although it's too early to provide specific details on the
quantity of coal seam gas Oil Search could produce, Botten said
it's possible it could help support a third LNG processing train
for PNG LNG.
By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957;
ross.kelly@dowjones.com
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