spin-off is a positive according to jbwere, page-3

Oil Search may spin off stake in pipeline
November 19, 2004

Oil Search Ltd, Papua New Guinea's biggest oil and gas producer, may spin off its stake in a proposed $3 billion natural gas pipeline project to take advantage of investors' appetite for assets with predictable cash flows.

The Port Moresby company is in the final stages of choosing a bank to advise on financing its estimated $656 million of initial project costs, said managing director Peter Botten yesterday.

The financing structure will take into account the plan to place its pipeline stake into a separate company, he said.

The Exxon-Mobil-led venture agreed last month to start engineering work on the supply part of the project, which aims to pump gas more than 3000 kilometres from PNG to Queensland.

Macquarie Bank and AMP spun off a gas pipeline fund this year, while Westpac sold $379 million of shares last month in a similar fund, which is scheduled to start trading this month.

"There is a lot of appetite in the market right now for fixed- return-type vehicles," Mr Botten told reporters in Port Moresby. "The whole of our financing structure will be designed to do that [spin off the pipeline stake] at an appropriate time," he said.

Oil Search owns about 54 per cent of the PNG part of the project. That will fall to about 47 per cent should Santos and the Papua New Guinea Government take stakes in the project, Mr Botten said. Santos, Australia's largest natural gas producer, said early in November it was yet to decide whether to take a stake in the project.

The Government was still seeking ways to fund its participation in the project, Moi Avei, the Minister for Petroleum, Energy and Planning told a later media conference.

It has held talks with Japan's Itochu Corp, Malaysia's Ranhill Bhd, China National Petroleum Corp, the International Finance Corp and the European Investment Bank about possible financing, he said.

The PNG venture has so far reached conditional agreements for the sale of between 58 and 120 petajoules a year of gas. For the project to be approved, it needs commitments for purchases of about 150 petajoules a year within five years, Oil Search said in October.

The partners last month signed a separate agreement with a group comprising Australian Gas Light Co and Petroliam Nasional Bhd, which will design and build the pipeline to Australia. This may cost at least $1 billion. The PNG end of the project will cost about $1.28 billion.

Bloomberg