Developing PNG assets, page-4

Oil Search’s PNG refile Feb 27 2015

This article, although a little old and a number of things have changed since it was written, it gives a good insight into oil search's thinking and requirements for an additional gas for the third or fourth train, more so now with the results out of Hides and the move to P'nyang.

It's strategically and financially clear Horizon needs OSH to JV/TO and that a new pipeline be built to support these gas fields linked into OSH existing pipeline and the LNG trains rather than Horizon going down the track of a costly mid scale LNG project.

OIL Search will renew its efforts to secure Talisman’s Papua New Guinea assets, worth about $US300 million ($330m), in the wake of the Canadian company’s acquisition earlier this year by Spanish oil giant Repsol, according to sources.

If the move is successful it could accelerate the expansion of the ExxonMobil-operated $US19 billion PNG LNG project and would potentially deliver a boost to cash-crunched Horizon Oil. The midcap explorer has stakes in two of Talisman’s PNG assets, where work has all but ceased as new owner Repsol embarks on a strategic review of its mammoth $8.3bn acquisition.

While that may take months, sources say Oil Search chief executive Peter Botten has already contacted the Spanish company and registered his interest in the PNG portfolio.

There is a strategic advantage for the Port Moresby-based firm. After Botten’s failure to win a legal wrangle for a controlling stake in the Elk-Antelope fields, which could have been used to supply a third or fourth train at PNG LNG, the acquisition of fresh gas reserves are likely to be high on the agenda.

Most of the supply for the additional train — two are already in operation — is expected to flow from the Hides gas field, where Santos, a minor partner in PNG LNG, is the developer.

But the Exxon and Oil Search-controlled P’nyang discovery, in the densely forested highlands, is also likely to be drawn upon.

By aggregating Talisman’s PNG assets, located in the same area as the P’nyang field, Oil Search could accelerate the construction of a new pipeline and feed gas into a third and potentially fourth train.

For Horizon the arrival of Oil Search would deliver a much-needed fillip. The oil minnow and Talisman have stated their preference is to construct a mid-scale export plant in South PNG but that’s a costly venture and few smaller-sized LNG projects make it to completion.

Without a pick-up in revenue, Horizon may be forced into asset sales. Among the most pressing issue is an $US80m convertible note that falls due next year. With revenue forecast to remain level in 2016, Horizon’s resources in this low oil price climate will be stretched thin and many predict the company will consider selling its lucrative Chinese assets to stave off a potential cash crunch.

Relying on the entry of Oil Search into may also prove a stretch.

There are of course no guarantees Botten will succeed in a second tilt and is under no pressure to make another offer given its existing gas fields are sufficiently funded. A renewed attempt may also be struck at a lower price due to the slump in oil prices.

Then there is the question of Repsol’s strategy.

The Spanish company swooped on Talisman primarily to shift the balance of its oil production portfolio in favour of developed economies, after an unpleasant exit from Argentina.

The purchase means Repsol’s focus is now North America, Britain and Norway, leaving the small-scale PNG assets as non-core.