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PNG Government moves to buy Oil Search shares

THE O’Neill-Dion Cabinet has started the process to review the acquisition of Oil Search shares in the international petroleum investment bond.
Oil Search shares are estimated at K3 billion (A$ 1.8 billion).
In April this year Cabinet made a decision (NEC decision No: 117/2013, meeting No: 03/2013 for the Independent Public Business Corporation (IPBC) and Minister for Public Enterprise Ben Micah to review the additional funding requirement for the PNG LNG project expansion.
In the instruments signed by Prime Minister Peter O’Neill and NEC acting Secretary Ilagi Veali, although already six months, the IPBC and its successive organisations have been told to raise funds in the capital market (an estimated A$1.8 billion) to repurchase Oil Search shares through redemption of IPIC bonds and negotiate the best interest rates with favourable conditions to PNG to the term of the loan/bond not to exceed 10 years but preferably at seven years.
IPBC was also directed under that Cabinet decision to raise funds for train three of the PNG LNG project expansion, estimated to be A$1.2 billion, and provide appropriate security options to meet financier’s security requirements.
Early last month, reports by Australian newspapers detailed that Citigroup Inc., UBS AG and Barclays Plc were among banks seeking to provide more than A$1.5 billion ($1.4 billion) in financing to help Papua New Guinea maintain its holding in Oil Search Ltd. 
It was reported that lenders have been presenting options to the Government on how to fund the repurchase of exchangeable bonds backed by its Oil Search stake it sold in 2008.
The Post-Courier understands that the PNG Government was already in the process of acquiring a loan for that purpose.
PNG raised A$1.68 billion from IPIC, an Abu Dhabi-owned investment fund, by selling bonds that can be exchanged for its 14.7 per cent stake in Port Moresby-based Oil Search. 
The proceeds were used to finance the Government’s share of a liquefied natural gas project being developed by ExxonMobil Corp. 
The $19 billion LNG venture is more than 90 per cent complete and is expected to start shipments to Asia next year, ExxonMobil said last month. 
The U.S. company owns 33 per cent of the project, while Oil Search holds 29 per cent and PNG owns about 17 percent. 
Santos Ltd, JX Nippon Oil and Gas Exploration and a local landowner group are also among partners in the venture.
The bonds are convertible into 196.6 million shares of Oil Search in March 2014, according to an IPIC filing in June. 
That means PNG receives the equivalent of A$8.55 a share, company filings show. 
Oil Search managing director Peter Botten told analysts in August that PNG was preparing a plan to finance the repurchase of the convertible bonds and was in discussions with Abu Dhabi officials.
A spokesman for the Prime Minister said last night that Oil Search share prices were now trading around the strike price range of ($8.55 per share) and will continue to rise. 
This presents a window of opportunity for the Government to buy back the Oil Search shares at or near the strike price, at around the same price as the debt it raised to become an equity partner in the PNG LNG project.
“Oil search shares are regarded as 20/20 shares, meaning they will rise to around $20 by 2020,” the official said.
“That will represent a massive capital growth in this investment. 
“The government has decided to explore this opportunity, rather than let it slip by.
“The debt for the buyback will be booked by IPBC, and will not affect the national budget.”

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