Oil Search acquires first oil exploration portfolio in PNG

Oil Search has acquired its first major overseas oil exploration portfolio for a record K1.2 billion (US$400m) from privately owned Armstrong Energy LLC and GMT Exploration Company LLC in the Alaska North Slope.

It signed an agreement for the assets including a 25.5 per cent interest in the Pikka Unit and adjacent exploration acreage and a 37.5 percent interest in the Horseshoe Block.

These leases contain approximately 500 million barrel (gross) in the Nanushuk and satellite oil fields, with Nanushuk being one of the largest conventional oil fields discovered in the US in more than 30 years.
The acquisition, which is expected to be net asset value (NAV) per share accretive, will be funded from Oil Search’s existing cash.

Oil Search’s current liquidity is approximately K6.4 billion (US$2 billion), comprising K3.8 billion (US$1.2 billion) of cash and K2.7 billion (US$850 million) of undrawn corporate facilities.

Together with strong free cash flow from Oil Search’s producing assets, the company has the financial flexibility to fund both the LNG expansion project in PNG and the development of the Nanushuk field, while maintaining the existing dividend policy.

The acquisition is subject to standard US regulatory approvals, including approval by the Committee on Foreign Investment in the US (CFIUS).

There are no pre-emptive rights associated with the purchase. Oil Search anticipates the transaction will close by no later than early in the first quarter of 2018.

Managing director Peter Botten said the company for some time has been seeking to acquire oil interests to complement PNG gas assets, to create a more balanced portfolio that is less exposed to one single commodity and one country.

Botten identified the key challenge has been to achieve this without diluting the Company’s world class, high returning PNG assets.

“Utilising our existing relationships, this Alaska North Slope opportunity has been proactively pursued and an agreement structured to the benefit of all parties.

“The interests acquired provide a unique opportunity for Oil Search to participate in a world class, high returning, proven oil province that can add material value to the company.

The option to acquire additional equity allows us to increase our interest once appraisal drilling has taken place, as well as the potential to sell-down to a strategic third party to create further value,” he said.

Botten said the transaction delivers significant exploration upside, providing the company with the potential to develop, over time, a business of a similar scale to its PNG operations.

“Our joint venture partners in these assets comprise Repsol, with whom we have a strong working relationship in PNG, and Armstrong, which has a proven 15 year track record of finding major oil accumulations in Alaska.

“We are in the process of establishing a separate US-based entity to manage these assets.
“Halliburton will help us build North Slope operating capabilities and ensure a smooth transition under a cooperative arrangement similar to that which worked successfully when Oil Search took over in 2003.

“Oil Search looks forward to being able to apply its extensive experience of operating safely and cost in challenging environments, as well as leverage its skills working with indigenous people, to these assets.
This acquisition does not impact our focus or ability to deliver our exciting growth projects in PNG and is consistent with our vision to deliver.

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