Elk/Antelope gas fields: what’s really going on?


The jockeying for positions in what could be Papua New Guinea’s second liquefied natural gas project has taken a surprising turn, with Oil Search purchasing Pac LNG’s holding in the Elk and Antelope gas fields in Gulf Province. Analysts suggest Oil Search may now be in a prime position to determine how the country’s LNG growth proceeds.

Credit: InterOil

Credit: InterOil

Oil Search’s purchase of Pac LNG’s 22.835% share in Elk/Antelope last week follows majority shareholder InterOil’s agreement last December to sell a 61.3% stake in the fields to multinational energy company Total SA for up to US$3.6 billion (K9.01 billion). The deal, due for completion this month, will see InterOil’s share in the fields diluted to just 14.3%.

Buying a seat at the table

The Oil Search purchase of Elk-Antelope means it now has a stake in both PNG’s major energy joint ventures (it also has a 29% holding in the ExxonMobil-led PNG LNG project).

Oil Search managing director Peter Botten told investors by video link he paid beyond the ‘resource value’ of Pac LNG’s stake to have the ability to leverage more value.

‘With us sitting where we’re at in both joint ventures, and having a range of other gas resources, we’re uniquely situated to drive the future of LNG in PNG,’ he said.

‘Clearly, we do have pre-emptive rights and clearly we will be sitting down with InterOil and Total in the short term, and with other stakeholders, to discuss the future,’ he said.

Where the money is coming from

Oil Search logoThe US$900 million Oil Search is using to buy Pac LNG’s interest is coming from a separate deal it has made with the Independent State of Papua New Guinea.

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The State has agreed to buy 149.39 million Oil Search shares at A$8.20 per share, delivering the company a A$1.224 billion (US$1.097 billion) windfall. The State’s purchase is being funded by UBS.

Why is the State buying Oil Search shares? Effectively to replace those it has just ‘lost’ as the result of its deal with Abu Dhabi-based International Petroleum Investment Company (IPIC).

In 2009, the PNG Government raised money for its stake in the ExxonMobil-led PNG LNG project by buying an exchangeable bond from IPIC, using its shares in Oil Search effectively as collateral. With that bond now matured, those Oil Search shares now belong to IPIC, which has refused to sell them back to the State, preferring, say analysts, to hold a long-term investment position.

The PNG Government last week put a brave face on the situation, with Acting Secretary for the Department of Treasury Dairi Vele saying:

‘The State looks forward to working alongside IPIC on the Oil Search share register and building on our existing strong relationship. The State views IPIC’s investment in Oil Search as a vote of confidence in the prospects for the PNG hydrocarbon industry.’

The PNG Government can be reasonably pleased with its deal—its new shares in Oil Search have cost it substantially less—around A$52 million (US$46.8 million) less, in fact—than it was planning to spend buying back the Oil Search shares from IPIC.

Integration with PNG LNG?

‘The Elk/Antelope field is the largest undeveloped gas field in the region and it would certainly be advantageous for Oil Search to have a significant say in the development of that field,’ David Lennox, senior analyst with stockbrokers Fat Prophets, tells Business Advantage PNG.

‘They have a significant interest in the PNG LNG project that will soon be coming into production and they will be wanting to shore up the supply of product into those [two] trains, and have the potential ability to perhaps build an additional train on site with extra gas that could be supplied from Elk/Antelope.’

Will InterOil sell out completely?

David Lennox doesn’t rule out InterOil selling its remaining interests in Elk/Antelope to Oil Search.

‘InterOil may be a seller if the right price came along. You’ve got to remember that what Oil Search paid to the minorities [Pac LNG] is significantly higher than what Total paid to initially come in last year, so it could be a red rag in front of a bull for InterOil if the price is right.

‘It would be a little difficult at this point in time to predict who will have the biggest say when it comes to developing Elk/Antelope. It’s not at that stage. It’s got to get there yet and until it is actually proven to be commercial, everyone’s going to remain pretty quiet.’

Oil Search also reported this week a 17% rise in full year profit to A$205.7 million for 2013, compared to 2012.

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