Oil Search Acquisition Plan Puts Focus on Project With Total

Oil Search Ltd. (OSH), Exxon Mobil Corp.’s partner in a $19 billion liquefied natural gas venture in Papua New Guinea, halted its shares before a statement about a material acquisition, possibly a stake in a new project.

Oil Search said last year it was in talks to potentially invest in a project in Papua New Guinea that’s set to be developed by Total SA and InterOil Corp. (IOC) The company, the Pacific nation’s biggest oil and gas producer, may have to pay as much $1 billion for a stake, according to Citigroup Inc.

An agreement to acquire an interest in the Elk and Antelope gas discoveries “would provide Oil Search with potential exposure to a second LNG project and from a diversification of risk perspective would be a positive,” Nik Burns, a Melbourne-based analyst at UBS AG, said today by phone.

The trading halt in Sydney should remain in place until Feb. 27 or an announcement is made, the Port Moresby-based company said today in a statement. It deferred releasing its full-year earnings, due today, until the deal is completed.

Oil Search, whose venture with Exxon is due to start shipments to Asia this year, rose 0.9 percent yesterday to A$8.57 in Sydney trading, valuing the company at A$11.5 billion ($10.4 billion). It’s risen 5.7 percent this year.

Strategic Partner

Total, Europe’s third-largest oil producer, agreed in December to buy 61.3 percent of the license from InterOil and said the size of its stake may drop should a strategic partner acquire as much as 19.3 percent.

The French producer will acquire rights to invest in additional exploration blocks and to develop a liquefied gas export terminal, InterOil said in its December statement.

Oil Search probably would need to raise funds, and may need to pay $193 million initially, before the next payment of $220 million to $872 million, based on the terms of the Total accord, according to a Dec. 9 Citigroup report.

An Oil Search deal to invest in the InterOil gas resources “makes most sense,” Andrew Williams, a Melbourne-based analyst at RBC Capital Markets, said today by phone.

“It’s gas in your own back yard, not far away from where you are already going to have an LNG plant, so you probably should be involved,” he said. “At the right price.”

InterOil made the deal with Total at $1.5 billion to $3.6 billion, though it won’t receive a definitive price until at least 2015, Raymond James & Associates Inc. said in December.

A final investment decision to develop the fields and build an onshore liquefaction plant on the Gulf of Papua may come in 2016, according to Total.

Total reached a deal in 2012 with Oil Search, which owns a 29 percent stake in the Exxon project, to explore for gas in PNG, while Royal Dutch Shell Plc said in 2011 that it would look at opportunities in the country.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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