Oil Search Says LNG Project Wins ‘Vote of Confidence’
Australia, Sep 21 2009
(Bloomberg) -- Oil Search Ltd. said $600
million of spending on preparations for a Papua New Guinea liquefied natural
gas venture before a final decision on its construction is a vote of confidence
for the Exxon Mobil Corp.-led project.
Talks with banks on project financing will start this month, after key terms
were agreed with export credit agencies late in the second quarter, Oil Search
said in a statement today. The company may sell a stake in the venture should
funding needs require it to do so, it said later.
Exxon and its partners, which include Santos Ltd. remain “on track” to decide
on the $12.5 billion project by the end of this year, with final capital costs
known late in the third quarter, Oil Search said. Net cash dropped to $402.1
million in the second-quarter, down 16 percent from three months earlier, after
spending on the Papua New
Guinea project, exploration and developing
wells, Port Moresby-based Oil Search said.
“Cash is eroding at a concerning rate given the deadline for Oil Search’s
equity contribution for PNG LNG is looming,” Morgan Stanley analysts led by
Melbourne-based Stuart Baker said in a note to clients today. “The likelihood
of additional capital requirements is increasing in our view.”
Oil Search would consider selling a stake in the Papua
New Guinea venture, spokesman Austin Miller, said from Sydney today. A capital
raising isn’t the company’s preferred option should the need arise, he said.
Oil Search has no debt, it said in its statement.
LNG Sales Talks
Oil Search, up 20 percent since the start of the year, dropped 0.4 percent to
close at A$5.58 in Sydney
after gaining as much as 2 percent. The benchmark ASX 200 Index was little changed.
Papua New Guinea’s largest
private sector investment will target demand for cleaner-burning fuels from
utilities in North Asia. The $600 million
early works program “will enable full construction to commence in early 2010
and helps protect the project delivery schedule,” Managing Director Peter
Botten said in the statement, filed to the Australian stock exchange. The first
LNG sales are due in late 2013 or early 2014.
Talks have started to supply LNG from Papua New Guinea to Tokyo Electric
Power Co. and Osaka Gas Co., while China Petroleum & Chemical Corp. is a
potential customer, Exxon said June 22. Taiwan’s CPC Corp. said June 23 it
may buy gas from the venture. The project will have a capacity to produce 6.3
million metric tons of the fuel a year.
Second-quarter sales dropped 60 percent to $116.6 million, after a decline in
volumes and a slump in prices, Oil Search said today. It sold crude oil for an
average of $55.57 a barrel in the three months ended June 30, down from $133.23
a year earlier.
Production slid 10 percent to 1.91 million barrels of oil equivalent. Oil
Search last year sold stakes in ventures in the Middle East and Africa, reducing output.
Revenue from operations, which excludes drill rig lease income and refined product
sales, fell to $107.7 million. This compares with the $120.6 million estimate
by JPMorgan Chase & Co. in a July 20 note to clients.
The forecast for full-year output remains unchanged at 8 million to 8.3 million
barrels of oil equivalent, Oil Search said.
LNG is natural gas that has been chilled to liquid form, reducing it to
one-six-hundredth of its original volume at minus 161 degrees Celsius (minus
259 Fahrenheit), for transportation by ship to destinations not connected by
To contact the reporter on this story: Ben Sharples in Melbourne at email@example.com Last Updated: July 21, 2009 04:39 EDT