Total, Oil Search in $2.2b Papua Gas Deal

Total, Oil Search in $2.2b Papua Gas Deal
Total, Oil Search in $2.2b Papua Gas Deal

Total SA and Oil Search Ltd. will divide the Papua New Guinea assets of InterOil Corp. in a two-step deal, as global energy companies seek to expand the Pacific nation’s liquefied natural gas exports.

After buying 100% of its fellow Papua New Guinea explorer for $2.2 billion, Oil Search will then sell the majority of the acquired gas and exploration assets to Paris-based Total for about $1.2 billion upfront, according to a statement on Friday, Bloomberg reported. InterOil’s current market capitalization is about $1.57 billion. Oil Search said the deals will lead to greater integration between the country’s two LNG projects.

At stake are natural gas reserves expected to underpin an increase in exports from Papua New Guinea, seen as a bright spot in an oversupplied LNG market because of lower development costs.  Oil Search, a partner in Exxon Mobil Corp.’s $19 billion Papua LNG venture, said it would increase its share in the proposed project to 29% and Total would raise its holding to 48.1%, assuming the government takes a 22.5% stake.

Cooperation between the Total venture and the Exxon project, which is considering an expansion, could lead to as much as $3 billion in savings and accelerate development.

"An increased stake from a player like Total and a reduced number of companies involved may streamline the development of Papua LNG," said Rafael McDonald, director of global gas and LNG for IHS Inc. in Cambridge, Massachusetts.

“The more cooks you have in the kitchen, the harder it is to get something off the ground,” he said.

Oil Search, which has operated in Papua New Guinea since 1929, last year rejected Woodside Petroleum Ltd.’s $8 billion takeover bid in what would have been the biggest energy acquisition in Asia-Pacific. Goldman Sachs Group Inc. and Macquarie Group Ltd. are Oil Search’s advisers on the transaction, while InterOil is working with Morgan Stanley, Credit Suisse Group AG and UBS Group AG.