Oil Search yesterday stunned the market by calling off the sale of part of its stake in the huge PNG LNG project and going to market for nearly $900 million in new capital.
The company’s shares were placed in a trading halt in Sydney yesterday ahead of a statement that it will terminate its sale of a stake in the PNG LNG project and undertake a placement to investors.
It had previously revealed plans to sell a 3.5% stake in the project to International Petroleum Investment Corporation of Abu Dhabi, a major oil and gas producer.
IPIC is the company’s largest shareholder
In a later statement to the ASX, Oil Search said the sale of IPIC fell over because of tight timing and a decision by the ASX for shareholder approval for the asset sale, because Oil Search and IPIC were related parties.
"In August 2009, Oil Search announced that it was in advanced stages of finalising the terms with IPIC for the potential sale of an effective interest in PDL 2, including approximately 3.5% in the PNG LNG Project, subject to the approval of the respective companies’ boards," Oil Search said in the statement.
"Following this announcement, the parties have constructively worked together to finalise these arrangements and move to closure.
"The Operator of the PNG LNG Project, ExxonMobil, has recently released a project update, with the Final Investment Decision (FID) for the Project scheduled to be made on 8 December 2009.
"In addition, the ASX has advised Oil Search that shareholder approval would be required for any asset deal with IPIC, as they view IPIC as a related party.
"In light of the timing uncertainty of a final closure with IPIC and the need to conclude financing arrangements supporting the 8 December FID target date, the parties have agreed to terminate discussions and Oil Search has elected to pursue a capital raising, to ensure certainty of funding for the PNG LNG Project, within the current timetable for FID," the company said.
Oil Search needs the funding to help finance its share of the construction costs of the $US12.5 billion project.
The Oil Search raising follows a $3 billion raising by Santos earlier this year, part of which is being used to fund Santos’s share of the capital costs of the project.
The share sale will be at $5.90 each, a 12% discount the last close on Friday. It will raise around $US895 million.
Exxon owns 41.5% of the venture, Oil Search 34%, Santos 17.7%t and Tokyo-based Nippon Oil Corp. 5.4%.
Oil Search said approximately 152 million new ordinary shares would be issued at the $5.90 price.
"The new shares will be issued to participants on 26 October 2009 and will rank equally with existing shares. Shareholder approval will not be required for the share placement," the company said in yesterday’s statement.
Following the share placement, Oil Search said it would offer eligible shareholders the opportunity to participate in a Share Purchase Plan (SPP) for up to $A15, 000 worth of Oil Search ordinary shares, subject to the usual regulatory relief.
Oil Search said it intends to use the proceeds from the capital raising to:
- Provide certainty of Oil Search’s equity funding for the PNG LNG Project
- Support a range of growth initiatives concentrating on gas expansion and other commercialisation opportunities
- Provide enhanced financial flexibility.
On the statement IPIC said it understands Oil Search’s position and remains strongly supportive of Oil Search.
The Managing Director of IPIC HE Khadem Al Qubaisi said:
"IPIC still strongly believes in both Oil Search and the PNG LNG Project and looks forward to being Oil Search’s largest shareholder upon exercise of the A$1,681 million exchangeable bond which IPIC acquired last year. IPIC still views the LNG project as extremely attractive and robust.
"There was simply not enough time for IPIC to get internal approvals in place to match the requirements of the offering timeframe.
"This is a matter of logistics only and does not signal any lack of enthusiasm on the part of IPIC in regard to Oil Search or the PNG LNG project – IPIC remains strongly supportive of both."
