October 19, 2009 / 4:54 AM / 9 years ago

UPDATE 2-Oil Search to raise $820 mln, scraps LNG stake sale

* Ends talks to sell 3.5 pct of Papua New Guinea LNG project

* To now raise about $895 mln in equity

* Exxon-Mobil ups project cost estimate 15 pct to $15 bln

* New Oil Search shares being offered at A$5.90 each

* Shares halted for trading up to Wednesday (Recasts with company confirmation, adds analyst comments)

By Denny Thomas and Fayen Wong

SYDNEY/PERTH, Oct 19 (Reuters) - Australian-listed oil and gas producer Oil Search Ltd (OSH.AX) is raising up to about A$895 million ($820 million) after ending talks to sell a minority stake in a Papua New Guinea liquefied natural gas (LNG) project.

Oil Search also said on Monday that project leader ExxonMobil (XOM.N) had raised its forecast of the cost of the project by about 15 percent to $15 billion, to reflect a bigger scope for the project and additional contingency measures.

Nick Raffan, chief research analyst at Fat Prophets in Sydney said: “A lot of companies are taking advantage of the buoyant equities market to raise capital and the PNG LNG project is seen as a very profitable project in the long-term, so its understandable that they’d want to keep it to themselves.”

Oil Search had been in talks to sell a 3.5 percent stake out of its total 34 percent holding to Abu Dhabi government-owned International Petroleum Investment Co. (IPIC).

But the two agreed to end the deal as regulatory delays would have prevented Oil Search from finalising financing arrangements ahead of the Dec. 8 final investment decision target date set by Exxon, Oil Search said in a statement.

“I suppose they couldn’t raise the money in capital markets because of the fact that Papua New Guinea is still considered a high-risk country. So the capital markets option would have been much more challenging than a share placement,” Raffan said.

Oil Search said it would sell new shares at A$5.90 each, a 12.6 percent discount to its last traded price. Macquarie Bank and Morgan Stanley are the lead managers to the offer.

Shares in Oil Search, halted on Monday, last traded at A$6.75 each, giving it a market value of A$7.7 billion.


Oil Search Managing Director Peter Botten said in a statement the company’s estimated share of future costs for the PNG LNG project is $5 billion, of which $1.3 billion will be funded by equity and the balance by debt.

Oil Search had previously indicated the project’s cost could be lowered due to more competitive costs from contractors following the collapse in oil prices last year.

But Exxon has since increased the production capacity of the plant to 6.6 million tonnes per year (mtpy) from 6.3 mtpy.

Studies are now underway on expanding the project to include a third production train, Oil Search said, with the venture focusing on timing, cost and additional gas requirements.

Oil Search said all the four preliminary gas sale agreements for the PNG LNG project, along with the additional 0.3 million tonnes per year, would be signed off in the fourth quarter, ahead of the final investment decision.

Oil Search said separately it produced 2.1 million barrels of oil equivalent (boe) in the three months to Sept 30 and reiterated its full-year target of 8.0 million to 8.3 million boe. ($1=1.091 Australian Dollar) (Additional reporting by Sonali Paul; Editing by Anshuman Daga) ((denny.thomas@reuters.com; +61 2 9373 1812; Reuters Messaging: denny.thomas.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))

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