UPDATE 2-Oil Search positions for LNG expansion with $900 mln PNG buy

Thu Feb 27, 2014 2:57am EST

* Oil Search in box seat to dictate LNG growth in PNG

* Oil Search plans talks with Total, InterOil, ExxonMobil

* PNG government to acquire 10 pct stake in Oil Search

* Abu Dhabi emerges as top shareholder in Oil Search

By Sonali Paul

MELBOURNE, Feb 27 (Reuters) - Oil Search Ltd agreed on Thursday to acquire a stake for $900 million in Papua New Guinea's biggest undeveloped gas fields, giving it the upper hand to influence plans for gas projects in a country eyed by several energy giants.

The deal gives Oil Search a 23 percent stake in the Elk and Antelope gas fields alongside a rival PNG firm, InterOil , which brought in French giant Total SA as a partner last December in a deal worth up to $3.6 billion.

That puts Oil Search inside both the major energy joint ventures in PNG, led by ExxonMobil's $19 billion PNG LNG project, where Oil Search owns a 29 percent stake.

"And with us sitting where we're at in both joint ventures and having a range of other gas resources we're uniquely situated to drive the future of LNG in PNG," Managing Director Peter Botten told reporters.

There is enough gas at Elk and Antelope and other gas fields held by Oil Search to feed three new liquefied natural gas units, which could involve a new standalone LNG plant, supply gas for an expansion of the PNG LNG project, or a combination.

"We will be pushing for and the government is focused on pushing for capital efficient, fast-to-market development," Botten said.

He highlighted that was in contrast to LNG developments in Australia, where multibillion dollar LNG plants are being built side-by-side in Queensland, resulting in massive cost overruns as the companies competed for labour and equipment.

Energy giants like Royal Dutch Shell and Australia's Woodside Petroleum have been looking to get into PNG as a low-cost source of growth in LNG to avoid having to build expensive new LNG plants from scratch in the near term.

PNG, ABU DHABI BACKING

Analysts said Oil Search was paying a "ritzy" premium compared to what Total agreed to pay.

"You've obviously paid a premium to ensure you get access to this resource," Scott Ashton, an analyst at broker BBY, told Botten on a conference call.

Botten said that was based on the company's desire to get a seat at the table to decide how the resource would be developed and based on its bullish view on the potential reserves yet to be confirmed in the area around the fields.

The company will fund the acquisition by issuing 149 million new shares at A$8.20 a share to the Papua New Guinea government, giving the government a strategic stake of just over 10 percent in the company.

The government had been in the midst of trying to retrieve a 15 percent stake in the company for A$1.68 billion ($1.51 billion) from Abu Dhabi's International Petroleum Investment Co ahead of the Oil Search deal, but will now give up that stake.

Botten said it was very important to have the PNG government as a stakeholder to align the state and the company's interests, which could help fast-track projects.

The deal was announced as Papua New Guinea's top oil and gas producer reported a 17 percent rise in full year profit to A$205.7 million for 2013 from a year earlier. That compared with analysts' forecasts around A$201 million, according to Thomson Reuters I/B/E/S.

Oil Search is set for strong growth starting in the third quarter of 2014 when the $19 billion PNG liquefied natural gas project, 29 percent owned by Oil Search and operated by ExxonMobil, is set to start exporting.

It has forecast its production will double to between 12 and 15 million barrels of oil equivalent (mmboe) this year from 2013 as PNG LNG production begins.

Analysts are expecting its annual profit to quadruple over the next two years.

The company had been seen as a potential takeover target for bigger oil companies looking to get a foot in LNG expansion opportunities in Papua New Guinea, but any company eyeing Oil Search will now have to win support from the PNG government and would need to buy out Abu Dhabi's IPIC, which will be its top shareholder with a stake of around 13 percent.

PNG has lined up funds through UBS to fund its acquisition of Oil Search shares.

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