October 31, 2017 / 10:56 PM / a year ago

Australia's Oil Search buys into promising Alaska oil find

MELBOURNE (Reuters) - Australia’s Oil Search Ltd (OSH.AX) has agreed to buy stakes in a huge oil find in Alaska for $400 million, in a surprise push to diversify from its sweet spot of gas in Papua New Guinea.

Oil Search will pick up stakes in three oil blocks from privately owned U.S. firms Armstrong Energy and GMT Exploration giving it a roughly 26 percent holding in the Nanushuk play, co-owned by Spain’s Repsol SA (REP.MC).

The play includes the Horseshoe block, which hit oil in March in what Repsol called the biggest U.S. onshore find in 30 years. It estimated the field could hold 1.2 billion barrels.

Oil Search bought in assuming the field holds 500 million barrels, expecting production to begin in 2023, with output to plateau at 80,000 to 120,000 barrels per day.

“With the quality of the assets, the fact that they’re tier 1, and the fact that we’ve gone in very conservatively against what Repsol are saying, I think we can demonstrate to the market that this will be a super deal for Oil Search in the medium term,” Oil Search Chief Executive Peter Botten told Reuters.

Investors were nervous about the $8 billion company’s move into a region where it has no experience and which is dominated by giants like BP (BP.L) and ExxonMobil Corp (XOM.N), sending its shares down 3 percent, especially after it gave up on a push into Kurdistan.

Other Australian oil and gas producers rose more than 1 percent on Wednesday.

“Questions will inevitably be asked about Oil Search’s competitive advantage to play in Alaska until it proves its operational capability there,” said Saul Kavonic, an analyst with energy consultants Wood Mackenzie.

RBC analyst Ben Wilson said the move was well-timed near the bottom of the oil price cycle and with some of the appraisal work on the field already done. He said it had “good prospects” as the oil was high-grade.

Botten began working on the deal eight months ago when oil prices were about 20 percent lower than now and said Oil Search managed to get the asset despite higher-priced interest from others in nearby fields, whom he declined to name.

The owners of the neighboring fields are ConocoPhillips (COP.N), ExxonMobil and Italy’s ENI (ENI.MI).

Oil Search has the option of doubling its stake in the Alaskan assets for a further $450 million. It plans to fund the deal from its cash reserves.

Oil Search will work with oilfield services giant Halliburton Co (HAL.N) and Armstrong before taking over as operator of the assets in June 2018.

Reporting by Sonali Paul and Rushil Dutta in Bengaluru; Editing by Stephen Coates

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