PNG government exits Oil Search

Oct. 2, 2017
The government of Papua New Guinea has sold its remaining 2% stake in Port Moresby-Sydney company Oil Search Ltd. in a $205-million (Aus.) block trade after market late last week.

The government of Papua New Guinea has sold its remaining 2% stake in Port Moresby-Sydney company Oil Search Ltd. in a $205-million (Aus.) block trade after market late last week.

The 31.3 million shares were offered by brokers UBS and JP Morgan. The deal marked the end of the government interest in Oil Search that was held through the national oil and gas company Kumul Petroleum Holdings.

Originally Kumul held about 149 million shares, but most had been gradually sold onto the market by UBS and Morgan over previous months.

The government holding in Oil Search dates from 2014 when Kumul entered into funding arrangements with UBS to finance the acquisition of the 10% interest. This $1.2-billion loan deal was amended by a similar funding arrangement in 2016 between UBS and Morgan.

However, the cash-strapped government recently decided to terminate the arrangement, and the final sale last week means it has avoided having to repay the loan.

The PNG government exit has immediately led to speculation of merger or acquisition action on Oil Search, which holds key stakes in both the PNG-LNG and the new Papua LNG projects.

The obvious potential suitors are Oil Search's joint venture partners in these projects, ExxonMobil Corp. and Total SA. However, there is another school of thought that suggests the apparent broad dispersion of the government's shareholding among institutional investors will make a takeover more problematic.

It is also postulated that a takeover approach from ExxonMobil or Total is unlikely in the short term to avoid a disruption in the finely tuned collaboration between all three companies over Papua LNG and PNG-LNG development plans, which could cause detrimental delays.

In the meantime, PNG Prime Minister Peter O'Neill has defended the government's decision to sell out of Oil Search, noting that it made 100 million kina, or $39 million, profit from the sale.

O'Neill said it had been a business decision based on anticipated return on investment and has delivered the most prudent outcome for the state considering the consequences of the earlier energy price lows.

He added that the decision to leave the Oil Search share register did not diminish the excellent relationship between the government and the company.

Kumul remains in charge of the PNG government's direct 16.77% interest in the PNG-LNG project.