INTERVENTION by the Australian Securities Exchange has forced Oil Search to abandon the sale of a 3.5 per cent stake in the $US15 billion ($A16.3 billion) Papua New Guinea liquefied natural gas project to Abu Dhabi's IPIC and seek replacement funding from a discounted $1 billion institutional share placement and shareholder purchase plan.
To the disappointment of Oil Search, which was hoping to avoid a dilutionary equity raising, the ASX has deemed that the proposed sale to IPIC would require Oil Search shareholder approval because it was a related-party transaction. This was because of a deal earlier this year under which the PNG Government - Oil Search's biggest shareholder - issued an exchangeable five-year bond over its shareholding to IPIC.
Attempts by Oil Search to convince the ASX otherwise failed, forcing it to scramble to come up with an alternative source of funding to meet the requirement for it to be fully funded for its 30 per cent share of the Exxon Mobil-led PNG LNG joint venture by the December 8 final investment decision deadline.
Oil Search managing director Peter Botten said that while the company was not worried that it would gain shareholder approval for the now-aborted IPIC deal, the looming deadline meant there would have been uncertainty over a timely closure of the IPIC deal, given the 4½ weeks it would take to call an extraordinary meeting.
He said that while Oil Search did not believe that the IPIC deal was a related-party transaction requiring shareholder approval, the ASX had been ''cautious on the optics'' of the proposed sale. He said having to raise funds from the placement was not Oil Search's preferred option but it ''reflects the real need to give banks certainty about where the money is''.
Oil Search intends to raise $895 million from a fully underwritten institutional placement at $5.90 a share. That represents a 12.5 cent discount on its last sale price of $6.75 a share - a share price that included a component to reflect the belief that Oil Search was already fully funded on its equity requirements for the PNG LNG project, thanks to the IPIC deal.
Shareholders do not miss out all together. They can take up to $15,000 Oil Search shares at the same discounted price, with another $108 million expected to be pulled in.
After the placement and shareholder purchase plan, Oil Search's access to cash and existing debt facilities will stand at $1.95 billion, plus on-going cash flow from its existing oil and production business in PNG's highlands. It estimates it needs $1.41 billion to meet the equity component of its 70 per cent debt/30 per cent equity financing package for its 30 per cent share of the PNG LNG project.
That would leave it with $538 million in contingency and to fuel new growth initiatives. The $US15 billion cost estimate for the first phase of the PNG LNG project is up from previous estimates of about $US12 billion. But capacity of the LNG plant has been increased from 6.3 million tonnes a year to 6.6 million tonnes a year.
