Woodside's $8 Billion Oil Search Bid Targets Lower Costs in PNG

(Bloomberg) -- With sliding energy prices threatening the viability of liquefied natural gas projects around the world, it doesn’t seem like the greatest time to make an $8 billion bet on the fuel.

The small Pacific nation of Papua New Guinea, however, is seen as one of the few places where new plants will probably succeed because it costs less, according to Deutsche Bank AG and Bloomberg Intelligence. That helps explain Woodside Petroleum Ltd.’s bid unveiled Tuesday for Oil Search Ltd., Exxon Mobil Corp.’s partner in the $19 billion PNG LNG project.

“Oil Search has the lowest-cost LNG growth opportunities globally,” John Hirjee and Andrew Lewandowski, Deutsche Bank analysts in Melbourne, wrote in a report after Woodside’s offer was announced. "The assets are strongly positioned to deliver accretive growth in the medium-term."

Woodside offered about A$11.65 billion ($8.2 billion) in stock for Oil Search. If successful, it would be the biggest energy takeover in the Asia Pacific.

Developers of LNG plants face growing concerns of a glut as Japan’s return to nuclear power after the 2011 Fukushima disaster and China’s cooling economy raise speculation demand growth may slow. Revenue for existing projects is also falling, as most LNG plants sell supplies to Asian buyers at prices linked to oil, which has plunged about 50 percent in the last year.

Lower Costs

The quality of the gas resources, higher production of associated liquids known as condensates, cheaper labor and lower taxes give PNG an advantage, Credit Suisse Group AG analysts said earlier this year. Condensates, a type of light crude oil, can be sold separately from natural gas as an additional source of revenue.

Oil Search owns 29 percent of the PNG LNG development, which started production last year. The partners are considering adding capacity. The company is also in a venture with Paris- based Total SA and InterOil Corp. for the country’s second LNG export development.


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