The move, which will see Santos acquire a portion of Kina's remaining well cost carry for $825,000, reduces the junior's 30% stake to 10%.

 

Santos will join Papua LNG operator Total and Australian player Oil Search which have 35% each in PPL 339.

 

Kina is also entitled to a partial carry of well cost from Oil Search which is more than Kina's remaining 10% stake, and Santos will reimburse part of Kina's share of any pre-drilling geophysical costs.

 

Santos has the option to return the acquired interest to Kina at no cost to the junior once the results of the pre-drilling geophysical work have been assessed ahead of the first well due in 2019.

 

The permit is proximate to the Elk/Antelope fields which are to be developed by the PRL 15 joint venture to underpin Papua LNG, though PLNG operator Total is now likely to tie it into PNG LNG as part of an expansion plan.

 

Kina managing director Richard Schroder said the junior had long considered that PPL 339 was in an attractive area given its proximity to the Elk/Antelope fields.

 

However, the junior wanted to ensure its commitment to early-stage exploration reflected a balance between its assessment of its prospectivity, the costs involved in proving it up and the capital needed to carry it all out.

 

"PPL339 contains a large target that lies in a natural drainage path out of the Aure trough, however elements of the prospect are high risk," he said.

 

"Kina has nonetheless high-graded this area on the basis of abundant oil and gas seeps and vintage seismic data."

 

He said aerogravity data had confirmed that a "very large" structural feature reaches a crest at Kalangar and, by analogy with Antelope/Triceratops, gravity data has also inferred the presence of a large carbonate reef of Kalangar.

 

The move follows Santos farming into five more PNG exploration blocks as CEO Kevin Gallagher told the recent investor day of plans to become an equity partner in at least three of the PNG LNG trains once it's expanded and possibly a fourth.

 

Santos has 20% equity in Oil Search-operated PPL 395 and APPL 545 and ExxonMobil-operated PPLs 464, 487 and 507 - all just south of P'nyang on the Hydes-Murku-P'ynyang trend.

 

Post-government back-in the figure is 15.5%, which Santos vice president exploration and appraisal Bill Ovenden said was an important number because it's a more than Santos' 13.5% of its equity in the PNG LNG project.

 

Ovenden said those permits would "play a really important part in that volume certainty around [PNG LNG] expansion optionality".

 

He also revealed two more exploration blocks were with PNG's Department of Petroleum and Energy next to Hides and P'nyang in the Western Highlands, which will also be critical in Santos' strategy of gaining more leverage in PNG.