The mid-cap will pay US$400 million (A$522.856 million) for Tier 1 oil assets including the Nanushuk oil field based on a discovered resource of about 500 million barrels, though the joint venture estimates there are more than 1Bbbl there.
Oil Search will fund the acquisition from its existing cash, with current liquidity at about $2 billion, comprising $1.2 billion cash and $850 million of undrawn corporate facilities, and the company says it still has " more than enough" financial capacity to fund both the PNG LNG expansion and the Nanushuk development, all while maintaining its dividend policy.
Its JV partners are Repsol, with whom Oil Search has been working with in PNG, and Armstrong Energy, which has spent 15 years successfully finding oil in Alaska.
The Nanushuk field, discovered in 2013, is next to several giant producing oil fields, and 19 exploration and appraisal wells have thus far been drilled there which, combined with full 3D seismic coverage, have delineated a giant oil resource.
Within that is a 25.5% stake in the Pikka Unit and adjacent exploration acreage, 37.5% in the Horseshoe Block and 37.5% in the Hue Shale.
Oil Search also has an option exercisable until June 30, 2019 to purchase all of privately-owned entities Armstrong Energy and GMT Exploration Company's remaining interest in the Pikka Unit and the Horseshoe Block, and an additional 25.5% in the adjacent exploration acreage.
The JV is targeting 500MMbbl of oil in the Pikka Unit, with first production pinned for 2023 and plateau production rates of 80,000-120,000bpd gross.
The Sydney-based company will carry Armstrong and GMT's share of the 2018/19 appraisal program to the tune of about $25-30 million if it doesn't exercise that option by June 1, 2018, by which point it will assume operatorship.
Oil Search will also form a long-term partnership with Armstrong, leveraging its technical capabilities and experience in identifying more potential growth opportunities in Alaska.
Armstrong was the company that just beat Perth-based Otto Energy to the punch, identifying the opportunity earlier and acquired 3D and subsequently had multi-million barrels of success in Alaska.
Halliburton has entered into a cooperation agreement to help Oil Search with drilling, field appraisal, development and applying new technologies, in an approach mirroring the successful collaboration between the two firms in PNG in 2003 shortly after the Sydney company took over operatorship of PNG's oil fields.
Only this January past Oil Search relinquished its interest in the Taza production sharing contract in Iraq's Kurdistan region and offloaded its interest in Block 7 onshore Yemen to Sydney-based Petsec Energy.
Those deals marked Oil Search's exit from the Middle east after a 16-year presence there which included, at various times, interests in Iraq, Tunisia, Egypt and Yemen, to focus purely on PNG.
Yet Oil Search managing director Peter Botten said the company had been looking to acquire oil interests to complement its PNG gas assets "for some time" to create a more balanced portfolio that's less exposed to one single commodity and one country.
"The key challenge has been to achieve this without diluting the company's world class, high returning PNG assets," he said.
Botten added that the option to acquire additional equity in Alaska lets his company to boost its interest once appraisal drilling has occurred, as well as the potential to sell down to a strategic third party.
He said the Nanushuk field was acquired at an attractive point in the commodity cycle at a "very competitive" price of about US$3.1/barrel of discovered resource, reducing to $1.3/bbl if Repsol's gross resource estimates are used.
Investors appeared to initially balk at the move, with shares falling 3% this morning to $7.16.
