The stake is said to include interests in oil and gas reserves as well as production and processing infrastructure.
Once the agreement is completed, AGL will have interests in the project at every stage from wellhead to retail.
In addition to its stake in the gas fields, AGL has converted its gas sales agreement into a binding sale and purchase agreement. It is also a 50% partner (with Petronas) in the pipeline itself.
AGL will make an initial payment next month of 90% of the acquisition price for its gas fields stake, with the remainder to be paid upon financial close of the project – expected in the second half of this year.
The 10% stake comprises an 11.9% interest in the PDL2 (Kutubu) licence and a 66.7% interest in the PDL 4 (Gobe main) licence with Oil Search to remain as operator of both licences.
The finalising of the sales agreement was previously intended to be undertaken later this year, but AGL managing director Greg Martin said the company was now increasingly confident the project would go ahead.
“Bring forward the agreement… reflects the company’s confidence in the ability of the PNG gas project, and the associated PNG to Queensland natural gas pipeline, to provide an alternative source of competitively priced energy to support economic development in eastern Australia,” Martin said.
AGL said the deal made it the first customer for the PNG gas project to convert its 1500 petajoule, $4.5 billion, 20-year gas sale agreement with the producers into a binding commitment.
The surplus cash flow from the company’s share of oil production is expected to “fully fund” its participation in the PNG gas project, according to AGL.
“The estimated acquisition price is consistent with the value generated by AGL’s earlier access to increased oil reserves and oil production, as well as the oil price anticipated at completion. AGL will hedge its oil revenues to protect the value of the investment and the cash flows from oil reserves,” the company said.
AGL said that initially the acquisition cost of its equity stake would be derived from debt funding from existing facilities.
The company has also flagged its share of capex requirements to be around $US60 million per annum over the first four years of its investment but expects costs to be significantly lower there after.
Oil Search managing director Peter Botten was also buoyant about the prospects of the project now going ahead given the level commitment shown by AGL.
“The early completion of this transaction highlights AGL’s full commitment to PNG and particularly the PNG gas project. It is a significant vote of confidence in the project and a major step in assuring this project reaches sanction,” he said.
Botten added that the conversion of the AGL’s sales agreement into a binding sales and purchase contract would provide “further momentum to close other gas sales agreements with new and existing customers as project certainty increase.”
The PNG gas project participants are now ExxonMobil (39.4%), Oil Search (37.2%), AGL (10%), MRDC, a PNG company representing landowners, (3%) and Nippon Oil Exploration (3.4%). In a market release today Oil Search attributed 7% of its interest to Santos but that company’s involvement in the project is yet to be finalised.
Shares in Oil Search were trading up 15c (3.9%) to $3.96 in morning trade while AGL were trading up 11c (0.6%) to $17.11.
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