Oil Search drops 10% after PNG deal stalls
Oil Search shares have dropped more than 10 per cent in value after negotiations on developing a new gas field in Papua New Guinea fell apart over the weekend.
The PNG government chose to walk away from the final offer from Oil Search's joint venture partner ExxonMobile over the development of the P'nyang gas field after seven months of negotiations.
At 1211 AEDT on Monday, Oil Search shares were down 7.5 per cent to $6.70, after being down as much as 11 per cent in early trade.
PNG Prime Minister James Marape said in a statement issued on Friday that ExxonMobil's final offer would benefit PNG less than similar deals in Malaysia, Indonesia and Brunei.
"The gas belongs to PNG's people," he said.
"We are willing to allow international oil companies to develop the field and achieve decent returns by exporting most of the gas, but PNG must also benefit."
But Oil Search said that the cost of development and challenges of operating in Papua New Guinea was very different than other countries, making comparisons misleading.
"Under the terms proposed by the state, the joint venture partners were unable to obtain a return on their investment that made the project investable and bankable," managing director Peter Botton said.
Mr Botten told analysts that bridging the gap between ExxonMobil and PNG would be a priority for the company but he wouldn't be drawn on the odds of solving the impasse.
"It is clearly a valuable resource, and it's a valuable resource that has the most value the way we're proposing to develop it," Mr Botten said of 4.36 trillion cubic feet of gas field.
Oil Search said it would now seek to move forward with its $20 billion Papua LNG project, recognising that modifications would need to be made now that the P'nyang gas field development had been delayed.
Royal Bank of Canada energy analyst Ben Wilson said the impasse would mean Mr Botten's final three weeks as Oil Search's managing director would be busy ones.
"While it is tempting to rationalise this latest setback as another negotiating tactic, the protracted nature of concluding this last piece of the PNG ... expansion puzzle will have even the most ardent Oil Search backers concerned," he wrote in an analysts note.
Still he believed the most likely outcome is that PNG and Exxon eventually reach a deal.
The $13 billion project to develop the P'nyang natural gas field in PNG's Western Highlands would double PNG's gas exports by the mid-2020s.