OSH Oil Search Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--Oil Search Ltd. has struck a deal to operate what may be one of the largest U.S. oil discoveries in decades.

The mid-sized energy company said Wednesday that it will pay $400 million for interests in assets in Alaska's North Slope, including the Nanushuk oil field sandwiched between two established fields controlled by ConocoPhillips.

Earlier this year, Spanish oil company Repsol SA and exploration firm Armstrong Energy LLC estimated Nanushuk could hold 1.2 billion barrels of recoverable light oil, which would be one of the biggest onshore U.S. finds in 30 years.

"I didn't believe assets of this quality could necessarily be found," Peter Botten, managing director of Oil Search said. "These are unusual assets."

Oil Search, based in the Papua New Guinea capital of Port Moresby and listed in Australia, has been on the hunt for assets that would help balance a portfolio heavily weighted to gas operations in a single country.

The agreement signed by Oil Search will see it purchase stakes in three exploration blocks in the North Slope from privately-held Armstrong and GMT Exploration Co., and assume the role of operator from June 2018. It has an option to buy majority control of the blocks for a further $450 million by mid-2019, while Repsol retains a 49% interest in the central block and 25% stakes in another block as well as exploration acreage.

The deal was struck on the assumption of a 500 million barrel resource, which Mr. Botten said worked out to a purchase price of $3.10 a barrel, with the potential for that to fall to $1.30 based on Repsol's estimate of a 1.2 billion barrel discovery.

Oil Search operates all of Papua New Guinea's producing oil fields, though these are dwarfed by output from Exxon Mobil Corp.'s big liquefied natural gas operation in the country, in which Oil Search has a 29% interest. It also has interests in a number of undeveloped gas fields in Papua New Guinea, including assets operated by France's Total SA.

The Alaskan assets, which sit near to existing infrastructure, are set to bring oil to the market more quickly than the proposed LNG expansion projects in Papua New Guinea and have the potential for higher returns, Mr. Botten said. The Alaska business could in time rival the scale of the Papua New Guinea gas-export operations, he added.

Mr. Botten said Oil Search had the capacity to fund both its share of LNG expansion and the development of the Nanushuk field without a change to its dividend policy or any need to raise additional equity, with the initial acquisition in the North Slope paid from surplus cash. He said the company would work with Halliburton Co. to develop its Alaska operating capabilities.

The companies are targeting a final investment decision on the Nanushuk field in 2020 and first oil three years after that, aiming to reach production of 80,000-120,000 barrels a day. There have been 19 exploration and appraisal wells drilled to date in the field, which was discovered in 2013, Oil Search said.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

October 31, 2017 22:07 ET (02:07 GMT)

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