Oil Search

Before it has completed one mega LNG project, Oil Search already has designs on another. The company recently announced a joint venture with French energy giant Total to explore for mega-sized gas deposits in the Gulf of Papua, offshore Papua New Guinea. The agreement covers five offshore licences and Total has bought equity interests ranging from 35% to 50% in each of them. Oil Search will keep operator status on all blocks.

Although the company has declined to announce a dollar value for the deal it was highly sought, with multiple parties reportedly bidding to partner in PNG. The terms should be favourable, including a substantial upfront payment as well as the return of back costs and a large funding commitment. Just as well, because testing wells in this location will be pricey. That an industry ‘supermajor’ has stumped up as a buyer lends credibility to Oil Search’s ambitions.

Those ambitions are vast; the company wants to expand the PNG LNG project and, eventually, build a second development. New gas discoveries make it all but certain a third processing facility will be added to PNG LNG and the company is adamant it has barely scratched the surface of PNG’s gas potential. Plans that sounded ludicrous five years ago aren't today. We’re increasing the prices in our recommendation guide to account for progress made so far. The share price is up 6% since 21 Aug 12 (Hold – $7.19) and we’re sticking with HOLD.