Oil Search, Eni Discuss Papua New Guinea Prospects

By Angela Macdonald-Smith

Oct. 21 (Bloomberg) -- Oil Search Ltd., Papua New Guinea's biggest oil producer, is in ``ongoing talks'' with Italy's Eni SpA about potential opportunities in the Pacific nation where it is a partner in a proposed liquefied natural gas project.

The decision announced this month by Italy's biggest energy company to seek opportunities in Papua New Guinea underscores the potential there for further gas discoveries and projects, Oil Search Managing Director Peter Botten said today in Perth. Other investment opportunities are arising in Papua New Guinea as a result of the global financial crisis, he said.

Oil Search is a partner in Exxon Mobil Corp.'s proposed $11 billion LNG project in Papua New Guinea and is seeking to aggregate more gas reserves to supply further LNG ventures and gas-based processing plants. InterOil Corp., Talisman Energy Inc. and Rift Oil Plc are among companies with undeveloped gas discoveries in Papua New Guinea.

``We see a range of opportunities now to aggregate from some companies the gas that's needed to underwrite further development activity,'' Botten said in an interview. ``We've had a number of talks with Eni about being involved in PNG. There are ongoing discussions with Eni about how they can play a role with us, and without us, and just their introduction into the country.''

Oil Search gained as much as 28 cents, or 7.6 percent, to A$3.99 in Sydney trading on the Australian stock exchange and was at A$3.97 at 3:09 p.m. local time. The exchange's benchmark energy index advanced as much as 6.3 percent as crude-oil prices rose in New York.

Project Finance

Oil Search earlier today reported a 16 percent increase in third-quarter sales to $206.9 million from a year earlier, buoyed by a jump in the crude-oil price. Production slid 18 percent to 2.11 million barrels of oil equivalent in the three months ended Sept. 30.

The Exxon-led LNG venture has attracted interest from export credit agencies and banks that may help finance the venture even during the credit freeze gripping global financial markets, Botten said. Talks between the LNG marketing team and potential buyers are progressing and accords for LNG sales should be reached by late this year or early 2009, he said.

Oil Search's own new five-year, U.S. dollar-denominated revolving credit facility is in the ``final stages of documentation'' and should be signed within the next few days, Oil Search said. The ``attractive'' terms originally agreed haven't been altered as a result of the financial crisis, it said.

`Good News'

``The good news is the PNG LNG project appears to be progressing well,'' said Gordon Ramsay, an oil and gas analyst at UBS AG in Melbourne. ``The financing seems to be falling into place pretty well, with no indication of changes in terms following on from the financial meltdown.''

The company earned an average price of $122.98 a barrel for its oil in the third quarter, up from $75.61 in the year-earlier quarter. Sales fell from the second quarter of this year when the average price was a record $133.23 a barrel.

Oil Search, part-owned by the Papua New Guinea government, in July lowered its full-year production forecast to between 8.5 million and 9 million barrels because of the sale of fields in the Middle East, which cut output by 500,000 barrels.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net.