Santos Says Share Sale to Institutions Oversubscribed

By Ben Sharples

May 13 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil and gas producer, said it raised A$1.75 billion ($1.3 billion) in the “heavily oversubscribed” institutional portion of its A$3 billion share sale.

The allocation to institutions was expanded from A$1.65 billion to meet demand, while the component for individual investors of A$1.25 billion is now fully underwritten, Santos said today. The sale is the country’s largest since National Australia Bank Ltd. raised A$3 billion in November.

Santos plans to use A$1.05 billion of the proceeds to help fund spending at the $12.5 billion Exxon Mobil Corp.-led Papua New Guinea liquefied natural gas project, in which it has a 17.7 percent stake. The Adelaide-based company expects a “step-change” increase in production in 2014 once the venture and a proposed gas-export project in Queensland with Petroliam Nasional Bhd. come online.

“The PNG project is a pretty solid one and I think investors see it as a good reason to take up the offer,” said David Taylor, market analyst at CMC Markets in Sydney. “Everyone realizes that LNG is the way to go.”

Santos offered investors two shares for every five they own at A$12.50 apiece. Santos dropped 6.6 percent to $14.74 at 11:29 a.m. in Sydney trading, poised for the biggest decline since Dec. 5. The market’s benchmark index dropped 0.7 percent.

Project Costs

The retail component of the offer opens on May 15 and closes on June 5. The new shares issued under this portion of the sale will start trading June 17, Santos said today in a statement to the Australian stock exchange.

Exxon and its partners aim to give the go-ahead to build the project, Papua New Guinea’s largest investment, by the year- end.

Oil Search Ltd., the second-biggest partner in project, said yesterday speculation it will raise capital to help fund its portion of venture costs was “inaccurate.” Discussions with lenders are advanced and there has been no indication from potential lenders that Oil Search requires cash to cover debt, the Port Moresby-based company said.

Oil Search expects its funding requirements for the project to be about $4.8 billion, Managing Director Peter Botten said yesterday. Future equity needs at year-end are expected to be about $1.2 billion, depending on final capital costs, he said.

The capital cost estimate for the venture doesn’t include $2.6 billion for financing, a debt service reserve and start-up cash of $1.4 billion, or spending on LNG tanker ships, Santos said May 11.

LNG is natural gas that has been chilled to liquid form for transportation by ship to destinations not connected by pipeline. Exxon owns 41.5 percent of the Papua New Guinea project. Nippon Oil Corp. has a 5.4 percent stake.

To contact the reporter on this story: Ben Sharples in Melbourne bsharples@bloomberg.net