Australian LNG producer Santos said it had received a binding offer from Papua New Guinea’s national oil and gas company Kumul Petroleum to buy a 5 percent stake in the PNG LNG project.
The deal has an asset value of $1.4 billion, including a proportionate share of project finance debt of about $0.3 billion, Santos said in a statement on Tuesday.
Santos said in its first-half result report it was in “advanced discussions” with shortlisted counterparties for the sale of a five percent interest in the PNG LNG project.
The company currently has a 42.5 percent stake in the 6.9 mtpa LNG export plant in Caution Bay following the Oil Search merger, while Kumul has a 16.8 percent stake.
ExxonMobil holds a 33.2 percent operating interest in PNG LNG.
To secure the offer, Kumul has paid an amount of $55 million to Santos which “will be held in escrow to be released to Santos as a deposit for part payment of the offer price if it accepts the offer,” the Australian firm said.
The offer is conditional on Kumul obtaining the waivers of certain pre-emptive rights by each other PNG LNG project participant under the project operating agreement to allow the transaction to proceed, it said.
Santos said the offer would remain open for acceptance until December 31, 2022.
The firm has agreed to deal exclusively with Kumul during this period regarding the sale of equity in PNG LNG.
The proposed transaction will have an effective date of December 31, 2022 with Santos to retain all 2022 cash flows.
Completion remains subject to customary conditions including necessary regulatory approvals and Kumul securing financing.
The potential sale would increase the equity interest of PNG to about 22 percent “supporting the PNG government objectives for the people of PNG to have a greater equity interest in the development of their natural resources,” Santos said.
As part of the proposed transaction, Santos and Kumul will negotiate a heads of agreement to further collaborate on the development of Kumul’s regional capacity and capability, including carbon emission reduction opportunities to achieve net-zero operations.
Santos CEO Kevin Gallagher said the potential sale of a 5 percent interest in PNG LNG to Kumul represents an opportunity to build strategic alignment for the future development of PNG’s natural gas resources, including via PNG LNG infrastructure.
“PNG LNG is a low-cost and low emissions intensity asset that contributes strong cash flows to the project participants and economic and social benefits to the nation,” Gallagher said.