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November 2017

Vol. 22, No. 47 Week of November 19, 2017

How Oil Search views Nanushuk development

Papua New Guinea-company funding acquisition from cash; looks to project financing for development; 500 million barrels initially

Kristen Nelson

Petroleum News

As reported in the Nov. 5 issue of Petroleum News, Oil Search is in the process of acquiring a portion of Armstrong Energy and GMT Exploration’s Pikka and Horseshoe assets for $400 million. Oil Search, which operates in Papua New Guinea, said that amount is for an estimated discovery of some 500 million barrels of oil.

Oil Search will fund 2018 capital expenditures of some $50 million and become operator in June. The company has the right to acquire the remainder of Armstrong and GMT’s Pikka and Horseshoe and related exploration assets for $450 million.

In a Nov. 1 analysts’ presentation, Oil Search pegged the development cost at an estimated $4 billion for the 500 million barrel resource size. The company said it would use project financing and estimated that its equity funding requirement would be $300 million to $400 million, payable over a three-year construction period. It said country stability and maturity of the industry made project financing for Alaska projects readily available.

Funding from cash position

Oil Search said its current liquidity is some $2 billion, $1.2 billion in cash and $850 million in undrawn corporate facilities, with the initial $400 million purchase funded from surplus cash.

The company, which operates oil fields in Papua New Guinea and is a partner in the PNG LNG project, said the Alaska purchase would be funded from its existing cash position; there would be no requirement to raise equity.

Repsol, which has partnered with Armstrong and GMT, holds a 49 percent interest in Pikka and Horseshoe. Repsol said in March after drilling of the Horseshoe wells that they extended by 20 miles the play found at Pikka and said it believed the Pikka-Horseshoe resource could be 1.2 billion barrels, with a production rate which could approach 120,000 barrels per day.

Depending on the size of the accumulation, the acquisition cost ranges from $3.10 per barrel to $1.30 per barrel of discovered resource, Oil Search said.

The company told analysts that the $4 billion for 500 million barrels would be the first phase of development, producing out of Nanushuk, with first oil expected in 2023.

Appraisal drilling

Appraisal drilling would take place in 2018, followed by front-end engineering and design in 2019, a final investment decision in 2020 and first oil in 2023.

A single appraisal well is planned for 2017-18, Oil Search said, with three to six appraisal wells planned for 2018-19.

Development would take place from three drill sites, with an estimated 60 producers and 60 injectors and a single processing facility; exploration would be ongoing, the company said.






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