Oil Search dusts off plans for selldown in Alaska project

Oil Search CEO Keiran Wulff. Picture: Jane Dempster

Oil Search managing director Keiran Wulff endured a baptism of fire during his first year in charge as an oil price crash sparked carnage, forcing job cuts and an emergency capital raising.

The market slump also forced the energy producer to hit pause on a selldown of its $US3bn ($3.9bn) Alaskan project.

Twelve months on (with oil bouncing back to $US66 a barrel), the transaction is live again. But landing a deal represents a sizeable challenge for Mr Wulff and his team.

To recap: Oil Search, best known for its Papua New Guinea LNG project, entered Alaska in November 2017 with a big M&A deal that gave it a stake in oil leases including Pikka and Horseshoe. Eighteen months later, it laid out more cash giving it a 51 per cent share of the project, with its partner, Spain’s Repsol, owning the rest.

Oil Search now wants to sell 15 per cent in a move that would leave it with 36 per cent, while Repsol is also looking to offload a similar share.

The duo will consider selling a combined 29 per cent share to a bigger investor while also retaining the rights to pursue individual deals.

For Oil Search investors, finding a buyer is critical to allow it to take a final investment decision on Alaska before the end of the year.

Oil Search has energy investment bank Tudor, Pickering, Holt & Co on hand with its adviser casting a wide net to scope out interest.

While it held talks with US major ConocoPhillips, one of its Alaskan neighbours, Tudor, is also understood to have engaged with Canadian superannuation funds, trading companies, pure-play investors and refiners in Japan and China looking for supplies.

While there is said to be plenty of initial interest in the opportunity, getting a fully priced offer may be difficult.

Traders would typically look to grab added value via supply deals known as offtake agreements, potentially hobbling project margins, while financiers’ reluctance to loan funds for Alaskan oil may also weigh on buyer sentiment.

Credit Suisse pointed to a watering down of Oil Search’s language at its AGM last week, when it talked about the possibility of a selldown rather than a commitment. That has sparked fears it may even look to sanction Alaska without a deal, likely to irk the market.

Mr Wulff lived in Anchorage for two years as Oil Search’s Alaskan boss and knows the territory well. He hopes to have indicative proposals by July or August, with a deal sealed before a final investment decision is made by year-end.