Doubts over PNG’s offer for Santos stake
Papua New Guinea’s financial position poses a risk to the completion of Santos’s sale of a stake in a gas project.
Analysts say Papua New Guinea’s financial position poses a risk to the completion of Santos’s $US1.4bn ($2.2bn) sale of a stake in its PNG gas project, despite a “binding” government offer for the additional 5 per cent share.
State-owned resources company Kumul Petroleum put down a $US55m deposit to secure its offer for the additional 5 per cent share in the PNG LNG project, which produced a record 8.8 million tonnes of LNG last year.
Santos is still considering the offer, with Kumul also needing to win agreement from the project’s other shareholders – including project operator ExxonMobil, which holds a 33.2 per cent share, JX Nippon and MRDC – to waive any pre-emptive rights they hold.
If agreed, Kumul would move to a 22 per cent holding, with Santos selling down to 37.5 per cent.
Santos did not give any indication of whether it would accept the offer on Tuesday, but it has been open about its interest in selling down its holding in the PNG project to liberate funds for the development of its other oil and gas assets, including its $US2.6bn Pikka oil project in Alaska.
Given Kumul’s offer includes the assumption of $US300m in project debt, the $US1.1bn cash likely to flow to Santos would come close to filling the company’s $US1.3bn share of Pikka’s construction costs.
Santos said on Tuesday it would deal exclusively with Kumul over the sale of the stake until the end of the year, when a final decision from the Australian oil and gas major is due.
While Santos shares lifted 7c, or 1 per cent, to $6.95 on news of the offer on Tuesday, Credit Suisse analyst Saul Kavonic said there remained some uncertainty over where Kumul would find the cash to close the deal.
“The sale price is bang on our model valuation. Santos previously guided a sale price in line with consensus, so the ticket price should be little surprise,” he said in a client note.
PNG has run record budget deficits over the past three years, with the 2021 budget deficit sitting at about 7 per cent of total gross domestic product.
The most recent budget, handed down in November 2021, indicated Prime Minister James Marape was counting heavily on resources revenue to balance the country’s books.
“What isn’t clear is how PNG government-owned Kumul will pay for its stake, which may still present some risk to the deal,” Mr Kavonic said.
“The PNG government could seek funding from financial institutions, governments (such as Australia), or the LNG industry. There is no indication the PNG LNG joint venture partners, including Santos, will see to provide funding assistance, but if that were to occur that could alter the value proposition and read through of the deal, depending on terms.”