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PNG’s Oil Search buy ‘blocked takeover’

PNG’s controversial deal to buy a stake in Oil Search in 2014 has resurfaced to threaten the future of Prime Minister Perter O’Neill.

The leaked Ombudsman’s Commission report speculates that Oil Search had become vulnerable to a takeover by its Middle East shareholder IPIC
The leaked Ombudsman’s Commission report speculates that Oil Search had become vulnerable to a takeover by its Middle East shareholder IPIC

Papua New Guinea’s deal to buy a 10 per cent stake in Oil Search in late 2014 was partly triggered to dampen the prospect of Abu Dhabi wealth fund IPIC mounting a takeover of the LNG producer, PNG’s independent integrity watchdog has claimed.

The hugely controversial deal has re-emerged to threaten the future of PNG’s under-pressure Prime Minister Peter O’Neill over claims he engaged in improper conduct relating to the $1.23 billion UBS loan to buy shares in Oil Search, which is led by Peter Botten.

The leaked Ombudsman’s Commission report speculates that Oil Search had become vulnerable to a takeover by its Middle East shareholder IPIC, partly triggering the loan which allowed the cash-strapped PNG government to acquire its stake.

The deal turned sour when the oil price fell cutting Oil Search’s share price and slashing the value of PNG’s stake by hundreds of millions of dollars.

“The fear of a takeover by IPIC led Oil Search to arrange an alternative arrangement that was mooted by Mr Botten and the Prime Minister and that was to sell Oil Search Ltd shares to the government of PNG,” the report says.

Sources close to Oil Search rubbished the overall thrust of the report noting it was a politically motivated attack to destabilise Mr O’Neill and displayed a basic misunderstanding of funding and capital raising processes.

Oil Search’s lawyers and board were last night reviewing the Ombudsman’s report.

The UBS loan allowed Oil Search, which was developing natural gas assets in the PNG Highlands, to take a 23 per cent interest in the country’s Elk-Antelope gas fields as part of a $US900 million deal.

The report questioned whether the series of deals flouted any trading rules, but Oil Search said it did not contravene any regulations.

“Oil Search undertook a placement to the government of PNG and followed all standard market practices in executing such placement,” Mr Botten said yesterday. “In doing so, Oil Search fully complied with all relevant insider trading laws and regulations.”

While PNG bought its Oil Search shares for $8.20 each back in 2014, both Oil Search and UBS had indicated to the government that a price of $8.50 per share was the targeted price to complete a deal.

UBS had advised $8.20 was an unrealistic price for the transaction on February 24, 2014, according to the report, and the state would need to pay $8.50 a share to get a deal over the line.

However, Mr O’Neill pushed for $8.20 arguing that was the price Mr Botten had previously indicated on February 22 of that year, a chronology of events in the report said.

UBS declined to comment.

Mr Botten is set to bow out as Oil Search boss in the next year after a quarter century in the top job.

While Oil Search struck a $16 billion agreement last month with the PNG government to expand LNG, the deal has also reignited tensions among its political leaders over concern the Pacific nation failed to negotiate sufficiently attractive terms for the state.

The Prime Minister defended the government’s role in the UBS issue last week, but risks have been raised the gas agreement may be torn up should a change of leadership transpire when parliament resumes at the end of May.

Perry Williams
Perry WilliamsBusiness Editor

Perry Williams is The Australian’s Business Editor. He was previously a senior reporter covering energy and has also worked at Bloomberg and the Australian Financial Review as resources editor and deputy companies editor.

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Original URL: https://www.theaustralian.com.au/business/mining-energy/pngs-oil-search-buy-blocked-takeover/news-story/8f30287b672a2740b02f361cb82fd753