Santos finalises sale of 2.6pc stake in PNG LNG after deal size trim
Funding constraints mean PNG’s national petroleum and energy company will buy just over half of the planned 5pc stake from Santos, in a deal that tempers market nerves.
Santos has finalised a deal to sell a 2.6 per cent stake in the PNG LNG to the Pacific Island’s national petroleum and energy company, though apparent funding constraints have stopped Kumul Petroleum from completing the original deal to acquire 5 per cent of the gas facility.
Kumul Petroleum in 2021 struck a deal to acquire 5 per cent of PNG LNG but delayed completion for a second time in May to line up funding, stoking market jitters.
Wapu Sonk, managing director of Kumul Petroleum earlier this month told The Australian a deal would be done but it would be beyond the exclusivity period that expired on August 31.
In a deal that tempers market nerves but hints at why the deal has dragged on, Santos said on Friday it had finalised an arrangement to sell a 2.6 per cent stake in PNG LNG to Kumul for $576m plus $160m in project finance debt.
The deal also includes an option for Kumul to purchase another 2.4 per cent in PNG LNG for $US524m plus project finance debt. Kumul must exercise its purchase option by June 30, 2024. Should it do so, the deal will be worth $US1.4bn.
Santos chief executive Kevin Gallagher said the restructured deal was beneficial to both parties.
“This restructured transaction is a pragmatic solution that provides a clear pathway to completion and builds our strategic alignment with Kumul and our long friendship with PNG, where Santos has been a committed corporate citizen for over 40 years,” Mr Gallagher said.
Shares in Santos rose 2 per cent on hopes that the funds will be returned to investors.
If PNG exercises its option, the PNG state will own 22 per cent of PNG LNG, while Santos’ shareholding would fall to 37.5 per cent. It would remain the largest investor in the project.
The mooted sale was part of the arrangements agreed with PNG Prime Minister James Marape when Santos acquired Oil Search in 2021.
PNG Prime Minister James Marape has made securing greater financial benefits from resource projects a key focus, insisting the Pacific Island is open for foreign investment but it must receive a greater share of benefits.
“This transaction will increase Kumul’s interest in PNG LNG and supports the PNG government objectives for the people of PNG to have a greater equity interest in the development of their natural resources,” Mr Marape said of the deal with Santos.
Industry sources said should Kumul not exercise its option, Santos would likely move to sell to other parties, but it is unlikely the Australian company would secure the same lucrative terms offered by Kumul.
LNG is a key pillar in PNG’s ambition to boost the development of its resource sector for the benefit of the nation, and the Pacific Island nation is likely to want to exercise its option with Santos if it can line up financing.
PNG’s growth plan is also underpinned by a second mooted LNG facility in PNG, the $US10bn Papua LNG project that the Pacific island country believes will have a transformative effect on its impoverished economy.
Kumul has acquired a 2 per cent stake in the development. Should the lead consortium of TotalEnergies, Santos and ExxonMobil progress to the final investment decision – Kumul as the PNG representative will own 22.5 per cent of the project.
Further gas development could happen, and the P’nyang gas field – which has seen several false dawns – could finally be developed.
ExxonMobil and its partners last year struck a deal with the PNG government to develop the P’nyang gas field, ending years of uncertainty about a key part of a $20bn LNG expansion project that had stalled amid a row over terms.
Exxon had hoped to expand the P’nyang gas field to supply an expansion of its PNG LNG venture, but months of talks failed to reach an agreement and negotiations broke down in early 2020.