Oil Search, partners reach LNG project agreement

SYDNEY, March 14 (Reuters) - Australian-listed oil and gas producer Oil Search Ltd (OSH.AX: Quote, Profile, Research) said on Friday partners in a planned liquefied natural gas (LNG) project in Papua New Guinea have reached a commercial agreement, paving the way for the project to enter a development phase.

The agreement covers all commercial aspects, including gas supply arrangements, voting requirements as well as investment obligations, Oil Search said in a statement.

"The agreement paves the way to progress into the front end engineering and design (FEED) phase of the project, subject to the conclusion of a gas agreement with the PNG government," Oil Search said in a statement.

The proposed project, which will have a production capacity of 6.3 million tonnes a year, is estimated to cost $10 billion. The venture partners are targetting to have first delivery by 2014.

Based on the agreement, Oil Search will fund 34.1 percent of FEED costs, slightly lower than an earlier initial arrangement of 36.6 percent due to revisions in estimated gas resources in the fields as well as the exclusion of some other oil field liquids.

U.S. oil major ExxonMobil (XOM.N: Quote, Profile, Research), which will operate the project, will have a 41.6 percent interest. Australian oil and gas producer Santos Ltd (STO.AX: Quote, Profile, Research) will hold a 17.7 percent stake, while AGL Energy Ltd (AGK.AX: Quote, Profile, Research), Nippon Oil Corp (5001.T: Quote, Profile, Research) and PNG landowners will own the rest, Oil Search said.

ExxonMobil, which is negotiating fiscal terms with the PNG government, is expected to make a decision by the end of March on whether to go ahead with the FEED phase.

(Reporting by Fayen Wong)