February 23, 2010 / 5:26 AM / 10 years ago

UPDATE 2-Oil Search flags major growth plans for LNG business

* Financing, sales contract for PNG LNG to be resolved by Q1

* Says focus on proving more gas for PNG LNG expansion

* Looking to generate growth beyond PNG LNG, eyes exploration (Writes through, adds comments from managing director)

By Fayen Wong

PERTH, Feb 23 (Reuters) - Australia’s Oil Search (OSH.AX) flagged on Tuesday an ambitious timeline for the expansion of the Papua New Guinea liquefied natural gas (PNG LNG) project and said it might combine its gas resources with those of other firms to underpin a speedy expansion of its LNG business.

With gas resources estimated at more than 20 trillion cubic feet, Papua New Guinea has become a hotspot for global energy companies seeking to develop projects in close proximity to booming Asian energy demand.

Oil Search, a partner in the ExxonMobil-led (XOM.N) PNG LNG project, said the $15-billion development could add a third gas processing train by late 2015-2016 — or just about a year after the 6.6 million tonnes per year (mtpy) project comes online.

There are also plans to bring on a fourth production train, with the gas reserves potentially underpinned by itself and third parties, should the gas fields dedicated for PNG LNG not have enough resources.

“There is no doubt that train three is to come from the PNG LNG gas fields, but we also can’t ignore the fact that other players, like Talisman TLM.TO or Sasol (SOLJ.J), also have significant gas resources out there,” Managing Director Peter Botten told analysts on a teleconference.

“I would say the evolution of train three and four could see a number of people come to the table with their gas reserves and see how that fits in the PNG LNG expansion plan.”

PNG LNG was approved by project partners in December and is expected to start production in 2014 via two production trains. Oil Search will also undertake a major seismic study of its offshore acreage in Papua New Guinea this year, and may bring in other parties to develop a separate LNG development if exploration is successful, Botten said.

“We want to be well situated for the growth in LNG demand over the next 5-10 years and we’re in active discussions with various players to optimise our acreage positions,” he said.

Botten also dismissed speculation by some analysts that the firm would sell down its stake of nearly 30 percent in PNG LNG to fund other growth opportunities.

“We’re in an extremely good shape financially and that’s definitely not on our cards at the moment,” he said.

Shares in Oil Search rose 1.3 percent to A$5.37 by 0445 GMT, compared with a 0.26 percent decline in the broader energy index.

LNG DEMAND

A planned expansion of PNG LNG means the project will have to compete with about a dozen rival developments in the Asia-Pacific region.

Although Botten conceded there was a risk of LNG oversupply, he said he was confident PNG LNG would have little trouble securing additional buyers, adding that projects backed by good economics and gas reserves will have a significant advantage.

Oil Search said the final LNG sales agreement with Taiwan’s CPC Corp and financing arrangements with lenders would be resolved by the end of March, and the first draw downs from the financing facility are expected soon after financial close.

Separately, the Port Moresby-based firm said it booked an additional 505 million barrels of oil equivalent (boe) of proven and probable (2P) reserves as a result of the project, lifting its total 2P reserves to 567 million boe in 2009.

It posted a 59 percent fall in 2009 underlying net profit to $99.6 million, hit by weaker production volumes and lower oil prices. (Reporting by Fayen Wong; Editing by Balazs Koranyi and Clarence Fernandez)

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