Oil Search Limited (ASX: OSH) has elected to exercise an option which will double the company’s interest in several Alaskan oil operations. The cost is US$450 million.
About Oil Search
Oil Search was established in Papua New Guinea (PNG) in 1929, where it operates all of the country’s producing oil fields, it holds an appraisal and exploration portfolio and has a 29% interest in the PNG LNG Project.
Oil Search shares are listed on both the Australian and Port Moresby security exchanges.
Armstrong Option
Oil Search has chosen to exercise an option to acquire Armstrong Energy LLC and GMT Exploration Company LLC’s 25.5% and 37.5% respective interests in the Pikka Unit and Horseshoe area, as well as a 37.5% interest in the Hue Shale leases and a 25.5% interest in other exploration areas.
The total cost of exercising the option is US$450 million which will be funded from Oil Search’s existing US$900 million corporate debt facilities. The option exercise is scheduled for late August.
This additional investment is being made following a review period of 18 months since the original acquisition.
Once the option has been exercised, Oil Search will own 51% of the Pikka Unit and the Horseshoe Block, and they will also purchase a 51% interest in leases acquired by Repsol.
Development Plan
Oil Search and Repsol’s development plan for the Pikka Unit Nanushuk development is targeting first production in 2022 with a 30,000 barrels of oil per day (bopd) production system.
Further development of the facilities will result in production of 120,000 bopd, commencing in 2024.
What Does This All Mean?
The option allowed Oil Search to enter Alaska and collect data before committing to an additional investment. Oil Search’s decision to exercise the option shows they are now confident with the prospects of their Alaskan investment and are willing to go ahead with development.
While this looks positive, I don’t know enough about Oil Search and Repsol’s relationship to say whether the decided ownership structure will benefit Oil Search shareholders, or whether the price of US$450 million is reasonable.
For now, I’d rather invest in one of the companies mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
