Oil Search acquires world class oil assets in the prolific Alaska North Slope

1st November 2017

Oil Search has signed an agreement to acquire a number of oil assets in the Alaska North Slope from privately-owned companies Armstrong Energy LLC and GMT Exploration Company LLC. The assets include a 25.5% interest in the Pikka Unit and adjacent exploration acreage and a 37.5% interest in the Horseshoe Block. These leases contain approximately 500 million barrel (gross) in the Nanushuk and satellite oil fields, with Nanushuk being one of the largest conventional oil fields discovered in the US in more than 30 years.

The acquisition will provide Oil Search with world class oil assets immediately adjacent to existing infrastructure. The Alaska North Slope is an established, prolific oil producing province, in the world’s largest developed economy, with an attractive fiscal regime. The assets complement the Company’s existing top quartile, high returning PNG gas portfolio and, with significant growth opportunities, have the potential to become, over time, a material business for Oil Search, of a scale equivalent to its PNG assets. 

The terms of the acquisition are as follows:

• The purchase of a 25.5% interest in the Pikka Unit and adjacent exploration acreage, 37.5% interest in the Horseshoe Block and 37.5% in the Hue Shale, for US$400 million. 
• An option, exercisable at Oil Search’s discretion until 30 June 2019, to purchase all of Armstrong and GMT’s remaining interest in the Pikka Unit and the Horseshoe Block (25.5 % and 37.5% interest respectively) as well as an additional 25.5% interest in the adjacent exploration acreage and 37.5% in the Hue Shale, for US$450 million. 
• Oil Search will carry Armstrong and GMT’s share of the 2018/19 appraisal programme (approximately US$25-30 million) if the option is not exercised by 1 June 2018.  Oil Search will assume operatorship on 1 June 2018. 
• Oil Search will form a long term partnership with Armstrong, leveraging its technical capabilities and experience in the identification of additional potential growth opportunities in Alaska. 

Oil Search has also entered into a cooperation agreement with Halliburton, whereby Halliburton will provide resources and capability to supplement Oil Search’s technical and operating skills on the ground in Alaska. Halliburton is a global leader in oil and gas services with a strong presence and expertise in Alaska and will assist Oil Search in the areas of drilling, field appraisal, development and the application of latest technologies. This cooperative approach mirrors the successful collaboration that was formed between Oil Search and Halliburton in PNG in 2003, shortly after Oil Search took over operatorship of PNG’s oil fields. 

The Nanushuk field, which is located adjacent to several giant producing oil fields, was discovered in 2013. To date, 19 exploration and appraisal wells have been drilled on the field, which, combined with full coverage of 3D seismic data, have delineated a giant oil resource. The acquisition has been made on the basis of a discovered resource of approximately 500 million barrels, with material prospective resource upside. Repsol S.A., which holds the balance of the interests in the Pikka Unit, exploration acreage and Horseshoe leases, currently estimates the discovered resource to be up to 1.2 billion barrels. Oil Search expects that the initial development will target 500 million barrels of oil in the Pikka Unit, with first production anticipated in 2023 and plateau production rates of 80,000 – 120,000 barrels per day (gross). 

There is also significant exploration and appraisal upside within the 2,889km2 portfolio, with unrisked resource potential estimated at 1.5 billion barrels. Most of this acreage is currently unexplored. 

The acquisition, which is expected to be NAV per share accretive, will be funded from Oil Search’s existing cash. The Company’s current liquidity is approximately US$2 billion, comprising US$1.2 billion of cash and US$850 million of undrawn corporate facilities. Together with strong free cash flow from Oil Search’s producing assets, the Company has the financial flexibility to fund both the LNG expansion project in PNG and the development of the Nanushuk field, while maintaining the existing dividend policy. 

The acquisition is subject to standard US regulatory approvals, including approval by the Committee on Foreign Investment in the US (CFIUS). There are no pre-emptive rights associated with the purchase. 

Oil Search anticipates the transaction will close by no later than early in the first quarter of 2018.