Santos sells off stake in ExxonMobil-operated LNG project - Upstream Online

Santos sells off stake in ExxonMobil-operated LNG project | Upstream Online

Australian operator Santos has executed a binding sale agreement with Kumul Petroleum to divest a 2.6% participating interest in the ExxonMobil-operated PNG LNG project for US$576 million and the assumption of about $160 million of project finance debt.

“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,” Papua New Guinea Prime Minister James Marape said.

The $19 billion liquefaction project in PNG began operations nine years ago and today routinely produces in excess of 8 million tonnes per annum of liquefied natural gas, significantly above its 6.9 million tpa nameplate design capacity.

Santos is the largest equity owner in the PNG LNG, holding a 42.5% stake.

Completion of the sale agreement is not subject to finance and is conditional only on the approval of the PNG competition regulator on, or before, 31 December 2023, Santos said on Friday. Kumul has paid $80 million into escrow as part payment of the deal.

Kumul has undertaken to make further prepayments into escrow until completion.

Santos also has agreed to grant Kumul a call option to buy an extra 2.4% participating interest in PNG LNG for $524 million, plus a proportionate share of project finance debt.

This call option must be exercised on, or before, 30 June 2024 and is subject to the sale completion and the satisfaction of customary conditions, including necessary regulatory approvals and third-party consents.

Earlier approach

In September last year, Santos received a conditional offer from Kumul to buy a 5% interest in PNG LNG. This offer and the exclusivity arrangements with Kumul expired on 31 August 2023, after the completion deadline was extended twice by Kumul as it struggled to secure the necessary financing.

Santos added that the financial terms and effective date (31 December 2022) of the novel transactions announced on 1 September 2023 are consistent with the terms of that previous offer inclusive of the transfer of project finance debt.

“I am pleased we’ve reached a binding agreement with Kumul on the sale of up to 5% of PNG LNG. 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,” Santos chief executive Kevin Gallagher said.

“PNG LNG is a low-cost and low emissions intensity asset that contributes strong cash flows to the project participants and economic and social benefits to the nation.”

Prior to this deal, the partners’ interests in PNG LNG were operator ExxonMobil on 33.2%, Santos with 42.5%, Kumul having 16.8%, JX Nippon Oil on 4.7% and the PNG landowner Mineral Resource Development Company with 2.8%.

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