Santos downsizes PNG sale deal amid Kumul funding woes

afr.com:

Santos has finally firmed up the sale of a minority interest in its Papua New Guinea LNG venture to PNG’s national oil company, but the deal only involves just over half of the 5 per cent agreed in the original $US1.4 billion ($2.2 billion) deal announced 12 months ago.

Under the deal announced on Friday, Kumul Petroleum will buy 2.6 per cent of PNG LNG for $US736 million, including debt. It will now only take an option to buy the other 2.4 per cent by June 30 next year.

The PNG LNG venture near Port Moresby is a major revenue earner for Papua New Guinea. AdvantagePNG

While the latest terms reflect the same valuation as before for the whole PNG LNG venture, the size of the sale has effectively been halved, given the lack of certainty Kumul will exercise the option.

The change to the transaction appears to reflect difficulties for Kumul in putting in place financing for the full 5 per cent, with the deadline for the binding arrangement already having to be twice extended.

“This transaction is on the same terms as the original deal proposal, but split into two parts – highlighting the difficulty Kumul may have experienced in funding the transaction,” said RBC Capital Markets analyst Gordon Ramsay.

He said the transaction paves the way for a capital return from Santos to shareholders.

Shares in Santos were up 1.6 per cent at $7.795 just before midday.

Kumul Petroleum (KPHL) managing director Wapu Sonk said in March that the company was in discussions with several financiers to help fund the 5 per cent acquisition, including private equity funds, banks and export finance agencies, but that rising interest rates made the funding task “much harder”.

The latest deal for only a 2.6 per cent stake is not subject to finance,