Oil Search: Elk-Antelope gas certification completed

Oil Search said on Friday that Gaffney Cline & Associates and Netherland, Sewell & Associates, have concluded their independent certification of the Elk-Antelope fields, located in PRL 15, in Papua New Guinea. 

The two certifiers noted the average 2C resource is 6.43 tcf of raw gas and is consistent with the 6.5 tcf of raw gas calculated by Oil Search as part of its recent assessment of the fields, the company said in its statement.

In accordance with the terms of the Oil Search – PAC LNG Group of companies (PAC sellers) Sale and Purchase Agreement, as the certified volume of 2C raw gas is less than 7.0 tcf, Oil Search is not required to make a payment to the PAC sellers.

The certification indicates that the Elk-Antelope fields in PRL 15, in which Oil Search holds a 22.8 percent stake and P’nyang in PRL 3 in which Oil Search holds a 38.5 percent stake, contain approximately 10 tcf of 2C gas resource, sufficient to underpin at least two additional LNG trains in PNG.

“Importantly, the high level of 1C resource, of approximately 6 tcf, should facilitate project financing and LNG marketing,” the company said.

“Oil Search believes that an optimal development has the potential for at least US$2-3 billion of capital cost savings and approximately US$100 million per annum of operating cost savings, plus schedule acceleration that would benefit all stakeholders,” the statement reads.

Implications for the proposed US$2.2 bln InterOil acquisition

Earlier in May, Oil Search signed an agreement with InterOil to acquire all of its outstanding shares.

In addition to the 8.05 Oil Search shares InterOil shareholders will receive for each of the company’s shares, the shareholders will receive approximately $6.05 per InterOil share for each tcfe above 6.2 tcfe gross certified 2C resource in the Elk-Antelope fields.

This would play in hands of InterOil shareholders as the Antelope 7 well testing has not been included in the certification. With its potential for 1 to 2 tcf of additional recoverable gas, once the testing is over this is additional potential value for InterOil shareholders that could be realised from the contingent value right (CRV).

Commenting on the certification, Peter Botten, Oil Search’s managing director added that the certification results confirm the company’s view of the potential for at least two more LNG trains in PNG.

“The key next step is to commence drilling the Antelope 7 well in the third quarter, which is targeting an additional 1-2 tcf of gas in the western flank of the field,” Botten said.

He added that in parallel with the Antelope 7 drilling, Oil Search will continue working with all stakeholders to move into the development phase and focus on a concept that captures the considerable integration opportunity between PNG LNG and Papua LNG.