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Australia’s Oil Search ups stake in Alaska field

28th June 2019

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – ASX-listed Oil Search will spend $450-million to double its interest in the Pikka Unit Nanushuk oil field, in Alaska.

Oil Search in February last year completed a $400-million acquisition of a 25.5% interest in the Pika Unit and adjacent exploration acreage and a 37.5% interest in the Horseshoe Block in the Alaska North Slope from privately-owned companies Armstrong Energy and GMT Exploration Company.

The company on Friday said that the decision to double its stake in the Alaskan blocks followed a comprehensive review of the data acquired over the last 18 months, with material value added to the assets through successful drilling and testing.

Oil Search has now exercised an option to acquire Armstrong Energy and GMT Exploration Company’s remaining 25.5% and 37.5% interests, respectively, in the Pikka Unit and Horseshoe areas, as well as a further 37.5% interest in the Hue Shale leases, and a 25.5% interest in other exploration areas.

“The option, negotiated as part of the original sales agreement with Armstrong, has allowed Oil Search to collect valuable further data from the 2018/19 exploration and appraisal programme in advance of making an additional $450-million investment in Alaska, on top of our original $400-million entry price,” said Oil Search MD Peter Botten.

“Following the success of the Pikka Unit drilling, combined with the progress on the development plan, exercising the option to acquire the remaining Armstrong interest is a logical and value-accretive step. I am confident this decision will deliver major benefits to the company.”

In conjunction with exercising its option with Armstrong, Oil Search has also reached an agreement with energy company Repsol to align their ownership interests on the Pikka and Horseshoe areas.

Under this agreement, Oil Search would transfer a 24% interest in the Horseshoe lease to Repsol, while the Australian company would acquire a 51% interests in the leases acquired by Repsol in the 2017 lease round.

This would result in Oil Search holding a 51% interest and Repsol a 49% interest across all co-owned leases for a net payment of $64.3-million from Repsol to Oil Search, with Oil Search to retain ownership of all lease areas.

Botten noted that the alignment with Repsol would enable the company to access Repsol’s considerable development expertise through secondees and subject-matter experts.

The two companies’ base development plan for the Pikka Unit Nanushuk development is now targeting first production through a 30 000 bbl/d early production system, using existing capacity in the processing facilities of an adjacent operator, followed by the development of dedicated facilities to manage production of some 120 000 bbl/d, allowing full field production to start in 2024.

The discussions regarding cooperation opportunities and facility-sharing with current North Slope operators are progressing well, and negotiations are targeted for completion by the time a front-end engineering and decision decision is to be made on the initial Pikka Unit Nanushuk development in the second half of 2019.

The early production concept would benefit all parties, and would assist with integrating early lessons and cost reduction initiatives into the full field development drilling, as well as generating early cash flows.

Botten said that the additional exposure to high-value interests in Alaska, combined with the strengthened relationship with Repsol, positioned Oil Search well for long-term success in Alaska.

Oil Search will fund the $450-million consideration from its existing $900-million corporate debt facilities, and an additional $300-million credit line is also being arranged. The new facilities will have a one-year term, to cover the maximum period anticipated until the planned sell-down of a portion of the acquired Armstrong interests.

Botten noted that Oil Search would be restarting a formal divestment process for some of its interests in its Alaskan portfolio, with the sale scheduled to conclude in the first half of 2020, ahead of a final investment decision for the initial Pikka Unit Nanushuk development.

The timing would allow the company to incorporate the results of the planned 2019/20 winter drilling programme, which will test both the material upside immediately adjacent to, and on trend with, the Pikka Nanushuk oil field, and the resource upgrade anticipated within the Pikka Unit Nanushuk core development area, thereby maximising the sale value of the assets included in any divestment.

Oil Search would retain a 35% interest in its core assets, the company said.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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