This $2.2B Mega-Deal Shows A Critical Trend In Global Natgas by Dave Forest, Pierce Points
Lots going on in the global natural gas sector this week. With Argentina Friday unveiling a very attractive fixed price of $7.50/MMBtu through to end 2018. And Israel’s government Sunday announcing a new plan to fast-track the Leviathan offshore mega-project.
But perhaps the biggest news in natgas came from a completely different part of the world.
This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery
The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
Papua New Guinea.
That’s where Australia’s Oil Search Ltd. Friday announced one the largest M&A deals seen in recent memory for oil and gas. With the firm saying it will bid $2.2 billion for PNG natural gas developer Interoil Corp.
This is a big acquisition — in a time when most E&Ps are shying away from buying assets. But looking at the numbers behind the deal, there’s a strong logic here for Oil Search.
The Interoil assets that Oil Search will acquire include 6.2 trillion cubic feet of reserves in the Elk-Antelope fields of eastern PNG.
These fields are critical in feeding into the Papua liquefied natural gas (LNG) export project. An operation being developed by Interoil and partner Total.
Oil Search isn’t far from this story. Owning a 29% stake in the nearby PNG LNG project, already in operation under the guidance of ExxonMobil. And by acquiring Interoil, Oil Search will now gain a 29% interest in the new Total-operated project.
In effect, Oil Search is spending $2.2 billion to double-down on PNG natgas. Likely because of this area’s proximity to the world’s top natural gas market: Asia.
PNG is one of the shortest sails to Asia in terms of LNG-supplying nations. And as the chart below of global natgas pricing shows, Asia is the place to be today when it comes to selling natgas — with prices in the region last year averaging a world-leading $8/MMBtu.
Global Natgas – Source: International Gas Union
All of which shows there’s still a lot of interest in the right oil and gas projects, even amid today’s depressed global market. Location and regional pricing is key — watch for the strongest and most well-positioned projects to start separating from the pack in terms of value.
Here’s to picking your spots,