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AFX Asia (Focus); Australia’s Oil Search gains on report CNPC, PetroChina mulling bid – UPDATE

Published: Sep 17, 2007

SYDNEY (Thomson Financial) – Shares in Australian-listed oil and gas company, Oil Search Ltd, closed sharply higher Monday after a Hong Kong newspaper reported that state-owned China National Petroleum Corp (CNPC) and its Hong Kong-listed subsidiary PetroChina Co Ltd are considering bidding up to 5 billion US dollars for the company.

Oil Search, which has long been touted as a takeover target, is based on the Pacific Island of Papua New Guinea. CNPC is China’s largest oil and gas producer.

Oil Search closed up 45 Australian cents or 11.7 percent at 4.30 dollars, after hitting a high of 4.60 dollars in morning trade.

The S&P/ASX 200 closed down 35.4 points or 0.6 percent at 6,271.4.

”It’s not a particular stretch to believe or to understand that CNPC would be interested in acquiring Oil Search,” ABN Amro energy analyst Aiden Bradley told Thomson Financial.

”We wrote last August that they (CNPC) are probably the favourite if and when Oil Search does get taken over.”

Oil Search said in a statement to the Australian Stock Exchange it has not received a takeover offer from any company and a spokesman for PetroChina declined to comment on the article.

”Oil Search would like to confirm that it has not received any formal approaches by any party in regard to a takeover,” Oil Search managing director Peter Botten said in a statement.

”The company continues to discuss potential participation in a range of proposed gas developments in PNG with a number of international companies.”

Oil Search’s partner in PNG, ExxonMobil Inc, is investigating the merits of building an LNG project there.

Bradley said if ExxonMobil gives the go-ahead for front-end engineering and design (FEED) work — expected later this year or early 2008 — then he expects to see a takeover bid for Oil Search.

”Our view has been that when Exxon moves to FEED, that would be confirmation that they felt that LNG would be feasible and at that point, someone would acquire Oil Search,” Bradley said.

China’s leading state-owned energy companies, CNPC and CNOOC Ltd, have been acquiring oil and gas assets around the world as the central government attempts to shore up energy supplies to meet surging demand driven by China’s fast-growing economy.

Earlier this month, PetroChina signed a preliminary agreement with Woodside Petroleum Ltd, which is 34 percent-owned by the Royal Dutch Shell group, to buy up to 45 billion dollars’ worth of LNG from Woodside’s yet-to-be-developed Browse basin project off the north-western Australian coast.

PetroChina also signed an agreement with Shell for LNG from the yet-to-be-developed Chevron Corp-led Gorgon project in Western Australia.

Bradley said Oil Search would be a significant acquisition for the Chinese company because it would give them greater supply certainty and ”save them from paying current market rates for LNG, which are excessively high in their view.”

”Both of those projects (Gorgon and Browse) are massive in terms of scale, but Gorgon has been penciled in for 20 years now and still hasn’t got a brick in its development, so for the Chinese to be able to get a project where they have a significant stake in and have a fighting chance of actually working in the next five years would be [a positive],” Bradley said.

Kim Eng Securities agreed the acquisition would benefit PetroChina.

“An acquisition would be net beneficial for the company. The political risk would be very low and the reserves overlap with other CNPC/PetroChina operations in the Middle East and North Africa,” analysts at Kim Eng Securities said in a note to clients.

“We would expect the company to receive favourable financing terms from Beijing, creating additional value as long as the Oil Search sales price remains reasonable.”

(1 US dollar = 1.20 Australian dollars)

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