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Bloomberg: Oil Search Shares Jump on Report CNPC Venture May Bid (Update5)

By Angela Macdonald-Smith

Sept. 17 (Bloomberg) — Oil Search Ltd., the biggest holder of natural gas resources in Papua New Guinea, rose the most in five years after the South China Morning Post said the company may be a takeover target for China National Petroleum Corp.

China National Petroleum and its unit PetroChina Co. are studying a bid of as much as $5 billion for the Port Moresby- based company, the newspaper reported today, citing people it didn’t name. Oil Search has held talks with China National Petroleum on potential natural gas sales, not on any takeover offer, said Ann Diamant, a spokeswoman.

Buying Oil Search may help China, the world’s fastest- growing major economy, meet its goal of almost doubling natural gas as a source of energy to 5.3 percent by 2010. Chinese and Hong Kong-based companies spent $16.4 billion the past two years buying international energy assets, according to data compiled by Bloomberg.

“They have been waiting there like a coiled tiger,” said Aiden Bradley, an oil and gas analyst at ABN Amro Australia Pty. in Sydney. “CNPC has three LNG import terminals in China which they have approval for and no gas for them yet.”

Oil Search surged 45 cents, or 12 percent, to A$4.30 on the Australian Stock Exchange, with 34.9 million shares changing hands, more than four times the daily average.

No Comment

China National Petroleum spokesman Liu Weijiang and Mao Zefeng, who speaks for PetroChina, declined to comment. Bertha Somare, a spokeswoman for Papua New Guinea Prime Minister Michael Somare, said she wasn’t aware of the report, as did Glenn Blake at the Independent Public Business Corporation, the body responsible for the management of government-owned assets.

Oil Search, 18 percent owned by the Papua New Guinea government, is studying liquefied natural gas projects in ventures led by Exxon Mobil Corp. and BG Group Plc., to add to its existing crude production in the Pacific nation and in Yemen.

Papua New Guinea’s relations with China are “strong and growing,” Prime Minister Somare said earlier this month after his first bilateral meeting with China’s President Hu Jintao. China National Petroleum signed an agreement in January 2006 to develop gas supplies in Papua New Guinea and study an LNG project, while China National Offshore Oil Corp. is also assessing potential LNG production in the Pacific nation, the government said in December.

“They have spoken to us in the past about interest in acquiring gas and things like that,” Sydney-based Diamant said of the talks with China National Petroleum. Oil Search has also had “informal discussions” with other companies seeking to take an equity stake, she said.

European Interest

Some European oil companies are also studying Oil Search, South China Morning Post said. The process is at an early stage and no bid may be made, it said.

“The company continues to discuss potential participation in a range of proposed gas developments in PNG with a number of international companies,” Oil Search said today in a statement to the Australian Stock Exchange.

Oil Search had proven and probable reserves of 81.7 million barrels of oil equivalent at Dec. 31, plus gas resources of almost 4.6 trillion cubic feet. The company has been seeking ways to develop the gas resources and is studying LNG after dropping an earlier plan to build a pipeline to transport the fuel from the Papua New Guinea highlands to eastern Australia when a partner decided it wasn’t commercially viable.

Exxon’s Assurance

The Exxon Mobil-led venture is spending $60 million to decide whether to proceed with an LNG project using gas from the Hides, Juha and Angore fields in the Papua New Guinea highlands. Should the project go ahead, it may cost between $9 billion and $10 billion and may produce as much as 6.5 million metric tons a year of LNG, starting in 2013, Oil Search said earlier this month.

China National Petroleum and PetroChina will probably want an assurance from Exxon Mobil that the LNG project will go ahead, before making any formal bid for Oil Search, ABN Amro’s Bradley said. The Papua New Guinea government probably wouldn’t oppose any takeover by the Chinese companies as long as they give guarantees on future oil production and on the development of LNG production, he said.

The value the Chinese companies may ultimately extract from Oil Search’s assets may be between A$6 and A$9 a share, and they may consider a bid of as much as A$5.50 a share, Bradley said.

PetroChina, Asia’s biggest oil company by market value, plans to build three LNG import terminals: in Rudong in Jiangsu province, Dalian in Liaoning and Tangshan in Hebei, with the first due for completion by 2010.

PetroChina has an accord to buy LNG from Iran and earlier this month signed preliminary agreements to buy the fuel from Woodside Petroleum Ltd.’s Browse project and from Royal Dutch Shell Plc’s share of LNG from the Gorgon project, both in Australia.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected] .

Last Updated: September 17, 2007 02:27 EDT

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