The Oil Search is over, thanks to Australian legal teams

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Papua New Guinea-focused legal expertise came to the fore for Australian legal teams this week, with the closure of a $900m gas deal that saw Australia’s fourth-largest oil and gas producer Oil Search acquire a 23% stake in PNG’s Elk/Antelope gas fields.

Acquired from Singapore-based Pacific LNG, the deal was a strategic one for Oil Search in line with its expansion and diversification strategy, and Australian law firms advised on aspects of both the acquisition and the unique financing requirements.

Sydney-based Allens partner Julian Donnan advised Oil Search on the financing aspects. Speaking with Australasian Lawyer, Donnan said it was Australian corporate and capital raising experience combined with the firm's speciality PNG knowledge that won the firm the deal from new client Oil Search.

“It was a newer relationship for us. Part of the reason why we were appointed was that we have got a PNG presence, and have had that for quite some time,” he said.

One of Allens’ corporate partners, who had worked in PNG for a number of years, was able to provide experience and knowledge on local PNG law, which was essential due to Oil Search’s status as a PNG-incorporated company listed on the Port Moresby Stock Exchange.

“We had to ensure the listing rules on both the Australian side and the PNG side were covered. An added overlay to that of course was the subscriber being a sovereign government; with the PNG government coming in to take a stake, there were the nuances that that involved.”

Indeed, the Oil Search acquisition was funded by the placement of 149.39 million fully paid ordinary shares to the PNG Government at A$8.20 per share. To raise the funding, the PNG Government entered into funding arrangements with international investment bank UBS.

Donnan said there were a number of issues with having a sovereign government involved.

“There are specific laws in PNG governing what needs to be done for the government to enter into such a transaction, including Cabinet approval being required,” he said.

The involvement of the PNG Government injected its own time pressures into the deal.

“The government had its own timing issues associated with the approval process.”

Some of these stemmed from an existing 15% stake in Oil Search held by PNG’s sovereign wealth fund, the Independent Public Business Corporation (IPBC). The stake needed to be transferred to Middle-East sovereign wealth fund the International Petroleum Investment Company (IPIC) ahead of the Oil Search deal going ahead, so the government could avoid breaching 20% takeover rules.

“Acquisition finance deals like this one need to be conducted relatively quickly so that the client can provide the purchase funds for the transaction; in this case, once the transaction was agreed to, there was a strong timing imperative to close the capital raising, so the client could go ahead and fund the US$900m acquisition of the PRL 15 gas licence.”

Donnan admits this did involve some weekend work and some late nights.

Added complexity came from a hedge position taken by UBS. In the unlikely event that the placement to the PNG state did not proceed because the final regulatory and financing approvals were not received, Oil Search executed a standby equity subscription agreement with UBS, to raise $700m by the issue of fully paid ordinary shares at a price of $8.20 per share.

“UBS conducted a bookbuild to determine allocations if it were required to take up stock, if the PNG Government didn’t proceed to get the necessary approvals,” Donnan said.

Donnan said cross-jurisdictional expertise also helped in regard to the UBS bookbuild.

“We needed to try and marry the issues presented by the two jurisdictions, and deal with the scenario where there was a bookbuild for institutional investors in Australia, and trying to get the the law right for the PNG scenario.”
 
Firms Advised
Allens Linklaters (Financing)
 
King & Wood Mallesons (Acquisition)
 
Ashurst
 
Norton Rose
 
King & Wood Mallesons

Oil Search
 
 
 
 
UBS
 
PNG Government
 
Goldman Sachs
 

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