Narrative
Full Description
Project narrative
On September 27, 2022, Santos Limited (‘Santos’) — a Australian natural gas company with operations across Australia, Papua New Guinea, Timor-Leste and North America — announced the receipt of a binding conditional offer from Kumul Petroleum Holdings Limited (KPHL) to acquire an additional five percent equity stake (participating interest) in the PNG Liquid Natural Gas (LNG) Project. If fully implemented, the proposed transaction would have increased the equity stake of KPHL in the PNG LNG Project by 5% to 21.8%. However, the offer and the exclusivity arrangements with KPHL expired. Then, on August 31, 2023, Santos and KPHL executed a binding share sale and purchase agreement, in which Santos International Holdings Pty Limited agreed to sell KPHL a 2.61912% equity stake (participating interest) in the PNG LNG Project for $576.2 million (via the acquisition of all shares in Lavana Limited). Under the share sale and purchase agreement, KPHL also agreed to assume liability for a proportionate share of project finance debt (equivalent to $160 million). In addition, Santos agreed to grant KPHL a call option to acquire a further 2.38088% participating interest in the PNG LNG Project for a cash purchase price of $523.8 million (plus a proportionate share of project finance debt worth $145 million) (the so-called ‘Call option’). The Call Option had be exercised on or before June 30, 2024, and it was subject to completion of the sale agreement having occurred and the satisfaction of customary conditions including necessary regulatory approvals and third-party consents. Then, in early December 2023, KPHL disclosed that it was in ‘advanced talks’ with Bank of China, ICBC and Bank of Communications about the provision of a syndicated loan to enable KPHL to acquire the 2.6% equity stake (participating interest) in the PNG LNG Project for $593 million. KPHL’s Managing Director, Wrap Song, said at the time that the negotiations with these Chinese banks had progressed because they had fewer concerns than Western banks around fossil fuel development. He noted that ‘most of the funding discussions are really with Chinese backed banks because they have a different view on ESG.’ Then, on December 29, 2023, KPHL disclosed that it had finalized a syndicated debt financing agreement to facilitate its acquisition of a 2.6% equity stake in the PNG LNG Project for $593 million. KPHL Managing Director, Wrap Song, acknowledged at the time that KPHL would pay the $593 million cash consideration with $250 million of equity capital and $343 million of bank debt. KPHL paid $352 million to Santos (equivalent to a ~1.6 percent equity stake) on January 31, 2024 to enable partial completion of the transaction. At the same time, Santos and KPHL agreed an amendment to the sale agreement where KPHL took an effective interest in the Santos entity that holds the 2.6 percent sale interest. The amendment provided additional time for KPHL to pay the remaining purchase price of $241 million. Until final completion of the acquisition, Santos was to retain control of the entity holding the 2.6 percent participating interest and in order to assist with purchase of the remaining interest, future project distributions associated with the participating interest sold to KPHL were to be applied to acquiring the remaining interest.
Staff comments
1. For the time being, AidData assumes that Bank of China, ICBC and Bank of Communications were the only participants in the $343 million syndicated loan and that they all made equal contributions (worth $114,333,333). This issue warrants further investigation. 2. Santos is listed on the Australian Securities Exchange (ASX: STO) and is an Australian natural gas company with operations across Australia, Papua New Guinea, Timor-Leste and North America. Santos is one of Australia’s biggest domestic gas suppliers and a leading LNG supplier in the Asia Pacific Region. 3. The PNG LNG Project is an end-to-end integrated LNG development that includes gas production and processing facilities extending from the Hela, Southern Highlands, Western and Gulf provinces to Caution Bay in the Central Province. The PNG LNG facilities gather multiphase fluids from Hides wells and transport them through the Hides Spineline to the Hides Gas Conditioning Plant (HGCP), where the fluids are stabilised and transformed into two streams – gas and condensate. The dry gas from Hides, together with associated gas from the Moran, Kutubu and Gobe fields, is transported through over 700 kilometres of pipeline to the LNG Plant, which is located northwest of Port Moresby in the Gulf of Papua. At the LNG Plant, the gas is liquefied so that it can be exported via ship to customers in Asia as LNG. The condensate stream travels through the HGCP-Kutubu Condensate Pipeline to the Kutubu Central Processing Facility, and from there, to the Kumul Marine Terminal in the Gulf of Papua for export. Gas is also supplied domestically to the NiuPower and Dirio Gas & Power companies for power generation to supply energy for Port Moresby businesses and communities. KPHL and Santos, together with ExxonMobil PNG Limited (a wholly owned subsidiary of ExxonMobil Corporation) (ExxonMobil), JX Nippon Oil and Gas Exploration (JX Nippon), and Mineral Resources Development Company Limited (MRDC) are the co-venture partners and holders of Project Interests in the PNG LNG Project. 4. Under the August 31, 2023 share sale and purchase agreement, Santos International Holding Pty Limited (SIH) was obliged to procure another Santos subsidiary, Oil Search (Tumbudu) Limited (OST), to enter into a Call Option Deed under which OST would grant Lavana Limited an option to acquire a further 2.38088% participating interest in the PNG LNG Project on the terms and conditions set out in the Call Option Deed and the Asset Sale and Purchase Agreement (Asset SPA). The Call Option had to be exercised on or before June 30, 2024. Upon exercise of the Call Option, Lavana Limited, OST (procured by SIH) and KPHL were to execute and complete the Asset SPA to deliver a further 2.38088% participating interest in the PNG LNG Project to KPHL. Lavana Limited was to purchase the 2.38088% participating interest for a cash purchase price of $523.8 million and assume liability for the same proportion of project finance debt, being approximately $145 million. 5. Based on the design of a similar loan that KPHL previously contracted with UBS, AidData assumes for the time being that the loan was collateralized against future revenues from the PNG LNG Project. This issue warrants further investigation.