AGL signs sales deal for PNG gas - Breaking News - Business - Breaking News

The $4 billion Papua New Guinea gas project has moved a step closer to becoming a reality with its first customer, Australian Gas Light Company (AGL), committing to a binding sales agreement.

The early settlement of the agreement underpinned a decision by Oil Search, one of the gas project owners, to also settle the sale of a 10 per cent equity stake to AGL.

Both agreements were announced last July and were expected to be finalised in the second half of 2006.

AGL managing director Greg Martin said the early finalisation of the deal would have an immediate positive impact on the company's earnings per share (EPS).

"It also reflects the company's confidence in the ability of the PNG gas project ... to provide an alternative source of competitively priced energy to support economic development in Eastern Australia," Mr Martin said.

AGL's interests in oil production are expected to provide immediate EPS accretion of about two to three cents per share for the six months to June 2006, and about seven to eight cents per share for 2006/07.

The purchase price of the equity stake, which is partly determined by oil prices, has increased to $US400 million ($A530.64 million).

It was previously estimated at $US300 million ($A397.98 million) when the deal was first brokered.

CommSec analyst Michael Smiddy said AGL has avoided paying even more for the stake as oil prices are tipped to continue to gain strength.

Oil Search said the cash would help strengthen its balance sheet as it prepares for a period of intense capital expenditure on development and exploration at the project.

Oil Search managing director Petter Botten said the equity sale would produce a one-off profit impact in 2005/06.

"There will undoubtedly be some positive impact on profit on the sale of this transaction," he said.

"Clearly there are some negatives on the basis that we are selling production ... but there is a positive differential between that and what we sold the asset for to AGL."

He said the early completion of the deals was a vote of confidence in the project and an important step in pushing the project forward.

"It sends a message to a range of other customers ... that this project is now a reality and there is now a need to close as soon as we can," he said.

Mr Smiddy said the project was now almost certain to get the go-ahead later this year.

"Nothing is certain, but over the last six to 12 months its likelihood has increased substantially," he said.

The finalised sales agreement replaces a conditional agreement for the sale of around 1,500 petajoules of gas over 20 years from the PNG gas project start-up.

Surplus cash flow from AGL's share of oil production is expected to fully fund AGL's participation in the project.

The PNG Gas Project participants are Australian-listed Oil Search, US-based ExxonMobil, PNG's MRDC and Japan's Nippon Oil Exploration Ltd.

A decision to proceed with the project is expected in the current half with the first gas scheduled for 2009.

© 2006 AAP
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