The Santos Ltd (ASX: STO) share price is up today after announcing it has received an offer for a stake in PNG LNG.
PNG LNG stake offer
Santos, one of the ASX’s largest oil and gas businesses, has announced that it has received an offer for 5% of the PNG LNG project from Kumul Petroleum Holdings Limited for an asset value of US$1.4 billion, including a proportionate share of project finance debt of approximately US$0.3 billion.
If you haven’t heard of Kumul before, it’s Papua New Guinea’s national oil and gas company, and an existing partner in the PNG LNG project.
To secure the deal, Kumul has paid an amount of US$55 million to Santos which will be held (in escrow) to be released to Santos as a deposit for part payment of the offer, if accepted.
The offer is expressed as “irrevocable”, except in limited circumstances, and will remain open for acceptance until 31 December 2022. Santos has agreed to deal exclusively with Kumul during this period.
The proposed transaction would have an effective date of 31 December 2022, so Santos would get to retain all 2022 cash flows. Completion of the deal will be subject to normal conditions like regulatory approvals and Kumul securing financing.
Why is Kumul trying to buy this stake?
The potential sale would increase the equity interest of the State to approximately 22% supporting the PNG government objectives for the people of PNG to have a greater stake in the development of their natural resources.
This potential sale also represents, for Santos, the opportunity to build “strategic alignment” for the future development of PNG’s natural gas resources. This could be helpful for the Santos share price over time.
Management comments
Santos Managing Director and CEO Kevin Gallagher said:
PNG LNG is a low-cost and low emissions intensity asset that contributes strong cash flows to the project participants and economic and social benefits to the nation.
Following the transaction, Santos would maintain a 37.5% interest in this world-class project.
Santos has been a committed partner in PNG for over 40 years, involved in more than 30 different licenses and has significant community partnerships and projects across the nation.”
Summary thoughts on the Santos share price
I’m certainly not an expert on oil and gas. However, it would seem like a good move to get PNG even more involved in the project than it already is.
Are Santos shares worth buying? Quite possibly. Despite everything that has happened this year with energy prices, the Santos share price is only up by 4% in 2022 after dropping over 11% in the past week. It looks like it could be undervalued as it makes big profits, but it’s not something I’d put in my own portfolio for the long-term.
