Horizon Oil has announced that it is pulling out of Papua New Guinea and selling its assets to its co-venturer, Arran Energy. The prospect of weak oil and gas prices may be to blame, according to one analyst.

Horizon Oil’s drill rig at Ketu-2 in Western Province.

In an announcement to the Australian Securities Exchange, Horizon Oil said it had agreed to sell all of the shares in its wholly-owned subsidiary, Horizon Oil (PNG Holdings), to Arran Energy Investments – a transfer of its entire PNG asset portfolio. On completion of the transaction, ‘Horizon will cease to have any operations in PNG.’

Horizon had a 30 per cent interest in the Stanley field, 30.1 per cent stake in the Elevala/Ketu fields, 30 per cent stake in the Ubuntu field, 20 per cent stake in the Puk Puk and Douglas fields, and an 80-100 per cent stake in surrounding exploration licences.

‘PNG has been a big part of the Horizon story for many years and the decision to sell was not taken lightly.’

On completion, Horizon will receive US$3.5 million (K12.2 million) in cash.

Uncertainty

‘PNG has been a big part of the Horizon story for many years and the decision to sell was not taken lightly,’ the Chief Executive of Horizon, Chris Hodge, said in the statement.

‘While undoubtedly a substantial, good quality resource, our ability to realise value in PNG was becoming increasingly long dated and uncertain, as was highlighted by the impairment write-downs taken earlier in the year.

‘Divestment of our PNG interests was carefully considered in the context of our overall corporate strategy and we are pleased to have agreed terms with Arran Energy.’

‘I don’t think you want to be spending billions of dollars on developing a field that in 10 years time is probably going to be worth about a third of the value.’

Arran Energy started as an oil and gas advisory and consulting company and has moved into upstream asset ownership. Its Executive Chairman, Mark McGowan, has a long history in PNG, having previously worked at Eaglewood Energy and Oil Search.

Horizon Oil acquired Eaglewood Energy, which previously held many of the assets now being sold on to Arran Energy, in 2017.

Weak prices?

Fat Prophets’ David Lennox talks LNG

David Lennox, Resource Analyst for Australian stock market research firm Fat Prophets, says that margins on LNG have been ‘fairly weak’ over a period of time.

He says a ‘sea change’ in the global automobile industry, especially a push into electric that is altering the way carbon-based power is valued. It is likely to result in an oil price ‘on a lower trajectory’, which will also affect the LNG price.

‘Obviously the profit margins on LNG have been fairly weak over a long period of time,’ Lennox tells Business Advantage PNG. ‘Ultimately, the gas price will probably go the same way as oil. But it will take a lot longer because, when it burns, it releases less carbon, although it is carbon-based.

‘At the moment, the gas price tends to follow the oil price. At some stage there will be a nexus break when they are seen as separate commodities and gas is seen as a stand alone.

‘Horizon is probably looking at itself and saying: “If I have to throw in three or four billion [dollars] into this over the next three or four years to get it to production, that is a lot of money in what could be a rather tepid price environment.” Oil is really high margin. In natural gas, you get the volume, but not the margins.

‘You also have the geopolitical part of it, which is stabilising but there is the potential for further tension. If Horizon think PNG is not going in the right direction for foreign investment, they will not be forking out billions.”