OSH and TOTAL, page-10

http://www.barrons.com/articles/oil...-enhances-m-a-appeal-to-oil-majors-1506053696

Oil Search: PNG Government Exit Enhances M&A Appeal to Oil Majors
By
Adam Routh
Sept. 22, 2017 12:14 a.m. ET

The proposed sale by the Papua New Guinea (PNG) government of its remaining stake in Oil Search (OSH.AU) enhances the appeal of the Australian-listed liquefied natural gas supplier as an M&A target,  according to analysts.

The Australian Financial Reviewreported on Thursday that UBS and JPMorgan are offering 31.3 million Oil Search shares via a block trade at a floor price of AUD6.55 a share, a 3.8% discount to the last closing price of AUD6.81 a share.  The 2.1% stake is the last remaining of the almost 10% stake that the PNG government acquired in 2014, financed by a AUD1.2 billion loan from UBS, which was later refinanced by UBS and JPMorgan.  Facing cash flow problems, the PNG government terminated the funding agreement, which has led to the sale of the remaining shares. The PNG government will no longer be on Oil Search's share register following the sale.

Bernstein analyst Neil Beveridge, who has an outperform rating and a AUD7.9 a share target price on the stock, says the PNG closing out its stake makes Oil Search a more attractive M&A target for oil majors. "The most obvious acquirer would be Total / Exxon given their involvement in PNG LNG and Elk Antelope,' says Beveridge.

Goldman Sachs analysts Mark Wiseman and Marcus Chu, who have a Buy rating and also have a target price of AUD7.90 a share, agree:

We rank OSH as the most attractive M&A target in the Asia Pacific Upstream energy sector, and the exit of the PNG government enhances this appeal. We also estimate that the floor price in this last block implies an oil price of US$42/bbl.

Oil Search shares are up half a percent in mid-afternoon trading in Sydney at AUD6.85 a share. They are down 4.6% year-to-date.