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Oil Search Limited shares fall on US$400 million acquisition news

The Oil Search Limited (ASX: OSH) share price lost 2 per cent this morning, despite the LNG producer announcing it has tied up a US$400 million deal to buy a number of oil fields in Alaska.

Management boasted the deal had been made at an “attractive time” in the cycle at a purchase price equivalent to US$1.3 per barrel, which “compares favourably to global benchmarks”.

The leases negotiated across the oil fields are estimated to contain 500 million barrels of oil equivalent, with the possibility of material upside, depending on further appraisal drilling among other factors.

The deal also diversifies Oil Search’s leverage away from its lucrative PNG-based LNG producing fields that are its flagships assets that underpin the investment case.

Management reported that it has enough balance sheet strength to fund the deal without the need to raise capital or impact other upcoming capital expenditure commitments. Dividends are also expected to remain unaffected.

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Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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