Aug. 25 (Bloomberg) -- Oil Search Ltd., a partner in the Exxon Mobil Corp.-led $12.5 billion liquefied natural gas project in Papua New Guinea, rose in Sydney trading after saying its talks to sell a stake in the venture were “advanced.” Oil Search climbed 4.3 percent to A$6.05 in Sydney, the highest close since June 11. The benchmark S&P/ASX 200 Index dropped 0.5 percent. Discussions to sell 3.5 percent of the venture to Abu Dhabi’s International Petroleum Investment Corp. are nearing completion, the Port Moresby-based company said today as it announced earnings. A 3 percent interest in the project may be worth about $500 million, JPMorgan Chase & Co. said in a May report. The deal would ease any lingering concerns that Oil Search may have to sell shares to help fund its portion of costs in the Exxon-led plant and make more cash available for gas exploration to support an expansion of the venture to three production units. “The biggest thing would be the flagged sell-down in the project -- there was a concern that they might raise equity,” Jason Mabee, analyst for Royal Bank of Scotland Group Plc, said from Sydney. “Now they are going to crystallize some value and bring some funding in the door to help fund the existing project and start the foundation work for train three.” Exxon, based in Irving, Texas, owns 41.5 percent of the venture, Oil Search 34 percent, Adelaide-based Santos Ltd. 17.7 percent and Tokyo-based Nippon Oil Corp. 5.4 percent, Santos said in a May statement. Oil Search is making “very good progress” in arranging financing for its share of the project and may tap the bond market for funds, said Phil Bainbridge, executive general manager for LNG. Oil Search gave no financial details of its talks with the Abu Dhabi-based company. Construction Next Year A final development decision for the venture is expected in late 2009, with full construction commencing in early 2010, Oil Search Managing Director Peter Botten said today. More gas is needed to support a third production unit at the planned LNG plant, Botten said on a conference call. Exploration in Papua New Guinea will be “aggressive” next year to find additional resources, said Philip Caldwell, Oil Search’s executive general manager for oil operations. The company will spend $5 million over two years on seven exploration licenses won in Papua New Guinea to assess potential production from coal seams, Oil Search said in a separate statement. The gas may be used at an expanded Exxon-LNG venture, Botten said. Exxon and its partners plan a two-production-unit gas liquefaction plant near Port Moresby, with a capacity to produce 6.3 million metric tons of LNG a year. Competing Projects A third production unit, with a capacity of 3.15 million tons a year, could come on stream by around 2017 assuming a final investment decision is made about a year after the project start-up, UBS analysts led by Melbourne-based Gordon Ramsay said in June. Royal Dutch Shell Plc and ConocoPhillips are among companies proposing more than 12 LNG projects in Australia and Papua New Guinea, competing for multiyear contracts from Asian buyers and seeking to tap rising demand for cleaner-burning fuels. Not all of the ventures will be built, Botten said. “There are just too may projects to get up in the timeframe that is being touted for them,” Botten said. “It is a competitive environment.” First-half net income fell 87 percent to $35.6 million after a drop in crude prices and the sale of fields in the Middle East and North Africa, Oil Search said today. The figure for profit excluding one-time items was also $35.6 million, a drop of 73 percent, and better than the $29 million market consensus cited by Credit Suisse AG. First-half sales slumped 60 percent to $185.1 million, Oil Search said. The forecast for full-year output remains unchanged at 8 million to 8.3 million barrels of oil equivalent, it said. Oil Search last year sold interests in Egypt and Yemen, reducing output, to help fund its share of the LNG project. Oil in New York has dropped 50 percent from the record $147.27 a barrel reached in July last year.

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