Santos has signed a binding sale agreement to divest a 2.6% stake in the $19bn PNG LNG project in Papua New Guinea (PNG) to its partner Kumul Petroleum for a price of around $736m.

The consideration is made up of a cash payment of $576m and the assumption of nearly $160m of project finance debt by Kumul Petroleum, which is the national oil and gas company in PNG.

Through the deal, Kumul Petroleum will increase its stake in the PNG LNG project to 19.4%. Santos will reduce its stake from 42.5% to 39.9%.

The oil and gas company has also been granted a call option to acquire a further stake of 2.4% in the liquefied natural gas (LNG) project located near Port Moresby. This will be for a price of $524m to be paid in cash alongside a proportionate share of project finance debt.

If taken, the call option will take Kumul Petroleum’s stake in the PNG LNG project to 21.8%, while Santos’ ownership will come down to 37.5%.

The LNG project, which entered into operations in 2014, is capable of producing over eight million tonnes per annum (MTPA).

Kumul Petroleum managing director Wapu Sonk said: “The PNG LNG Project is a mature, profitable and de-risked petroleum project that has consistently operated above its nameplate capacity and which has many more years of commercial life left as additional gas fields are brought on line.”

The call option must be executed no later than 30 June 2024. It will be contingent upon the fulfillment of the sale agreement, which includes the satisfaction of standard conditions such as obtaining required regulatory approvals and third-party consents.

The sale agreement follows the binding conditional offer from Kumul Petroleum in September 2022 to Santos for acquiring a 5% stake in the LNG project.

Santos announced that both the offer and the exclusivity agreements with Kumul Petroleum have lapsed. The financial terms and the effective date of 31 December 2022, for the newly disclosed transactions align with the terms of the earlier offer, which includes the transfer of project finance debt.

Santos managing director and CEO Kevin Gallagher said: “This re-structured transaction is a pragmatic solution that provides a clear pathway to completion and builds our strategic alignment with Kumul and our long friendship with PNG, where Santos has been a committed corporate citizen for over 40 years.”