BHP sells Buffalo stake to InterOil

Resources group BHP Ltd said today it has sold its half share in the Buffalo oil field in the Timor Sea north of Australia to InterOil Corp for US$21 million (A$40 million).

The move marked the latest step in BHP Petroleum's effort to focus on deepwater developments in the U.S. Gulf of Mexico, gas commercialisation in the Northwest Shelf and Bass Strait off Australia, and new fields in North Africa and the Middle East.

And for InterOil, focused on building a refinery and exploring for oil in Papua New Guinea, the stake in Buffalo would give it access to cash flow two years earlier than it had expected.

BHP shares were down 10 cents or 0.5 per cent at 12:08pm (0108 GMT) at A$19.42 following a three per cent gain yesterday, while InterOil shares jumped 5.9 per cent in light volume to 90 cents, a fresh high.

BHP, operator of the field, said the sale was subject to a right of first refusal from its joint venture partner, Canadian group Nexen Petroleum Australia Pty Ltd, and approval from the Western Australian government.


The small Buffalo field started pumping last December and in the September quarter this year contributed to a 17 per cent increase in BHP's oil and condensate production. Producing about 20,000 barrels per day of light sweet crude, it was rated as the fourth largest producing field in Australia in the first half of 2000.

"It's a good asset in the sense it's contributing significantly to our NOPAT. But it's relatively small in the scheme of things," said BHP Petroleum spokesman Malcolm Garratt, referring to net operating profit after tax.

Buffalo is expected to continue producing to the end of 2002, but based on independent studies InterOil said it might be able to boost production and the field's reserves, first booked at about 20 million barrels, by drilling more development wells.

"The acquisition of the Buffalo oil field will be funded from existing cash reserves and generates immediate cash flow for InterOil two years earlier than anticipated by our shareholders," InterOil chairman and CEO Phil Mulacek said.

"It also provides a lower risk implementation of our strategy to move into upstream production and create a fully integrated oil company," he said in a statement.