Takeover interest in Australia’s Santos, a company that not long ago was drowning in debt, shines a spotlight on a burgeoning hotspot for oil and gas producers: Papua New Guinea.

The South Pacific nation, one of the world’s least explored countries but known for corruption and violence, has become a key source of growth for two of the world’s biggest energy companies – ExxonMobil Corp and Total SA – looking to expand their liquefied natural gas (LNG) businesses.

With oil and gas LNG-AS prices recovering this year and LNG demand especially in China skyrocketing, investors are scouring the globe for juicy investments, and Papua New Guinea has landed on their radar.

Now private equity wants to get in on the game, with U.S.-based Harbour Energy eyeing a bid for Santos Ltd, Australia’s no.2 independent gas producer, which has a 13.5 percent stake in ExxonMobil’s Papua New Guinea LNG project (PNG LNG).

“As an acquisition, the prize jewels in Santos are its stakes in PNG LNG,” said Saul Kavonic of energy consultancy Wood Mackenzie.

Investors are attracted by Papua New Guinea’s high-yielding gas fields, with the gas rich in liquids that generate extra revenue, and easily exported to North Asia’s booming markets as LNG on tankers.

Costs are low, a key to grabbing the next leg of growth in the LNG market, as plants in Australia and the United States flood the market with new supply.

Santos is not the only company to have caught the attention of investors because of its Papua New Guinea assets.

Oil Search limited, ExxonMobil’s partner in PNG, fended off an $8 billion approach from Australia’s biggest energy company, Woodside Petroleum, two years ago, around the same time Santos rebuffed a bid from a fund backed by the royal families of Brunei and the United Arab Emirates.

ExxonMobil sealed its dominance in the country by taking over InterOil, another PNG player, for $2 billion earlier this year after trumping a bid from Total and Oil Search.

Regrouping after Santos spurned an A$9.5 billion ($7.2 billion) approach, Harbour Energy may have to pay more than A$11 billion to snare its target in what would be one of the biggest oil and gas deals since Royal Dutch Shell took over BG Group to become the world’s biggest listed LNG producer.

Santos was in deep trouble just a few years ago, struggling with high debt and low oil and gas prices. But asset sales, debt reduction and cost-cutting have led it back to health.

Some analysts now say a bid even at A$11 billion would be too low, in part due to its production costs, to which Papua New Guinea contributes.

“The company has been a turnaround story. By selling down poorly performing assets and driving efficiencies, management has brought down breakeven production costs an incredible 32 percent to $32 per barrel,” said Cai Lewis, senior adviser at ASR Wealth Advisers.

Current Brent crude oil prices are above $60 per barrel.

Based on that, Lewis said an A$11 billion offer would be “too cheap”.

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